UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: | 811-21280 |
The BlackRock Preferred Opportunity Trust |
(Exact name of registrant as specified in charter) |
100 Bellevue Parkway, Wilmington, DE | 19809 | |
(Address of principal executive offices) | (Zip code) |
Robert S. Kapito, President |
The BlackRock Preferred Opportunity Trust |
40 East 52nd Street, New York, NY 10022 |
(Name and address of agent for service) |
Registrant's telephone number, including area code: | 888-825-2257 |
Date of fiscal year end: | December 31, 2004 |
Date of reporting period: | June 30, 2004 |
Item 1. Reports to Shareholders.
The Trust's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under
the Investment Company Act of 1940 is as follows:
FIXED INCOME LIQUIDITY EQUITIES ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock
Closed-End Funds
Semi-Annual Report
JUNE 30, 2004 (UNAUDITED)
BlackRock Advantage Term Trust (BAT)
BlackRock Investment Quality Term Trust (BQT)
BlackRock Preferred Opportunity Trust (BPP)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
TABLE OF CONTENTS
Letter to Shareholders | 1 |
Trusts’ Summaries | 2 |
Portfolios of Investments | 5 |
Financial Statements | |
Statements of Assets and Liabilities | 15 |
Statements of Operations | 16 |
Statements of Cash Flows | 17 |
Statements of Changes in Net Assets | 18 |
Financial Highlights | 19 |
Notes to Financial Statements | 22 |
Dividend Reinvestment Plans | 29 |
Additional Information | 30 |
Privacy Principles of the Trusts
The Trusts are committed to maintaining the privacy of shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Trusts collect, how we protect that information and why, in certain cases, we may share information with select other parties.
Generally, the Trusts do not receive any non-public personal information relating to their shareholders, although certain non-public personal information of shareholders may become available to the Trusts. The Trusts do not disclose any non-public personal information about their shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator).
The Trusts restrict access to non-public personal information about their shareholders to BlackRock employees with a legitimate business need for the information. The Trusts maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of their shareholders.
LETTER TO SHAREHOLDERS
June 30, 2004
Dear Shareholder:
We are pleased to report that during the semi-annual period, the Trusts provided the opportunity to invest in various portfolios of fixed income securities. This report contains the Trusts’ unaudited financial statements and a listing of the portfolios’ holdings.
The portfolio management team continuously monitors the fixed income markets and adjusts the portfolios in order to gain exposure to various issuers and security types. This strategy enables the Trusts to move among different sectors, credits and coupons to capitalize on changing market conditions.
The following table shows the Trusts’ yields, closing market prices per share and net asset values (“NAV”) per share as of June 30, 2004.
Trust | Yield1 | Market Price | NAV | |||
BlackRock Advantage Term Trust (BAT) | 6.35 | % | $11.02 | $11.11 | ||
BlackRock Investment Quality Term Trust (BQT) | 0.00 | 9.76 | 9.81 | |||
BlackRock Preferred Opportunity Trust (BPP) | 9.03 | 22.15 | 24.83 | |||
1Yield is based on market price.
BlackRock, Inc. (“BlackRock”), a world leader in asset management, has a proven commitment to managing fixed income securities. As of June 30, 2004, BlackRock managed $222 billion in bonds, including 19 open-end and 47 closed-end bond funds. BlackRock is recognized for its emphasis on risk management and proprietary analytics and for its reputation managing money for the world’s largest institutional investors. BlackRock Advisors, Inc., and its affiliate, BlackRock Financial Management are wholly owned subsidiaries of BlackRock, Inc.
On behalf of BlackRock, we thank you for your continued confidence and assure you that we remain committed to excellence in managing your assets.
Sincerely,
Laurence D. Fink Chief Executive Officer BlackRock Advisors, Inc. |
|
1
CONSOLIDATED TRUST SUMMARIES (unaudited)
JUNE 30, 2004
BlackRock Advantage Term Trust (BAT)
Trust Information
Symbol on New York Stock Exchange: | BAT | |
Initial Offering Date: | April 27, 1990 | |
Termination Date (on or shortly before): | December 31, 2005 | |
Closing Market Price as of 6/30/04: | $11.02 | |
Net Asset Value as of 6/30/04: | $11.11 | |
Yield on Closing Market Price as of 6/30/04 ($11.02):1 | 6.35 | % |
Current Monthly Distribution per Share:2 | $0.058333 | |
Current Annualized Distribution per Share:2 | $0.699996 | |
1 Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price.
2 The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust’s market price and NAV:
6/30/04 | 12/31/03 | Change | High | Low | ||
Market Price | $11.02 | $11.30 | (2.48 | )% | $11.47 | $10.97 |
NAV | $11.11 | $11.40 | (2.54 | )% | $11.48 | $11.06 |
The following chart shows the asset composition of the Trust’s long-term investments:
Sector Breakdown
Composition | June 30, 2004 | December 31, 2003 | ||
Agency Zero Coupon Bonds | 73 | % | 72 | % |
Stripped Money Market Instruments | 7 | 7 | ||
Taxable Municipal Bonds | 5 | 5 | ||
Corporate Bonds | 4 | 4 | ||
Agency Multiple Class Mortgage Pass-Throughs | 3 | 4 | ||
Principal Only Mortgage-Backed Securities | 2 | 2 | ||
Commercial Mortgage-Backed Securities | 2 | 2 | ||
U.S. Government and Agency Securities | 2 | 1 | ||
Inverse Floating Rate Mortgages | 1 | 1 | ||
Interest Only Mortgage-Backed Securities | 1 | 1 | ||
Mortgage Pass-Throughs | — | 1 | ||
2
CONSOLIDATED TRUST SUMMARIES (unaudited)
JUNE 30, 2004
BlackRock Investment Quality Term Trust (BQT)
Trust Information
Symbol on New York Stock Exchange: | BQT | |
Initial Offering Date: | April 21, 1992 | |
Termination date (on or about): | December 31, 2004 | |
Closing Market Price as of 6/30/04: | $9.76 | |
Net Asset Value as of 6/30/04: | $9.81 | |
Yield on Closing Market Price as of 6/30/04 ($9.76):1 | 0.00 | % |
Current Monthly Distribution per Share: | $0.00 | |
Current Annualized Distribution per Share: | $0.00 | |
1 Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price.
The table below summarizes the changes in the Trust’s market price and NAV:
6/30/04 | 12/31/03 | Change | High | Low | ||
Market Price | $9.76 | $9.62 | 1.46 | % | $9.78 | $9.59 |
NAV | $9.81 | $9.65 | 1.66 | % | $9.83 | $9.61 |
The following chart shows the asset composition of the Trust’s long-term investments:
Sector Breakdown
Composition | June 30, 2004 | December 31, 2003 | ||
Agency Multiple Class Mortgage Pass-Throughs | 41 | % | 34 | % |
Corporate Bonds | 20 | 16 | ||
U.S. Government and Agency Securities | 13 | 13 | ||
Stripped Money Market Instruments | 13 | 10 | ||
Non-Agency Multiple Class Mortgage Pass-Throughs | 3 | 11 | ||
Mortgage Pass-Throughs | 2 | 3 | ||
Commercial Mortgage-Backed Securities | 2 | 2 | ||
Foreign Government Bonds | 2 | 1 | ||
Taxable Municipal Bonds | 2 | 6 | ||
Federal Housing Administration | 1 | 1 | ||
Interest-Only Mortgage-Backed Securities | 1 | 2 | ||
Inverse Floating Rate Mortgages | — | 1 | ||
3
TRUST SUMMARIES (unaudited)
JUNE 30, 2004
BlackRock Preferred Opportunity Trust (BPP)
Trust Information
Symbol on New York Stock Exchange: | BPP | |
Initial Offering Date: | February 28, 2003 | |
Closing Market Price as of 6/30/04: | $22.15 | |
Net Asset Value as of 6/30/04: | $24.83 | |
Yield on Closing Market Price as of 6/30/04 ($22.15):1 | 9.03 | % |
Current Monthly Distribution per Share:2 | $0.166667 | |
Current Annualized Distribution per Share:2 | $2.000004 | |
1 Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price.
2 The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust’s market price and NAV:
6/30/04 | 12/31/03 | Change | High | Low | ||
Market Price | $22.15 | $24.83 | (10.79 | )% | $25.50 | $21.25 |
NAV | $24.83 | $25.58 | (2.93 | )% | $26.48 | $24.18 |
The following charts show the asset composition and credit quality allocations of the Trust’s long-term investments:
Sector Breakdown
Composition | June 30, 2004 | December 31, 2003 | ||
Finance & Banking | 64 | % | 63 | % |
Energy | 11 | 13 | ||
Real Estate | 10 | 9 | ||
Telecommunications | 2 | 2 | ||
Consumer Products | 2 | 2 | ||
Media | 2 | 2 | ||
Transportation | 1 | 1 | ||
Conglomerates | 1 | 1 | ||
Automotive | 1 | 1 | ||
Other | 6 | 6 | ||
Credit Breakdown1
Credit Rating | June 30, 2004 | December 31, 2003 | ||
AAA/Aaa | 1 | % | 1 | % |
AA/Aa | 16 | 16 | ||
A | 29 | 32 | ||
BBB/Baa | 35 | 30 | ||
BB/Ba | 7 | 8 | ||
B | 11 | 12 | ||
CCC | 1 | — | ||
Not Rated | — | 1 | ||
1 Using the higher of Standard & Poor’s (“S&P”), Moody’s Investors Service (“Moody’s”) or Fitch Ratings (“Fitch”) rating.
4
CONSOLIDATED PORTFOLIO OF INVESTMENTS (unaudited)
JUNE 30, 2004
BlackRock Advantage Term Trust (BAT)
Principal | ||||||
Amount | ||||||
Rating1 | (000) | Description | Value | |||
LONG-TERM INVESTMENTS—123.9% | ||||||
Mortgage Pass-Throughs—0.5% | ||||||
Federal Home Loan Mortgage Corp., | ||||||
$ | 168 | 6.50%, 8/01/25 - 10/01/25 | $ | 176,405 | ||
4 | 9.50%, 1/01/05 | 4,291 | ||||
1 | Federal National Mortgage Assoc., 9.50%, 7/01/20 | 1,390 | ||||
349 | Government National Mortgage Assoc., 8.00%, 1/15/26 - 7/15/27 | 383,053 | ||||
Total Mortgage Pass-Throughs | 565,139 | |||||
Agency Multiple Class Mortgage Pass-Throughs—3.9% | ||||||
3,837 | Federal Home Loan Mortgage Corp., Ser. 2778, Class CZ, 5.00%, 11/15/33 | 3,841,070 | ||||
Federal National Mortgage Assoc., | ||||||
68 | Ser. 10, Class V, 7.00%, 7/25/13 | 67,810 | ||||
157 | Ser. 43, Class E, 7.50%, 4/25/22 | 162,873 | ||||
Total Agency Multiple Class Mortgage Pass-Throughs | 4,071,753 | |||||
Inverse Floating Rate Mortgages—0.7% | ||||||
Federal Home Loan Mortgage Corp., | ||||||
240 | 2 | Ser. 1621, Class SH, 12.14%, 11/15/22 | 247,205 | |||
41 | 2 | Ser. 2713, Class SJ, 13.093%, 12/15/33 | 40,815 | |||
406 | 2 | Federal National Mortgage Assoc., Ser. 190, Class S, 22.197%, 11/25/07 | 482,526 | |||
Total Inverse Floating Rate Mortgages | 770,546 | |||||
Interest Only Mortgage-Backed Securities—0.7% | ||||||
Federal Home Loan Mortgage Corp., | ||||||
150 | Ser. 1543, Class VU, 4/15/23 | 24,469 | ||||
252 | Ser. 1588, Class PM, 9/15/22 | 12,721 | ||||
5,175 | Ser. 2543, Class IJ, 10/15/12 | 364,604 | ||||
2,717 | Ser. 2620, Class WI, 4/15/33 | 237,801 | ||||
Federal National Mortgage Assoc., | ||||||
234 | Ser. 188, Class VA, 3/25/13 | 8,240 | ||||
576 | Ser. 194, Class PV, 6/25/08 | 22,908 | ||||
193 | Ser. 223, Class PT, 10/25/23 | 17,339 | ||||
Total Interest Only Mortgage-Backed Securities | 688,082 | |||||
Principal Only Mortgage-Backed Securities—2.1% | ||||||
AAA | 12 | Collateralized Mortgage Obligation Trust, Ser. 29, Class A, 5/23/17 | 10,369 | |||
Federal National Mortgage Assoc., | ||||||
1,444 | Ser. 193, Class E, 9/25/23 | 1,054,194 | ||||
1,406 | Ser. 225, Class ME, 11/25/23 | 1,180,435 | ||||
Total Principal Only Mortgage-Backed Securities | 2,244,998 | |||||
Commercial Mortgage-Backed Securities—2.0% | ||||||
AAA | 2,000 | 3 | New York City Mortgage Loan Trust, Multi-Family, Class A2, 6.75%, 6/25/11 | 2,146,565 | ||
Asset-Backed Securities—0.0% | ||||||
NR | 397 | 2,3,4,5 | Global Rated Eligible Asset Trust, Ser. A, Class A1, 7.33%, 9/15/07 | 7,937 | ||
NR | 850 | 2,4,5 | Structured Mortgage Asset Residential Trust, Ser. 3, 8.724%, 4/15/06 | 8,497 | ||
Total Asset-Backed Securities | 16,434 | |||||
U.S. Government and Agency Zero Coupon Bonds—90.0% | ||||||
12,407 | Aid to Israel, 2/15/05 - 8/15/05 | 12,175,611 | ||||
11,026 | Financing Corp. (FICO) Strips, 12/06/05 | 10,614,664 | ||||
Government Trust Certificates, | ||||||
5,220 | Israel, Ser. 2F, 5/15/05 | 5,116,910 | ||||
13,760 | Turkey, Ser. T-1, 5/15/05 | 13,488,254 | ||||
22,926 | 6 | Resolution Funding Corp., 7/15/05 | 22,448,680 | |||
6,216 | Tennessee Valley Authority, 11/01/05 | 5,999,870 | ||||
U.S. Treasury Strips, | ||||||
18,000 | 6 | 8/15/05 | 17,567,316 | |||
8,000 | 11/15/05 | 7,747,592 | ||||
Total U.S. Government and Agency Zero Coupon Bonds | 95,158,897 | |||||
See Notes to Financial Statements.
