| | | | | | | | | | | | |
| | | | | | | | For the Period
February 28, 20031
through
December 31, 2003 | |
| | Year Ended December 31, | | |
| |
| | |
| | 2005 | | 2004 | | |
| |
| |
| |
| |
PER SHARE OPERATING PERFORMANCE: | | | | | | | | | | | | |
Net asset value, beginning of period | | $ | 25.88 | | $ | 25.58 | | | $ | 23.88 | 2 | |
| |
|
| |
|
| | |
|
| | |
Investment operations: | | | | | | | | | | | | |
Net investment income | | | 2.11 | | | 2.22 | | | | 1.72 | | |
Net realized and unrealized gain (loss) | | | (0.82 | ) | | 0.33 | | | | 1.93 | | |
Dividends and distributions to preferred shareholders from: | | | | | | | | | | | | |
Net investment income | | | (0.26 | ) | | (0.16 | ) | | | (0.10 | ) | |
Net realized gains | | | (0.13 | ) | | (0.02 | ) | | | — | | |
| |
|
| |
|
| | |
|
| | |
Net increase from investment operations | | | 0.90 | | | 2.37 | | | | 3.55 | | |
| |
|
| |
|
| | |
|
| | |
Dividends and distributions to common shareholders from: | | | | | | | | | | | | |
Net investment income | | | (1.74 | ) | | (2.00 | ) | | | (1.66 | ) | |
Net realized gains | | | (0.61 | ) | | (0.07 | ) | | | — | | |
| |
|
| |
|
| | |
|
| | |
Total dividends and distributions | | | (2.35 | ) | | (2.07 | ) | | | (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 | | $ | 24.43 | | $ | 25.88 | | | $ | 25.58 | | |
| |
|
| |
|
| | |
|
| | |
Market price, end of period | | $ | 24.20 | | $ | 25.39 | | | $ | 24.83 | | |
| |
|
| |
|
| | |
|
| | |
TOTAL INVESTMENT RETURN3 | | | 4.83 | % | | 11.01 | % | | | 6.28 | % | |
| |
|
| |
|
| | |
|
| | |
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:4 | | | | | | | | | | | | |
Total expenses | | | 1.51 | % | | 1.44 | % | | | 1.52 | %5 | |
Net expenses | | | 1.51 | % | | 1.44 | % | | | 1.52 | %5 | |
Net expenses excluding interest expense | | | 1.22 | % | | 1.19 | % | | | 1.16 | %5 | |
Net investment income before preferred share dividends | | | 8.37 | % | | 8.66 | % | | | 8.35 | %5 | |
Preferred share dividends | | | 1.27 | % | | 0.62 | % | | | 0.48 | %5 | |
Net investment income available to common shareholders | | | 7.10 | % | | 8.04 | % | | | 7.87 | %5 | |
|
SUPPLEMENTAL DATA: | | | | | | | | | | | | |
Average net assets of common shareholders (000) | | $ | 461,868 | | $ | 468,110 | | | $ | 449,345 | | |
Portfolio turnover | | | 77 | % | | 88 | % | | | 98 | % | |
Net assets applicable to common shareholders, end of period (000) | | $ | 447,190 | | $ | 473,809 | | | $ | 468,243 | | |
Preferred shares value outstanding, end of period (000) | | $ | 220,800 | | $ | 220,800 | | | $ | 220,841 | | |
Reverse repurchase agreements outstanding, end of period (000) | | $ | — | | $ | — | | | $ | 3,486 | | |
Reverse repurchase agreements average daily balance (000) | | $ | 2,904 | | $ | 782 | | | $ | 19,822 | | |
Reverse repurchase agreements weighted average interest rate | | | 3.07 | % | | 1.50 | % | | | 1.44 | % | |
Asset coverage, end of period | | $ | 75,642 | | $ | 78,650 | | | $ | 78,021 | | |
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.
|
NOTES TO FINANCIAL STATEMENTS |
|
Note 1. Organization & Accounting Policies
BlackRock High Income Shares (“High Income”) (formerly CIGNA High Income Shares), a Massachusetts business trust, is registered as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). BlackRock Global Floating Rate Income Trust (“Global”) and BlackRock Preferred Opportunity Trust (“Preferred Opportunity”) are organized as Delaware statutory trusts and are registered as non-diversified and diversified, closed-end management investment companies, respectively, under the 1940 Act. Global, High Income and Preferred Opportunity are individually referred to as a “Trust” and collectively as the “Trusts”.
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 of Trustees or Board of Directors as the case may be (each a “Board”). 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. Swap quotations are provided by dealers selected under the supervision of the Board. Short-term securities may be valued at amortized cost. Investments in open-end investment companies are valued at net asset value. Investments or assets for which such current market quotations are not readily available are valued at fair value (“Fair Value Assets”) as determined in good faith under procedures established by, and under the general supervision and responsibility of, each Trust’s Board. The investment advisor and/or sub-advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to a valuation committee. The valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board.
When determining the price for a Fair Value Asset, the investment advisor and/or sub-advisor shall seek to determine the price that the Trust might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor and/or sub-advisor deems relevant.
Investment Transactions and Investment Income: Investment transactions are recorded on trade date. The cost of investments sold and the related gain or loss is determined by use of a specific identification method, generally first-in, first out, for both financial reporting and Federal income tax purposes. Each Trust records interest income on an accrual basis and amortizes premium and/or accretes discount on securities purchased using the interest method.
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.
Bank Loans: In the process of buying, selling and holding bank loans, a Trust may receive and/or pay certain fees. These fees are in addition to interest payments received and may include facility fees, commitment fees, amendment fees, commissions and prepayment penalty fees. When a Trust buys a bank loan it may receive a facility fee and when it sells a bank loan it may pay a facility fee. On an ongoing basis, a Trust may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a bank loan. In certain circumstances, a Trust may receive a prepayment penalty fee upon the prepayment of a bank loan by a borrower. Other fees received by a Trust may include covenant waiver fees and covenant modification fees.
Credit Default Swaps: Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place. Risks arise from the possible inability of the counterparties to meet the terms of their contracts.
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.
Interest Rate Swaps: Interest rate swaps are agreements in which one party 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, a party 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.
35
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.
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.
Forward Currency Contracts: The Trusts enter into forward currency contracts primarily to facilitate settlement of purchases and sales of foreign securities and to help manage the overall exposure to foreign currency. A forward contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. In the event that a security fails to settle within the normal settlement period, the forward currency contract is renegotiated at a new rate. The gain or loss arising from the difference between the settlement value of the original and renegotiated forward contracts is isolated and is included in net realized gains (losses) from foreign currency transactions. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contract.
Forward currency contracts, when used by the Trusts, help to manage the overall exposure to the foreign currency backing some of the investments held by the Trusts. Forward currency contracts are not meant to be used to eliminate all of the exposure to the foreign currency, rather they allow the Trusts to limit their exposure to foreign currency within a narrow band to the objectives of the Trusts.
Foreign Currency Translation: Foreign currency amounts are translated into United States dollars on the following basis:
| | |
| (i) | market value of investment securities, other assets and liabilities—at the 4:00 PM Eastern Standard Time rates of exchange. |
| | |
| (ii) | purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such transactions. |
The Trusts isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Trusts isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the period.
Net realized and unrealized foreign exchange gains and losses includes realized foreign exchange gains and losses from sales and maturities of foreign portfolio securities, maturities of foreign reverse repurchase agreements, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of interest and discount recorded on the Trusts’ books and the U.S. dollar equivalent amounts actually received or paid and changes in unrealized foreign exchange gains and losses in the value of portfolio securities and other assets and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
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.
