expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates.
Option writing and purchasing may be used by the Trusts as an attempt to manage the duration of positions, or collections of positions, so that changes in interest rates do not adversely affect the targeted duration of the portfolio unexpectedly. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put or call options can be purchased or sold to help manage the targeted duration of the portfolio.
The main risk that is associated with purchasing options is that the option expires without being exercised. In this case, the option expires worthless and the premium paid for the option is considered the loss. The risk associated with writing call options is that a Trust may forgo the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The risk in writing put options is that a Trust may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, the Trust risks not being able to enter into a closing transaction for the written option as the result of an illiquid market.
During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by “marking-to-market” to reflect the market value of the swap. When the swap is terminated, a Trust will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust’s basis in the contract, if any.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Trusts closely monitor swaps and do not anticipate non-performance by any counterparty.
The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option.
Swap options may be used by the Trusts to manage the duration of the Trusts’ portfolios in a manner similar to more generic options described above.
Interest rate caps are intended to both manage the duration of the Trusts’ portfolios and their exposure to changes in short-term interest rates. Owning interest rate caps reduces a portfolio’s duration, making it less sensitive to changes in interest rates from a market value perspective. The effect on income involves protection from rising short-term interest rates, which the Trusts experience primarily in the form of leverage.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate cap. However, the Trusts do not anticipate non-performance by any counterparty.
Transaction fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate cap. The asset or liability is subsequently adjusted to the current market value of the interest rate cap purchased or sold. Changes in the value of the interest rate cap are recognized as unrealized gains and losses.
Interest Rate Floors: Interest rate floors are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trusts to both manage the duration of the portfolios and their exposure to changes in short-term interest rates. Selling interest rate floors reduces a portfolio’s duration, making it less sensitive to changes in interest rates from a market value perspective. The Trusts’ leverage provides extra income in a period of falling rates. Selling floors reduces some of that extra income by partially monetizing it as an up front payment which the Trusts receive.
The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate floor. However, the Trusts do not anticipate non-performance by any counterparty.
Transaction fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate floor. The asset or liability is subsequently adjusted to the current market value of the interest rate floor purchased or sold. Changes in the value of the interest rate floor are recognized as unrealized gains and losses.
Financial Futures Contracts: A futures contract is an agreement between two parties to buy and sell a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by “marking-to-market” on a daily basis to reflect the market value of the contract at the end of each day’s trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses are incurred. When the contract is closed, a Trust records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust’s basis in the contract.
Financial futures contracts, when used by the Trusts, help in maintaining a targeted duration. Futures contracts can be sold to effectively shorten an otherwise longer duration portfolio. In the same sense, futures contracts can be purchased to lengthen a portfolio that is shorter than its duration target. Thus, by buying or selling futures contracts, the Trusts may attempt to manage the duration of positions so that changes in interest rates do not change the duration of the portfolio unexpectedly.
Forward Currency Contracts: The Trusts enter into forward currency contracts primarily to facilitate settlement of purchases and sales of foreign securities and to help manage the overall exposure to foreign currency. A forward contract is a commitment to purchase or sell a foreign currency at a future date (usually the security transaction settlement date) at a negotiated forward rate. In the event that a security fails to settle within the normal settlement period, the forward currency contract is renegotiated at a new rate. The gain or loss arising from the difference between the settlement value of the original and renegotiated forward contracts is isolated and is included in net realized gains (losses) from foreign currency transactions. Risks may arise as a result of the potential inability of the counterparties to meet the terms of their contract.
Forward currency contracts, when used by the Trusts, help to manage the overall exposure to the foreign currency backing some of the investments held by the Trusts. Forward currency contracts are not meant to be used to eliminate all of the exposure to the foreign currency, rather they allow the Trusts to limit their exposure to foreign currency within a narrow band to the objectives of the Trusts.
Foreign Currency Translation: Foreign currency amounts are translated into United States dollars on the following basis:
| | |
| (i) | market value of investment securities, other assets and liabilities—at the London 4:00 PM rates of exchange. |
| | |
| (ii) | purchases and sales of investment securities, income and expenses—at the rates of exchange prevailing on the respective dates of such transactions. |
The Trusts isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held at period end. Similarly, the Trusts isolate the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the period.
Net realized and unrealized foreign exchange gains and losses including realized foreign exchange gains and losses from sales and maturities of foreign portfolio securities, maturities of foreign reverse repurchase agreements, sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of interest and discount recorded on the Trusts’ books and the U.S. dollar equivalent amounts actually received or paid and changes in unrealized foreign exchange gains and losses in the value of portfolio securities and other assets and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
Short Sales: The Trusts may make short sales of securities as a method of managing potential price declines in similar securities owned. When a Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trusts may have to pay a fee to borrow the particular securities and may be obligated to pay over any payments received on such borrowed securities. A gain, limited to the price at which a Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received.