5
BlackRock Advantage Term Trust (BAT) (continued)
Principal | ||||||||
Amount | ||||||||
Rating1 | (000) | Description | Value | |||||
Corporate Bonds—5.4% | ||||||||
Energy—1.0% | ||||||||
BBB+ | $ | 1,000 | 3 | Israel Electric Corp., Ltd., 7.25%, 12/15/06 (Israel) | $ | 1,070,560 | ||
Finance & Banking—2.0% | ||||||||
AA+ | 950 | Citigroup, Inc., 5.75%, 5/10/06 | 995,325 | |||||
NR | 1,104 | 3 | Equitable Life Assurance Society, zero coupon, 12/01/04 - 12/01/05 | 1,053,425 | ||||
2,048,750 | ||||||||
Telecommunications—1.0% | ||||||||
A | 1,000 | Alltel Corp., 7.50%, 3/01/06 | 1,070,010 | |||||
Transportation—1.4% | ||||||||
NR | 1,506 | Union Pacific Corp., zero coupon, 11/01/04 - 5/01/05 | 1,467,074 | |||||
Total Corporate Bonds | 5,656,394 | |||||||
U.S. Government and Agency Securities—2.8% | ||||||||
372 | Small Business Investment Companies, Ser. P10A, Class 1, 6.12%, 2/01/08 | 390,729 | ||||||
U.S. Treasury Notes, | ||||||||
1,450 | 6 | 3.50%, 11/15/06 | 1,468,748 | |||||
1,150 | 6 | 4.00%, 2/15/14 | 1,095,916 | |||||
Total U.S. Government and Agency Securities | 2,955,393 | |||||||
Taxable Municipal Bonds—6.4% | ||||||||
AAA | 1,000 | Alameda Cnty. California Pension Oblig., zero coupon, 12/01/05 | 957,770 | |||||
AAA | 1,000 | Alaska Energy Auth., zero coupon, 7/01/05 | 982,770 | |||||
Aaa | 1,100 | Kern Cnty. California Pension Oblig., zero coupon, 8/15/04 - 8/15/05 | 1,064,596 | |||||
Long Beach California Pension Oblig., | ||||||||
NR | 1,102 | zero coupon, 9/01/04 - 9/01/05 | 1,065,072 | |||||
AAA | 500 | 7.09%, 9/01/09 | 564,571 | |||||
Los Angeles Cnty. California Pension Oblig., | ||||||||
Aaa | 68 | zero coupon, 12/31/04 - 6/30/05 | 66,346 | |||||
Aaa | 1,000 | 6.77%, 6/30/05 | 970,110 | |||||
AAA | 1,000 | 8.62%, 6/30/06 | 1,109,474 | |||||
Total Taxable Municipal Bonds | 6,780,709 | |||||||
Stripped Money Market Instruments—9.4% | ||||||||
NR | 10,000 | Vanguard Prime Money Market Portfolio, 12/31/04 | 9,899,000 | |||||
Total Investments—123.9% (cost $121,453,485) | 130,953,910 | |||||||
Liabilities in excess of other assets—(23.9)% | (25,244,071 | ) | ||||||
Net Assets—100% | $ | 105,709,839 | ||||||
1 Using the higher of S&P’s, Moody’s or Fitch’s rating.
2 Security interest rate is as of June 30, 2004.
3 Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2004, the Trust held 4.0% of its net assets, with a current market value of $4,278,487, in securities restricted as to resale.
4 Security is fair valued.
5 Illiquid securities representing 0.02% of net assets.
6 Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts.
Details of open reverse repurchase agreements are disclosed in Note 4 in the Notes to Financial Statements.
See Notes to Financial Statements.
6
CONSOLIDATED PORTFOLIO OF INVESTMENTS (unaudited)
JUNE 30, 2004
BlackRock Investment Quality Term Trust (BQT)
Principal | ||||||
Amount | ||||||
Rating1 | (000) | Description | Value | |||
LONG-TERM INVESTMENTS—85.2% | ||||||
Mortgage Pass-Throughs—2.1% | ||||||
Federal Home Loan Mortgage Corp., | ||||||
$ | 1,391 | 6.50%, 9/01/25 - 6/01/29 | $ | 1,453,537 | ||
919 | 7.00%, 12/01/28 | 973,310 | ||||
5,018 | 2 | Federal National Mortgage Assoc., 6.50%, 8/01/28 - 6/01/29 | 5,238,568 | |||
Total Mortgage Pass-Throughs | 7,665,415 | |||||
Federal Housing Administration—1.1% | ||||||
941 | GMAC Colonial Project, 7.40%, 12/01/22 | 977,375 | ||||
2,480 | GMAC Project, 7.43%, 2/01/21 | 2,579,341 | ||||
407 | USGI Project, 7.43%, 10/01/23 | 422,717 | ||||
Total Federal Housing Administration | 3,979,433 | |||||
Agency Multiple Class Mortgage Pass-Throughs—34.6% | ||||||
Federal Home Loan Mortgage Corp., | ||||||
1,071 | Ser. 2367, Class AJ, 5.71%, 11/15/29 | 1,082,051 | ||||
36 | Ser. 2396, Class PX, 6.00%, 6/15/27 | 35,973 | ||||
34 | Ser. 2450, Class GA, 6.25%, 10/15/22 | 34,024 | ||||
1,751 | Ser. 2450, Class PY, 6.00%, 9/15/17 | 1,750,595 | ||||
12,208 | 2 | Ser. 2581, Class PK, 4.00%, 5/15/10 | 12,274,084 | |||
5,483 | Ser. 2668, Class AC, 4.00%, 12/15/05 | 5,508,339 | ||||
362 | Ser. 2707, Class ZJ, 5.00%, 11/15/23 | 361,426 | ||||
634 | Ser. 2718, Class ZB, 5.00%, 11/15/31 | 632,585 | ||||
2,594 | Ser. 2721, Class Z, 5.00%, 12/15/23 | 2,589,110 | ||||
1,408 | Ser. 2724, Class AZ, 5.00%, 12/15/23 | 1,409,728 | ||||
4,180 | Ser. 2739, Class Z, 5.00%, 6/15/33 | 4,204,593 | ||||
484 | Ser. 2743, Class PZ, 4.50%, 2/15/19 | 483,090 | ||||
10,041 | Ser. 2750, Class ZL, 5.00%, 11/15/32 | 10,121,656 | ||||
2,063 | Ser. 2756, Class ZM, 5.00%, 2/15/24 | 2,065,724 | ||||
3,497 | Ser. 2764, Class ZA, 5.00%, 10/15/32 | 3,510,300 | ||||
3,703 | Ser. 2769, Class ZA, 5.00%, 9/15/32 | 3,718,147 | ||||
5,875 | Ser. 2802, Class ZN, 5.00%, 5/15/19 | 5,878,580 | ||||
Federal National Mortgage Assoc., | ||||||
32,380 | 2 | Ser. 23, Class PK, 4.00%, 3/25/10 | 32,525,115 | |||
14,272 | Ser. 31, Class ZF, 4.50%, 5/25/19 | 14,306,768 | ||||
662 | Ser. 43, Class E, 7.50%, 4/25/22 | 688,141 | ||||
774 | Ser. 47, Class PX, 5.50%, 6/25/34 | 778,805 | ||||
14,609 | Ser. 48, Class ZH, 5.00%, 6/25/19 | 14,654,492 | ||||
1,018 | Ser. 62, Class VE, 6.00%, 1/25/11 | 1,028,394 | ||||
1,000 | Ser. 76, Class CM, 4.50%, 8/25/22 | 1,010,030 | ||||
703 | Ser. 111, Class LZ, 5.50%, 9/25/33 | 703,864 | ||||
2,881 | Ser. 122, Class ZC, 4.50%, 12/25/18 | 2,881,797 | ||||
566 | Government National Mortgage Assoc., Ser. 13, Class KB, 6.00%, 8/16/29 | 567,155 | ||||
Total Agency Multiple Class Mortgage Pass-Throughs | 124,804,566 | |||||
Non-Agency Multiple Class Mortgage Pass-Throughs—2.9% | ||||||
Countrywide Home Loans, Inc., | ||||||
AAA | 404 | Ser. 21, Class A2, 5.75%, 11/25/17 | 405,214 | |||
AAA | 7,883 | Ser. 25, Class 1A3, 6.125%, 1/25/32 | 7,925,732 | |||
AAA | 78 | First Horizon Asset Securities Inc., Ser. 7, Class 2A1, 5.25%, 12/25/17 | 78,384 | |||
AAA | 2,087 | Residential Funding Mortgage Securities I, Inc., Ser. S29, Class A10, 6.00%, 12/26/31 | 2,084,461 | |||
Total Non-Agency Multiple Class Mortgage Pass-Throughs | 10,493,791 | |||||
Inverse Floating Rate Mortgages—0.2% | ||||||
135 | 3 | Federal Home Loan Mortgage Corp., Ser. 1563, Class SA, 14.621%, 8/15/08 | 135,344 | |||
Federal National Mortgage Assoc., | ||||||
264 | 3 | Ser. 35, Class SK, 15.18% 5/25/33 | 266,159 | |||
224 | 3 | Ser. 143, Class SC, 5.94%, 8/25/23 | 225,003 | |||
Total Inverse Floating Rate Mortgages | 626,506 | |||||
See Notes to Financial Statements.
7
BlackRock Investment Quality Term Trust (BQT) (continued)
Principal | ||||||
Amount | ||||||
Rating1 | (000) | Description | Value | |||
Interest Only Mortgage-Backed Securities—0.7% | ||||||
$ | 3,748 | Credit Suisse First Boston Mortgage Securities Corp., Ser. S15, Class 2AIO, 7/25/04 | $ | 36,310 | ||
Federal Home Loan Mortgage Corp., | ||||||
20,100 | Ser. 2644, Class IA, 9/15/10 | 534,258 | ||||
20,125 | Ser. 2645, Class MI, 5/15/18 | 1,122,580 | ||||
Federal National Mortgage Assoc., | ||||||
1,702 | Ser. 24, Class SE, 3/25/09 | 291,820 | ||||
3,802 | Ser. 37, Class SD, 10/25/22 | 89,444 | ||||
80 | Ser. 42, Class SO, 3/25/23 | 452 | ||||
73 | Ser. 81, Class S, 12/18/04 | 155 | ||||
22,174 | GMAC Mortgage Corp. Loan Trust, Ser. HE2, Class AIO, 6/25/27 | 252,118 | ||||
20,000 | Impac Secured Assets Corp., Ser. 1, Class AIO, 7/25/04 | 2,076 | ||||
19,315 | Residential Asset Mortgage Products, Inc., Ser. RS2, Class AIIO, 9/25/04 | 101,208 | ||||
16,250 | Residential Funding Mortgage Securities II, Inc., Ser. HI2, Class AIO, 9/25/04 | 172,413 | ||||
Total Interest Only Mortgage-Backed Securities | 2,602,834 | |||||
Commercial Mortgage-Backed Securities—1.5% | ||||||
AAA | 5,000 | 4 | New York City Mortgage Loan Trust, Multi-Family, Class A2, 6.75%, 6/25/11 | 5,366,412 | ||
Asset-Backed Securities—0.0% | ||||||
NR | 2,539 | 3,4,5,6 | Global Rated Eligible Asset Trust, Ser. A, Class A1, 7.33%, 9/15/07 | 50,788 | ||
Structured Mortgage Asset Residential Trust, | ||||||
NR | 3,833 | 3,5,6 | Ser. 2, 8.24%, 3/15/06 | 38,329 | ||
NR | 4,249 | 3,5,6 | Ser. 3, 8.724%, 4/15/06 | 42,485 | ||
Total Asset-Backed Securities | 131,602 | |||||
Corporate Bonds—16.8% | ||||||
Building & Development—1.4% | ||||||
BBB+ | 5,000 | Pulte Corp., 8.375%, 8/15/04 | 5,032,750 | |||
Consumer Products—0.6% | ||||||
BBB+ | 2,000 | General Mills, Inc., 8.75%, 9/15/04 | 2,026,880 | |||
Energy—1.2% | ||||||
BBB- | 480 | FirstEnegy Corp., Ser. A, 5.50%, 11/15/06 | 496,358 | |||
BBB+ | 3,500 | 4 | Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel) | 3,746,960 | ||
4,243,318 | ||||||
Finance & Banking—5.6% | ||||||
Aa2 | 2,500 | Bank of America Corp., 7.875%, 5/16/05 | 2,612,350 | |||
AA+ | 1,850 | Citigroup, Inc., 5.75%, 5/10/06 | 1,938,264 | |||
Aa2 | 3,000 | 4 | Den Danske Bank, 7.25%, 6/15/05, (Denmark) | 3,134,037 | ||
A3 | 4,000 | Ford Motor Credit Co., 6.70%, 7/16/04 | 4,005,560 | |||
AA- | 4,000 | Merrill Lynch & Co., Inc., 6.00%, 11/15/04 | 4,059,160 | |||
AA+ | 2,000 | UBS PaineWebber Group, Inc., 8.875%, 3/15/05 | 2,080,060 | |||
A- | 2,500 | Xtra, Inc., 7.22%, 7/31/04 | 2,507,400 | |||
20,336,831 | ||||||
Forest Products—1.4% | ||||||
BBB | 1,100 | International Paper Co., 8.125%, 6/15/24 | 1,141,514 | |||
BBB | 4,000 | Westvaco Corp., 6.85%, 11/15/04 | 4,059,880 | |||
5,201,394 | ||||||
Retailers—0.8% | ||||||
BBB+ | 2,679 | May Department Stores Co., 8.375%, 8/01/24 | 2,798,698 | |||
Telecommunications—0.6% | ||||||
A | 2,000 | Alltel Corp., 7.50%, 3/01/06 | 2,140,020 | |||
Other—5.2% | ||||||
A3 | 17,840 | 3,4 | Targeted Return Index Securities Trust, Ser. 5, 5.892%, 1/25/07 | 18,705,061 | ||
Total Corporate Bonds | 60,484,952 | |||||
U.S. Government and Agency Securities—11.5% | ||||||
Small Business Administration, | ||||||
849 | Ser. 20F, 7.55%, 6/01/16 | 921,300 | ||||
789 | Ser. 20G, 7.70%, 7/01/16 | 858,042 | ||||
2,372 | Ser. 20K-1, 6.95%, 11/01/16 | 2,543,258 | ||||
637 | Small Business Investment Companies, Ser. P10A, Class 1, 6.12%, 2/01/08 | 669,057 |
See Notes to Financial Statements.