Bonds Borrowed Agreements: In a bonds borrowed agreement, the Trust borrows securities from a third party, with the commitment that they will be returned to the lender on an agreed-upon date. Bonds borrowed agreements are primarily entered into to settle short positions. In a bonds borrowed agreement, the Trust’s third-party broker takes possession of the underlying collateral securities or cash to settle such short positions. The value of the underlying collateral securities or cash approximates the principal amount of the bonds borrowed transaction, including accrued interest. To the extent that bonds borrowed transactions exceed one business day, the value of the collateral with any counterparty is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the lender defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the lender of the security, realization of the collateral by the Trust may be delayed or limited.
Segregation: In cases in which the 1940 Act, and the interpretive positions of the Securities and Exchange Commission (the “Commission”) require a Trust to 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 Commission, designate on its books and records cash or liquid 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 intention to continue 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.
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 car-
36
ryforwards may be distributed in accordance with the 1940 Act. 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, these amounts are shown on the Statements of Assets and Liabilities as Investments in affiliates. 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
Global and Preferred Opportunity each have an Investment Management Agreement with BlackRock Advisors, Inc. (the “Advisor”), a wholly owned subsidiary of BlackRock, Inc. BlackRock Financial Management, Inc., (the “Sub-Advisor”), a wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to Global and Preferred Opportunity. BlackRock, Inc. is an indirect, majority owned subsidiary of The PNC Financial Services Group, Inc.
Effective March 2, 2005, High Income entered into an Investment Management Agreement with the Advisor, and a sub-advisory agreement with the Sub-Advisor. Prior to March 2, 2005, High Income had an Investment Management Agreement with CIGNA Investment Advisors, Inc. (“CIAI”) and a sub-advisory agreement with Shenkman Capital Management, Inc.
The Investment Management Agreements for Global, High Income and Preferred Opportunity cover both investment advisory and administration services. The investment advisory fee paid to the Advisor by each of Global and Preferred Opportunity is computed weekly and payable monthly based on an annual rate, equal to 0.75% of Global’s average weekly net assets and 0.65% of Preferred Opportunity’s average weekly managed assets. For Global, the Advisor has voluntarily agreed to waive receipt of a portion of the management fee or other expenses of the Trust in the amount of 0.20% of the average weekly value of the Trust’s Managed Assets for the first five years of the Trust’s operations (through August 30, 2009) and for a declining amount for an additional three years (through August 30, 2012). High Income’s investment advisory fee paid to the current Advisor and CIAI is/was computed weekly and payable monthly based on an annual rate of 0.75% of the first $200 million of the Trust’s average weekly managed assets and 0.50% thereafter. The Advisor, in turn, pays the Sub-Advisor its sub-advisory fee. “Managed assets” means the total assets of a Trust (including any assets attributable to any borrowing that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage).
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, as well as 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 costs of employees that provide pricing, secondary market support and compliance services to each Trust. Prior to March 2, 2005, for administrative services, High Income reimbursed CIAI for a portion of the compensation and related expenses of the Trust’s Treasurer and Secretary and certain persons who assist in carrying out the responsibilities of those offices. For the year ended December 31, 2005, the Trusts reimbursed the Advisor the following amounts:
| | | | |
Trust | | Amount | |
| |
| |
Global | | $ | 34,905 | |
High Income | | | — | |
Preferred Opportunity | | | 17,502 | |
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.
37
Note 3. Portfolio Investments
Purchases and sales of investment securities, other than short-term investments, dollar rolls and U.S. government securities, for the year ended December 31, 2005, aggregated as follows:
| | | | | | | |
Trust | | Purchases | | Sales | |
| |
| |
| |
Global | | $ | 335,698,253 | | $ | 347,638,653 | |
High Income | | | 239,073,932 | | | 242,166,246 | |
Preferred Opportunity | | | 416,769,869 | | | 431,543,082 | |
Purchases and sales of U.S. government securities for the year ended December 31, 2005, aggregated as follows:
Trust | | Purchases | | Sales | |
| |
| |
| |
Preferred Opportunity | | $ | 97,450,686 | | $ | 93,135,956 | |
Details of open forward currency contracts at December 31, 2005 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
Trust | Foreign
Currency | | Settlement
Date | | Contract to
Purchase/
Receive | | Value at
Settlement
Date | | Value at
December 31,
2005 | | Unrealized
Appreciation
(Depreciation) | |
|
| |
| |
| |
| |
| |
| |
Global | Bought: | | | | | | | | | | | | | | | | | | | | |
| Euro | | | 01/20/06 | | | 6,500,000 | € | $ | 7,698,412 | | | $ | 7,706,181 | | | | $ | 7,769 | | |
| | | | | | | | | | | | | | | | | |
|
| | |
| Sold: | | | | | | | | | | | | | | | | | | | | |
| Canadian Dollar | | | 01/30/06 | | $ | 353,000 | | $ | 304,894 | | | $ | 303,039 | | | | | 1,855 | | |
| Euro | | | 01/20/06 | | | 15,925,700 | € | $ | 19,259,473 | | | $ | 18,880,972 | | | | | 378,501 | | |
| Mexican Peso | | | 01/26/06 | | $ | 58,000,000 | | $ | 5,272,656 | | | $ | 5,438,625 | | | | | (165,969 | ) | |
| | | | 01/27/06 | | $ | 14,581,921 | | $ | 1,326,138 | | | $ | 1,367,338 | | | | | (41,200 | ) | |
| | | | | | | | | | | | | | | | | |
|
| | |
| | | | | | | | | | | | | | | | | | $ | 173,187 | | |
| | | | | | | | | | | | | | | | | |
|
| | |
High Income | Bought: | | | | | | | | | | | | | | | | | | | | |
| Euro | | | 01/20/06 | | | 15,554 | € | $ | 18,423 | | | $ | 18,440 | | | | $ | 17 | | |
| | | | | | | | | | | | | | | | | |
|
| | |
| Sold: | | | | | | | | | | | | | | | | | | | | |
| Euro | | | 01/20/06 | | | 1,216,034 | € | $ | 1,477,608 | | | $ | 1,441,699 | | | | $ | 35,909 | | |
| | | | | | | | | | | | | | | | | |
|
| | |
Details of open interest rate swaps at December 31, 2005 were as follows:
| | | | | | | | | | | | | | | | | | | | |
Trust | | Notional
Amount
(000) | | Fixed
Rate | | Floating
Rate | | Termination
Date | | Unrealized
Appreciation
(Depreciation) | |
| | |
| |
| |
| |
| |
| |
Preferred Opportunity | | | 80,000 | | | | 4.495 | %(a) | | 3-month LIBOR | | 10/19/14 | | | $ | 2,342,199 | | |
| | | 65,000 | | | | 5.118 | (a) | | 3-month LIBOR | | 11/10/15 | | | | (979,672 | ) | |
| | | | | | | | | | | | | | | | |
|
| | |
| | | | | | | | | | | | | | | | | $ | 1,362,527 | | |
| | | | | | | | | | | | | | | | |
|
| | |
| | | | | | | | | | |
| |
(a) | Trust pays fixed interest rate and receives floating rate. |
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. There were no open reverse repurchase agreements at December 31, 2005.
Loan Payable: High Income has an $80 million revolving credit agreement (the “Agreement”), which expires on October 31, 2007. Prior to expiration of the Agreement, principal is repayable in whole or in part at the option of the Trust. Borrowings under this Agreement bear interest at a variable rate tied to the lender’s average daily cost of funds, or at fixed rates, as may be agreed to between the Trust and the lender. The Trust may borrow up to 331/3% of its total assets up to the committed amount or 100% of the borrowing base eligible assets, as determined under the terms of the Agreement. In accordance with the terms of the Agreement, the Trust has pledged its portfolio assets as collateral for the borrowing.