Bonds Borrowed Agreements: In a bonds borrowed agreement, the Fund borrows securities from a third party, with the commitment that they will be returned to the lender on an agreed-upon date. Bonds borrowed agreements are primarily entered into to settle short positions. In a bonds borrowed agreement, the Fund’s prime broker or third party broker takes possession of the underlying collateral securities or cash
78
to settle such short positions. The value of the underlying collateral securities approximates the principal amount of the bonds borrowed transaction, including accrued interest. To the extent that bonds borrowed transactions exceed one business day, the value of the collateral with any counterparty is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the lender defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the lender of the security, realization of the collateral by the Fund may be delayed or limited.
Security Lending: The Trusts may lend their portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trusts may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trusts receive compensation for lending their securities in the form of interest on the loan. The Trusts also continue to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the accounts of the Trusts. The Trusts did not enter into any security lending transactions during the six months ended April 30, 2005.
Segregation: In cases in which the Investment Company Act of 1940, as amended, and the interpretive positions of the Securities and Exchange Commission (the “Commission”) require that each Trust segregate assets in connection with certain investments (e.g., when-issued securities, reverse repurchase agreements or futures contracts), each Trust will, consistent with certain interpretive letters issued by the Commission, designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated.
Federal Income Taxes: It is each Trust’s intention to continue to be treated as a regulated investment company under the Internal Revenue Code and to distribute sufficient amounts of their taxable income to shareholders. Therefore, no Federal income tax provisions are required. As part of a tax planning strategy, Broad Investment Grade may retain a portion of their taxable income and pay excise tax on the undistributed amounts.
Dividends and Distributions: Each Trust declares and pays dividends and distributions to common shareholders monthly from net investment income, net realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards may be distributed annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America.
Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Deferred Compensation and BlackRock Closed-End Share Equivalent Investment Plan: Under the deferred compensation plan approved by each Trust’s Board, non-interested Trustees are required to defer a portion of their annual complex-wide compensation. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of other BlackRock closed-end funds selected by the Trustees. This has the same economic effect for the Trustees as if the Trustees had invested the deferred amounts in such Trusts.
The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Trust. Each Trust may, however, elect to invest in common shares of those Trusts selected by the Trustees in order to match its deferred compensation obligations.
Note 2. Agreements
Each Trust has an Investment Management Agreement with BlackRock Advisors, Inc. (the “Advisor”), which is a wholly owned subsidiary of BlackRock, Inc. BlackRock Financial Management, Inc., a wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to Core Bond, Limited Duration and Strategic Bond. BlackRock, Inc. is an indirect, majority-owned subsidiary of The PNC Financial Services Group, Inc.
Broad Investment Grade, High Yield, Income Opportunity and Income Trust each have an Administration Agreement with the Advisor. The Investment Management Agreement for Core Bond, Limited Duration and Strategic Bond covers both investment advisory and administration services.
Each Trust’s investment advisory fee paid to the Advisor is computed weekly and payable monthly based on an annual rate, 0.55% for Broad Investment Grade, 0.60% for Income Opportunity and 0.65% for Income Trust, of each Trust’s average net assets and 0.55% for Core Bond and Limited Duration, 1.05% for High Yield and 0.75% for Strategic Bond, of each Trust’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 Advisor has voluntarily agreed to waive a portion of the investment advisory fees or other expenses on Strategic Bond as a percentage of its average weekly managed assets as follows: 0.20% for the first 5 years of the Trust’s operations, 0.15% in year 6, 0.10% in year 7 and 0.05% in year 8.
Pursuant to the agreements, the Advisor provides continuous supervision of the investment portfolio and pays the compensation of officers of each Trust who are affiliated persons of the Advisor, as well as occupancy and certain clerical and accounting costs of each Trust. Each Trust bears all other costs and expenses, which include reimbursements to the Advisor for cost of employees that provide pricing, secondary market support, and compliance services to each Trust. For the six-months ended April 30, 2005, the Trusts reimbursed the Advisor the following amounts:
79
| | | | | | | | | |
Trust | | Amount | | Trust | | Amount | |
| |
| |
| |
| |
Broad Investment Grade | | $ | 1,810 | | Income Trust | | $ | 15,416 | |
Core Bond | | | 12,308 | | Limited Duration | | | 12,308 | |
High Yield | | | 1,240 | | Strategic Bond | | | 3,030 | |
Income Opportunity | | | 12,271 | | | | | | |
Pursuant to the terms of their custody agreements, Core Bond, High Yield, Income Opportunity, Income Trust, Limited Duration and Strategic Bond received earnings credits from its custodian for positive cash balances maintained, which are used to offset custody fees.