8
BlackRock Investment Quality Term Trust (BQT) (continued)
Principal | |||||||
Amount | |||||||
Rating1 | (000) | Description | Value | ||||
U.S. Government and Agency Securities—(cont’d) | |||||||
$ | 1,000 | U.S. Treasury Bonds, 5.375%, 2/15/31 | $ | 1,008,590 | |||
U.S. Treasury Notes, | |||||||
870 | 5.875%, 11/15/04 | 883,729 | |||||
4,950 | 6.00%, 8/15/04 | 4,979,002 | |||||
30,000 | 2 | U.S. Treasury Notes Strip, zero coupon, 11/15/04 | 29,829,000 | ||||
Total U.S. Government and Agency Securities | 41,691,978 | ||||||
Taxable Municipal Bonds—1.4% | |||||||
AAA | 4,000 | Los Angeles Cnty. California Pension Oblig., 6.77%, 6/30/05 | 4,158,480 | ||||
AA- | 1,000 | New York St. Envir. Facs. Corp., Svc. Contract Rev., 6.95%, 9/15/04 | 1,009,700 | ||||
Total Taxable Municipal Bonds | 5,168,180 | ||||||
Foreign Government Bonds—1.4% | |||||||
AA- | 5,000 | 2 | Quebec Province, 8.625%, 1/19/05, (Canada) | 5,172,943 | |||
Stripped Money Market Instruments—11.0% | |||||||
NR | 40,000 | Vanguard Prime Money Market Portfolio 12/31/04 | 39,595,979 | ||||
Total Long-Term Investments (cost $291,996,179) | 307,784,591 | ||||||
SHORT-TERM INVESTMENTS—32.7% | |||||||
U.S. Government and Agency Securities—32.7% | |||||||
Federal Home Loan Bank, | |||||||
25,000 | 7 | 1.10%, 7/02/04 | 24,999,236 | ||||
10,000 | 7 | 1.135%, 7/14/04 | 9,995,901 | ||||
50,000 | 7 | 1.185%, 7/21/04 | 49,967,083 | ||||
23,100 | 7 | 1.25%, 7/01/04 | 23,100,000 | ||||
10,000 | 7 | Federal National Mortgage Assoc., 1.03%, 7/21/04 | 9,994,279 | ||||
Total Short-Term Investments (cost $118,056,499) | 118,056,499 | ||||||
Total investments—117.9% (cost $410,052,678) | 425,841,090 | ||||||
Liabilities in excess of other assets—(17.9)% | (64,686,641 | ) | |||||
Net Assets—100% | $ | 361,154,449 | |||||
1 Using the higher of S&P’s, Moody’s or Fitch’s rating.
2 Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts.
3 Security interest rate is as of June 30, 2004.
4 Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2004, the Trust held 8.6% of its net assets, with a current market value of $31,003,258, in securities restricted as to resale.
5 Security is fair valued.
6 Illiquid securities representing 0.04% of net assets.
7 For purposes of amortized cost valuation, the maturity date of this instrument is considered to be the earlier of the next date on which the security can be redeemed at par, or the next date on which the rate of interest is adjusted.
Details of open reverse repurchase agreements are disclosed in Note 4 in the Notes to Financial Statements.
See Notes to Financial Statements.
9
PORTFOLIO OF INVESTMENTS (unaudited)
JUNE 30, 2004
BlackRock Preferred Opportunity Trust (BPP)
Rating1 | Shares | Description | Value | ||
LONG-TERM INVESTMENTS—144.2% | |||||
Preferred Securities—53.1% | |||||
Automotive—0.2% | |||||
Baa1 | 34,000 | General Motors Corp | $ | 840,480 | |
Consumer Products—0.4% | |||||
BBB- | 20,000 | 2 | Dairy Farmers of America Inc | 2,081,250 | |
Energy—6.6% | |||||
A- | 169,000 | Alabama Power Co | 4,225,000 | ||
A- | 45,200 | Apache Corp., Ser. B | 4,781,313 | ||
BBB+ | 900 | Central Maine Power Co | 56,475 | ||
B+ | 60,000 | 2 | Chesapeake Energy Corp | 4,714,080 | |
BB+ | 5,000 | Devon Energy Corp., Ser. A | 504,500 | ||
B- | 115,000 | Hanover Compressor Capital Trust | 5,504,475 | ||
A+ | 135,000 | Mississippi Power Company | 3,172,500 | ||
BBB- | 275,000 | Nexen Inc., (Canada) | 7,020,750 | ||
29,979,093 | |||||
Finance & Banking—30.7% | |||||
A3 | 600 | 2 | ABN Amro NA Inc | 650,400 | |
BBB+ | 253,100 | AOL Time Warner Inc., Ser. A-1 (CABCO) | 6,327,500 | ||
A2 | 131,000 | 2 | Banco Santander Central Hispano SA (Spain) | 3,046,012 | |
A2 | 30,000 | 2 | Banesto Hldgs. Ltd., Ser. A (United Kingdom) | 930,000 | |
A3 | 100,000 | Bear Stearns Cos. Inc., The, Ser. E | 5,015,000 | ||
B+ | 60,000 | Chevy Chase Preferred Capital Corp., Ser. A | 3,474,000 | ||
A3 | 23,600 | Citigroup Capital I (CABCO) | 559,320 | ||
Aa2 | 40,000 | Citigroup Capital X | 908,000 | ||
AA | 74,300 | Citigroup Inc., Ser. H | 3,819,763 | ||
BB | 80,000 | Colonial Capital Trust IV | 2,072,000 | ||
Credit Suisse First Boston (SATURNS), | |||||
Aa3 | 12,300 | Ser. 10 | 303,656 | ||
Aa3 | 11,100 | Ser. 13 | 252,969 | ||
Baa1 | 137,500 | Everest Re Capital Trust | 3,587,898 | ||
AA | 15,000 | Financial Security Assurance Holdings Ltd | 328,776 | ||
BBB- | 277,200 | First Republic Bank | 6,541,920 | ||
BBB- | 120,000 | First Republic Preferred Capital Corp | 2,832,000 | ||
Aa3 | 85,000 | Fleet Capital Trust VII | 2,150,500 | ||
Aa3 | 26,100 | Fleet Capital Trust VIII | 660,591 | ||
Aa3 | 42,000 | Goldman Sachs Group | 934,500 | ||
A- | 637,037 | ING Groep NV (Netherlands) | 16,183,652 | ||
A1 | 80,000 | JP Morgan Chase Capital XII | 1,840,000 | ||
A3 | 117,200 | Keycorp Capital V | 2,541,775 | ||
A2 | 20,000 | Lehman Brothers Holdings Capital Trust IV, Ser. L | 462,400 | ||
Lehman Brothers Holdings Inc., | |||||
A3 | 106,100 | Ser. D | 5,305,000 | ||
A3 | 445,000 | Ser. F | 11,430,938 | ||
A1 | 20,000 | Merrill Lynch Preferred Capital Trust III | 500,000 | ||
A1 | 86,900 | Merrill Lynch Preferred Capital Trust V | 2,208,129 | ||
A1 | 337,000 | Morgan Stanley Capital Trust III | 7,663,380 | ||
A | 209,400 | Partnerre Ltd., Ser. C (Bermuda) | 4,975,344 | ||
BBB | 79,385 | Phoenix Cos Inc., The | 1,944,933 | ||
BBB+ | 18,400 | PLC Capital Trust IV | 463,496 | ||
Renaissancere Holdings Ltd, | |||||
BBB+ | 271,725 | Ser. B (Bermuda) | 6,847,470 | ||
BBB+ | 240,000 | Ser. C | 5,232,000 | ||
BBB- | 20 | Roslyn Real Estate Asset Corp., Ser. C | 2,000,000 | ||
Baa2 | 56,500 | Safeco Capital Trust I (CORTS) | 1,568,085 | ||
Baa2 | 23,600 | Safeco Capital Trust I (SATURNS) | 603,580 | ||
A- | 5,000 | SLM Corp., Ser. A | 266,563 | ||
BBB- | 103,439 | Structured Repackaged Asset-Backed Trust Securities | 2,191,614 |
See Notes to Financial Statements.
10
BlackRock Preferred Opportunity Trust (BPP) (continued)
Rating1 | Shares | Description | Value | |||
Finance & Banking—(cont’d) | ||||||
A2 | 60 | 2 | Union Planters Preferred Funding Corp | $ | 6,300,000 | |
BBB | 11,100 | Valero Energy Corp. (PPLUS) | 282,703 | |||
A2 | 271,200 | Wachovia Preferred Funding Corp., Ser. A | 7,186,800 | |||
Baa1 | 5,200 | Washington Mutual Capital I (CORTS) | 130,650 | |||
BBB+ | 13,500 | XL Capital Ltd., Ser. A (Cayman Islands) | 355,725 | |||
Baa1 | 143,865 | Zions Capital Trust | 3,758,473 | |||
Baa2 | 2,000 | 2 | Zurich Regcaps Funding Trust II | 2,060,000 | ||
Baa2 | 1,000 | 2 | Zurich Regcaps Funding Trust IV | 935,000 | ||
139,632,515 | ||||||
Media—1.1% | ||||||
BBB- | 110,000 | Comcast Corp | 4,818,000 | |||
Real Estate—12.0% | ||||||
AMB Property Corp., | ||||||
BBB | 80,000 | Ser. L | 1,857,504 | |||
BBB | 170,000 | Ser. M | 3,910,000 | |||
BBB- | 225,000 | BRE Properties, Ser. C | 5,118,750 | |||
BBB- | 120,000 | Developers Diversified Reality Co | 2,895,000 | |||
Duke Realty Corp., | ||||||
BBB | 90,000 | Ser. J | 2,061,000 | |||
BBB | 150,000 | Ser. K | 3,375,000 | |||
BBB | 100,000 | Equity Residential, Ser. N | 2,231,250 | |||
BBB+ | 255,000 | Kimco Realty Corp., Ser. F | 6,231,563 | |||
BBB+ | 255,200 | NB Capital Corp | 6,808,736 | |||
BBB | 324,000 | Regency Centers Corp | 8,262,000 | |||
Aa3 | 30 | 2 | Sun Trust Real Estate Investment Corp | 3,710,853 | ||
A- | 320,000 | Weingarten Realty Investors, Ser. D | 7,952,000 | |||
54,413,656 | ||||||
Telecommunications—2.1% | ||||||
BBB+ | 8,000 | 2 | Centaur Funding Corp. (Cayman Islands) | 9,696,000 | ||
Total Preferred Securities | 241,460,994 | |||||
Principal | ||||||
Amount | ||||||
(000) | ||||||
Trust Preferred Securities—54.8% | ||||||
Energy—4.0% | ||||||
BBB | $ | 10,000 | ComEd Financing III, 6.35%, 3/15/33 | 9,599,600 | ||
BB+ | 3,000 | HL&P Capital Trust II, Ser. B, 8.257%, 2/01/37 | 2,915,160 | |||
Baa3 | 2,420 | K N Capital Trust III, 7.63%, 4/15/28 | 2,561,822 | |||
Ba1 | 3,000 | Puget Sound Energy Capital Trust I, Ser. B, 8.231%, 6/01/27 | 3,086,400 | |||
18,162,982 | ||||||
Finance & Banking—47.0% | ||||||
A2 | 12,000 | Abbey National Capital Trust I, 8.963%, 12/29/49 | 15,106,800 | |||
Baa1 | 11,000 | ACE Capital Trust II, 9.70%, 4/01/30 | 14,463,218 | |||
B | 3,000 | AFC Capital Trust I, Ser. B, 8.207%, 2/03/27 | 2,880,000 | |||
A- | 6,000 | 2 | AgFirst Farm Credit Bank, 7.30%, 10/14/49 | 5,991,720 | ||
A2 | 5,000 | 2 | Anz Capital Trust I, 5.36%, 12/29/49 | 4,783,115 | ||
BBB | 6,000 | Aon Capital A, 8.205%, 1/01/27 | 6,571,500 | |||
BBB | 5,000 | Astoria Capital Trust 1, Ser. B, 9.75%, 11/01/29 | 5,758,650 | |||
A- | 9,774 | AXA SA, 7.10%, 5/29/49 (France) | 9,842,014 | |||
A1 | 4,600 | Bank One Capital III, 8.75%, 9/01/30 | 5,834,640 | |||
AA- | 3,557 | BNP Paribas Capital Trust V, 7.20%, 12/31/49 | 3,597,194 | |||
A1 | 2,623 | Chase Capital I, Ser. A, 7.67%, 12/01/26 | 2,754,633 | |||
BBB- | 1,100 | Colonial Capital II, Ser. A, 8.92%, 1/15/27 | 1,174,371 | |||
AA- | 3,000 | Credit Agricole Preferred Fund Trust II, 7.00%, 8/29/49 (Luxembourg) | 2,970,000 | |||
Aa3 | 3,000 | 2 | Danske Bank A/S, 5.914%, 12/29/49 (Denmark) | 3,033,720 | ||
A+ | 4,500 | 2 | Deutsche Bank Capital Funding, 7.872%, 12/29/49 | 5,109,750 | ||
A3 | 3,000 | 2 | Dresdner Funding Trust I, 8.151%, 6/30/31 | 3,312,240 | ||
Baa2 | 1,100 | FCB/NC Capital Trust I, 8.05%, 3/01/28 | 1,113,365 |
See Notes to Financial Statements.