38
Note 5. Income Tax Information
The estimated tax character of distributions paid during the year ended December 31, 2005, and the tax character of distributions paid during the year ended December 31, 2004, were as follows:
| | | | | | | | | | | | | | |
| | December 31, 2005 | |
| |
| |
Distributions Paid From: | | Ordinary
Income | | Long-term
Gains | | Total
Distributions | |
| |
| |
| |
| |
Global | | $ | 36,326,312 | | | $ | 135,572 | | | | $ | 36,461,884 | | |
High Income | | | 14,468,525 | | | | — | | | | | 14,468,525 | | |
Preferred Opportunity | | | 38,101,545 | | | | 12,112,919 | | | | | 50,214,464 | | |
| | | | | | | |
| | | | | | | | | | | | | | |
| | December 31, 2004 | |
| |
| |
Distributions Paid From: | | Ordinary
Income | | Long-term
Gains | | Total
Distributions | |
| | |
| |
| |
|
Global | | $ | 9,709,034 | | | $ | — | | | | $ | 9,709,034 | | |
High Income | | | 16,001,963 | | | | — | | | | | 16,001,963 | | |
Preferred Opportunity | | | 37,476,397 | | | | 3,767,780 | | | | | 41,244,177 | | |
| | | | | | | |
As of December 31, 2005, the components of distributable earnings on a tax basis were as follows:
| | | | | | | | | | | | | | |
Trust | | Undistributed
Ordinary
Income | | Undistributed
Long-term
Gains | | Unrealized Net
Appreciation | |
| |
| |
| |
| |
Global | | $ | — | | | $ | — | | | | $ | 4,329,903 | | |
High Income | | | — | | | | — | | | | | — | | |
Preferred Opportunity | | | 42,830 | | | | 84,538 | | | | | 12,195,989 | | |
| | | | | | | |
For federal income tax purposes, the following Trust had capital loss carryforwards at December 31, 2005:
| | | | | | | | | | | |
Trust | | Capital Loss
Carryforward Amount | | Expires | |
| |
| |
| |
High Income | | | $ | 24,744,772 | | | | | 2007 | | |
| | | | 35,363,213 | | | | | 2008 | | |
| | | | 55,878,284 | | | | | 2009 | | |
| | | | 102,576,339 | | | | | 2010 | | |
| | | | 28,467,396 | | | | | 2011 | | |
| | | | 2,339,279 | | | | | 2012 | | |
| | |
|
| | | | | | | |
| | | | 249,369,283 | | | | | | | |
| | |
|
| | | | | | | |
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.
Reclassification of Capital Accounts: In order to present undistributed (distribution in excess of) net investment income (“UNII”), accumulated net realized gain (“Accumulated Gain”) and paid-in-capital (“PIC”) more closely to its tax character, the following accounts for each Trust were increased (decreased) as follows:
| | | | | | | | | | | | |
Trust | | UNII | | Accumulated Gain | | PIC | |
| |
| |
| |
| |
Global | | $ | (690,363 | ) | | $ | 690,363 | | | $ | — | |
High Income | | | 775,851 | | | | (348,360 | ) | | | (427,491 | ) |
Preferred Opportunity | | | (2,074,155 | ) | | | 2,074,155 | | | | — | |
39
Note 6. Capital
There are an unlimited number of $0.001 par value common shares authorized for Preferred Opportunity and Global. There are an unlimited number of no par value shares authorized for High Income. At December 31, 2005, the common shares outstanding and the shares owned by affiliates of the Advisor of each Trust were as follows:
| | | | | | | |
Trust | | Common Shares
Outstanding | | Common Shares
Owned | |
| |
| |
| |
Global | | | 23,481,021 | | | 6,478 | |
High Income | | | 54,493,341 | | | — | |
Preferred Opportunity | | | 18,305,777 | | | — | |
Transactions in common shares of beneficial interest from August 30, 2004 (commencement of investment operations) through December 31, 2004 for Global were as follows:
| | | | | | | | | | | | | |
| | Shares from | | | | |
| |
| | | | |
Trust | | Initial
Public Offering | | Underwriters’ Exercising
the Over-allotment Option | | Reinvestment
of Dividends | | Net Increase in
Shares Outstanding | |
| |
| |
| |
| |
| |
Global | | | 23,006,021 | | | 475,000 | | | — | | | 23,481,021 | |
Offering costs of $924,000 ($0.04 per common share) incurred in connection with Global’s offering of common shares have been charged to paid-in capital in excess of par of the common shares.
During the year ended December 31, 2005 and 2004, High Income issued additional shares of 302,078 and 242,592, respectively, under the terms of its Dividend Reinvestment Plan.
As of December 31, 2005, Global and Preferred Opportunity have 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 | | Trust | | Series | | Shares | |
| |
| |
| |
| |
| |
| |
Global | | T7 | | | | 3,246 | | Preferred Opportunity | | T7 | | | | 2,944 | |
| | W7 | | | | 3,246 | | | | | W7 | | | | 2,944 | |
| | R7 | | | | 3,246 | | | | | R7 | | | | 2,944 | |
Underwriting discounts of $2,434,500 ($0.10 per common share) and offering costs of $400,260 ($0.02 per common share) incurred in connection with the preferred share offering of Global 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 ranges on the preferred shares for Global and Preferred Opportunity for the year ended December 31, 2005 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Trust | | Series | | Low | | High | | Average | | Trust | | Series | | Low | | High | | Average | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
Global | | T7 | | | | 2.14 | % | | 4.27 | % | 3.16 | % | | Preferred Opportunity | | T7 | | | | 2.25 | % | | 4.27 | % | 3.25 | % | |
| | W7 | | | | 2.10 | | | 4.31 | | 3.18 | | | | | | W7 | | | | 2.25 | | | 4.31 | | 3.27 | | |
| | R7 | | | | 2.15 | | | 4.35 | | 3.11 | | | | | | R7 | | | | 2.21 | | | 4.34 | | 3.26 | | |
Global and 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 Global and 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 Global and Preferred Opportunity, as set forth in Global’s and 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 Global and 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.
40
Note 7. Dividends
Subsequent to December 31, 2005, each Board declared dividends from undistributed earnings per common share payable January 31, 2006, to shareholders of record on January 17, 2006. The per share common dividends declared were as follows:
| | | | | | |
Trust | | Common Dividend
Per Share | |
| |
| |
Global | | | $ | 0.115000 | | |
High Income | | | | 0.020500 | | |
Preferred Opportunity | | | | 0.166667 | | |
The dividends declared on preferred shares for the period January 1, 2006 to January 31, 2006 for Global and Preferred Opportunity were as follows:
| | | | | | | | | | | | | | | | |
Trust | | Series | | Dividends
Declared | | Trust | | Series | | Dividends
Declared | |
| |
| |
| |
| |
| |
| |
Global | | T7 | | | | 252,928 | | | Preferred Opportunity | | T7 | | | | 236,020 | |
| | W7 | | | | 259,388 | | | | | W7 | | | | 236,168 | |
| | R7 | | | | 257,862 | | | | | R7 | | | | 235,756 | |
41
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
|
| |
To the Trustees and Shareholders of: |
| BlackRock Global Floating Rate Income Trust
BlackRock Preferred Opportunity Trust
(Collectively the “Trusts”) |
We have audited the accompanying statement of assets and liabilities of the Trusts, including the portfolios of investments, as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. These financial statements and financial highlights are the responsibility of the Trusts’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trusts are not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Trusts as of December 31, 2005, the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.
Boston, Massachusetts,
February 27, 2006
| |
To the Trustees and Shareholders of |
| BlackRock High Income Shares: |
We have audited the accompanying statement of assets and liabilities, including the schedules of investments, of BlackRock High Income Shares (the “Trust”) as of December 31, 2005, and the related statements of operations and cash flows, statements of changes in net assets and financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended December 31, 2004 and the financial highlights for each of the four years in the period ended December 31, 2004 were audited by other auditors whose report, dated February 22, 2005, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2005, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of BlackRock High Income Shares as of December 31, 2005, the results of its operations and cash flows, the changes in its net assets and the financial highlights for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 27, 2006
42
|
DIRECTORS/TRUSTEES INFORMATION (Unaudited) |
|
| | | | | | |
|
Name, address, age | Current positions
held with the Trusts | Term of office
and length of time
served | Principal occupations
during the past five years | Number of
portfolios over-
seen within the
fund complex1 | Other Directorships
held outside the
fund complex1 | Events or transactions by
reason of which the Trustee
is an interested person as
defined in Section 2(a)
(19) of the 1940 Act |
|
Interested Directors/Trustees2 |
|
Ralph L.
