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BLACKROCK MQE INVESTORS
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SEMI-ANNUAL REPORT
JUNE 30, 1998 (UNAUDITED)
<PAGE>
BLACKROCK MQE INVESTORS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
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ASSETS
Repurchase agreement dated 06/30/98 with State
Street Bank and Trust, Co., 5.25%
due 07/01/98, collateralized by $375,000
United States Treasury Notes,
6.50% due 08/31/01 (market value $392,632)
(repurchase proceeds $380,055) (cost $380,000) $ 380,000
Cash (Including cash held in foreign banks of $4,467) 8,885
Other assets 55
----------
Total assets 388,940
----------
LIABILITIES
Accrued expenses 3,946
----------
Total liabilities 3,946
----------
NET INVESTMENT ASSETS $ 384,994
==========
Net assets were comprised of:
Common units of beneficial interest,
at par (Note 5) $ 466
Preferred units (100 units issued and
outstanding) at par (Note 5) 50,000
----------
50,466
Accumulated net investment income 2,623,072
Accumulated net realized loss (2,288,512)
Depreciation on foreign currency (32)
----------
Total net investment assets $ 384,994
==========
Net assets applicable to common unitholders $ 334,994
==========
Net asset value per common unit ($334,994 divided by 46,580
common units issued and outstanding) $ 7.19
======
Total units outstanding at end of period 46,580
======
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See Notes to Financial Statements.
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BLACKROCK MQE INVESTORS
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
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NET INVESTMENT INCOME
Investment income (net of interest expense of $2,480) $ 17,781
---------
Expenses
Organization expenses (Note 1) 84,330
Legal 12,400
Directors 10,900
Administration/Custody/Transfer Agent 9,800
Audit and Tax 4,220
Miscellaneous 2,627
---------
Total expenses 124,277
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Net investment loss (106,496)
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON
FOREIGN CURRENCY (NOTE 1)
Net realized gain on foreign currency 51
Net change in unrealized depreciation
on foreign currency (54)
---------
Net realized and unrealized loss (3)
---------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(106,499)
=========
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See Notes to Financial Statements.
<PAGE>
BLACKROCK MQE INVESTORS
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
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<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED JUNE 30, 1998 DECEMBER 31, 1997
-------------------- ------------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
<S> <C> <C>
Net investment income (loss) $(106,496) $ 17,878,447
Net realized gain (loss) 51 (2,288,563)
Net change in unrealized appreciation (depreciation) (54) 1,604,630
--------- ------------
Net increase (decrease) in net assets resulting
from operations (106,499) 17,194,514
--------- ------------
Dividends and distributions to common unitholders from:
Net investment income -- (15,883,335)
Return of capital -- (46,579,534)
--------- ------------
Total dividends and distributions to common unitholders -- (62,462,869)
--------- ------------
Net decrease (106,499) (45,268,355)
NET INVESTMENT ASSETS
Beginning of period 491,493 45,759,848
--------- -----------
End of period $ 384,994 $ 491,493
========= ===========
</TABLE>
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See Notes to Financial Statements.
<PAGE>
BLACKROCK MQE INVESTORS
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
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INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received, net $ 17,879
Expenses paid (636,736)
Net realized gain from foreign currency transactions 51
---------
Net cash flows used for operating activities (618,806)
---------
Cash flows provided by investing activities:
Sale of repurchase agreements, net 620,000
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Net cash flows provided by investing activities 620,000
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Net increase in cash 1,194
Cash, beginning of period 7,691
Cash, end of period $ 8,885
=========
RECONCILIATION OF NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net decrease in net assets resulting from operations $(106,499)
---------
Net unrealized depreciation 54
Decrease in accrued expenses and other liabilities (596,905)
Decrease in prepaid and other assets 84,544
---------
Total adjustments (512,307)
Net cash flows used for operating activities $(618,806)
=========
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See Notes to Financial Statements.