11
BlackRock Preferred Opportunity Trust (BPP) (continued)
Principal | ||||||
Amount | ||||||
Rating1 | (000) | Description | Value | |||
Finance & Banking—(cont’d) | ||||||
Baa2 | $ | 11,500 | 2 | First Midwest Capital Trust I, 6.95%, 12/01/33 | $ | 11,498,850 |
Baa2 | 5,000 | Greenpoint Capital Trust I, 9.10%, 6/01/27 | 5,680,100 | |||
AA- | 5,000 | HBOS Capital Funding LP, 6.85%, 3/29/49 (United Kingdom) | 4,956,250 | |||
A1 | 11,000 | 2 | HSBC Capital Funding LP, 10.176%, 12/29/49 (United Kingdom) | 15,319,205 | ||
BBB- | 1,400 | HUBCO Capital Trust I, Ser. B, 8.98%, 2/01/27 | 1,533,756 | |||
BBB- | 3,000 | HUBCO Capital Trust II, Ser. B, 7.65%, 6/15/28 | 3,032,700 | |||
BBB+ | 3,000 | 2 | HVB Funding Trust, 8.741%, 6/30/31 | 3,472,680 | ||
A1 | 769 | JPM Capital Trust I, 7.54%, 1/15/27 | 814,440 | |||
A1 | 1,000 | JPM Capital Trust II, 7.95%, 2/01/27 | 1,075,483 | |||
BBB- | 5,000 | 2 | Kingsway America Inc., 7.50%, 2/01/14 | 4,874,800 | ||
Ba1 | 1,145 | Markel Capital Trust I, Ser. B, 8.71%, 1/01/46 | 1,183,953 | |||
Aa3 | 1 | Morgan Stanley, zero coupon, 3/01/33 (PPLUS) | 32,744 | |||
A3 | 3,000 | North Fork Capital Trust II, 8.00%, 12/15/27 | 3,232,500 | |||
BBB+ | 5,000 | Old Mutual Capital Funding, 8.00%, 5/29/49 | 4,947,205 | |||
BB+ | 3,000 | Provident Financing Trust I, 7.405%, 3/15/38 | 2,520,000 | |||
AA- | 13,000 | RBS Capital Trust, 6.80%, 12/31/49 (United Kingdom) | 12,861,738 | |||
BBB+ | 4,000 | Safeco Capital Trust I, 8.072%, 7/15/37 | 4,370,480 | |||
A+ | 7,500 | 2 | Sun Life of Canada US Capital Trust I, 8.526%, 5/29/49 | 8,323,500 | ||
AA- | 11,237 | Swedish Export Credit Corp., 5.40%, 6/27/33 (Sweden) | 9,688,464 | |||
A+ | 7,270 | Transamerica Capital III, 7.625%, 11/15/37 | 7,653,929 | |||
BBB- | 5,000 | 2 | Webster Capital Trust I, 9.36%, 1/29/27 | 5,506,650 | ||
A- | 6,000 | 2 | Zurich Capital Trust I, 8.376%, 6/01/37 | 6,556,260 | ||
213,432,617 | ||||||
Real Estate—2.5% | ||||||
BB+ | 8,000 | 2 | Sovereign Real Estate Investor Corp., 12.00%, 8/29/49 | 11,256,000 | ||
Telecommunications—1.3% | ||||||
BBB- | 5,000 | TCI Communications Financing III, 9.65%, 3/31/27 | 5,927,550 | |||
Total Trust Preferred Securities | 248,779,149 | |||||
Corporate Bonds—35.5% | ||||||
Automotive—1.4% | ||||||
B+ | 3,000 | Dura Operating Corp., Ser. B, 8.625%, 4/15/12 | 3,060,000 | |||
B- | 2,850 | Rexnord Corp., 10.125%, 12/15/12 | 3,135,000 | |||
6,195,000 | ||||||
Building & Development—0.5% | ||||||
B | 2,200 | Collins & Aikman Floorcovering, Ser. B, 9.75%, 2/15/10 | 2,233,000 | |||
Chemical—0.7% | ||||||
B+ | 3,000 | Lyondell Chemical Co., 11.125%, 7/15/12 | 3,322,500 | |||
Conglomerates—1.8% | ||||||
BBB | 8,000 | Tyco Intl. Group SA, 5.80%, 8/01/06 (Luxembourg) | 8,343,184 | |||
Consumer Products—2.3% | ||||||
BB+ | 8,000 | Delhaize America Inc., 8.125%, 4/15/11 | 8,717,520 | |||
BB+ | 1,700 | JC Penney Corp. Inc., 8.25%, 8/15/22 | 1,768,000 | |||
10,485,520 | ||||||
Containers & Glass—0.7% | ||||||
B+ | 3,000 | Crown European Holdings SA, 9.50%, 3/01/11 (France) | 3,292,500 | |||
Ecological Services & Equipment—0.7% | ||||||
B+ | 3,000 | Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 | 3,172,500 | |||
Electronics—0.8% | ||||||
B+ | 3,000 | Stoneridge, Inc., 11.50%, 5/01/12 | 3,495,000 | |||
Energy—5.7% | ||||||
B | 3,000 | AES Corp., 8.875%, 2/15/11 | 3,105,000 | |||
Baa2 | 5,450 | Dominion Resources Capital Trust III, 8.40%, 1/15/31 | 6,288,101 | |||
B | 3,000 | Dresser, Inc., 9.375%, 4/15/11 | 3,210,000 | |||
B | 2,250 | 2 | Dynegy Holdings Inc., 10.125%, 7/15/13 | 2,438,438 | ||
A- | 780 | EnCana Corp., 7.20%, 11/01/31 (Canada) | 861,705 | |||
B2 | 2,950 | Orion Power Holdings, Inc., 12.00%, 5/01/10 | 3,599,000 | |||
BBB- | 4,000 | Pioneer Natural Resources Co., 7.20%, 1/15/28 | 4,247,920 | |||
B+ | 2,000 | Williams Cos, Inc., 8.125%, 3/15/12 | 2,130,000 | |||
25,880,164 | ||||||
See Notes to Financial Statements. |
12
BlackRock Preferred Opportunity Trust (BPP) (continued)
Principal | ||||||
Amount | ||||||
Rating1 | (000) | Description | Value | |||
Finance & Banking—14.8% | ||||||
AA+ | $ | 13,000 | 2,3 | American General Institute Capital A, 7.57%, 12/01/45 | $ | 15,042,560 |
Aa3 | 14,000 | 2 | Barclays Bank PLC, 6.86%, 9/29/49 (United Kingdom) | 14,470,960 | ||
BB | 1,000 | Crum & Forster Holdings Corp., 10.375%, 6/15/13 | 1,090,000 | |||
BB | 5,000 | Fairfax Financial Holdings Ltd., 7.75%, 4/26/12 (Canada) | 4,775,000 | |||
A3 | 5,000 | Ford Motor Credit Co., 6.50%, 1/25/07 | 5,258,350 | |||
A1 | 8,000 | Goldman Sachs Group, Inc., 6.345%, 2/15/34 | 7,514,960 | |||
AA | 7,399 | Lloyds Bank Ltd., 6.90%, 11/22/49 | 7,458,158 | |||
BB | 1,842 | Midland Funding Corp. II, Ser. A, 11.75%, 7/23/05 | 1,897,310 | |||
A | 3,000 | Prudential, 6.50%, 6/29/49 | 2,790,000 | |||
Baal | 2,500 | Resparcs Funding LP, 8.00%, 12/30/49 (United Kingdom) | 2,496,250 | |||
AAA | 4,486 | Structured Asset Receivable Trust, 1.649%, 10/21/04 | 4,485,977 | |||
67,279,525 | ||||||
Forest Products—0.3% | ||||||
B | 1,500 | Caraustar Industries, Inc., 9.875%, 4/01/11 | 1,488,750 | |||
Health Care—0.7% | ||||||
B- | 3,000 | Insight Health Services Corp., Ser. B, 9.875%, 11/01/11 | 3,232,500 | |||
Industrials—0.7% | ||||||
BB- | 3,000 | Mail-Well I Corp., 9.625%, 3/15/12 | 3,240,000 | |||
Leisure—0.2% | ||||||
B- | 1,000 | 2 | Lazy Days RV Center Inc., 11.75%, 5/15/12 | 1,050,000 | ||
Media—1.6% | ||||||
B | 3,000 | Dex Media East LLC, 12.125%, 11/15/12 | 3,502,500 | |||
B1 | 696 | PEI Holdings Inc., 11.00%, 3/15/10 | 805,620 | |||
CCC+ | 3,000 | WRC Media, Inc., 12.75%, 11/15/09 | 2,730,000 | |||
7,038,120 | ||||||
Real Estate—0.4% | ||||||
Ba3 | 1,603 | HMH Properties, Inc., Ser. B, 7.875%, 8/01/08 | 1,647,083 | |||
Transportation—2.2% | ||||||
B3 | 1,891 | Dunlop Standard Aerospace Holdings PLC, 11.875%, 5/15/09 (United Kingdom) | 2,009,188 | |||
B+ | 3,000 | Hornbeck Offshore Services, Inc., 10.625%, 8/01/08 | 3,270,000 | |||
B | 2,500 | Railamerica Transportation Corp., 12.875%, 8/15/10 | 2,862,500 | |||
B | 1,910 | Sea Containers Ltd., 10.50%, 5/15/12 (Bermuda) | 1,881,350 | |||
10,023,038 | ||||||
Total Corporate Bonds | 161,418,384 | |||||
U.S. Government and Agency Securities—0.1% | ||||||
670 | 3 | U.S. Treasury Notes, 4.00%, 2/15/14 | 638,483 | |||
Foreign Government Bonds—0.7% | ||||||
Baa2 | 3,000 | United Mexican States, 8.00%, 9/24/22 | 3,114,000 | |||
Total Long-Term Investments (cost $645,943,157) | 655,411,010 | |||||
SHORT-TERM INVESTMENTS—3.3% | ||||||
U.S. Government and Agency Securities—3.3% | ||||||
10,000 | 4 | Federal Home Loan Bank, 1.10%, 7/02/04 | 9,999,694 | |||
5,000 | 4 | Federal National Mortgage Assoc., 1.03%, 7/21/04 | 4,997,139 | |||
Total Short-Term Investments (cost $14,996,833) | 14,996,833 | |||||
Total investments before investments sold short (cost $660,939,990) | 670,407,843 | |||||
See Notes to Financial Statements.
13
BlackRock Preferred Opportunity Trust (BPP) (continued)
Principal | |||||
Amount | |||||
(000) | Description | Value | |||
INVESTMENTS SOLD SHORT—(7.3%) | |||||
$(22,990 | ) | U.S. Treasury Bonds, 5.375%, 2/15/31 | $ | (23,187,484 | ) |
U.S. Treasury Notes, | |||||
(6,500 | ) | 4.25%, 11/15/13 | (5,256,576 | ) | |
(6,500 | ) | 4.75%, 5/15/14 | (5,052,344 | ) | |
Total Investments Sold Short (proceeds $34,365,786) | (33,496,404 | ) | |||
Total investments, net of investments sold short — 140.2% | 636,911,439 | ||||
Other assets in excess of liabilities—8.4% | 38,369,954 | ||||
Preferred shares at redemption value, including dividends payable—(48.6%) | (220,839,235 | ) | |||
Net Assets—100% | $ | 454,442,158 | |||
1 Using the higher of S&P’s, Moody’s or Fitch’s rating.
2 Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2004, the Trust held 34.4% of its net assets, with a current market value of $156,164,043, in securities restricted as to resale.
3 Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts.
4 For purposes of amortized cost valuation, the maturity date of this instrument is considered to be the earlier of the next date on which the security can be redeemed at par, or the next date on which the rate of interest is adjusted.
Details of open reverse repurchase agreements are disclosed in Note 4 in the Notes to Financial Statements.
KEY TO ABBREVIATIONS | |||||
CABCO | — | Corporate Asset Backed Corporation | PPLUS | — | Preferred Plus |
CORTS | — | Corporate Backed Trust Securities | SATURNS | — | Structured Asset Trust Unit Repackagings |
See Notes to Financial Statements.