Schlosstein
BlackRock, Inc.
40 East 52nd Street
New York, NY
10022
Age: 54 | Chairman of the Board | 3 years3/since inception | Director since 1999 and President of BlackRock, Inc. since its formation in 1998 and of BlackRock, Inc.’s predecessor entities since 1988. Member of the Management Committee and Investment Strategy Group of BlackRock, Inc. Formerly, Managing Director of Lehman Brothers, Inc. and Co-head of its Mortgage and Savings Institutions Group. Chairman and President of the BlackRock Liquidity Funds and Director of several of BlackRock’s alternative investment vehicles. | 65 | Director and Chairman of the Board of Anthracite Capital, Inc. Member of the Visiting Board of Overseers of the John F. Kennedy School of Government at Harvard University, a member of the board of the Financial Institutions Center of The Wharton School of the University of Pennsylvania, a trustee of the American Museum of Natural History, a trustee of Trinity School in New York City, a member of the Board of Advisors of Marujupu LLC, and a trustee of New Visions for Public Education, The Public Theater in New York City and the James Beard Foundation. Formerly, a director of Pulte Corporation, the nation’s largest home-builder, a trustee of Denison University and a member of Fannie Mae’s Advisory Council. | Director and President of the Advisor. |
|
Robert S. Kapito
BlackRock, Inc.
40 East 52nd Street
New York, NY
10022
Age: 48 | President and Trustee | 3 years3/since inception | Vice Chairman of BlackRock, Inc. Head of the Portfolio Management Group. Also a member of the Management Committee, the Investment Strategy Group, the Fixed Income and Global Operating Committees and the Equity Investment Strategy Group. Responsible for the portfolio management of the Fixed Income, Domestic Equity and International Equity, Liquidity, and Alternative Investment Groups of BlackRock. | 55 | Chairman of the Hope and Heroes Children’s Cancer Fund. President of the Board of Directors of the Periwinkle National Theatre for Young Audiences. | Director and Vice Chairman of the Advisor. |
|
43
|
DIRECTORS/TRUSTEES INFORMATION (Unaudited) (Continued) |
|
| | | | | |
|
Name, address, age | Current positions held
with the Trusts | Term of office and
length of time served | Principal occupations
during the past five years | Number of
portfolios overseen
within the fund
complex1 | Other Directorships held
outside the fund complex |
|
Independent Directors/ Trustees |
|
Andrew F. Brimmer
P.O. Box 4546
New York, NY
10163-4546
Age: 79 | Lead Trustee Audit Committee
Chairman4 | 3 years3/since inception | President of Brimmer & Company, Inc., a Washington, D.C.-based economic and financial consulting firm, also Wilmer D. Barrett Professor of Economics, University of Massachusetts – Amherst. Formerly member of the Board of Governors of the Federal Reserve System. Former Chairman, District of Columbia Financial Control Board. | 55 | Director of CarrAmerica Realty Corporation and Borg-Warner Automotive. Formerly Director of Airborne Express, BankAmerica Corporation (Bank of America), BellSouth Corporation, College Retirement Equities Fund (Trustee), Commodity Exchange, Inc. (Public Governor), Connecticut Mutual Life Insurance Company, E.I. du Pont de Nemours & Company, Equitable Life Assurance Society of the United States, Gannett Company, Mercedes-Benz of North America, MNC Financial Corporation (American Security Bank), NCM Capital Management, Navistar International Corporation, PHH Corp. and UAL Corporation (United Airlines). |
|
Richard E. Cavanagh
P.O. Box 4546
New York, NY
10163-4546
Age: 59 | Trustee Audit Committee
Member | 3 years3/since inception | President and Chief Executive Officer of The Conference Board, Inc., a leading global business research organization, from 1995-present. Former Executive Dean of the John F. Kennedy School of Government at Harvard University from 1988-1995. Acting Director, Harvard Center for Business and Government (1991-1993). Formerly Partner (principal) of McKinsey & Company, Inc. (1980-1988). Former Executive Director of Federal Cash Management, White House Office of Management and Budget (1977-1979). Co-author, THE WINNING PERFORMANCE (best selling management book published in 13 national editions). | 55 | Trustee of Aircraft Finance Trust (AFT) and Chairman of Educational Testing Service (ETS). Director, Arch Chemicals, Fremont Group and The Guardian Life Insurance Company of America. |
|
Kent Dixon
P.O. Box 4546
New York, NY
10163-4546
Age: 68 | Trustee Audit Committee
Member4 | 3 years3/since inception | Consultant/Investor. Former President and Chief Executive Officer of Empire Federal Savings Bank of America and Banc PLUS Savings Association, former Chairman of the Board, President and Chief Executive Officer of Northeast Savings. | 55 | Former Director of ISFA (the owner of INVEST, a national securities brokerage service designed for banks and thrift institutions). |
|
Frank J. Fabozzi
P.O. Box 4546
New York, NY
10163-4546
Age: 57 | Trustee Audit Committee
Member4 | 3 years3/since inception | Consultant. Editor of THE JOURNAL OF PORTFOLIO MANAGEMENT and Adjunct Professor of Finance and Becton Fellow at the School of Management at Yale University. Author and editor of several books on fixed income portfolio management. Visiting Professor of Finance and Accounting at the Sloan School of Management, Massachusetts Institute of Technology from 1986 to August 1992. | 55 | Director, Guardian Mutual Funds Group (18 portfolios). |
|
44
|
DIRECTORS/TRUSTEES INFORMATION (Unaudited) (Continued) |
|
| | | | | |
|
Name, address, age | Current positions
held with the Trusts | Term of office and
length of time served | Principal occupations
during the past five years | Number of
portfolios
overseen
within
the fund
complex1 | Other Directorships held
outside the fund complex |
|
Independent Directors/Trustees (continued) |
|
Kathleen F. Feldstein
P.O. Box 4546
New York, NY
10163-4546
Age: 63 | Trustee | 3 years3/since January 19, 20055 | President of Economics Studies, Inc., a Belmont, MA-based private economic consulting firm, since 1987; Chair, Board of Trustees, McLean Hospital in Belmont, MA. | 55 | Director of BellSouth Inc. and Knight Ridder, Inc.; Trustee of the Museum of Fine Arts, Boston, Committee for Economic Development and Partners HealthCare, Inc., Corporation member of Sherrill House, Inc. Member of the Visiting Committee of the Harvard University Art Museums and of the Advisory Board to the International School of Business at Brandeis University. |
|
R. Glenn Hubbard
P.O. Box 4546
New York, NY
10163-4546
Age: 47 | Trustee | 3 years3/since November 16, 2004 | Dean of Columbia Business School since July 1, 2004. Columbia faculty member since 1988. Co-director of Columbia Business School’s Entrepreneurship Program 1994-1997. Visiting professor at the John F. Kennedy School of Government at Harvard and the Harvard Business School, as well as the University of Chicago. Visiting scholar at the American Enterprise Institute in Washington and member of International Advisory Board of the MBA Program of Ben-Gurion University. Deputy assistant secretary of the U.S. Treasury Department for Tax Policy 1991-1993. Chairman of the U.S. Council of Economic Advisers under the President of the United States 2001-2003. | 55 | Director of ADP, Dex Media, Duke Realty, KKR Financial Corporation, and Ripplewood Holdings. Advisory boards of the Congressional Budget Office, the Council on Competitiveness, the American Council on Capital Formation, the Tax Foundation and the Center for Addiction and Substance Abuse. Trustee of Fifth Avenue Presbyterian Church of New York. |
|
James Clayburn
La Force, Jr.6
P.O. Box 4546
New York, NY
10163-4546
