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.
A Trust may invest in multiple series or tranches of an issuer. A different series or tranche may have varying terms and carry different associated risks.
Forward currency contracts, when used by the Trusts, help to manage the overall exposure to the foreign currency backing in 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 the foreign currency and, in doing so, better help the Trusts achieve their objectives.
| |
|
|
Notes to Financial Statements (continued) |
tuations arising from changes in the market prices of portfolio securities sold during the period.
Short sales: When the Trusts engage in a short sale, an amount equal to the proceeds received by the Trusts is reflected as an asset and an equivalent liability. The amount of the liability is subsequently “marked-to-market” to reflect the market value of the short sale. The Trusts maintain a segregated account of securities as collateral for the short sales. The Trusts are exposed to market risk based on the amount, if any, that the market value of the stock exceeds the market value of the securities in the segregated account. The Trusts are required to repay the counterparty any dividends or interest received on the security sold short.
A gain, limited to the price at which the Trusts sold the security short, or a loss, unlimited as to the 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.
Trust Preferred Stock: These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for Federal income tax purposes. These securities can have a rating that is slightly below that of the issuing company’s senior debt securities.
Credit Risk: Preferred Opportunity invests a significant portion of its assets in securities issued by financial institutions that may have exposure to commercial or residential mortgage loans and/or securities of issuers that hold mortgage and other asset-backed securities. Changes in economic conditions, including delinquencies and/or defaults of these loans and other underlying securities held by these financial institutions, may affect the value, income and/or liquidity of Preferred Opportunity’s investments. Please see the Schedule of Investments for these securities.
Segregation: In cases in which the 1940 Act, and the interpretive positions of the Securities and Exchange Commission (the “SEC”) require that each Trust segregate assets in connection with certain investments (e.g., when issued securities, reverse repurchase agreements, swaps or futures contracts), each Trust will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid debt securities having a market value at least equal to the amount that would otherwise be required to be physically segregated.
Income Taxes: It is each Trust’s policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
Effective June 29, 2007, the Trusts implemented Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including investment companies, before being measured and recognized in the financial statements. Management has evaluated the application of FIN 48 to the Trusts, and has determined that the adoption of FIN 48 does not have a material impact on the Trusts’ financial statements. The Trusts file U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Trusts’ U.S. federal tax returns remains open for the years ended December 31, 2004 through December 31, 2006. The statute of limitations on the Trust’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Dividends and Distributions: Dividends to common shareholders from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. Dividends and distributions to preferred shareholders are accrued and determined as described in Note 5. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. For the year ended December 31, 2007, a portion of the dividends and distributions were characterized as a tax return of capital.
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 including investment valuations 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 and such differences may be material.
Deferred Compensation and BlackRock Closed-End Share Equivalent Investment Plan: Under the deferred compensation plan approved by each Trust’s Board, non-interested Trustees/Directors (“Independent Trustees”) 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 Independent Trustees. These amounts are shown on the Statement of Assets and Liabilities as “Investments in Affiliates”. This has approximately the same economic effect for the Independent Trustees as if the Independent Trustees had invested the deferred amounts directly 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
| | | |
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28 | ANNUAL REPORT | DECEMBER 31, 2007 | |
| |
|
|
Notes to Financial Statements (continued) |
selected by the Independent Trustees in order to match its deferred compensation obligations.
Other: Expenses that are directly related to one of the Trusts are charged directly to that Trust. Other operating expenses are generally prorated to the Trusts on the basis of relative net assets of all the BlackRock Closed-End Funds.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
Each Trust has an Investment Advisory Agreement (“the Agreements”) with the Advisor. BlackRock Financial Management, Inc. (“BFM”), a wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to the Trusts. Merrill Lynch & Co., Inc. (“Merrill Lynch”) and The PNC Financial Services Group, Inc. are principal owners of BlackRock, Inc. The Agreements for the Trusts cover both investment advisory and administration services.
The investment advisory fee paid to the Advisor is computed weekly and payable monthly based on an annual rate equal to 0.75% of Global’s and 0.65% of Preferred Opportunity’s average weekly managed assets. “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). The investment advisory fee paid to the Advisor is computed weekly and payable monthly based on an annual rate equal to 0.75% of the first $200 million of High Income’s average weekly managed assets and 0.50% thereafter. The Advisor has voluntarily agreed to waive a portion of the investment advisory fees or other expenses on Global as a percentage of its average weekly managed assets as follows: 0.20% for the first five years of the Trust’s operations (through August 30, 2009), 0.15% in year six (through August 30, 2010), 0.10% in year seven (through August 30, 2011) and 0.05% in year eight (through August 30, 2012).
The Advisor pays BFM fees for its sub-advisory services.
Pursuant to the Investment Management Agreements, the Advisor provides continuous supervision of each Trust’s 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 of each Trust. Each Trust bears all other costs and expenses, which include reimbursements to the Advisor for employee costs related to pricing and secondary market support. These expenses are generally pro-rated to the Trusts on the basis of the relative net assets of certain BlackRock Closed-End Funds. For the year ended December 31, 2007, the Trusts reimbursed the Advisor in the following amounts, which are included in miscellaneous expenses in the Statements of Operations:
| | | | |
| | | | |
Trust | | Amount | |
| | | | |
Global | | | $ 23,362 | |
High Income | | | 6,766 | |
Preferred Opportunity | | | 21,589 | |
Pursuant to the terms of the custody agreements, each Trust may receive earnings credits from its custodian for positive cash balances maintained, which are used to offset custody fees. These credits are shown on the Statements of Operations as “fees paid indirectly”.
Merrill Lynch, through its affiliated broker dealer Merrill Lynch, Pierce, Fenner & Smith Incorporated, earned $41,662 in commissions on the execution of portfolio security transactions from Preferred Opportunity for the year ended December 31, 2007.