14
STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
June 30, 2004
Investment | Preferred | |||||||||||||
Advantage Term | Quality | Opportunity | ||||||||||||
Trust1 | Term Trust1 | Trust | ||||||||||||
(BAT) | (BQT) | (BPP) | ||||||||||||
Assets | ||||||||||||||
Investments at value2 | $ | 130,953,910 | $ | 425,841,090 | $ | 670,407,843 | ||||||||
Cash | 101,837 | 72,042 | 138,171 | |||||||||||
Receivable from investments sold | — | — | 5,082,677 | |||||||||||
Collateral due from broker | — | — | 28,836,388 | |||||||||||
Income receivable | 207,665 | 2,733,539 | 9,138,435 | |||||||||||
Unrealized appreciation on interest rate swaps | — | — | 2,787,574 | |||||||||||
Other assets | 31,451 | 93,710 | 82,002 | |||||||||||
131,294,863 | 428,740,381 | 716,473,090 | ||||||||||||
Liabilities | ||||||||||||||
Reverse repurchase agreements | 25,349,438 | 66,762,500 | 580,500 | |||||||||||
Payable for investments purchased | — | — | 4,847,118 | |||||||||||
Variation margin payable | — | 392,173 | 225,500 | |||||||||||
Investments sold short at value3 | — | — | 33,496,404 | |||||||||||
Interest payable | 11,316 | 32,639 | 1,501,662 | |||||||||||
Investment advisory fee payable | 43,389 | 101,472 | 358,200 | |||||||||||
Administration fee payable | 14,419 | 29,838 | — | |||||||||||
Deferred Directors/Trustees fees | 21,962 | 61,681 | 21,779 | |||||||||||
Other accrued expenses | 144,500 | 205,629 | 160,534 | |||||||||||
25,585,024 | 67,585,932 | 41,191,697 | ||||||||||||
Preferred Shares at Redemption Value | ||||||||||||||
$0.001 par value per share and $25,000 liquidation value per share, | ||||||||||||||
including dividends payable4 | $ | — | $ | — | $ | 220,839,235 | ||||||||
Net Assets Applicable to Common Shareholders | $ | 105,709,839 | $ | 361,154,449 | $ | 454,442,158 | ||||||||
Composition of Net Assets Applicable to Common Shareholders: | ||||||||||||||
Par value | $ | 95,107 | $ | 368,106 | $ | 18,306 | ||||||||
Paid-in capital in excess of par | 85,799,932 | 361,790,346 | 433,517,977 | |||||||||||
Undistributed net investment income | 16,546,091 | 22,424,306 | 1,225,450 | |||||||||||
Accumulated net realized gain (loss) | (6,231,716 | ) | (38,685,761 | ) | 6,971,109 | |||||||||
Net unrealized appreciation | 9,500,425 | 15,257,452 | 12,709,316 | |||||||||||
Net assets applicable to common shareholders, June 30, 2004 | $ | 105,709,839 | $ | 361,154,449 | $ | 454,442,158 | ||||||||
Net asset value per common share5 | $ | 11.11 | $ | 9.81 | $ | 24.83 | ||||||||
1 Consolidated Statement of Assets and Liabilities | ||||||||||||||
2 Investments at cost | $ | 121,453,485 | $ | 410,052,678 | $ | 660,939,990 | ||||||||
3 Proceeds received | — | — | 34,365,786 | |||||||||||
4 Preferred shares outstanding | — | — | 8,832 | |||||||||||
5 Common shares outstanding | 9,510,667 | 36,810,639 | 18,305,777 |
See Notes to Financial Statements.
15
STATEMENTS OF OPERATIONS (unaudited)
For the six months ended June 30, 2004
Investment | Preferred | ||||||||
Advantage Term | Quality | Opportunity | |||||||
Trust1 | Term Trust1 | Trust | |||||||
(BAT) | (BQT) | (BPP) | |||||||
Investment Income | |||||||||
Interest income | $ | 3,817,250 | $ | 7,996,113 | $ | 12,956,375 | |||
Dividend income | — | — | 8,264,628 | ||||||
Total investment income | 3,817,250 | 7,996,113 | 21,221,003 | ||||||
Expenses | |||||||||
Investment advisory | 267,607 | 1,069,451 | 2,227,084 | ||||||
Administration | 42,817 | 142,593 | — | ||||||
Transfer agent | 7,744 | 8,918 | 7,462 | ||||||
Custodian | 35,975 | 66,269 | 61,025 | ||||||
Reports to shareholders | 14,929 | 39,201 | 41,682 | ||||||
Directors/Trustees fees | 8,512 | 21,938 | 28,028 | ||||||
Registration | 11,520 | 15,632 | 16,344 | ||||||
Independent accountants | 21,135 | 32,259 | 29,593 | ||||||
Legal | 16,364 | 103,116 | 26,655 | ||||||
Insurance | 4,092 | 11,997 | 35,353 | ||||||
Auction agent | — | — | 287,969 | ||||||
Miscellaneous | 39,552 | 59,148 | 25,016 | ||||||
Total expenses excluding interest expense | 470,247 | 1,570,522 | 2,786,211 | ||||||
Interest expense | 134,358 | 421,707 | 4,568 | ||||||
Total expenses | 604,605 | 1,992,229 | 2,790,779 | ||||||
Less fees paid indirectly | (303 | ) | (1,295 | ) | (2,133 | ) | |||
Net expenses | 604,302 | 1,990,934 | 2,788,646 | ||||||
Net investment income | 3,212,948 | 6,005,179 | 18,432,357 | ||||||
Realized and Unrealized Gain (Loss) | |||||||||
Net realized gain (loss) on: | |||||||||
Investments | (1,504,309 | ) | (2,209,363 | ) | 7,118,985 | ||||
Futures | 9,141 | 4,042,251 | 305,471 | ||||||
(1,495,168 | ) | 1,832,888 | 7,424,456 | ||||||
Net change in unrealized appreciation/depreciation on: | |||||||||
Investments | (1,672,565 | ) | (1,150,382 | ) | (27,567,595 | ) | |||
Futures | — | (530,960 | ) | (230,562 | ) | ||||
Interest rate swaps | — | — | 3,794,571 | ||||||
Short sales | — | — | 869,381 | ||||||
(1,672,565 | ) | (1,681,342 | ) | (23,134,205 | ) | ||||
Net gain (loss) | (3,167,733 | ) | 151,546 | (15,709,749 | ) | ||||
Dividends to Preferred Shareholders from | |||||||||
Net Investment Income | — | — | (1,268,208 | ) | |||||
Net Increase in Net Assets Applicable to Common Shareholders | |||||||||
Resulting from Operations | $ | 45,215 | $ | 6,156,725 | $ | 1,454,400 | |||
1 Consolidated Statement of Operations.
See Notes to Financial Statements.
16
STATEMENTS OF CASH FLOWS (unaudited)
For the six months ended June 30, 2004
Investment | Preferred | ||||||||
Reconciliation of Net Increase | Advantage | Quality | Opportunity | ||||||
in Net Assets Resulting from Operations | Term Trust1 | Term Trust1 | Trust | ||||||
to Net Cash Provided by Operating Activities | (BAT) | (BQT) | (BPP) | ||||||
Net increase in net assets resulting from operations | $ | 45,215 | $ | 6,156,725 | $ | 1,454,400 | |||
Decrease in investments | 5,274,149 | 6,781,836 | 4,132,082 | ||||||
Net realized loss (gain) | 1,495,168 | (1,832,888 | ) | (7,424,456 | ) | ||||
Decrease in unrealized appreciation/depreciation | 1,672,565 | 1,681,342 | 23,134,205 | ||||||
Decrease (increase) in receivable for investments sold short | — | (1,009,180 | ) | 33,496,404 | |||||
Increase in interest rate swaps | — | — | (3,794,570 | ) | |||||
Decrease in receivable for investments sold | — | 1,619,803 | 1,002,156 | ||||||
Increase in collateral due from broker | — | — | (28,836,388 | ) | |||||
Decrease (increase) in interest receivable | (15,443 | ) | 436,722 | (2,307,004 | ) | ||||
Increase in other assets | (6,738 | ) | (26,442 | ) | (34,941 | ) | |||
Decrease in payable for investments purchased | — | — | (2,139,696 | ) | |||||
Increase in variation margin payable | — | 392,173 | 163,000 | ||||||
Increase (decrease) in interest payable | (8,041 | ) | (24,671 | ) | 524,058 | ||||
Decrease in investment advisory fee payable | (2,837 | ) | (3,149 | ) | (23,870 | ) | |||
Decrease in administration fee payable | (454 | ) | (421 | ) | — | ||||
Increase in deferred Directors/Trustees fees | 1,375 | 4,184 | 8,759 | ||||||
Increase (decrease) in other accrued expenses | (351,925 | ) | (16,960 | ) | 5,041 | ||||
Total adjustments | 8,057,819 | 8,002,349 | 17,904,780 | ||||||
Net cash provided by operating activities | $ | 8,103,034 | $ | 14,159,074 | $ | 19,359,180 | |||
Increase (Decrease) in Cash | |||||||||
Net cash provided by operating activities | $ | 8,103,034 | $ | 14,159,074 | $ | 19,359,180 | |||
Cash used for financing activities: | |||||||||
Decrease in reverse repurchase agreements | (4,728,387 | ) | (14,196,675 | ) | (2,905,500 | ) | |||
Decrease in preferred shares at redemption value including dividends payable | — | — | (1,539 | ) | |||||
Cash dividends paid to common shareholders | (3,328,715 | ) | (153,501 | ) | (18,305,814 | ) | |||
Net cash used for financing activities | (8,057,102 | ) | (14,350,176 | ) | (21,212,853 | ) | |||
Net increase (decrease) in cash | 45,932 | (191,102 | ) | (1,853,673 | ) | ||||
Cash at beginning of period | 55,905 | 263,144 | 1,991,844 | ||||||
Cash at end of period | $ | 101,837 | $ | 72,042 | $ | 138,171 | |||
1 Consolidated Statement of Cash Flows.
See Notes to Financial Statements.
17
STATEMENTS OF CHANGES IN NET ASSETS
For the six months ended June 30, 2004 (unaudited), and for the period1 ended December 31, 2003
Advantage | Investment Quality | Preferred | ||||||||||||||||
Term Trust2 | Term Trust2 | Opportunity Trust | ||||||||||||||||
(BAT) | (BQT) | (BPP) | ||||||||||||||||
2004 | 2003 | 2004 | 2003 | 2004 | 2003 | |||||||||||||
Increase (Decrease) in Net Assets | ||||||||||||||||||
Applicable to Common Shareholders | ||||||||||||||||||
Operations: | ||||||||||||||||||
Net investment income | $ | 3,212,948 | $ | 7,887,060 | $ | 6,005,179 | $ | 17,962,660 | $ | 18,432,357 | $ | 31,539,785 | ||||||
Net realized gain (loss) | (1,495,168 | ) | (5,849,233 | ) | 1,832,888 | (5,437,776 | ) | 7,424,456 | (374,554 | ) | ||||||||
Net change in unrealized appreciation/ | ||||||||||||||||||
depreciation | (1,672,565 | ) | (1,198,427 | ) | (1,681,342 | ) | (2,566,191 | ) | (23,134,205 | ) | 35,843,521 | |||||||
Dividends and distributions to preferred | ||||||||||||||||||
shareholders from: | ||||||||||||||||||
Net investment income | — | — | — | — | (1,268,208 | ) | (1,805,661 | ) | ||||||||||
Net realized gains . | — | — | — | — | — | (4,742 | ) | |||||||||||
Net increase in net assets applicable to common | ||||||||||||||||||
shareholders resulting from operations . | 45,215 | 839,400 | 6,156,725 | 9,958,693 | 1,454,400 | 65,198,349 | ||||||||||||
Dividends and Distributions to | ||||||||||||||||||
Common Shareholders from: | ||||||||||||||||||
Net investment income | (2,773,966 | ) | (6,657,165 | ) | (153,501 | ) | (2,454,143 | ) | (15,254,845 | ) | (30,435,478 | ) | ||||||
Net realized gains . | — | — | — | — | — | (74,051 | ) | |||||||||||
Total dividends and distributions . | (2,773,966 | ) | (6,657,165 | ) | (153,501 | ) | (2,454,143 | ) | (15,254,845 | ) | (30,509,529 | ) | ||||||
Capital Share Transactions: | ||||||||||||||||||
Net proceeds from the issuance of common | ||||||||||||||||||
shares | — | — | — | — | — | 388,477,506 | ||||||||||||
Net proceeds from the underwriters’ | ||||||||||||||||||
over-allotment option exercised | — | — | — | — | — | 47,650,000 | ||||||||||||
Offering costs relating to the issuance | ||||||||||||||||||
of preferred shares | — | — | — | — | — | (2,597,000 | ) | |||||||||||
Reinvestment of common dividends . | — | — | — | — | — | 23,277 | ||||||||||||
Net proceeds from capital share transactions . | — | — | — | — | — | 433,553,783 | ||||||||||||
Total increase (decrease) | (2,728,751 | ) | (5,817,765 | ) | 6,003,224 | 7,504,550 | (13,800,445 | ) | 468,242,603 | |||||||||
Net Assets Applicable to Common | ||||||||||||||||||
Shareholders | ||||||||||||||||||
Beginning of period . | 108,438,590 | 114,256,355 | 355,151,225 | 347,646,675 | 468,242,603 | — | ||||||||||||
End of period | $ | 105,709,839 | $ | 108,438,590 | $ | 361,154,449 | $ | 355,151,225 | $ | 454,442,158 | $ | 468,242,603 | ||||||
End of period undistributed (distribution in | ||||||||||||||||||
excess of) net investment income | $ | 16,546,091 | $ | 16,107,109 | $ | 22,424,306 | $ | 16,572,628 | $ | 1,225,450 | $ | (683,854 | ) |
1 Commencement of investment operations for Preferred Opportunity was February 28, 2003. This information includes the initial investment by BlackRock Funding, Inc. The other Trusts’ statements are for a full year.