Age: 76 | Trustee | 3 years3/since inception | Dean Emeritus of the John E. Anderson Graduate School of Management, University of California since July 1, 1993. Acting Dean of the School of Business, Hong Kong University of Science and Technology 1990-1993. From 1978 to September 1993, Dean of the John E. Anderson Graduate School of Management, University of California. | 55 | Director of Payden & Rygel Investment Trust, Metzler-Payden Investment Trust, Advisors Series Trust, Arena Pharmaceuticals, Inc. and CancerVax Corporation. Former director of First Nationwide Bank, Eli Lilly & Company, National Inter-group, Rockwell International, Cyprus Mines, Getty Oil Company, The Timken Company, Jacobs Engineering Group, and Motor Cargo Industries. |
|
Walter F. Mondale6
P.O. Box 4546
New York, NY
10163-4546
Age: 77 | Trustee | 3 years3/since inception | Senior Counsel, Dorsey & Whitney, LLP, a law firm (January 2004-present); Partner, Dorsey & Whitney, LLP, (December 1996- December 2003, September 1987-August 1993). Formerly U.S. Ambassador to Japan (1993-1996). Formerly Vice President of the United States, U.S. Senator and Attorney General of the State of Minnesota. 1984 Democratic Nominee for President of the United States. | 55 | Chairman of Panasonic Foundation’s Board of Directors and Director of United Health Foundation. Member of the Hubert H. Humphrey Institute of Public Affairs Advisory Board, The Mike and Maureen Mansfield Foundation and the Dean’s Board of Visitors of the Medical School at the University of Minnesota. |
|
| |
1 | The Fund Complex means two or more registered investments companies that: (1) hold themselves out to investors as related companies for purposes of investment and investor services; or (2) have a common investment advisor or have an investment advisor that is an affiliated person of the investment advisor of any of the other registered investment companies. |
2 | Interested Director/Trustee as defined by Section 2(a)(19) of the Investment Company Act of 1940. |
3 | The Board is classified into three classes of which one class is elected annually. Each Director/Trustee serves a three-year term concurrent with the class from which they are elected. |
4 | The Board of each Trust has determined that each Trust has three Audit Committee financial experts serving on its Audit Committee, Dr. Brimmer, Mr. Dixon and Mr. Fabozzi, each of whom are independent for the purpose of the definition of Audit Committee financial expert as applicable to the Trusts. |
5 | Advisory Board member until elected Director/Trustee on May 26, 2005. |
6 | Mr. La Force and Mr. Mondale retired from the Board on February 23, 2006. |
45
|
DIVIDEND REINVESTMENT PLANS |
|
Pursuant to each Trust’s respective Dividend Reinvestment Plan (the “Plan”), shareholders of Global and High Income may elect, while shareholders of Preferred Opportunity are automatically enrolled, to have all distributions of dividends and capital gains reinvested by Computershare 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 Global and/or High Income declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participant’s 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 participant’s 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 who 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 commission. All correspondence concerning the Plan should be directed to the Plan Agent at 250 Royall Street, Canton, MA 02021 or (800) 699-1BFM.
The Joint Annual Meeting of Shareholders was held on May 26, 2005, to elect a certain number of Directors/Trustees for each of the following Trusts to three year terms, unless otherwise indicated, expiring in 2008:
| | | | | | | | | | |
Global | | | | | | | |
| | | | | | | | |
| Elected the Class I Trustees as follows | | | | | | | |
| | | | | | | | |
| Trustee | | Votes For | | Votes Withheld | |
|
| |
| |
| |
| Richard E. Cavanagh2 | | | 7,729 | | | | 24 | | |
| R. Glenn Hubbard1 | | | 20,177,093 | | | | 1,094,202 | | |
| James Clayburn La Force, Jr. | | | 20,174,396 | | | | 1,096,899 | | |
| Elected the Class II Trustee as follows: | | | | | | | | | |
| | | | | | | | | | |
| Trustee | | Votes For | | Votes Withheld | |
|
| |
| |
| |
| Kathleen F. Feldstein1 | | | 20,177,284 | | | | 1,094,011 | | |
| | | | | | | | | | |
Preferred Opportunity | | | | | | | |
| | | | | | | |
| Elected the Class II Trustees as follows: | | | | | | | |
| | | | | | | | |
| Trustee | | Votes For | | Votes Withheld | |
|
| |
| |
| |
| Frank J. Fabozzi2 | | | 6,985 | | | | 161 | | |
| Kathleen F. Feldstein | | | 17,520,587 | | | | 215,310 | | |
| Walter F. Mondale | | | 17,451,899 | | | | 283,998 | | |
| Ralph L. Schlosstein | | | 17,524,145 | | | | 211,752 | | |
| |
|
1 | Mr. Hubbard and Mrs. Feldstein will serve until the end of the term for the class of Directors/Trustees to which they were elected, if such class was not standing for election at May 26, 2005 annual shareholders meeting. |
2 | Voted on by holders of preferred shares only |
46
The following Trust had an additional proposal (Proposal #2A) to amend its Declaration of Trust in order to change the maximum number of permitted Trustees allowed on its Board to 11:
| | | | | | | | | | | | | | | | |
| | Votes For | | Votes Against | | Votes Withheld | |
| |
| |
| |
| |
Preferred Opportunity | | | | 17,142,812 | | | | | 392,617 | | | | | 200,467 | | |
The following Trust had an additional proposal (Proposal #2B) to amend its Declaration of Trust in order to reduce the maximum number of permitted Trustees allowed on its Board from 15 to 11:
| | | | | | | | | | | | | | | | |
| | Votes For | | Votes Against | | Votes Withheld | |
| |
| |
| |
| |
Global | | | | 19,981,501 | | | | | 1,093,656 | | | | | 196,138 | | |
BlackRock, Inc. and Merrill Lynch & Co., Inc. (‘‘Merrill Lynch’’) announced on February 15, 2006 that they had reached an agreement to merge Merrill Lynch’s investment management business, Merrill Lynch Investment Managers, with BlackRock, Inc. to create a new independent company. Merrill Lynch will have a 49.8% economic interest and a 45% voting interest in the combined company and The PNC Financial Services Group, Inc. (‘‘PNC’’), which currently holds a majority interest in BlackRock, Inc., will have approximately a 34% economic and voting interest. The new company will operate under the BlackRock name and be governed by a board of directors with a majority of independent members. Each of Merrill Lynch and PNC has agreed that it will vote all of its shares on all matters in accordance with the recommendation of BlackRock’s board in order to assure its independence. Completion of the transaction is subject to various regulatory approvals, client consents, approval by BlackRock, Inc. shareholders and customary conditions. In the event it is determined that the transaction would constitute an assignment of the investment management agreement between the Trusts and BlackRock Advisors, Inc. and the sub-investment advisory agreement by and among the Trusts, BlackRock Advisors, Inc. and BlackRock Financial Management, Inc., the agreements would automatically terminate upon closing of the merger and new agreements would need to be approved by the board of trustees and shareholders of the Trusts. BlackRock, Inc. believes and is discussing its views with the staff of the Securities and Exchange Commission that completion of the transaction should not cause an assignment of these agreements.
On March 1, 2005, the shareholders of CIGNA High Income Shares approved proposals to: approve an advisory agreement between the Trust and BlackRock Advisors, Inc. approve a sub-advisory agreement among the Trust, BlackRock Advisors, Inc. and BlackRock Financial Management Inc., and elect new Trustees, all of whom currently oversee BlackRock’s 55 closed-end funds, to serve until the next Annual Meeting of Shareholders. Upon approval of the Trustees, BlackRock Advisors, Inc. changed the name of the Trust to BlackRock High Income Shares.