Certain officers and/or directors of the Trusts are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, dollar rolls and U.S. government securities, for the year ended December 31, 2007 were as follows:
| | | | | | | |
| | | | | | |
Trust | | Purchases | | Sales | |
| | | | | | |
Global | | | $ 283,515,242 | | | $ 341,552,426 | |
High Income | | | 134,872,800 | | | 144,181,920 | |
Preferred Opportunity | | | 580,275,382 | | | 624,971,089 | |
| | | | | | |
| | | |
|
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| ANNUAL REPORT | DECEMBER 31, 2007 | 29 |
|
|
|
Notes to Financial Statements (continued) |
Details of open forward currency contracts held in Global at December 31, 2007 were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Foreign
Currency | | Settlement
Date | | Contract to
Purchase/
Receive | | Value at
Settlement
Date | | Value at
December 31,
2007 | | Unrealized
Appreciation
(Depreciation) | |
| | | | | | | | | | | | |
Bought: | | | | | | | | | | | | | | | | |
Euro | | | 1/23/08 | | $ | 1,285,000 | | $ | 1,877,688 | | $ | 1,879,516 | | $ | 1,828 | |
| | | | | | | | | | | | | | | | |
Sold: | | | | | | | | | | | | | | | | |
British Pound | | | 1/23/08 | | $ | 10,507,500 | | $ | 21,347,389 | | $ | 20,902,119 | | $ | 445,270 | |
Euro | | | 1/23/08 | | | 84,078,132 | | | 119,138,713 | | | 122,977,602 | | | (3,838,889 | ) |
Mexican Peso | | | 1/23/08 | | | 18,666,417 | | | 1,716,673 | | | 1,707,602 | | | 9,071 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | $ | (3,384,548 | ) |
| | | | | | | | | | | | | | | | |
Details of open credit default swap agreements at December 31, 2007 were as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Trust | | Notional
Amount
(000) | | Fixed Rate | | Counter Party | | Effective Date | | Termination Date | | Unrealized
Appreciation
(Depreciation) | |
| | | | | | | | | | | | | | |
Global | | $ | 1,800 | | | 2.000%(a) | | | Deutsche Bank | | | 03/01/07 | | | 03/20/12 | | | $ | (119,977 | ) | |
| | $ | 2,000 | | | 2.100%(b) | | | Lehman Brothers | | | 03/03/07 | | | 03/20/12 | | | | (61,932 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | (181,909 | ) | |
| | | | | | | | | | | | | | | | | | | | | |
Preferred | | $ | 1,900 | | | 3.200%(c) | | | Goldman Sachs | | | 12/12/07 | | | 12/20/12 | | | $ | 59,435 | | |
Opportunity | | $ | 1,900 | | | 3.200%(c) | | | Citibank | | | 12/12/07 | | | 12/20/12 | | | | 59,435 | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 118,870 | | |
| | | | | | | | | | | | | | | | | | | | | |
| |
(a) | The terms were to receive the quarterly notional amount multiplied by the fixed rate and to pay the counterparty, upon an event of default of BAA Ferovial Junior Loan, the par value of the notional amount of BAA Ferovial. |
(b) | The terms were to receive the quarterly notional amount multiplied by the fixed rate and to pay the counterparty, upon an event of default of PagesJaunes Second Lien Loan, the par value of the notional amount of PagesJaunes Groupe SA. |
(c) | The terms were to pay the quarterly notional amount multiplied by the fixed rate and to receive from the counterparty, upon an event of default of Washington Mutual, Inc., the par value of the notional amount of Washington Mutual, Inc. |
| | | |
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30 | ANNUAL REPORT | DECEMBER 31, 2007 | |
|
|
|
Notes to Financial Statements (continued) |
4. Income Tax Information:
It is each Trust’s policy to comply with requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required.
Dividends from net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital, undistributed net investment income, or accumulated net realized gain, as appropriate, in the period the difference arise.
Reclassification of Capital Accounts: Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the table below summarizes the amounts reclassified per Trust during the current year between undistributed (distributions in excess of) net investment income, accumulated net realized gain/(loss) and paid-in capital in excess of par as a result of permanent differences attributable to amortization methods of premiums and discounts on fixed income securities, accounting for swap agreements, transactions involving foreign securities and currencies, expiration of capital loss carryfor-wards and other differences between financial reporting and tax accounting were classified to the following accounts. These reclassifications have no effect on net assets or net asset values per share.
| | | | | | | | | | | | | | | | |
| | | | | | | | |
Trust | | Undistributed Net
Investment Income/
Distributions
in Excess of Net
Investment
Income | | Accumulated
Net Realized
Gain/(Loss) | | Paid-In
Capital in
Excess of Par | |
| | | | | | | | |
Global | | | $ | (7,272,230 | ) | | | $ | 7,272,230 | | | | $ | — | | |
High Income | | | | 832,748 | | | | | 23,305,589 | | | | | (24,138,337 | ) | |
Preferred Opportunity | | | | 4,822 | | | | | (4,822 | ) | | | | — | | |
| | | | | | | | | | | | | | | | | |
The tax character of distributions paid during the year ended December 31, 2007 and 2006 were as follows:
| | | | | | | | | | | | | | | | | |
| | December 31, 2007 | |
| | | |
Distributions Paid From: | | Ordinary
Income | | Non-taxable
Return of
Capital | | Long-Term
Capital Gains | | Total
Distributions | |
| | | | | | | | | | |
Global | | $ | 39,557,202 | | $ | 8,473,282 | | | $ | — | | | | $ | 48,030,484 | | |
High Income | | | 12,923,299 | | | — | | | | — | | | | | 12,923,299 | | |
Preferred Opportunity | | | 40,678,314 | | | 2,820,986 | | | | 400,000 | | | | | 43,899,300 | | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | December 31, 2006 | |
| | | |
Distributions Paid From: | | Ordinary
Income | | Long-Term
Capital Gains | | Total
Distributions | |
| | | | | | | | |
Global | | $ | 45,130,597 | | | $ | 640,846 | | | | $ | 45,771,443 | | |
High Income | | | 12,792,689 | | | | — | | | | | 12,792,689 | | |
Preferred Opportunity | | | 42,381,795 | | | | 4,836,485 | | | | | 47,218,280 | | |
| | | | | | | | | | | | | | | |
As of December 31, 2007, the components of distributable earnings on a tax basis were as follows:
| | | | | | | |
| | | | | | |
Trust | | Undistributed
Ordinary
Income | Unrealized
Net
Losses | |
| | | | | | |
Global | | $ | — | | $ | (17,200,344 | ) |
High Income | | | 469,701 | | | (12,299,388 | ) |
Preferred Opportunity | | | — | | | (54,038,067 | ) |
| | | | | | | | |
The difference between book-basis and tax-basis unrealized gains/losses is attributable primarily to amortization methods of premiums and discounts on fixed income securities, the deferral of post-October capital losses for tax purposes, the tax deferral of losses on wash sales, accounting for swap agreements, the realization for tax purposes of unrealized gains/losses on certain future and foreign currency contracts, book/tax differences in the accrual of income on securities in default, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies, deferred compensation to trustees and other temporary differences.
For federal income tax purposes, the following Trusts had capital loss carry-forwards at December 31, 2007. These amounts may be used to offset future realized capital gains, if any:
| | | | | | | |
Trust | | Capital Loss
Carryforward
Amount | | Expires | |
| | | | | | |
Global | | $ | 3,268,804 | | | 2015 | |
| | | | | | | |
High Income | | $ | 35,363,213 | | | 2008 | |
| | | 55,878,284 | | | 2009 | |
| | | 102,576,339 | | | 2010 | |
| | | 28,467,396 | | | 2011 | |
| | | 2,339,279 | | | 2012 | |
| | | 7,043,976 | | | 2014 | |
| | | | | | | |
| | $ | 231,668,487 | | | | |
| | | | | | | |
Preferred Opportunity | | $ | 18,184,893 | | | 2015 | |
| | | | | | | |
5. Capital:
There are an unlimited number of $0.001 par value common shares authorized for Global and Preferred Opportunity. There are an unlimited number of no par value shares authorized for High Income. At December 31, 2007, the shares owned by affiliates of the Advisor of Global were 7,551.