2 Consolidated Statement of Changes in Net Assets.
See Notes to Financial Statements
18
CONSOLIDATED FINANCIAL HIGHLIGHTS
BlackRock Advantage Term Trust (BAT)
Six Months | ||||||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||||||
June 30, 2004 | ||||||||||||||||||||
(unaudited) | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||||
PER SHARE OPERATING PERFORMANCE: | ||||||||||||||||||||
Net asset value, beginning of period | $ | 11.40 | $ | 12.01 | $ | 11.64 | $ | 10.83 | $ | 10.04 | $ | 11.07 | ||||||||
Investment operations: | ||||||||||||||||||||
Net investment income | 0.34 | 0.83 | 1.19 | 1.00 | 0.59 | 0.59 | ||||||||||||||
Net realized and unrealized gain (loss) | (0.34 | ) | (0.74 | ) | (0.18 | ) | 0.41 | 0.80 | (1.02 | ) | ||||||||||
Net increase (decrease) from investment operations | — | 0.09 | 1.01 | 1.41 | 1.39 | (0.43 | ) | |||||||||||||
Dividends from net investment income | (0.29 | ) | (0.70 | ) | (0.64 | ) | (0.60 | ) | (0.60 | ) | (0.60 | ) | ||||||||
Net asset value, end of period | $ | 11.11 | $ | 11.40 | $ | 12.01 | $ | 11.64 | $ | 10.83 | $ | 10.04 | ||||||||
Market price, end of period | $ | 11.02 | $ | 11.30 | $ | 11.85 | $ | 11.15 | $ | 9.88 | $ | 9.06 | ||||||||
TOTAL INVESTMENT RETURN1 | 0.08 | % | 1.25 | % | 12.26 | % | 19.44 | % | 16.28 | % | (1.58 | )% | ||||||||
RATIOS TO AVERAGE NET ASSETS: | ||||||||||||||||||||
Total expenses | 1.13 | % 2 | 1.42 | % | 1.82 | % | 2.87 | % | 4.06 | % | 3.60 | % | ||||||||
Net expenses | 1.13 | % 2 | 1.42 | % | 1.82 | % | 2.87 | % | 4.06 | % | 3.60 | % | ||||||||
Net expenses excluding interest expense and | ||||||||||||||||||||
excise tax | 0.88 | % 2 | 0.84 | % | 0.86 | % | 0.92 | % | 0.88 | % | 0.91 | % | ||||||||
Net investment income | 6.00 | % 2 | 7.04 | % | 9.98 | % | 8.78 | % | 5.72 | % | 5.58 | % | ||||||||
SUPPLEMENTAL DATA: | ||||||||||||||||||||
Average net assets (000) | $ | 107,631 | $ | 111,990 | $ | 113,632 | $ | 108,142 | $ | 98,368 | $ | 100,534 | ||||||||
Portfolio turnover | 5 | % | 8 | % | 4 | % | 17 | % | 17 | % | 9 | % | ||||||||
Net assets, end of period (000) | $ | 105,710 | $ | 108,439 | $ | 114,256 | $ | 110,685 | $ | 103,010 | $ | 95,443 | ||||||||
Reverse repurchase agreements | ||||||||||||||||||||
outstanding, end of period (000) | $ | 25,349 | $ | 30,078 | $ | 27,874 | $ | 34,500 | $ | 48,262 | $ | 47,039 | ||||||||
Asset coverage3 | $ | 5,170 | $ | 4,605 | $ | 5,099 | $ | 4,208 | $ | 3,134 | $ | 3,029 |
1 Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results.
2 Annualized.
3 Per $1,000 of reverse repurchase agreements outstanding.
The information in the above Financial Highlights represents the operating performance for a common share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust’s common shares.
See Notes to Financial Statements
19
CONSOLIDATED FINANCIAL HIGHLIGHTS
BlackRock Investment Quality Term Trust (BQT)
Six Months | ||||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||||
June 30, 2004 | ||||||||||||||||||
(unaudited) | 2003 | 2002 | 2001 | 2000 | 1999 | |||||||||||||
PER SHARE OPERATING PERFORMANCE: | ||||||||||||||||||
Net asset value, beginning of period | $ | 9.65 | $ | 9.44 | $ | 9.39 | $ | 9.21 | $ | 8.79 | $ | 9.56 | ||||||
Investment operations: | ||||||||||||||||||
Net investment income | 0.16 | 0.49 | 0.62 | 0.55 | 0.51 | 0.52 | ||||||||||||
Net realized and unrealized gain (loss) | — | (0.21 | ) | (0.17 | ) | 0.03 | 0.36 | (0.79 | ) | |||||||||
Net increase (decrease) from investment operations | 0.16 | 0.28 | 0.45 | 0.58 | 0.87 | (0.27 | ) | |||||||||||
Dividends from net investment income | — | (0.07 | ) | (0.40 | ) | (0.40 | ) | (0.45 | ) | (0.50 | ) | |||||||
Net asset value, end of period | $ | 9.81 | $ | 9.65 | $ | 9.44 | $ | 9.39 | $ | 9.21 | $ | 8.79 | ||||||
Market price, end of period | $ | 9.76 | $ | 9.62 | $ | 9.69 | $ | 9.26 | $ | 8.75 | $ | 7.88 | ||||||
TOTAL INVESTMENT RETURN1 | 1.50 | % | 0.32 | % | 9.14 | % | 10.62 | % | 17.43 | % | (4.99 | )% | ||||||
RATIOS TO AVERAGE NET ASSETS: | ||||||||||||||||||
Total expenses | 1.12 | % 2 | 1.08 | % | 1.15 | % | 2.34 | % | 3.53 | % | 3.70 | % | ||||||
Net expenses | 1.12 | % 2 | 1.08 | % | 1.15 | % | 2.34 | % | 3.53 | % | 3.70 | % | ||||||
Net expenses excluding interest expense | ||||||||||||||||||
and excise tax | 0.88 | % 2 | 0.86 | % | 0.88 | % | 0.88 | % | 0.91 | % | 0.86 | % | ||||||
Net investment income | 3.37 | % 2 | 5.14 | % | 6.56 | % | 5.87 | % | 5.79 | % | 5.65 | % | ||||||
SUPPLEMENTAL DATA: | ||||||||||||||||||
Average net assets (000) | $ | 358,442 | $ | 349,801 | $ | 348,589 | $ | 346,413 | $ | 324,712 | $ | 334,553 | ||||||
Portfolio turnover | 129 | % | 188 | % | 17 | % | 32 | % | 25 | % | 81 | % | ||||||
Net assets, end of period (000) | $ | 361,154 | $ | 355,151 | $ | 347,647 | $ | 345,704 | $ | 338,843 | $ | 323,431 | ||||||
Reverse repurchase agreements | ||||||||||||||||||
outstanding, end of period (000) | $ | 66,763 | $ | 80,959 | $ | 108,315 | $ | 13,498 | $ | 135,044 | $ | 126,627 | ||||||
Asset coverage3 | $ | 6,410 | $ | 5,387 | $ | 4,210 | $ | 26,611 | $ | 3,509 | $ | 3,554 |
1 Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results.
2 Annualized.
3 Per $1,000 of reverse repurchase agreements outstanding.
The information in the above Financial Highlights represents the operating performance for a common share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust’s common shares.
See Notes to Financial Statements
20
FINANCIAL HIGHLIGHTS
BlackRock Preferred Opportunity Trust (BPP)
Six Months | For the period | ||||||
Ended | February 28, 20031 | ||||||
June 30, 2004 | through | ||||||
(unaudited) | December 31, 2003 | ||||||
PER SHARE OPERATING PERFORMANCE: | |||||||
Net asset value, beginning of period | $ | 25.58 | $ | 23.88 | 2 | ||
Investment operations: | |||||||
Net investment income | 1.00 | 1.72 | |||||
Net realized and unrealized gain | (0.85 | ) | 1.93 | ||||
Dividends to preferred shareholders from net investment income | (0.07 | ) | (0.10 | ) | |||
Net increase from investment operations | 0.08 | 3.55 | |||||
Dividends to common shareholders from net investment income | (0.83 | ) | (1.66 | ) | |||
Capital charges with respect to issuance of: | |||||||
Common shares | — | (0.05 | ) | ||||
Preferred shares | — | (0.14 | ) | ||||
Total capital charges | — | (0.19 | ) | ||||
Net asset value, end of period | $ | 24.83 | $ | 25.58 | |||
Market price, end of period | $ | 22.15 | $ | 24.83 | |||
TOTAL INVESTMENT RETURN3 | (7.62 | )% | 6.28 | % | |||
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:4 | |||||||
Total expenses | 1.20 | % | 1.52 | % | |||
Net expenses | 1.20 | % | 1.52 | % | |||
Net expenses excluding interest expense | 1.20 | % | 1.16 | % | |||
Net investment income before preferred share dividends | 7.93 | % | 8.35 | % | |||
Preferred share dividends | 0.55 | % | 0.48 | % | |||
Net investment income available to common shareholders | 7.38 | % | 7.87 | % | |||
SUPPLEMENTAL DATA: | |||||||
Average net assets (000) | $ | 467,664 | $ | 449,345 | |||
Portfolio turnover | 36 | % | 98 | % | |||
Net assets, end of period (000) | $ | 454,442 | $ | 468,243 | |||
Preferred shares outstanding | $ | 220,800 | $ | 220,841 | |||
Reverse repurchase agreements outstanding, end of period (000) | $ | 581 | $ | 3,486 | |||
Asset coverage per preferred share, end of period | $ | 76,458 | $ | 78,021 |
1 Commencement of investment operations. This information includes the initial investment by BlackRock Funding, Inc.
2 Net asset value, beginning of period, reflects a deduction of $1.12 per share sales charge from the initial offering price of $25.00 per share.
3 Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust’s dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results.
4 Annualized.
The information in the above Financial Highlights represents the operating performance for a common share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust’s common shares.
See Notes to Financial Statements
21
NOTES TO FINANCIAL STATEMENTS (unaudited)
Note 1. Organization & Accounting Policies
The BlackRock Advantage Term Trust Inc. (“Advantage”) and The BlackRock Investment Quality Term Trust Inc. (“Investment Quality”), each a Maryland corporation, are registered as diversified, closed-end management investment companies under the Investment Company Act of 1940, as amended. BlackRock Preferred Opportunity Trust (“Preferred Opportunity”), a Delaware statutory trust (collectively with Advantage and Investment Quality, the “Trusts”), is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended.
Advantage and Investment Quality each transferred, on October 31, 1998, and July 31, 2001, respectively, a substantial portion of their total assets to 100% owned regulated investment company subsidiaries called BAT Subsidiary, Inc. and BQT Subsidiary, Inc., respectively. The financial statements and these notes to the financial statements for Advantage and Investment Quality are consolidated and include the operations of both Advantage and Investment Quality and their respective wholly owned subsidiary after elimination of all intercompany transactions and balances.
The Boards of Directors of Advantage and Investment Quality each adopted a Plan of Liquidation and Dissolution (each a “Plan”) effective January 2, 2004, and January 2, 2003, respectively. Pursuant to the terms of each Plan, the respective Board of Directors shall oversee the complete liquidation and winding up of Advantage and Investment Quality in an orderly fashion prior to December 31, 2005, and December 31, 2004, respectively.
The following is a summary of significant accounting policies followed by the Trusts.
Investment Valuation: The Trusts value most of their investments on the basis of current market quotations provided by dealers or pricing services selected under the supervision of each Trust’s Board (the “Board”) of Directors/Trustees (the “Trustees”). In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, market transactions in comparable investments, various relationships observed in the market between investments, and calculated yield measures based on valuation technology commonly employed in the market for such investments. Exchange-traded options are valued at their last sales price as of the close of options trading on 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. Short-term securities may be valued at amortized cost. Investments or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by, and under the general supervision and responsibility of, each Trust’s Board.
Investment Transactions and Investment Income: Investment transactions are recorded on trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Each Trust records interest income on an accrual basis and amortizes premium and/or accretes discount on securities purchased using the interest method. Dividend income is recorded on the ex-dividend date, except certain dividends from foreign securities where the ex-dividend date may have passed. These dividends are recorded as soon as the Trust is informed of the ex-dividend date. Dividend income on foreign securities is recorded net of any withholding tax.
Repurchase Agreements: In connection with transactions in repurchase agreements, a 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 a Trust may be delayed or limited.
Option Writing/Purchasing: When a Trust writes 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 cost of the purchase or the proceeds from the sale in determining whether a Trust has realized a gain or a loss on investment transactions. A Trust, as writer of an option, 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.
Options, when used by the Trusts, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of “one” means that a portfolio’s or a security’s price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates.
Option writing and purchasing may be used by the Trusts as an attempt to manage the duration of positions, or collections of positions, so that changes in interest rates do not adversely affect the targeted duration of the portfolio unexpectedly. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price 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 or call options can be purchased or sold to effectively help manage the targeted duration of the portfolio.
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 a Trust may forgo 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 a 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.
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Interest Rate Swaps: In an interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Interest rate swaps are efficient as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time.
During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by “marking-to-market” to reflect the market value of the swap. When the swap is terminated, a Trust will record 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, if any.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Trusts closely monitor swaps and do not anticipate non-performance by any counterparty.
Swap Options: Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are 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 a 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 commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or the proceeds from the sale in determining whether a Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option.