During the period, there were no material changes in the investment objectives or policies or their charters or by-laws of Global or Preferred Opportunity that have not been approved by the shareholders or in the principal risk factors associated with investment in these Trusts. There have been no changes in the persons who are primarily responsible for the day-to-day management of these portfolios.
Each Trust listed for trading on the New York Stock Exchange (NYSE) has filed with the NYSE its annual chief executive officer certification regarding compliance with the NYSE’s listing standards and has filed with the Securities and Exchange Commission the certification of its chief executive officer and chief financial officer required by section 302 of the Sarbanes-Oxley Act.
The Trusts do not make available copies of their respective Statements of Additional Information because the Trusts’ shares are not continuously offered, which means that the Statement of Additional Information of each Trust has not been updated after completion of such Trust’s offering and the information contained in each Trust’s Statement of Additional Information may have become outdated.
Quarterly performance and other information regarding the Trusts may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com/indiv/products/closedendfunds/funds.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, Anne Ackerley and Bartholomew Battista—Managing Directors of the Advisor and the Sub-Advisor, James Kong and Vincent B. Tritto—Managing Directors of the Sub-Advisor, and Jeff Gary and Brian P. Kindelan—Managing Directors of the Advisor.
47
Set forth below are amended notices, as of December 31, 2005, sent by the following Trusts, pursuant to Section 19 of the Investment Company Act of 1940 (the “1940 Act”). Section 19 requires each Trust to accompany dividend payments with a notice if any part of that payment is estimated to be from a source other than accumulated net investment income, not including profits or losses from the sale of securities or other properties. These notices are not for tax reporting purposes and were provided only for informational purposes in order to comply with the requirements of Section 19 of the 1940 Act. In January 2006, after the completion of each Trust’s tax year, shareholders will receive a Form 1099-DIV which will reflect the amount of income, capital gain and return of capital paid by the Trust taxable in calendar year 2005 and reportable on your 2005 federal and other income tax returns.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Total
Distributions | | Net
Investment
Income | | Distributions from
proceeds from the
sale of securities | | Distributions
from return
of capital | |
| | | |
| |
| |
| |
| |
BlackRock | | | | May-05 | | | | $ | 0.02300 | | | | $ | 0.02300 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
High Income Shares | | | | Jun-05 | | | | $ | 0.02300 | | | | $ | 0.02300 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
(HIS) | | | | Aug-05 | | | | $ | 0.02300 | | | | $ | 0.02300 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
BlackRock | | | | Jan-05 | | | | $ | 0.16667 | | | | $ | 0.05077 | | | | $ | 0.11590 | | | | $ | 0.00000 | | |
Preferred | | | | May-05 | | | | $ | 0.16667 | | | | $ | 0.16667 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
Opportunity | | | | Jul-05 | | | | $ | 0.16667 | | | | $ | 0.16667 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
Trust (BPP) | | | | Aug-05 | | | | $ | 0.16667 | | | | $ | 0.16667 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
| | | | Nov-05 | | | | $ | 0.16667 | | | | $ | 0.16667 | | | | $ | 0.00000 | | | | $ | 0.00000 | | |
| | | | Dec-05 | | | | $ | 0.16667 | | | | $ | 0.00000 | | | | $ | 0.16667 | | | | $ | 0.00000 | | |
48
BlackRock Closed-End Funds
| |
Directors/Trustees
Ralph L. Schlosstein, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Kathleen F. Feldstein
R. Glenn Hubbard
Robert S. Kapito
James Clayburn La Force, Jr.
Walter F. Mondale Officers
Robert S. Kapito, President
Henry Gabbay, Treasurer
Bartholomew Battista, Chief Compliance Officer
Anne Ackerley, Vice President
Jeff Gary, Vice President
James Kong, Assistant Treasurer
Vincent B. Tritto, Secretary
Brian P. Kindelan, Assistant Secretary Investment Advisor
BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM Sub-Advisor1
BlackRock Financial Management, Inc.
40 East 52nd Street
New York, NY 10022 Accounting Agent and Custodian
State Street Bank and Trust Company
2 Avenue de Lafayette
Boston, MA 02111 | Transfer Agent
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
(800) 699-1BFM Auction Agent1
Bank of New York
101 Barclay Street, 7 West
New York, NY 10286 Independent Registered Public Accounting Firm
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116 Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036 Legal Counsel – Independent Trustees
Debevoise & Plimpton LLP
919 Third Avenue
New York, NY 10022 This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Trust shares.Statements and other information contained in this report are asdated and are subject to change. BlackRock Closed-End Funds
c/o BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM |
| |
|
1 | For Global and Preferred Opportunity. |
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 Transfer Agent at (800) 699-1BFM.
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 policies and procedures, without charge, by calling (800) 699-1BFM. These policies and procedures are also available on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.
Information on how proxies relating to the Trusts’ voting securities were voted (if any) by the Advisor during the most recent 12-month period ended June 30th is available without charge, upon request, by calling (800) 699-1BFM or on the website of the Commission at http://www.sec.gov.
The Trusts file their complete schedules of portfolio holdings for the first and third quarters of their respective fiscal years with the Commission on Form N-Q. Each Trust’s Form N-Q will be available on the Commission’s website at http://www.sec.gov. Each Trust’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. Each Trust’s Form N-Q may also be obtained upon request, without charge, by calling (800) 699-1BFM.
| |
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. | 
|
CEF-ANN-5
Item 2. Code of Ethics.(a) The Registrant has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
(b) Not applicable.
(c) The Registrant has not amended its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto.
(d) The Registrant has not granted a waiver or an implicit waiver from a provision of its Code of Ethics during the period covered by the shareholder report presented in Item 1 hereto.
(e) Not applicable.
(f) The Registrant's Code of Ethics is attached as Exhibit 99.CODEETH hereto.
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that it has three audit committee financial experts serving on its audit committee, each of whom is an "independent" Trustee: Dr. Andrew F. Brimmer, Kent Dixon and Frank Fabozzi. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the Registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $34,200 for the fiscal year ended December 31, 2005 and $29,700 for the fiscal year ended December 31, 2004.
(b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported above in Item 4(a) were $2,400 for the fiscal year ended December 31, 2005 and $5,300 for the fiscal year ended December 31, 2004. The nature of these services was attest services not required by statute or regulation, overhead and out-of-pocket expenses.
(c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning were $7,500 for the fiscal year ended December 31, 2005 and $6,200 for the fiscal year ended December 31, 2004. The nature of these services was federal, state and local income and excise tax return preparation and related advice and planning and miscellaneous tax advice.(d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant were $3,100 for the fiscal year ended December 31, 2005 and $0 for the fiscal year ended December 31, 2004. The nature of these fees were the Registrant and the Advisor, BlackRock, Inc., hired the principal accountant to conduct a complete review of the Registrant’s and the Advisor’s compliance procedures and provide an attestation regarding such review.
(e) Audit Committee Pre-Approval Policies and Procedures.
(1) The Registrant has polices and procedures (the "Policy") for the pre-approval by the Registrant's Audit Committee of Audit, Audit-Related, Tax and Other Services (as each is defined in the Policy) provided by the Registrant’s independent auditor (the "Independent Auditor") to the Registrant and other "Covered Entities" (as defined below). The term of any such pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The amount of any such pre-approval is set forth in the appendices to the Policy (the "Service Pre-Approval Documents"). At its first meeting of each calendar year, the Audit Committee will approve or re-approve the Service Pre-Approval Documents for that year, together with any changes deemed necessary or desirable by the Audit Committee. The Audit Committee may, from time to time, modify the nature of the services pre-approved, the aggregate level of fees pre-approved or both.