During the year ended December 31, 2007 and 2006, the Trusts issued the following additional shares under their respective dividend reinvestment plans:
| | | | | | | |
| | | | | | |
Trust | | December 31, 2007 | | December 31, 2006 | |
| | | | | | |
Global | | 42,574 | | | 21,644 | | |
High Income | | — | | | 127,532 | | |
Preferred Opportunity | | 30,981 | | | 49,079 | | |
| | | |
As of December 31, 2007, Global and Preferred Opportunity have the following series of Auction Preferred Shares outstanding as listed in the table below. The Auction 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 | | | T7 | | | 2,944 | |
| | W7 | | | 3,246 | | | | Opportunity | | | W7 | | | 2,944 | |
| | R7 | | | 3,246 | | | | | | | R7 | | | 2,944 | |
| | | |
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| ANNUAL REPORT | DECEMBER 31, 2007 | 31 |
|
|
|
Notes to Financial Statements (concluded) |
Dividends on seven-day Auction Preferred Shares are cumulative at a rate which is reset every seven days based on the results of an auction. If the Auction Preferred Shares are unable to be remarketed on the remarketing date as part of the auction process, the Trusts would be required to pay the maximum applicable rate on the Auction Preferred Shares to holders of such shares for successive dividend periods until such time as the shares are successfully remarketed. The maximum applicable rate on Auction Preferred Shares for Global is the higher of 125% of the 7-day Telerate/BBA LIBOR rate or 125% over the 7-day Telerate/BBA LIBOR rate and for Preferred Opportunity is 150% of the Interest Equivalent of the 30-day commercial paper rate. During the year ended December 31, 2007, Auction Preferred Shares of the Trusts were successfully remarketed at each remarketing date. The dividend ranges on the Auction Preferred Shares for Global and Preferred Opportunity for the year ended December 31, 2007 were as follows:
| | | | | | | | | | | | | |
| | | | | | | | | | |
Trust | | Series | | Low | | High | | Average | |
| | | | | | | | | | |
Global | | | T7 | | 4.15 | % | | 6.75 | % | | 5.16 | % | |
| | | W7 | | 4.75 | | | 6.45 | | | 5.16 | | |
| | | R7 | | 4.80 | | | 6.40 | | | 5.16 | | |
Preferred Opportunity | | | T7 | | 4.80 | | | 6.30 | | | 5.19 | | |
| | | W7 | | 4.80 | | | 6.40 | | | 5.18 | | |
| | | R7 | | 4.88 | | | 6.25 | | | 5.21 | | |
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 Auction Preferred Shares and any other borrowings would be less than 200%.
The Auction 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 Auction 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 Auction 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 Auction Preferred Shares, voting as a separate class, are also entitled to elect two Trustees for Global and Preferred Opportunity, respectively. In addition, the 1940 Act requires that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding Auction Preferred Shares, voting separately as a class would be required to (a) adopt any plan of reorganization that would adversely affect the Auction Preferred Shares, (b) change a Trust’s sub-classification as a closed-end investment company or change its fundamental investment restrictions and (c) change its business so as to cease to be an investment company.
6. Subsequent Events:
During the period February 13, 2008 to February 29, 2008, the Auction Preferred Shares of each Trust were not successfully remarketed. As a result, the Auction Preferred Share dividend rates were reset to the maximum applicable rate which ranged from 4.37% to 4.65% for the Trusts during the period. Unsuccessful remarketing during the auction process is not an event of default or credit but rather a liquidity event for the holders of the Auction Preferred Shares.
Each Trust paid a monthly distribution to holders of Common Shares on February 29, 2008 to shareholders of record on February 15, 2008. The per share amounts were as follows:
| | | | |
| | | | |
Trust | | Common Dividend
Per Share | |
| | | | |
Global | | $ | 0.1250 | |
High Income | | | 0.0182 | |
Preferred Opportunity | | | 0.1250 | |
The dividends declared on Auction Preferred Shares for the period January 1, 2008 to January 31, 2008 for Global and Preferred Opportunity were as follows:
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
Trust | | Series | | Dividends
Declared | | Trust | | Series | | Dividends
Declared | |
| | | | | | | | | | | | |
Global | | | T7 | | $ | 277,565 | | | Preferred | | | T7 | | $ | 263,252 | |
| | | W7 | | | 358,196 | | | Opportunity | | | W7 | | | 327,491 | |
| | | R7 | | | 354,268 | | | | | | R7 | | | 322,221 | |
| | | |
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32 | ANNUAL REPORT | DECEMBER 31, 2007 | |
|
|
|
Report of Independent Registered Public Accounting Firm |
| |
To the Directors/Trustees and Shareholders of |
| BlackRock Global Floating Rate Income Trust |
| BlackRock High Income Shares |
| BlackRock Preferred Opportunity Trust |
| (collectively the “Trusts”): |
We have audited the accompanying statements of assets and liabilities of the Trusts, including the portfolios of investments, as of December 31, 2007, and the related statements of operations and cash flows (for BlackRock High Income Shares) 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. The Financial Highlights of BlackRock High Income Shares for each of the two years in the period ended December 31, 2004 were audited by other auditors whose report, dated February 22, 2005, expressed an unqualified opinion on the financial highlights.
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 their 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 Trusts’ 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, 2007, 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, 2007, the results of their operations and cash flows (for BlackRock High Income Shares) 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.
Deloitte & Touche LLP
Boston, Massachusetts
February 29, 2008
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| ANNUAL REPORT | DECEMBER 31, 2007 | 33 |
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|
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The Benefits and Risks of Leveraging (unaudited) |
The Trusts may utilize leveraging through borrowings or issuance of short-term debt securities or shares of Auction Preferred Stock. The concept of leveraging is based on the premise that the cost of assets to be obtained from leverage will be based on short-term interest rates on borrowings or dividend rates on the Auction Preferred Stock, which normally will be lower than the income earned by each Trust on its longer-term portfolio investments. To the extent that the total assets of each Trust (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, each Trust’s Common Stock shareholders will be the beneficiaries of the incremental yield.
As of December 31, 2007, the Trusts had the following leverage amounts to total net assets before the deduction of leverage of:
| | | | |
| |
Trust | | Leverage | |
| |
Global | | | 37% | |
High Income | | | 25% | |
Preferred Opportunity | | | 38% | |
Leverage creates risks for holders of Common Stock including the likelihood of greater net asset value and market price volatility. In addition, there is the risk that fluctuations in interest rates on borrowings or in the dividend rates on any Auction Preferred Stock may reduce the Common Stock’s yield and negatively impact its net asset value and market price. If the income derived from securities purchased with assets received from leverage exceeds the cost of leverage, each Trust’s net income will be greater than if leverage had not been used. Conversely, if the income from the securities purchased is not sufficient to cover the cost of leverage, each Trust’s net income will be less than if leverage had not been used, and therefore the amount available for distribution to Common Stock shareholders will be reduced.
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34 | ANNUAL REPORT | DECEMBER 31, 2007 | |
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|
Dividend Reinvestment Plans (unaudited) |
Pursuant to each Trust’s respective Dividend Reinvestment Plan (the “Plan”), shareholders of High Income may elect, while shareholders of Global and 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 each Trust 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 is paid by each Trust. However, each participant pays 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 does 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.