<PAGE>
BLACKROCK MQE INVESTORS
FINANCIAL HIGHLIGHTS (UNAUDITED)
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<TABLE>
<CAPTION>
FOR THE YEAR NOVEMBER 1, 1996*
FOR THE SIX MONTHS ENDED THROUGH
ENDED JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
-------------------- ------------------ -------------------
PER COMMON UNIT OPERATING
PERFORMANCE:
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.48 $ 981.32 $ 1,000.00
------- --------- ----------
Net investment income (loss) (a) (2.29) 383.82 15.77
Net realized and unrealized loss (a) -- (14.68) (34.45)
------- --------- ----------
Net increase (decrease) from investment operations (2.29) 369.14 (18.68)
------- --------- ----------
Less dividends and distributions to common unitholders:
Net investment income -- (340.99) --
Return of Capital -- (999.99) --
-- --------- --
Net decrease from distributions to common unitholders -- (1,340.98) --
-- --------- --
Net asset value, end of period $ 7.19 $ 9.48 $ 981.32
======= ========= ==========
TOTAL INVESTMENT RETURN (B) (24.16)% 37.61% (1.87)%
RATIOS TO AVERAGE NET ASSETS (C):
Expenses 66.42%(d) 1.25% 1.33%(d)
Net investment income (56.92%(d) 39.00% 9.46%(d)
SUPPLEMENTAL DATA:
Average net assets of common unitholders (in thousands) $377 $45,845 $46,580
Portfolio turnover 0% 0% 0%
Net assets of common unitholders, end of period (in thousands) $335 $441 $45,710
Asset coverage per preferred unit, end of period (in thousands) $4 $5 $458
Preferred units outstanding (in thousands) $50 $50 $50
</TABLE>
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(a) Calculated based on average units.
(b) Total investment return is calculated assuming a purchase of a common units
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.
Distributions 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) 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.
(d) Annualized.
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 periods indicated.
This information has been determined based upon financial information
provided in the financial statements.
* Commencement of investment operations.
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See Notes to Financial Statements.
<PAGE>
BLACKROCK MQE INVESTORS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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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 is 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 was organized to invest in subordinated debentures and 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.
The following is a summary of significant accounting policies followed by
the Trust.
INVESTMENT VALUATION: Regarding the Trust's assets for which market quotations
are not readily available, the Trust will value such investments at estimated
fair value which is generally defined as the amount for which the investment or
asset could be sold in an orderly disposition over a reasonable period of time
taking into account the nature of the investment or the asset.
In determining estimated fair value, the Trust will consider all factors
that reasonably appear to be relevant including, but not limited to, (i) the
type of investment or asset, (ii) maturity and duration, (iii) liquidity, (iv)
size of holding, (v) market value of the same or similar investments or assets
that are readily marketable, (vi) reports by analysts or appraisers, and (vii)
information as to recent transactions in the same or similar investments or
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
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
<PAGE>
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.
Forward currency contracts, when used by the Trust, help to manage the
overall exposure to the foreign currency backing the warrants 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.
There were no forward currency contracts open at June 30, 1998.
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, 1998 was US$1.00 to
UK (BRITISH POUND) 0.5989.
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.
DISTRIBUTIONS: The Trust makes distributions first from net investment income,
then from realized short-term capital gains and other sources, and lastly from
paid-in capital. 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. As of June 30, 1998, the amortization of
these costs have been accelerated, bringing the balance to zero.
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. INVESTMENTS
On November 1, 1996 and November 5, 1996, the Trust purchased Subordinated
Debt and Warrants of Annington Finance and Annington Homes Limited ("AHL") for
$45,372,600 and
<PAGE>
$1,112,366, respectively. The Warrants represent 16.07% of the total Warrants
issued by AHL. Each Warrant is convertible into one share of common stock. At
June 30, 1998, BlackRock Financial Management, Inc., in accordance with the
Trust's Investment Valuation policies regarding investments for which market
quotations are not readily available, have valued the Warrants at $0.
NOTE 3. PORTFOLIO SECURITIES
For the six months ended June 30, 1998, there were no purchases or sales of
investment securities, other than short-term investments. The federal income tax
basis of the investments at June 30, 1998 was substantially the same as the
basis for financial reporting.
NOTE 4. 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 5. 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 December 31, 1997, all of the
capital commitments from investors had been called and received. As of June 30,
1998, only the par value was outstanding.
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 of $500 per share plus any accumulated but unpaid dividends.
Dividends are cumulative and are paid when, as and if declared by the Trustees,
at an annual rate of 10%.
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, MANAGING DIRECTOR
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
The accompanying financial statements as of June 30, 1998 were not audited and
accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
BLACKROCK MQE INVESTORS
Two Heritage Drive
North Quincy, MA 02171