For the purposes of the Policy, "Covered Services" means (A) all engagements for audit and non-audit services to be provided by the Independent Auditor to the Registrant and (B) all engagements for non-audit services that directly impacted the operations and financial reporting or the Registrant to be provided by the Independent Auditor to any Covered Entity. "Covered Entities" means (1) BlackRock Advisors, Inc. (the “Advisor”) or (2) any entity controlling, controlled by or under common control with the Advisor that provides ongoing services to the Registrant.
In the intervals between the scheduled meetings of the Audit Committee, the Audit Committee delegates pre-approval authority under this Policy to the Chairman of the Audit Committee (the "Chairman"). The Chairman shall report any pre-approval decisions under this Policy to the Audit Committee at its next scheduled meeting. At each scheduled meeting, the Audit Committee will review with the Independent Auditor the Covered Services pre-approved by the Chairman pursuant to delegated authority, if any, and the fees related thereto. Based on these reviews, the Audit Committee can modify, at its discretion, the pre-approval originally granted by the Chairman pursuant to delegated authority. This modification can be to the nature of services pre-approved, the aggregate level of fees approved, or both. Audit Committee may modify or withdraw this delegated authority at any time the Audit Committee determines that it is appropriate to do so.
Fee levels for all Covered Services to be provided by the Independent Auditor and pre-approved under this Policy will be established annually by the Audit Committee and set forth in the Service Pre-Approval Documents. Any increase in pre-approved fee levels will require specific pre-approval by the Audit Committee (or the Chairman pursuant to delegated authority). The terms and fees of the annual Audit services engagement for the Registrant are subject to the specific pre-approval of the Audit Committee. The Audit Committee (or the Chairman pursuant to delegated authority) will approve, if necessary, any changes in terms, conditions or fees resulting from changes in audit scope, Registrant structure or other matters.
In addition to the annual Audit services engagement specifically approved by the Audit Committee, any other Audit services for the Registrant not listed in the Service Pre-Approval Document for the respective period must be specifically pre-approved by the Audit Committee (or the Chairman pursuant to delegated authority).
Audit-Related services are assurance and related services that are not required for the audit, but are reasonably related to the performance of the audit or review of the financial statements of the Registrant and, to the extent they are Covered Services, the other Covered Entities or that are traditionally performed by the Independent Auditor. Audit-Related services that are Covered Services and are not listed in the Service Pre-Approval Document for the respective period must be specifically pre-approved by the Audit Committee (or the Chairman pursuant to delegated authority).
The Audit Committee believes that the Independent Auditor can provide Tax services to the Registrant and Covered Entities such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the Independent Auditor in connection with a transaction, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. Tax services that are Covered Services and are not listed in the Service Pre-Approval Document for the respective period must be specifically pre-approved by the Audit Committee (or the Chairman pursuant to delegated authority).
All Other services that are covered and are not listed in the Service Pre-Approval Document for the respective period must be specifically pre-approved by the Audit Committee (or the Chairman pursuant to delegated authority).
Requests or applications to provide Covered Services that require approval by the Audit Committee (or the Chairman pursuant to delegated authority) must be submitted to the Audit Committee or the Chairman, as the case may be, by both the Independent Auditor and the Chief Financial Officer of the Registrant or the respective Covered Entity, and must include a joint statement as to whether, in their view, (a) the request or application is consistent with the rules of the Securities and Exchange Commission ("SEC") on auditor independence and (b) the requested service is or is not a non-audit service prohibited by the SEC. A request or application submitted to the Chairman between scheduled meetings of the Audit Committee should include a discussion as to why approval is being sought prior to the next regularly scheduled meeting of the Audit Committee.
(2) None of the services described in each of Items 4(b) through (d) were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's accountant for services rendered to the Registrant, the Advisor (except for any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) or any entity controlling, controlled by, or under common control with the Advisor that provides ongoing services to the Registrant for each of the last two fiscal years were $10,000 for the fiscal year ended December 31, 2005 and $11,500 for the fiscal year ended December 31, 2004.
(h) The Registrant's Audit Committee of the Board of Trustees has considered whether the provision of non-audit services that were rendered to the Registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence.
Item 5. Audit Committee of Listed Registrants.
The Registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee of the Registrant is comprised of: Dr. Andrew F. Brimmer; Richard E. Cavanagh; Kent Dixon and Frank J. Fabozzi.
Item 6. Schedule of Investments.
The Registrant’s Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
The Registrant has delegated the voting of proxies relating to its voting securities to its investment advisor, BlackRock Advisors, Inc. (the "Advisor") and its sub-advisor, BlackRock Financial Management, Inc. (the "Sub-Advisor"). The Proxy Voting Policies and Procedures of the Advisor and Sub-Advisor (the "Proxy Voting Policies") are attached as an Exhibit 99.PROXYPOL hereto.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
(a)(1) The fund management team is led by a team of investment professionals at BlackRock Financial Management, Inc. (BFM), including the following individuals who have day-to-day responsibility: Rob Kapito, Vice Chairman of BlackRock since 2002, Scott Amero, Managing Director of BFM since 1990, and Daniel Chen, Vice President of BlackRock since 2002.
Mr. Kapito oversees all portfolio management and is a member of the Management Committee, Investment Strategy Group and Equity Investment Strategy Group. He is responsible for overseeing portfolio management of the Fixed Income, Equity, Liquidity and Alternative Investment Groups. He also serves as President and a Director for BlackRock’s family of Closed-End mutual funds. He was a founding member of BlackRock in 1988 and has been managing the Registrant since 2003.
Mr. Amero is a senior strategist and portfolio manager with responsibility for overseeing all fixed income sector strategy and the overall management of client portfolios. He is also the head of Global Credit research and a member of BlackRock’s Management Committee and Investment Strategy Group. He joined BlackRock in 1990 and has been co-managing the Registrant since 2003.
Mr. Chen is a member of the Investment Strategy Group. His primary responsibility is managing total return client portfolios, with a sector emphasis on corporate bonds. He joined BlackRock in 1999 as an analyst in the Portfolio Analytics Group and has been co-managing the Registrant since 2003.