From time to time in the future, the Trusts may effect redemptions and/or repurchases of its Auction Preferred Shares as provided in the applicable constituent instruments or as agreed upon by the Trust and holders of Auction Preferred Shares. The Trusts would generally effect such redemptions and/or repurchases to the extent necessary to maintain applicable asset coverage requirements.
|
BlackRock Privacy Principles |
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their nonpublic personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to service Client accounts. These nonaffiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to nonpublic personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the nonpublic personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
| | | |
| | | |
| ANNUAL REPORT | DECEMBER 31, 2007 | 35 |
|
|
|
Additional Information (unaudited) |
TAX NOTICE
The following information is provided with respect to the distributions paid by the BlackRock Closed-End Funds for the fiscal year ended December 31, 2007:
| | | | | | | | | | | | | | | | | | | |
| | Share Class
(Common/
Preferred) | | Payable
Date | | Federal
Obligation
Interest1,2 | | Qualifying
Dividend
Income for
Individuals2 | | Dividends
Qualifying
for the
Dividends
Received
Deduction for
Corporations2 | | Interest
Related
Dividends
for Non-U.S.
Residents2,3 | | Long-Term
Capital
Gains Per
Share ($) | |
| | | | | | | | | | | | | | | | | | | | |
Global Floating Rate
Income Trust (BGT) | | Common | | 1/31/07 – 12/18/07 | | — | | | — | | | — | | | 85.39 | % | | — | |
| | Series T7 | | 1/4/07 – 1/2/08 | | — | | | — | | | — | | | 83.97 | % | | — | |
| | Series W7 | | 1/4/07 – 12/27/07 | | — | | | — | | | — | | | 83.97 | % | | — | |
| | Series R7 | | 1/5/07 – 12/28/07 | | — | | | — | | | — | | | 83.97 | % | | — | |
High Income Shares (HIS) | | Common | | 2/28/07 – 1/8/08 | | — | | | — | | | — | | | 92.82 | % | | — | |
| | | | | | | | | | | | | | | | | | | |
Preferred Opportunity
Trust (BPP) | | Common | | 2/28/07 | | 3.49 | % | | 16.15 | % | | 4.96 | % | | 41.35 | % | | 0.017017 | |
| | Common | | 3/30/07 – 12/18/07 | | 3.49 | % | | 10.33 | % | | 6.52 | % | | 54.39 | % | | — | |
| | Series T7 | | 1/4/07 | | — | | | — | | | — | | | — | | | 9.875340 | |
| | Series T7 | | 1/4/07 – 1/2/08 | | 3.49 | % | | 10.32 | % | | 6.52 | % | | 54.39 | % | | — | |
| | Series W7 | | 1/4/07 | | — | | | — | | | — | | | — | | | 9.886209 | |
| | Series W7 | | 1/4/07 – 12/27/07 | | 3.49 | % | | 10.32 | % | | 6.52 | % | | 54.39 | % | | — | |
| | Series R7 | | 1/5/07 | | — | | | — | | | — | | | — | | | 9.956182 | |
| | Series R7 | | 1/5/07 – 12/28/07 | | 3.49 | % | | 10.32 | % | | 6.52 | % | | 54.39 | % | | — | |
| |
1 | The law varies in each state as to whether and what percentage of dividend income attributable to Federal Obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income taxes. |
2 | Expressed as a percentage of the ordinary income distributions paid. |
3 | Represents the portion of the ordinary distributions paid that are exempt from U.S withholding tax for nonresident aliens and foreign corporations. |
Shareholder Meetings
The Joint Annual Meeting of Shareholders was held on August 16, 2007 for shareholders of record as of June 20, 2007, to elect director or trustee nominees of each Trust. This proposal was part of the reorganization of the Trust’s Boards of Trustees (the “Boards”) to take effect on or about November 1, 2007. Each Board is organized into three classes, one class of which is elected annually. Each Trustee serves a three-year term concurrent with the class into which he or she is elected.
Approved the Class I Directors/Trustees as follows:
| | | | | | | | | | | | | |
| |
| | G. Nicholas Beckwith, III | | Kent Dixon | | R. Glenn Hubbard | |
| | | | | | | |
| | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | |
| |
Global | | 19,824,634 | | 167,865 | | 19,828,588 | | 163,911 | | 19,827,918 | | 164,581 | |
High Income | | 40,224,388 | | 1,077,478 | | 40,183,462 | | 1,118,404 | | 40,193,783 | | 1,108,083 | |
Preferred Opportunity | | 16,847,821 | | 207,618 | | 16,832,503 | | 222,936 | | 16,842,548 | | 212,891 | |
| | | | | | | | | | | | | |
| |
| | W. Carl Kester1 | | Robert S. Salomon, Jr. | | | | | |
| | | | | | | | | |
| | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | | | | | |
| |
Global | | 7,930 | | 2 | | 19,824,194 | | 168,305 | | | | | |
High Income | | 40,226,915 | | 1,074,951 | | 40,220,179 | | 1,081,687 | | | | | |
Preferred Opportunity | | 8,107 | | 6 | | 16,829,133 | | 226,306 | | | | | |
| |
1 | Voted on by holders of Auction Preferred Shares only for Global and Preferred Opportunity. |
| | | |
| | | |
36 | ANNUAL REPORT | DECEMBER 31, 2007 | |
| |
|
|
Additional Information (unaudited) (concluded) |
Approved the Class II Directors/Trustees as follows:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Richard S. Davis | | Frank J. Fabozzi1 | | James T. Flynn | |
| | | | | | | |
| | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | |
| | | | | | | | | | | | | | |
Global | | | 19,816,678 | | | 175,821 | | | 7,930 | | | 2 | | | 19,832,108 | | | 160,391 | |
High Income | | | 40,220,386 | | | 1,081,480 | | | 40,227,915 | | | 1,073,951 | | | 40,218,280 | | | 1,083,586 | |
Preferred Opportunity | | | 16,846,273 | | | 209,166 | | | 8,106 | | | 7 | | | 16,833,348 | | | 222,091 | |
| | | | | | | | | | | | | | | | | | | | |
| | Karen P. Robards | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Votes For | | Votes
Withheld | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Global | | | 19,824,257 | | | 168,242 | | | | | | | | | | | | | |
High Income | | | 40,245,111 | | | 1,056,755 | | | | | | | | | | | | | |
Preferred Opportunity | | | 16,845,457 | | | 209,982 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Approved the Class III Directors/Trustees as follows: | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Richard E. Cavanagh | | Kathleen F. Feldstein | | Henry Gabbay | |
| | | | | | | |
| | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | | Votes For | | Votes
Withheld | |
| | | | | | | | | | | | | | |
Global | | | 19,826,048 | | | 166,451 | | | 19,824,109 | | | 168,390 | | | 19,812,193 | | | 180,306 | |
High Income | | | 40,221,463 | | | 1,080,403 | | | 40,201,928 | | | 1,099,938 | | | 40,219,458 | | | 1,082,408 | |
Preferred Opportunity | | | 16,844,904 | | | 210,535 | | | 16,843,094 | | | 212,345 | | | 16,845,523 | | | 209,916 | |
| | | | | | | | | | | | | | | | | | | | |
| | Jerrold B. Harris | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | Votes For | | Votes
Withheld | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Global | | | 19,829,473 | | | 163,026 | | | | | | | | | | | | | |
High Income | | | 40,215,627 | | | 1,086,239 | | | | | | | | | | | | | |
Preferred Opportunity | | | 16,835,521 | | | 219,918 | | | | | | | | | | | | | |
Certain Trusts had an additional proposal (Proposal #2) to amend its respective Declaration of Trust to increase the maximum number of Board Members to 15:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | Votes For | | Votes
Against | | Votes
Abstain | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Global | | | 19,452,738 | | | 374,971 | | | 164,790 | | | | | | | | | | |
Preferred Opportunity | | | 16,639,156 | | | 313,207 | | | 103,075 | | | | | | | | | | |
| |
1 | Voted on by holders of Auction Preferred Shares only for Global and Preferred Opportunity. |
Each Trust listed for trading on the New York Stock Exchange (“NYSE”) has filed with the NYSE its chief executive officer certification regarding compliance with the NYSE’s listing standards and have 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.