Swap options may be used by the Trusts to manage the duration of the Trusts’ portfolios in a manner similar to more generic options described above.
Interest Rate Caps: Interest rate caps are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trusts’ portfolios and their exposure to changes in short-term interest rates. Owning interest rate caps reduces a portfolio’s duration, making it less sensitive to changes in interest rates from a market value perspective. The effect on income involves protection from rising short-term interest rates, which the Trusts experience primarily in the form of leverage.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate cap. However, the Trusts do not anticipate non-performance by any counterparty.
Transaction fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate cap. The asset or liability is subsequently adjusted to the current market value of the interest rate cap purchased or sold. Changes in the value of the interest rate cap are recognized as unrealized gains and losses.
Interest Rate Floors: Interest rate floors are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trusts to both manage the duration of the portfolios and their exposure to changes in short-term interest rates. Selling interest rate floors reduces a portfolio’s duration, making it less sensitive to changes in interest rates from a market value perspective. The Trusts’ leverage provides extra income in a period of falling rates. Selling floors reduces some of that extra income by partially monetizing it as an up front payment which the Trusts receive.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate floor. However, the Trusts do not anticipate non-performance by any counterparty.
Transaction fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate floor. The asset or liability is subsequently adjusted to the current market value of the interest rate floor purchased or sold. Changes in the value of the interest rate floor are recognized as unrealized gains and losses.
Financial Futures Contracts: A futures contract is an agreement between two parties to buy and 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. During the period 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, a 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.
Financial futures contracts, when used by the Trusts, help in maintaining a targeted duration. Futures contracts can be sold to effectively shorten an otherwise longer duration portfolio. In the same sense, futures contracts can be purchased to lengthen a portfolio that is shorter than its duration target. Thus, by buying or selling futures contracts, the Trusts may attempt to manage the duration of positions so that changes in interest rates do not change the duration of the portfolio unexpectedly.
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Short Sales: The Trusts may make short sales of securities as a method of managing potential price declines in similar securities owned. When a Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trusts may have to pay a fee to borrow the particular securities and may be obligated to pay over any payments received on such borrowed securities. A gain, limited to the price at which a Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received.
Security Lending: The Trusts may lend their portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trusts may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trusts receive compensation for lending their securities in the form of interest on the loan. The Trusts also continue to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the accounts of the Trusts. The Trusts did not enter into any security lending transactions during the period ended June 30, 2004.
Segregation: In cases in which the Investment Company Act of 1940, as amended, and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that each Trust segregate assets in connection with certain investments (e.g., when issued securities, reverse repurchase agreements or futures contracts), each Trust will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid debt securities having a market value at least equal to the amount that would otherwise be required to be physically segregated.
Federal Income Taxes: It is each Trust’s (excluding Preferred Opportunity) intention to continue, and Preferred Opportunity intends to elect, to be treated as a regulated investment company under the Internal Revenue Code and to distribute sufficient amounts of their taxable income to shareholders. Therefore, no Federal income tax provisions are required. As part of a tax planning strategy, Advantage and Investment Quality may retain a portion of their taxable income and pay excise tax on the undistributed amounts.
Dividends and Distributions: Each Trust declares and pays dividends and distributions to common shareholders monthly from net investment income, net realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards may be distributed 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 accounting principles generally accepted in the United States of America.
Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 these estimates.
Deferred Compensation and BlackRock Closed-End Share Equivalent Investment Plan: Under the deferred compensation plan approved by each Trust’s Board, non-interested Trustees are required to defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of other BlackRock closed-end funds selected by the Trustees. This has the same economic effect for the Trustees as if the Trustees had invested the deferred amounts in such Trusts.
The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Trust. Each Trust may, however, elect to invest in common shares of those Trusts selected by the Trustees in order to match its deferred compensation obligations.
Note 2. Agreements
Each Trust has an Investment Management Agreement with BlackRock Advisors, Inc. (the “Advisor”), a wholly owned subsidiary of BlackRock, Inc. BlackRock Financial Management, Inc., a wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to Preferred Opportunity. BlackRock, Inc. is an indirect, majority owned subsidiary of The PNC Financial Services Group, Inc. The Investment Management Agreement for Preferred Opportunity covers both investment advisory and administration services. Each Advantage and Investment Quality has an Administration Agreement with the Advisor.
Each Trust’s investment advisory fee paid to the Advisor is computed weekly and payable monthly based on an annual rate, 0.50% for Advantage and 0.60% for Investment Quality, of each Trust’s average weekly net assets and 0.65% for Preferred Opportunity of the Trust’s average weekly managed assets. The administration fee paid to the Advisor is computed weekly and payable monthly based on an annual rate of 0.08% for Advantage and Investment Quality based on each Trust’s average weekly net assets.
Pursuant to the agreements, the Advisor provides continuous supervision of the investment portfolio and pays the compensation of officers of each Trust who are affiliated persons of the Advisor, occupancy and certain clerical and accounting costs for each Trust. Each Trust bears all other costs and expenses, which include reimbursements to the Advisor for certain operational support services provided to each Trust.
Pursuant to the terms of their custody agreements, each Trust received earnings credits from its custodian for positive cash balances maintained, which are used to offset custody fees.
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Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments, dollar rolls and U.S. government securities, for the six months ended June 30, 2004, aggregated as follows:
Trust | Purchases | Sales | ||||
Advantage | $ | 4,758,714 | $ | 6,558,271 | ||
Investment Quality | 497,145,345 | 770,258,688 | ||||
Preferred Opportunity | 235,681,965 | 248,546,527 |
Purchases and sales of U.S. government securities for the six months ended June 30, 2004 aggregated as follows:
Trust | Purchases | Sales | ||||
Advantage | $ | 1,096,813 | $ | — | ||
Investment Quality | — | 5,400,000 | ||||
Preferred Opportunity | 5,119,511 | 4,457,375 |
A Trust may from time to time purchase in the secondary market certain mortgage pass-through securities packaged or master serviced by affiliates or mortgage related securities containing loans or mortgages originated by PNC Bank or its affiliates, including Midland Loan Services, Inc., all of which are affiliates of the Advisor. It is possible under certain circumstances, that Midland Loan Services, Inc., or its affiliates, could have interests that are in conflict with the holders of these mortgage backed securities, and such holders could have rights against Midland Loan Services, Inc. or its affiliates.
At June 30, 2004, the total cost of securities for Federal income tax purposes and the aggregate gross unrealized appreciation and depreciation for securities held by each Trust were as follows:
Trust | Cost | Appreciation | Depreciation | Net | ||||||||
Advantage | $ | 121,513,325 | $ | 10,362,197 | $ | 921,612 | $ | 9,440,585 | ||||
Investment Quality | 410,052,678 | 28,169,806 | 12,381,394 | 15,788,412 | ||||||||
Preferred Opportunity | 626,574,204 | 21,478,842 | 11,141,607 | 10,337,235 |
For Federal income tax purposes, the following Trusts had capital loss carryforwards at June 30, 2004:
Capital Loss | Capital Loss | ||||||||||
Trust | Carryforward Amount | Expires | Trust | Carryforward Amounts | Expires | ||||||
Advantage | $ | 98,294 | 2005 | Investment Quality | $ | 1,498,011 | 2005 | ||||
81,418 | 2008 | 9,901,383 | 2007 | ||||||||
253,874 | 2010 | 6,843,565 | 2008 | ||||||||
83,667 | 2011 | 3,059,351 | 2009 | ||||||||
1,548,342 | 2010 | ||||||||||
$ | 517,253 | ||||||||||
$ | 22,850,652 | ||||||||||
Accordingly, no capital gain distributions are expected to be paid to shareholders of a Trust until that Trust has net realized capital gains in excess of its carryforward amounts.
Details of open financial futures contracts at June 30, 2004 were as follows:
Unrealized | |||||||||||||||
Number of | Expiration | Value at | Value at | Appreciation | |||||||||||
Contracts | Type | Date | Trade Date | June 30, 2004 | (Depreciation) | ||||||||||
Long Position: | |||||||||||||||
Investment Quality | 814 | 10 Yr. U.S. T-Note | Sept ’04 | $ | 88,981,322 | $ | 88,993,093 | $ | 11,771 | ||||||
Short Positions: | |||||||||||||||
Investment Quality | 500 | 5 Yr. U.S. T-Note | Sept ’04 | 54,280,025 | 54,343,746 | (63,721 | ) | ||||||||
1000 | 30 Yr. U.S. T-Bond | Sept ’04 | 105,895,990 | 106,375,000 | (479,010 | ) | |||||||||
$ | (542,731 | ) | |||||||||||||
Preferred Opportunity | 451 | 5 Yr. U.S. T-Note | Sept ’04 | 48,602,560 | 49,018,053 | $ | (415,493 | ) | |||||||
Details of open interest rate swaps at June 30, 2004, were as follows:
Notional | |||||||||||||
Amount | Fixed | Floating | Termination | Unrealized | |||||||||
Trust | (000) | Rate | Rate | Date | Appreciation | ||||||||
Preferred Opportunity | $ | 85,000 | 4.74 | % | 3-month LIBOR | 11/17/13 | $ | 1,053,871 | |||||
40,000 | 5.39 | 3-month LIBOR | 10/10/23 | 1,733,703 | |||||||||
$ | 2,787,574 | ||||||||||||
Preferred Opportunity pays a fixed interest rate and receives a floating rate.
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Note 4. Borrowings
Reverse Repurchase Agreements: The Trusts may enter into reverse repurchase agreements with qualified, third-party broker-dealers as determined by and under the direction of each Trust’s Board. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time a Trust enters into a reverse repurchase agreement, it will establish and maintain a segregated account with the lender, containing liquid investment grade securities having a value not less than the repurchase price, including accrued interest of the reverse repurchase agreement. Details of open reverse repurchase agreements and their respective underlying collateral at June 30, 2004, are below.
Details of open reverse repurchase agreements at June 30, 2004, were as follows:
Corresponding | |||||||||||||||||
Underlying | |||||||||||||||||
Collateral | Counter | Trade | Maturity | Net Closing | |||||||||||||
Trust | (See chart below) | Party | Rate | Date | Date | Amount | Par | ||||||||||
Advantage | 1 | Lehman Brothers | 1.80 | % | 6/30/04 | 7/01/04 | $ | 294,015 | $ | 294,000 | |||||||
2 | Barclays Capital, Inc. | 0.60 | 6/30/04 | 7/01/04 | 1,112,644 | 1,112,625 | |||||||||||
3 | Citigroup Global Markets, Inc. | 1.20 | 6/30/04 | 7/01/04 | 1,473,612 | 1,473,563 | |||||||||||
4 | Citigroup Global Markets, Inc. | 1.40 | 6/30/04 | 7/01/04 | 780,030 | 780,000 | |||||||||||
5 | Lehman Brothers | 1.07 | 6/08/04 | 7/02/04 | 684,738 | 684,250 | |||||||||||
6 | Lehman Brothers | 1.13 | 6/21/04 | 7/08/04 | 4,389,704 | 4,387,500 | |||||||||||
7 | Lehman Brothers | 1.21 | 6/14/04 | 7/16/04 | 16,635,373 | 16,617,500 | |||||||||||
$ | 25,349,438 | ||||||||||||||||
Investment Quality | 8 | Lehman Brothers | 1.09 | 6/14/04 | 7/06/04 | 29,832,358 | 29,812,500 | ||||||||||
9 | Lehman Brothers | 1.18 | 6/14/04 | 7/08/04 | 551,433 | 551,000 | |||||||||||
10 | Lehman Brothers | 1.20 | 6/16/04 | 7/09/04 | 36,425,693 | 36,399,000 | |||||||||||
$ | 66,762,500 | ||||||||||||||||
Preferred Opportunity | 11 | Lehman Brothers | 0.60 | 6/30/04 | 7/01/04 | 580,510 | $ | 580,500 | |||||||||
Details of underlying collateral for open reverse repurchase agreements at June 30, 2004, were as follows:
Corresponding | ||||||||||||||||||
Reverse | ||||||||||||||||||
Repurchase | ||||||||||||||||||
Agreement | Maturity | Original | Current | Market | ||||||||||||||
Trust | (See chart above) | Description | Rate | Date | Face | Face | Value | |||||||||||
Advantage | 1 | Resolution Funding Corp. | 0.00 | % | 7/15/05 | $ | 300,000 | $ | 300,000 | $ | 293,754 | |||||||
2 | U.S. Treasury Notes | 4.00 | 2/15/04 | 1,150,000 | 1,150,000 | 1,095,916 | ||||||||||||
3 | U.S. Treasury Notes | 3.50 | 11/15/06 | 1,450,000 | 1,450,000 | 1,468,748 | ||||||||||||
4 | U.S. Treasury Bonds | 0.00 | 8/15/05 | 800,000 | 800,000 | 780,770 | ||||||||||||
5 | Resolution Funding Corp. | 0.00 | 7/15/05 | 700,000 | 700,000 | 685,426 | ||||||||||||
6 | U.S. Treasury Bonds | 0.00 | 8/15/05 | 4,500,000 | 4,500,000 | 4,391,829 | ||||||||||||
7 | Resolution Funding Corp. | 0.00 | 7/15/05 | 17,000,000 | 17,000,000 | 16,646,060 | ||||||||||||
$ | 25,362,503 | |||||||||||||||||
Investment Quality | 8 | U.S. Treasury Notes | 0.00 | 11/15/04 | 30,000,000 | 30,000,000 | 29,829,000 | |||||||||||
9 | Federal National Mortgage Assoc. | 6.50 | 2/01/29 | 4,000,000 | 552,930 | 577,257 | ||||||||||||
10 | Federal National Mortgage Assoc. | 4.00 | 3/25/10 | 46,100,000 | 30,944,000 | 31,082,939 | ||||||||||||
10 | Federal Home Loan Mortgage Corp. | 4.00 | 5/15/10 | 8,000,000 | 5,455,000 | 5,484,348 | ||||||||||||
$ | 66,973,544 | |||||||||||||||||
Preferred Opportunity | 11 | U.S. Treasury Notes | 4.00 | 2/15/14 | 600,000 | 600,000 | $ | 571,782 | ||||||||||
The average daily balance and weighted average interest rate of reverse repurchase agreements during the period ended June 30, 2004, were as follows:
Average Daily | Weighted Average | ||||
Trust | Balance | Interest Rate | |||
Advantage | $ | 25,291,859 | 1.07 | % | |
Investment Quality | 75,803,835 | 1.12 | |||
Preferred Opportunity | 542,255 | 1.69 |
Dollar Rolls: The Trusts may enter into dollar rolls in which a Trust sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Trusts forgo principal and interest paid on the securities. The Trusts will be compensated by the interest earned on the cash proceeds of the initial sale and/or by the lower repurchase price at the future date. The Trusts did not enter into any dollar roll transactions during the six months ended June 30, 2004.