(a)(2) As of December 31, 2005, Robert Kapito managed or was a member of the management team for the following client accounts:
| | | | | | | Number of | | |
| | | | | | | Accounts | | |
| | | | | | | Subject to | | Assets Subject |
| | | Number | | Assets | | a Performance | | to a |
| Type of Account | | of Accounts | | of Accounts | | Fee | | Performance Fee |
| Registered | | | | | | | | |
| Investment | | | | | | | | |
| Companies | | 5 | | $1 billion | | 0 | | $- |
| |
| Pooled Investment | | | | | | | | |
| Vehicles Other Than | | | | | | | | |
| Registered Investment | | | | | | | | |
| Companies | | 2 | | $1.819 billion | | 1 | | $1.818 billion |
| |
| Other Accounts | | 0 | | $- | | 0 | | $- |
As of December 31, 2005, Scott Amero managed or was a member of the management team for the following client accounts:
| | | | | | | Number of | | |
| | | | | | | Accounts | | |
| | | | | | | Subject to | | Assets Subject |
| | | Number | | Assets | | a Performance | | to a |
| Type of Account | | of Accounts | | of Accounts | | Fee | | Performance Fee |
| Registered | | | | | | | | |
| Investment | | | | | | | | |
| Companies | | 28 | | $17.8 billion | | 0 | | $- |
| |
| Pooled Investment | | | | | | | | |
| Vehicles Other Than | | | | | | | | |
| Registered Investment | | | | | | | | |
| Companies | | 48 | | $15.4 billion | | 4 | | $3.5 billion |
| |
| Other Accounts | | 410 | | $118.3 billion | | 21 | | $6.3 billion |
As of December 31, 2005, Daniel Chen managed or was a member of the management team for the following client accounts:
| | | | | | | Number of | | |
| | | | | | | Accounts | | |
| | | | | | | Subject to | | Assets Subject |
| | | Number | | Assets | | a Performance | | to a |
| Type of Account | | of Accounts | | of Accounts | | Fee | | Performance Fee |
| Registered | | | | | | | | |
| Investment | | | | | | | | |
| Companies | | 1 | | $668 million | | 0 | | $- |
| |
| Pooled Investment | | | | | | | | |
| Vehicles Other Than | | | | | | | | |
| Registered Investment | | | | | | | | |
| Companies | | 2 | | $373 million | | 0 | | $- |
| |
| Other Accounts | | 1 | | $121 million | | 0 | | $- |
BlackRock has built a professional working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Registrant, and BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may be the same as or different from those made to the Registrant. In addition, BlackRock, its affiliates and any officer, director, stockholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to the Registrant. BlackRock, or any of its affiliates, or any officer, director, stockholder, employee or any member of their families may take different actions than those recommended to the Registrant by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or services concerning securities of companies of which any of BlackRock’s (or its affiliates’) officers, directors or employees are directors or officers, or companies as to which BlackRock or any of its affiliates or the officers, directors and employees of any of them has any substantial economic interest or possesses material non-public information. Each portfolio manager also may manage accounts whose investment strategies may at times be opposed to the strategy utilized for the Registrant. In this connection, it should be noted that Mr. Kapito and Mr. Amero manage certain accounts that are subject to performance fees. In addition, Mr. Kapito, Mr. Amero and Mr. Chen assist in managing certain hedge funds and may be entitled to receive a portion of any incentive fees earned on such funds and a portion of such incentive fees may be voluntarily or involuntarily deferred. Additional portfolio managers may in the future manage other such accounts or funds and may be entitled to receive incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among client accounts, with no account receiving preferential treatment. To this end, BlackRock has adopted a policy that is intended to ensure that investment opportunities are allocated fairly and equitably among client accounts over time. This policy also seeks to achieve reasonable efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the particular investment discipline and client base.
(a)(3) BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a discretionary bonus, participation in various benefits programs and one or more of
the incentive compensation programs established by BlackRock such as its Long-Term Retention and Incentive Plan and Restricted Stock Program.
Base compensation. Generally, portfolio managers receive base compensation based on their seniority and/or their position with the firm.
Discretionary compensation. In addition to base compensation, portfolio managers may receive discretionary compensation, which can be a substantial portion of total compensation. Discretionary compensation can include a discretionary cash bonus as well as one or more of the following:
Long-Term Retention and Incentive Plan (LTIP) —The LTIP is a long-term incentive plan that seeks to reward certain key employees. The plan provides for the grant of awards that are expressed as an amount of cash that, if properly vested and subject to the attainment of certain performance goals, will be settled in cash and/or in BlackRock, Inc. common stock. Mr. Gary and Mr. Amero have received awards under the LTIP.
Deferred Compensation Program —A portion of the compensation paid to each portfolio manager may be voluntarily deferred by the portfolio manager into an account that tracks the performance of certain of the firm’s investment products. Each portfolio manager is permitted to allocate his deferred amounts among various options, including to certain of the firm’s hedge funds and other unregistered products. In addition, prior to 2005, a portion of the annual compensation of certain senior managers, including Mr. Kapito and Mr. Amero were mandatorily deferred in a similar manner for a number of years. Beginning in 2005, a portion of the annual compensation of certain senior managers, including Mr. Kapito and Mr. Amero is paid in the form of BlackRock, Inc. restricted stock units which vest ratably over a number of years.
Options and Restricted Stock Awards —While incentive stock options are not currently being awarded to BlackRock employees, BlackRock, Inc. previously granted stock options to key employees, including certain portfolio managers who may still hold unexercised or unvested options. BlackRock, Inc. also has a restricted stock award program designed to reward certain key employees as an incentive to contribute to the long-term success of BlackRock. These awards vest over a period of years. Mr. Kapito and Mr. Amero has been granted stock options in prior years, and Mr. Kapito and Mr. Amero participate in BlackRock’s restricted stock program.
Incentive Savings Plans —The PNC Financial Services Group, Inc., which owns approximately 71% of BlackRock, Inc.’s common stock, has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including an Employee Stock Purchase Plan (ESPP) and a 401(k) plan. The 401(k) plan may involve a company match of the employee’s contribution of up to 6% of the employee’s salary. The company match is made using BlackRock, Inc. common stock. The firm’s 401(k) plan offers a range of investment options, including registered investment companies managed by the firm. Each portfolio manager is eligible to participate in these plans.
Annual incentive compensation for each portfolio manager is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s teamwork and contribution to the overall performance of these portfolios and BlackRock. Unlike many other firms, portfolio managers at BlackRock compete against benchmarks rather than each other. In most cases, including for the
portfolio managers of the Registrant, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Registrant or other accounts are measured. A group of BlackRock, Inc.’s officers determines the benchmarks against which to compare the performance of funds and other accounts managed by each portfolio manager. The performance of Portfolio Managers for the same fund, including the Registrant, may be measured against different benchmarks because they are responsible for different segments of the portfolio. With respect to the Registrant’s portfolio managers, such benchmarks include the following:
Robert Kapito: A combination of market-based indices (e.g., The Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index), certain customized indices and certain fund industry peer groups.
Scott Amero: A combination of market-based indices (e.g., CitiGroup 1-Year Treasury Index, Merrill Lynch 1-3 Year Treasury Index, Lehman Brothers Intermediate Government Index, Lehman Brothers Intermediate Gov/Credit Index, Lehman Brothers Aggregate Index, Lehman Brothers Intermediate Aggregate Index, Lehman Brothers US Corporate High Yield 2% Issuer Cap Index and others), certain customized indices and certain fund industry peer groups.
Daniel Chen:
The group of BlackRock, Inc.’s officers then makes a subjective determination with respect to the portfolio manager’s compensation based on the performance of the funds and other accounts managed by each portfolio manager relative to the various benchmarks. This determination may take into consideration the fact that a benchmark may not perfectly correlate to the way the Registrant or other accounts are managed, even if it is the benchmark that is most appropriate for the Registrant or other account. For example, a benchmark’s return may be based on the total return of the securities comprising the benchmark, but the Registrant or other account may be managed to maximize income and not total return. Senior portfolio managers who perform additional management functions within BlackRock may receive additional compensation for serving in these other capacities.
(a)(4) As of December 31, 2005, the end of the Registrant’s most recently completed fiscal year, the dollar range of securities beneficially owned by each portfolio manager in the Registrant is shown below:
Robert Kapito: None
Scott Amero: None
Daniel Chen: None
(b) Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Companies and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The Registrant’s Nominating Committee will consider nominees to the Board of Trustees recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which include biographical information and sets forth the qualifications of the proposed nominee to the Registrant’s Secretary. There have been no material changes to these procedures.
Item 11. 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, as of that date, that the Registrant’s disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported within the required time periods and that information required to be disclosed by the Registrant in this Form N-CSR was accumulated and communicated to the Registrant’s management, including its principle executive and principle financial officers, as appropriate to allow timely decisions regarding required disclosure.
(b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a -3(d)) that occurred during the Registrant's fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a) (1) Code of Ethics attached as EX-99.CODE ETH.
(a) (2) Certifications of Principal Executive and Financial Officers pursuant to Rule 30a-2(a) under the 1940 Act attached as EX-99.CERT.
(b) Certification of Principal Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906CERT.
Proxy Voting Policies attached as EX-99.PROXYPOL.
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) BlackRock Preferred Opportunity Trust
By: /s/ Henry Gabbay
Name: Henry Gabbay
Title: Treasurer and Principal Financial Officer
Date: March 1, 2006
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: President and Principal Executive Officer
Date: March 1, 2006
By: /s/ Henry Gabbay
Name: Henry Gabbay
Title: Treasurer and Principal Financial Officer
Date: March 1, 2006