During the period, there were no material changes in any Trust’s investment objective or policies or to any Trust’s charters or by-laws that were not approved by the shareholders or in the principal risk factors associated with investment in the Trusts. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Trusts’ portfolio.
Quarterly performance and other information regarding the Trusts may be found on BlackRock’s website, which can be accessed at http://www.blackrock.com. 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.
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| | | |
| ANNUAL REPORT | DECEMBER 31, 2007 | 37 |
| |
|
|
Section 19 Notices (unaudited) |
The amounts and sources of distributions reported are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources for tax reporting purposes will depend upon the Trust’s investment experience during the remainder of its fiscal year and may be subject to changes based on the tax regulations. The Trust will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total Fiscal Year to Date Cumulative
Distributions by Character | | Percentage of Fiscal Year to Date Cumulative
Distributions by Character | |
| | | | | |
Trust | | Net
Investment
Income | | Net
Realized
Capital
Gains | | Return
of
Capital | | Total Per
Common
Share | | Net
Investment
Income | | Net
Realized
Capital
Gains | | Return
of
Capital | | Total Per
Common
Share | |
| | | | | |
Preferred Opportunity | | $ | 1.34 | | $ | — | | $ | 0.30 | | $ | 1.64 | | 82 | % | | 0 | % | | 18 | % | | 100 | % | |
The Trust estimates that it has distributed more than its income and net realized gains; therefore, a portion of the distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Trust is paid back to the shareholder. A return of capital does not necessarily reflect the Trust’s investment performance and should not be confused with ‘yield’ or ‘income’.
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| | | |
38 | ANNUAL REPORT | DECEMBER 31, 2007 | |
|
|
|
Officers and Directors/Trustees (unaudited) |
| | | | | | | | | | |
Name, Address and
Year of Birth | | Position(s) Held
with Fund | | Length of
Time Served | | Principal Occupation(s)
During Past Five Years | | Number of
BlackRock-
Advised Funds
and Portfolios
Overseen | | Public Directorships |
| | | | | | | | | | | |
Non-Interested Directors1 | | | | | | | | |
| | | | | | | | | | | |
|
G. Nicholas Beckwith, III
40 East 52nd Street
New York, NY 10022
1945 | | Director | | 2007 to present | | Chairman and Chief Executive Officer, Arch Street Management, LLC since 2005; Chairman and CEO, Beckwith Blawnox Property LLC since 2005; Chairman and CEO, Beckwith Clearfield Property LLC since 2005; Chairman and CEO, Beckwith Delmont Property LLC since 2005; Chairman and CEO, Beckwith Erie Property LLC since 2005; Chairman, Penn West Industrial Trucks LLC since 2005; Chairman, President and Chief Executive Officer, Beckwith Machinery Company from 1969 to 2005; Chairman of the Board of Directors, University of Pittsburgh Medical Center since 2002; Board of Directors, Shady Side Hospital Foundation since 1977; Beckwith Institute for Innovation In Patient Care since 1991; Member, Advisory Council on Biology and Medicine, Brown University since 2002; Trustee, Claude Worthington Benedum Foundation since 1977; Board of Trustees, Chatham College, University of Pittsburgh since 2003; Emeritus Trustee, Shady Side Academy since 1977. | | 111 Funds
108 Portfolios | | None |
|
| | | | | | | | | | | |
|
Richard E. Cavanagh
40 East 52nd Street
New York, NY 10022
1946 | | Director and Chairman of the Board of Directors | | 1994 to present | | Trustee, Aircraft Finance Trust (AFT) since 1999; Director, The Guardian Life Insurance Company of America since 1998; Chairman and Trustee, Educational Testing Service (ETS) since 1997; Director, the Fremont Group since 1996; President and Chief Executive Officer of The Conferences Board, Inc. (global business research) from 1995 to 2007. | | 112 Funds
109 Portfolios | | Arch Chemical (chemicals and allied Products) |
|
| | | | | | | | | | | |
|
Kent Dixon
40 East 52nd Street
New York, NY 10022
1937 | | Director and Member of the Audit Committee | | 1988 to present | | Consultant/Investor since 1988. | | 112 Funds
109 Portfolios | | None |
|
| | | | | | | | | | | |
|
Frank J. Fabozzi
40 East 52nd Street
New York, NY 10022
1948 | | Director and Member of the Audit Committee | | 1988 to present | | Consultant/Editor of The Journal of Portfolio Management; Yale University, School of Management, Professor in the Practice of Finance and Becton Fellow since 2006; Adjunct Professor of Finance and Becton Fellow from 2005 to 2006; Professor in the practice of Finance from 2003 to 2005; Adjunct Professor of Finance from 1994 to 2003; Author and Editor. | | 112 Funds
109 Portfolios | | None |
|
| | | | | | | | | | | |
|
Kathleen F. Feldstein
40 East 52nd Street
New York, NY 10022
1941 | | Director | | 2005 to present | | President of Economic Studies, Inc. (a Belmont MA-based private economic consulting firm) since 1987; Chair, Board of Trustees, McLean Hospital since 2000. Member of the Board of Partners Community Healthcare, Inc. since 2005; Member of the Board of Partners HealthCare and Sherrill House since 1990; Trustee, Museum of Fine Arts, Boston since 1992 and a Member of the Visiting Committee to the Harvard University Art Museum since 2003; Trustee, The Committee for Economic Development (research organization of business leaders and educators) since 1990; Member of the Advisory Board to the International School of Business, Brandeis University since 2002. | | 112 Funds
109 Portfolios | | The McClatchy Company |
|
| | | | | | | | | | | |
|
| |
1 | Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. |
| | | |
| | | |
| ANNUAL REPORT | DECEMBER 31, 2007 | 39 |
|
|
|
Officers and Directors/Trustees (unaudited) (continued) |
| | | | | | | | | | |
Name, Address and
Year of Birth | | Position(s) Held
with Fund | | Length of
Time Served | | Principal Occupation(s)
During Past Five Years | | Number of
BlackRock-
Advised Funds
and Portfolios
Overseen | | Public Directorships |
| | | | | | | | | | | |
Non-Interested Directors1 | | | | | | | | |
| | | | | | | | | | | |
|
James T. Flynn
40 East 52nd Street
New York, NY 10022
1939 | | Director and Member of the Audit Committee | | 2007 to present | | Chief Financial Officer of JP Morgan & Co., Inc. from 1990 to 1995 and an employee of JP Morgan in various capacities from 1967 to 1995. | | 111 Funds
108 Portfolios | | None |
|
| | | | | | | | | | | |
|
Jerrold B. Harris
40 East 52nd Street
New York, NY 10022
1942 | | Director | | 2007 to present | | President and Chief Executive Officer, VWR Scientific Products Corporation from 1989 to 1999; Trustee, Ursinus College (education) since 2000; Director, Troemner LLC (scientific equipment) since 2000. | | 111 Funds
108 Portfolios | | BlackRock Kelso Capital Corp. |
|
| | | | | | | | | | | |
|
R. Glenn Hubbard
40 East 52nd Street
New York, NY 10022
1958 | | Director | | 2004 to present | | Dean of Columbia Business School since 2004; Columbia faculty member since 1988; Co-director of Columbia Business School’s Entrepreneurship Program 1997 to 2004; Visiting Professor at the John F. Kennedy School of Government at Harvard University and the Harvard Business School since 1985, as well as the University of Chicago since 1994; Deputy Assistant Secretary of the U.S. Treasury Department for Tax Policy from 1991 to 1993; Chairman of the U.S. Council of Economic Advisers under the President of the United States from 2001 to 2003. | | 112 Funds