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Note 5. Distributions to Shareholders
The tax character of distributions paid by the parent during the six months ended June 30, 2004, and the period ended December 31, 2003, were as follows:
Six months ended June 30, 2004 | ||||||||||
Ordinary | Long-term | Total | ||||||||
Distributions Paid From: | Income | Gains | Distributions | |||||||
Advantage* | $ | 2,773,966 | $ | — | $ | 2,773,966 | ||||
Investment Quality* | 6,171,327 | — | 6,171,327 | |||||||
Preferred Opportunity | 16,523,052 | — | 16,523,052 |
Period ended December 31, 2003 | ||||||||||||
Ordinary | Long-term | Return | Total | |||||||||
Income | Capital Gains | of Capital | Distributions | |||||||||
Advantage* | $ | 6,657,165 | $ | — | $ | — | $ | 6,657,165 | ||||
Investment Quality* | 2,454,143 | — | — | 2,454,143 | ||||||||
Preferred Opportunity | 32,241,139 | 78,793 | — | 32,319,932 |
As of June 30, 2004, the components of distributable earnings of the parent on a tax basis were as follows:
Undistributed | Undistributed | ||||||||
Ordinary | Long-term | Unrealized Net | |||||||
Income | Gains | Appreciation | |||||||
Advantage* | $ | 7,276,364 | $ | — | $ | 3,028,139 | |||
Investment Quality* | 1,658,252 | — | — | ||||||
Preferred Opportunity | 7,494,339 | 490,938 | 12,939,878 |
*The Trust is currently under a plan of liquidation. Shareholders should consult their tax advisor as to the proper tax treatment of distribution from the Trust.
Note 6. Capital
There are 200 million of $0.01 par value common shares authorized for Advantage and Investment Quality. There are an unlimited number of $0.001 par value common shares authorized for Preferred Opportunity. At June 30, 2004, the common shares outstanding and the shares owned by affiliates of the Advisor of each Trust were as follows:
Common Shares | Common Shares | |||
Trust | Outstanding | Owned | ||
Advantage | 9,510,667 | — | ||
Investment Quality | 36,810,639 | — | ||
Preferred Opportunity | 18,305,777 | — |
There were no transactions in common shares of beneficial interest for the six months ended June 30, 2004. Transactions in common shares of beneficial interest from February 28, 2003 (commencement of investment operations) through December 31, 2003, for Preferred Opportunity, were as follows:
Shares from | ||||||||
Initial | Underwriters’ Exercising | Reinvestment | Net Increase in | |||||
Trust | Public Offering | the Over-allotment Option | of Dividends | Shares Outstanding | ||||
Preferred Opportunity | 16,304,817 | 2,000,000 | 960 | 18,305,777 |
During the period February 28, 2003 (commencement of investment operations) through December 31, 2003, Preferred Opportunity issued 960 common shares, under the terms of its Dividend Reinvestment Plan. During the six months ended June 30, 2004, there were no additional shares issued under the terms of the Trusts’ Dividend Reinvestment Plans.
Offering costs of $900,000 ($0.05 per common share) incurred in connection with Preferred Opportunity’s offering of common shares have been charged to paid-in capital in excess of par of the common shares.
As of June 30, 2004, Preferred Opportunity had the following series of preferred shares outstanding as listed in the table below. The preferred shares have a liquidation value of $25,000 per share plus any accumulated unpaid dividends.
Trust | Series | Shares | ||
Preferred Opportunity | T7 | 2,944 | ||
W7 | 2,944 | |||
R7 | 2,944 |
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Underwriting discounts of $2,208,000 ($0.12 per common share) and offering costs of $389,000 ($0.02 per common share) incurred in connection with the preferred share offering have been charged to paid-in capital in excess of par of the common shares.
Dividends on seven-day preferred shares are cumulative at a rate which is reset every seven days based on the results of an auction. The dividend range on the preferred shares for Preferred Opportunity for the six months ended June 30, 2004, was 1.00% to 1.54%.
Preferred Opportunity may not declare dividends or make other distributions on common shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred shares and any other borrowings would be less than 200%. The preferred shares are redeemable at the option of Preferred Opportunity, in whole or in part, on any dividend payment date at $25,000 per share plus any accumulated or unpaid dividends whether or not declared. The preferred shares are also subject to mandatory redemption at $25,000 per share plus any accumulated or unpaid dividends, whether or not declared, if certain requirements relating to the composition of the assets and liabilities of Preferred Opportunity, as set forth in Preferred Opportunity’s Declaration of Trust, are not satisfied. The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares, voting as a separate class, are also entitled to elect two Trustees for Preferred Opportunity. In addition, the Investment Company Act of 1940, as amended, requires that along with approval by shareholders 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, (b) change a Trust’s sub-classification as a closed-end investment company or change its fundamental investment restrictions and (c) change the nature of its business so as to cease to be an investment company.
Note 7. Dividends
Subsequent to June 30, 2004, each Board of Advantage and Preferred Opportunity declared dividends from undistributed earnings per common share payable July 30, 2004, to shareholders of record on July 13, 2004. The per share common dividends declared were as follows:
Common Dividend | |||
Trust | Per Share | ||
Advantage | $ | 0.058333 | |
Preferred Opportunity | 0.166667 |
The dividends declared on preferred shares for the period July 1, 2004 to July 31, 2004, for Preferred Opportunity were as follows:
Dividends | |||||
Trust | Series | Declared | |||
Preferred Opportunity | T7 | $ | 89,203 | ||
W7 | 100,361 | ||||
R7 | 111,784 |
28
DIVIDEND REINVESTMENT PLANS
Pursuant to each Trust’s respective Dividend Reinvestment Plan (the “Plan”), shareholders of Advantage and Investment Quality may elect, while shareholders of Preferred Opportunity are automatically enrolled, to have all distributions of dividends and capital gains reinvested by EquiServe Trust Company, N.A. (the “Plan Agent”) in the respective Trust’s shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, which serves as agent for the shareholders in administering the Plan.
After Advantage and/or Investment Quality declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ account, by the purchase of outstanding shares on the open market, on the Trust’s primary exchange or elsewhere (“open market purchases”). These Trusts will not issue any new shares under the Plan.
After Preferred Opportunity declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ account, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Trust (“newly issued shares”) or (ii) by open market purchases. If, on the dividend payment date, the NAV is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as “market premium”), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the payment date, the dollar amount of the dividend will be divided by 95% of the market price on the payment date. If, on the dividend payment date, the NAV is greater than the market value per share plus estimated brokerage commissions (such condition being referred to herein as “market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases.
Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by notice if received and processed by the Plan Administrator prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution.
The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by each Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal income tax that may be payable on such dividends or distributions.
Each Trust reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, each Trust reserves the right to amend the Plan to include a service charge payable by the participants. Participants that request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commisson. All correspondence concerning the Plan should be directed to the Plan Agent at 250 Royall Street, Canton, MA 02021 or (800) 699-1BFM.
29
ADDITIONAL INFORMATION (Unaudited)
The Joint Annual Meeting of Shareholders was held on May 26, 2004, to elect a certain number of Directors/Trustees for each of the following Trusts to three year terms, expiring in 2007 for Preferred Opportunity and expiring on the expected termination date for Advantage and Investment Quality:
Advantage | ||||
Elected the Class I Directors as follows: | ||||
Director | Votes for | Votes Withheld | ||
Richard E. Cavanagh | 7,649,686 | 92,310 | ||
James Clayburn La Force, Jr. | 7,636,881 | 105,115 | ||
Investment Quality | ||||
Elected the Class III Directors as follows: | ||||
Director | Votes for | Votes Withheld | ||
Andrew F. Brimmer | 28,431,304 | 264,770 | ||
Kent Dixon | 28,434,824 | 261,250 | ||
Robert S. Kapito | 28,430,584 | 265,490 | ||
Preferred Opportunity | ||||
Elected the Class I Trustees as follows: | ||||
Trustee | Votes for | Votes Withheld | ||
Richard E. Cavanagh1 | 5,701 | 79 | ||
James Clayburn La Force, Jr. | 14,300,002 | 178,541 |
1 Voted on by holders of preferred shares only.
There have been no material changes in the Trusts’ investment objectives or policies that have not been approved by the shareholders or to their charters or by-laws or in the principal risk factors associated with investment in the Trusts. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Trusts’ portfolios.
Quarterly performance and other information regarding the Trusts may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com/funds/cefunds/index.html. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Trusts and does not, and is not intended, to incorporate BlackRock’s website into this report.
Certain of the officers of the Trusts listed on the inside back cover of this Report to Shareholders are also officers of the Advisor or Sub-Advisor. They serve in the following capacities for the Advisor or Sub-Advisor; Robert S. Kapito—Director and Vice Chairman of the Advisor and the Sub-Advisor, Henry Gabbay and Anne Ackerley—Managing Directors of the Advisor and the Sub-Advisor, Richard M. Shea and James Kong—Managing Directors of the Sub-Advisor, Vincent B. Tritto—Director of the Sub-Advisor, and Brian P. Kindelan—Director of the Advisor.
30
BlackRock Closed-End Funds
Directors/Trustees | Transfer Agent |
Ralph L. Schlosstein, Chairman | EquiServe Trust Company, N.A. |
Andrew F. Brimmer | 250 Royall Street |
Richard E. Cavanagh | Canton, MA 02021 |
Kent Dixon | (800) 699-1BFM |
Frank J. Fabozzi | |
Robert S. Kapito | Auction Agent1 |
James Clayburn La Force, Jr. | Bank of New York |
Walter F. Mondale | 100 Church Street, 8th Floor |
New York, NY 10286 | |
Officers | |
Robert S. Kapito, President | Independent Accountants |
Henry Gabbay, Treasurer | Deloitte & Touche LLP |
Anne Ackerley, Vice President | 200 Berkeley Street |
Richard M. Shea, Vice President/Tax | Boston, MA 02116 |
James Kong, Assistant Treasurer | |
Vincent B. Tritto, Secretary | Legal Counsel |
Brian P. Kindelan, Assistant Secretary | Skadden, Arps, Slate, Meagher & Flom LLP |
Four Times Square | |
Investment Advisor | New York, NY 10036 |
BlackRock Advisors, Inc. | |
100 Bellevue Parkway | Legal Counsel – Independent Directors/Trustees |
Wilmington, DE 19809 | Debevoise & Plimpton LLP |
(800) 227-7BFM | 919 Third Avenue |
New York, NY 10022 | |
Sub-Advisor1 | |
BlackRock Financial Management, Inc. | This report is for shareholder information. This is not a prospectus |
40 East 52nd Street | intended for use in the purchase or sale of Trust shares. |
New York, NY 10022 | Statements and other information contained in this report are as |
dated and are subject to change. | |
Custodian | |
State Street Bank and Trust Company | BlackRock Closed-End Funds |
225 Franklin Street | c/o BlackRock Advisors, Inc. |
Boston, MA 02110 | 100 Bellevue Parkway |
Wilmington, DE 19809 | |
(800) 227-7BFM | |
1 For Preferred Opportunity only. |
The Trusts will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Trusts at (800)227-7BFM.
The Trusts have delegated to the Advisor the voting of proxies relating to their voting securities pursuant to the Advisor’s proxy voting policies and procedures. You may obtain a copy of these proxy voting procedures, without charge, by calling (800) 699-1236. These policies and procedures are also available on the website of the Securities and Exchange Commission at http://www.sec.gov.
This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Trust shares. Statements and other information contained in this report are as dated and are subject to change. CLF-SEMI-5 |
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Not applicable for reports for periods ending on or before July 9, 2004.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. Purchases of Equity Securities by Closed-End Management Company and
Affiliated Purchasers.
Not applicable.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 10. Controls and Procedures.
(a) The Registrant's principal executive officer and principal financial officer have evaluated the Registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the Registrant's disclosure controls and procedures are effective, as of a date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer are aware of no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Not applicable.
(a)(2) Separate certifications of Principal Executive and Financial Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(a)(3) Not applicable.
(b) Certification of Principal Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) | The BlackRock Preferred Opportunity Trust |
By: | /s/ Henry Gabbay | |
Name: | Henry Gabbay | |
Title: | Treasurer | |
Date: | September 8, 2004 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert S. Kapito | |
Name: | Robert S. Kapito | |
Title: | Principal Executive Officer | |
Date: | September 8, 2004 |
By: | /s/ Henry Gabbay | |
Name: | Henry Gabbay | |
Title: | Principal Financial Officer | |
Date: | September 8, 2004 |