109 Portfolios | | ADP (data and information services), KKR Financial Corporation, Duke Realty, Metropolitan Life Insurance Company. |
|
| | | | | | | | | | | |
|
W. Carl Kester
40 East 52nd Street
New York, NY 10022
1951 | | Director and Member of the Audit Committee | | 2007 to present | | Deputy Dean for Academic Affairs, Harvard Business School since 2006; Mizuho Financial Group, Professor of Finance, Harvard Business School; Unit Head, Finance from 2005 to 2006; Senior Associate Dean and Chairman of the MBA Program of Harvard Business School from 1999 to 2005, Member of the faculty of Harvard Business School since 1981. Independent Consultant since 1978. | | 111 Funds
108 Portfolios | | None |
|
| | | | | | | | | | | |
|
Karen P. Robards
40 East 52nd Street
New York, NY 10022
1950 | | Director and Chairperson of the Audit Committee | | 2007 to present | | Partner of Robards & Company, LLC (financial advisory firm) since 1987; Formerly an investment banker with Morgan Stanley for more than ten years; Director of Enable Medical Corp. from 1996 to 2005; Director of AtriCure, Inc. (medical devices) since 2000; Director of Care Investment Trust, Inc. (healthcare REIT) since 2007; Co-founder and Director of the Cooke Center for Learning and Development (not-for-profit organization) since 1987. | | 111 Funds
108 Portfolios | | AtriCure Inc. (medical devices) Care Investment Trust, Inc. (healthcare REIT) |
|
| | | | | | | | | | | |
|
Robert S. Salomon, Jr.
40 East 52nd Street
New York, NY 10022
1936 | | Director and Member of the Audit Committee | | 2007 to present | | Principal of STI Management (investment adviser) from 1994 to 2005; Chairman and CEO of Salomon Brothers Asset Management Inc. from 1992 to 1995; Chairman of Salomon Brothers Equity Mutual Funds from 1992 to 1995; regular columnist with Forbes Magazine from 1992 to 2002; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers Inc. from 1975 to 1991; Trustee, Commonfund from 1980 to 2001. | | 111 Funds
108 Portfolios | | None |
| | | | | | | | | | | |
|
Interested Directors2 | | | | | | | | |
| | | | | | | | | | | |
|
Richard S. Davis
40 East 52nd Street
New York, NY 10022
1945 | | Director | | 2007 to present | | Managing Director, BlackRock, Inc. since 2005; Chief Executive Officer, State Street Research & Management Company from 2000 to 2005; Chairman of the Board of Trustees, State Street Research mutual funds (“SSR Funds”) from 2000 to 2005; Senior Vice President, Metropolitan Life Insurance Company from 1999 to 2000; Chairman SSR Realty from 2000 to 2004. | | 184 Funds
289 Portfolios | | None |
|
| | | | | | | | | | | |
| |
1 | Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. |
2 | Messrs. Davis and Gabbay are both “interested persons,” as defined in the Investment Company Act of 1940, of the Fund based on their positions with BlackRock, Inc. and its affiliates. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. |
| | | |
| | | |
40 | ANNUAL REPORT | DECEMBER 31, 2007 | |
|
|
|
Officers and Directors/Trustees (unaudited) (concluded) |
| | | | | | | | | | |
Name, Address and
Year of Birth | | Position(s) Held
with Fund | | Length of
Time Served | | Principal Occupation(s)
During Past Five Years | | Number of
BlackRock-
Advised Funds
and Portfolios
Overseen | | Public Directorships |
| | | | | | | | | | | |
Advisory Board Member: | | | | | | | | |
| | | | | | | | | | | |
|
Henry Gabbay
40 East 52nd Street
New York, NY 10022
1947 | | Director | | 2007 to present | | Consultant, BlackRock since 2007; Managing Director, BlackRock, Inc. from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007; Treasurer of certain closed-end funds in the Fund complex from 1989 to 2006. | | 183 Funds
288 Portfolios | | None |
|
| | | | | | | | | | | |
Advisory Board Member: | | | | | | | | |
| | | | | | | | | |
|
Roscoe S. Suddarth3
40 East 52nd Street
New York, NY 10022
1935 | | Member of the Advisory Board | | 2007 | | President, Middle East Institute from 1995 to 2001; Foreign Service Officer, United States Foreign Service from 1961 to 1995 and Career Minister from 1989 to 1995; Deputy Inspector General, U.S. Department of State from 1991 to 1994; U.S. Ambassador to the Hashemite Kingdom of Jordan from 1987 to 1990. | | 111 Funds
108 Portfolios | | None |
|
| | | | | | | | | | | |
| | | | | | |
Name, Address and
Year of Birth | | Position(s) Held
with Fund | | Length of
Time Served | | Principal Occupation(s)
During Past Five Years |
| | | | | | | |
Fund Officers 4 | | | | | | |
| | | | | | | |
|
Donald C. Burke
40 East 52nd Street
New York, NY 10022
1960 | | Fund President and Chief Executive Officer | | 2007 to present | | Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of Merrill Lynch Investment (“MLIM”) and Fund Asset Management, L.P. (“FAM”) in 2006; First Vice President thereof from 1997 to 2005; Treasurer thereof from 1999 to 2006 and Vice President thereof from 1990 to 1997. |
|
| | | | | | | |
|
Anne F. Ackerley
40 East 52nd Street
New York, NY 10022
1962 | | Vice President | | 2007 to present | | Managing Director of BlackRock, Inc. since 2000 and First Vice President and Chief Operating Officer of Mergers and Acquisitions Group from 1997 to 2000; First Vice President and Chief Operating Officer of Public Finance Group thereof from 1995 to 1997; Formerly First Vice President of Emerging Markets Fixed Income Research of Merrill Lynch & Co., Inc. from 1994 to 1995. |
|
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Neal J. Andrews
40 East 52nd Street
New York, NY 10022
1966 | | Chief Financial Officer | | 2007 to present | | Managing Director of BlackRock, Inc., since 2006; Formerly Senior Vice President and Line of Business Head of Fund Accounting and Administration at PFPC Inc. from 1992 to 2006. |
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Jay M. Fife
40 East 52nd Street
New York, NY 10022
1970 | | Treasurer | | 2007 to present | | Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly Assistant Treasurer of the MLIM/FAM advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006. |
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Brian P. Kindelan
40 East 52nd Street
New York, NY 10022
1959 | | Chief Compliance Officer | | 2007 to present | | Chief Compliance Officer of the Funds since 2007; Managing Director and Senior Counsel thereof since January 2005; Director and Senior Counsel of BlackRock Advisors, Inc. from 2001 to 2004 and Vice President and Senior Counsel, thereof, from 1998 to 2000; Senior Counsel of PNC Bank Corp. from 1995 to 1998. |
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Howard Surloff
40 East 52nd Street
New York, NY 10022
1965 | | Secretary | | 2007 to present | | Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of Goldman Sachs Asset Management, L.P. from 1993 to 2006. |
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2 | Messrs. Davis and Gabbay are both “interested persons,” as defined in the Investment Company Act of 1940, of the Fund based on their positions with BlackRock, Inc. and its affiliates. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. |
3 | Roscoe Suddarth resigned from the Advisory Board of the Fund, effective December 31, 2007. |
4 | Officers of the Fund serve at the pleasure of the Board of Directors. |
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| ANNUAL REPORT | DECEMBER 31, 2007 | 41 |
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BlackRock Closed-End Funds |
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Investment Advisor
BlackRock Advisors, LLC
Wilmington, DE 19809
(800) 227-7BFM |
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Sub-Advisor1
BlackRock Financial Management, Inc.
New York, NY 10022
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Accounting Agent and Custodian
State Street Bank and Trust Company
Boston, MA 02111 |
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Transfer Agent
Computershare Trust Company, N.A.
Canton, MA 02021
(800) 699-1BFM |
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Auction Agent1
Bank of New York
New York, NY 10286 |
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Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Boston, MA 02116 |
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Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
New York, NY 10036 |
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Legal Counsel – Independent Directors/Trustees
Debevoise & Plimpton LLP
New York, NY 10022 |
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1 | For Global and Preferred Opportunity. |
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.
BlackRock Closed-End Funds
c/o BlackRock Advisors, LLC
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
The Trusts will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Trusts at (800) 699-1BFM.
A description of the policies and procedures that the Trusts use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free 1-(800)-699-1BFM; (2) at www.blackrock.com; and (3) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
Information about how the Trusts vote proxies relating to securities held in the Trusts’ portfolios during the most recent 12-month period ended June 30 is available (1) at www.blackrock.com and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.
The Trusts file their complete schedules of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Trusts’ Forms N-Q are available on the SEC’s Web site at http://www.sec.gov. The Trusts’ Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Trusts Form N-Q, may also be obtained upon request and without charge by calling 1-(800)-699-1BFM.
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| ANNUAL REPORT | DECEMBER 31, 2007 | |
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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. | |
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CEF-ANN-5-1207 | 
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Item 2 – Code of Ethics – The registrant (or the “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. During the period covered by this report, there have been no amendments to or waivers granted under the code of ethics. A copy of the code of ethics is available without charge at www.blackrock.com.
Item 3 – Audit Committee Financial Expert – The registrant's board of directors or trustees, as applicable (the “board of directors”) has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent:
Kent Dixon
Frank J. Fabozzi
Robert S. Salomon, Jr. (term began effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
The registrant's board of directors has determined that W. Carl Kester and Karen P. Robards qualify as financial experts pursuant to Item 3(c)(4) of Form N-CSR.
Prof. Kester has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Prof. Kester has been involved in providing valuation and other financial consulting services to corporate clients since 1978. Prof. Kester’s financial consulting services present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements.
Ms. Robards has a thorough understanding of generally accepted accounting principles, financial statements and internal control over financial reporting as well as audit committee functions. Ms. Robards has been President of Robards & Company, a financial advisory firm, since 1987. Ms. Robards was formerly an investment banker for more than 10 years where she was responsible for evaluating and assessing the performance of companies based on their financial results. Ms. Robards has over 30 years of experience analyzing financial statements. She also is a member of the audit committee of one publicly held company and a non-profit organization.
Under applicable securities laws, a person 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 as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.
Item 4 – Principal Accountant Fees and Services
| | | | | | | | | | | | | | | | | |
| | | (a) Audit Fees | | (b) Audit-Related Fees1 | | (c) Tax Fees2 | | (d) All Other Fees3 |
| | | Current | | Previous | | Current | | Previous | | Current | | Previous | | Current | | Previous |
| | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year | | Fiscal Year |
| Entity Name | | End | | End | | End | | End | | End | | End | | End | | End |
| | | | | | | | | | | | | | | | | |
| BlackRock Preferred | | | | | | | | | | | | | | | | |
| Opportunity Trust | | $33,000 | | $33,000 | | $1,975 | | $1,975 | | $6,100 | | $8,000 | | $1,042 | | $3,500 |
1 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax planning.
3 The nature of the services include a review of compliance procedures and attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
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 Fund'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 review and re-approve the Policy and 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 Fund and (B) all engagements for non-audit services related directly to the operations and financial reporting or the Fund to be provided by the Independent Auditor to any Covered Entity, "Covered Entities" means (1) the Advisor or (2) any entity controlling, controlled by or under common control with the Advisor that provides ongoing services to the Fund.
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. Pre-approval of Covered Services by the Chairman pursuant to delegated authority is expected to be the exception rather than the rule and the 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 Fund 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, Fund structure or other matters.
In addition to the annual Audit services engagement specifically approved by the audit committee, any other Audit services for the Fund 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 (as defined in the Joint Audit Committee Charter) 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 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 initially recommended by the Independent Auditor, the sole business 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 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.
(e)(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) Affiliates’ Aggregate Non-Audit Fees:
| | | Current Fiscal Year | Previous Fiscal Year |
| | Entity Name | End | End |
| | | | |
| | BlackRock Preferred | | |
| | Opportunity Trust | $293,617 | $299,675 |
(h) The registrant’s audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any non-affiliated sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by the registrant’s 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.
Regulation S-X Rule 2-01(c)(7)(ii) – $284,500, 0%
Item 5 – Audit Committee of Listed Registrants – The following individuals are members of the registrant’s separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Richard E. Cavanagh (not reappointed to audit committee as of November 1, 2007)
Kent Dixon
Frank J. Fabozzi
Robert S. Salomon, Jr. (term began effective November 1, 2007)
W. Carl Kester (term began effective November 1, 2007)
James T. Flynn (term began effective November 1, 2007)
Karen P. Robards (term began effective November 1, 2007)
Item 6 – Schedule of Investments – The registrant’s Schedule of Investments is included as part of the Report to Stockholders 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 Fund portfolio securities to its investment adviser, BlackRock Advisors, LLC and its sub-adviser, as applicable. The Proxy Voting Policies and Procedures of the adviser and sub-adviser are attached hereto as Exhibit 99.PROXYPOL.
Information about how the Fund voted proxies relating to securities held in the Fund’s portfolio during the most recent 12 month period ended June 30 is available without charge (1) at www.blackrock.com and (2) on the Commission’s web site at http://www.sec.gov.
Item 8 – Portfolio Managers of Closed-End Management Investment Companies – as of December 31, 2007.
(a)(1) BlackRock Preferred Opportunity Trust is managed by a team of investment professionals comprised of Scott Amero, Managing Director at BlackRock, John D. Burger, CFA, Managing Director at BlackRock and Daniel Chen, CFA, Director at BlackRock. Each is a member of BlackRock’s fixed income portfolio management group. Mr. Amero is responsible for setting the Fund’s overall investment strategy and overseeing the management of the Fund. Messrs. Burger and Chen are the Fund’s co-portfolio managers and are responsible for the day-to-day management of the Fund’s portfolio and the selection of its investments. Messrs. Amero, Burger and Chen have been members of the Fund’s management team since 2006.
Scott Amero is co-head of BlackRock’s fixed income portfolio management group. He is a member
of the Management Committee and co-chair of the Fixed Income Investment Strategy Group. 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 fixed income research. He is also a director of Anthracite Capital, Inc., BlackRock’s publicly-traded real estate investment trust. Mr. Amero has been with BlackRock since 1990.
John D. Burger joined BlackRock in 2006. Prior to joining BlackRock, he was a Managing Director of Merrill Lynch Investment Managers (“MLIM”) from 2002 to 2006 and a Director of MLIM from 1996 to 2004. From 1992 to 1996, he was a portfolio manager of MLIM.
Daniel Chen has been a portfolio manager at BlackRock since 2002 and is a member of BlackRock’s fixed income portfolio management group. He has been responsible for managing total return client portfolios, with a sector emphasis on corporate bonds. Mr. Chen has been with BlackRock since 1999.
(a)(2) As of December 31, 2007:
| | | | | | |
| | | | | (iii) Number of Other Accounts and |
| | (ii) Number of Other Accounts Managed | Assets for Which Advisory Fee is |
| | and Assets by Account Type | Performance-Based |
| | Other | | | Other | | |
| (i) Name of | Registered | Other Pooled | | Registered | Other Pooled | |
| Portfolio | Investment | Investment | Other | Investment | Investment | Other |
| Manager | Companies | Vehicles | Accounts | Companies | Vehicles | Accounts |
| | | | | | | |
| Scott Amero | 44 | 41 | 258 | 0 | 4 | 17 |
| | $37,949,435,374 | $10,333,429,980 | $86,105,702,692 | $0 | $1,628,812,521 | $6,123,979,616 |
| John D. Burger, CFA | 3 | 1 | 44 | 0 | 0 | 0 |
| | $3,098,377,360 | $78,114,725 | $11,285,455,636 | $0 | $0 | $0 |
| Daniel Chen, CFA | 3 | 1 | 2 | 0 | 0 | 0 |
| | $3,098,377,360 | $78,114,725 | $279,687,810 | $0 | $0 | $0 |
(iv) Potential Material Conflicts of Interest
BlackRock, Inc. and its affiliates (collectively, herein “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 Fund, 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 Fund. 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 Fund. 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 Fund 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 Fund. In this connection, it should be noted that certain portfolio managers, including Mr. Amero, currently manage certain accounts that are subject to performance fees. In addition, certain portfolio managers, including Mr. Amero, 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) As of December 31, 2007:
Portfolio Manager Compensation Overview
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. Senior portfolio managers who perform additional management functions within the portfolio management group or within BlackRock may receive additional compensation for serving in these other capacities.
Discretionary Incentive Compensation
Discretionary incentive compensation 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 seniority, role within the portfolio management team, teamwork and contribution to the overall performance of these portfolios and BlackRock. In most cases, including for the portfolio managers of the Fund, these benchmarks are the same as the benchmark or benchmarks against which the
performance of the Fund or other accounts managed by the portfolio managers are measured. BlackRock’s Chief Investment Officers determine the benchmarks against which to compare the performance of funds and other accounts managed by each portfolio manager and the period of time over which performance is evaluated. With respect to the Fund’s portfolio managers, such benchmarks include the following:
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| Portfolio Manager | | | Benchmarks Applicable to Each Manager |
| | | | |
| 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 U.S. Corporate High Yield 2% Issuer |
| | | | Cap Index and others), certain customized indices and certain |
| | | | fund industry peer groups. |
| John Burger | | | A combination of certain fund industry peer groups, including |
| | | | the Lipper Closed-end Income and Preferred Stock Funds |
| | | | classification. |
| Daniel Chen | | | A combination of certain fund industry peer groups, including |
| | | | the Lipper Closed-end Income and Preferred Stock Funds |
| | | | classification. |
BlackRock’s Chief Investment Officers make 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 noted above. Performance is measured on both a pre-tax and after-tax basis over various time periods including 1, 3, 5 and 10-year periods, as applicable.
Distribution of Discretionary Incentive Compensation
Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on the Company’s ability to sustain and improve its performance over future periods.
Other compensation benefits. In addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in 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. For Messrs. Amero and Chen, prior to 2006, the plan provided for the grant of awards that were 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. Beginning in 2006, awards are granted under the LTIP in the form
of BlackRock, Inc. restricted stock units that, if properly vested and subject to the attainment of certain performance goals, will be settled in BlackRock, Inc. common stock. Messrs. Amero, Burger and Chen have each 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. Amero, was mandatorily deferred in a similar manner for a number of years. Every portfolio manager is eligible to participate in the deferred compensation program.
Options and Restricted Stock Awards — Prior to mandatorily deferring a portion of a portfolio manager’s annual bonus in BlackRock, Inc. restricted stock units, the Company granted stock options to key employees, including certain portfolio managers who may still hold unexercised or unvested options. BlackRock, Inc. also granted restricted stock awards 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. Amero has been granted stock options and/or restricted stock in prior years.
Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP) and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 6% of eligible pay contributed to the plan capped at $4,000 per year, and a company retirement contribution equal to 3% of eligible compensation, plus an additional contribution of 2% for any year in which BlackRock has positive net operating income. The RSP offers a range of investment options, including registered investment companies managed by the firm. Company contributions follow the investment direction set by participants for their own contributions or absent, employee investment direction, are invested into a balanced portfolio. The ESPP allows for investment in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares or a dollar value of $25,000. Each portfolio manager is eligible to participate in these plans.
(a)(4) Beneficial Ownership of Securities. As of December 31, 2007, none of Messrs. Amero, Burger or Chen beneficially owned any stock issued by the Fund.
Item 9 – Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable due to no such purchases during the period covered by this report.
Item 10 – Submission of Matters to a Vote of Security Holders – The registrant’s Nominating and Governance Committee will consider nominees to the Board recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which include biographical information and set 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
11(a) – The registrant’s principal executive and principal financial officers or persons performing similar functions have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.
11(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) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12 – Exhibits attached hereto
12(a)(1) – Code of Ethics – See Item 2
12(a)(2) – Certifications – Attached hereto
12(a)(3) – Not Applicable
12(b) – Certifications – Attached hereto
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.
| | | |
| BlackRock Preferred Opportunity Trust | |
| | | | |
| By: | | /s/ Donald C. Burke | |
| | | Donald C. Burke | |
| | | Chief Executive Officer of | |
| | | BlackRock Preferred Opportunity Trust | |
| | | | |
| Date: February 21, 2008 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | |
| By: | | /s/ Donald C. Burke | |
| | | Donald C. Burke | |
| | | Chief Executive Officer (principal executive officer) of | |
| | | BlackRock Preferred Opportunity Trust | |
| | | | |
| Date: February 21, 2008 | |
| | | | |
| By: | | /s/ Neal J. Andrews | |
| | | Neal J. Andrews | |
| | | Chief Financial Officer (principal financial officer) of | |
| | | BlackRock Preferred Opportunity Trust | |
| | | | |
| Date: February 21, 2008 | |