Note 3. Portfolio Investments
Purchases and sales of investment securities, other than short-term investments, dollar rolls and U.S. government securities, for the six months ended April 30, 2005 aggregated as follows:
| | | | | | | | | | | | | | | |
Trust | | Purchases | | Sales | | Trust | | Purchases | | Sales | |
| |
| |
| |
| |
| |
| |
Broad Investment Grade | | $ | 53,316,899 | | $ | 41,918,259 | | Income Trust | | $ | 39,415,068 | | $ | 32,785,864 | |
Core Bond | | | 194,792,407 | | | 187,188,419 | | Limited Duration | | | 422,102,580 | | | 363,930,465 | |
High Yield | | | 38,664,531 | | | 39,637,735 | | Strategic Bond | | | 55,124,351 | | | 27,213,558 | |
Income Opportunity | | | 260,745,633 | | | 305,390,941 | | | | | | | | | |
Purchases and sales of U.S. government securities for the six months ended April 30, 2005 aggregated as follows:
| | | | | | | | | | | | | | | |
Trust | | Purchases | | Sales | | Trust | | Purchases | | Sales | |
| |
| |
| |
| |
| |
| |
Broad Investment Grade | | $ | 15,043,173 | | $ | 44,134,965 | | Income Trust | | $ | 146,402,119 | | $ | 177,717,394 | |
Core Bond | | | 678,037,059 | | | 637,157,961 | | Limited Duration | | | 20,045,070 | | | 10,015,625 | |
High Yield | | | 245,574 | | | 245,574 | | Strategic Bond | | | — | | | — | |
Income Opportunity | | | 970,392,530 | | | 913,511,616 | | | | | | | | | |
Each Trust may from time to time purchase in the secondary market certain mortgage pass-through securities packaged or master serviced by affiliates or mortgage related securities containing loans or mortgages originated by PNC Bank or its affiliates, including Midland Loan Services, Inc., each of which is an affiliate of BlackRock Advisors, Inc. It is possible under certain circumstances, that PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc., could have interests that are in conflict with the holders of these mortgage backed securities, and such holders could have rights against PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc.
At April 30, 2005, the total cost of securities for Federal income tax purposes and the aggregate gross unrealized appreciation and depreciation for securities held by each Trust were as follows:
| | | | | | | | | | | | | |
Trust | | Cost | | Appreciation | | Depreciation | | Net | |
| |
| |
| |
| |
| |
Broad Investment Grade | | $ | 44,651,926 | | $ | 1,061,492 | | $ | 967,422 | | $ | 94,070 | |
Core Bond | | | 574,631,157 | | | 3,080,722 | | | 6,963,983 | | | (3,883,261 | ) |
High Yield | | | 77,801,331 | | | 1,090,775 | | | 11,917,640 | | | (10,826,865 | ) |
Income Opportunity | | | 592,283,488 | | | 8,338,534 | | | 6,549,654 | | | 1,788,880 | |
Income Trust | | | 628,751,704 | | | 21,423,731 | | | 29,608,955 | | | (8,185,224 | ) |
Limited Duration | | | 1,050,251,385 | | | 14,758,223 | | | 12,451,094 | | | 2,307,129 | |
Strategic Bond | | | 141,362,503 | | | 3,597,114 | | | 3,578,130 | | | 18,984 | |
For Federal income tax purposes, the following Trusts had capital loss carryforwards as of their last respective tax year end. These amounts may be used to offset future realized capital gains, if any:
Accordingly, no capital gain distributions are expected to be paid to shareholders of a Trust until that Trust has net realized capital gains in excess of its carryforward amounts.
| | | | | | | | | | | | | | | | | | | |
Trust | | Capital Loss
Carryforward Amount | | Expires | | Trust | | Capital Loss
Carryforward Amount | | Expires | |
| |
| |
| |
| |
| |
| |
Broad Investment Grade | | | $ | 2,518,895 | | | | 2011 | | Income Trust | | | $ | 33,107,952 | | | | 2007 | |
| | |
|
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | 1,352,206 | | | | 2008 | |
High Yield | | | $ | 3,443,603 | | | | 2007 | | | | | | 13,940,898 | | | | 2009 | |
| | | | 3,270,311 | | | | 2008 | | | | | | 21,960,613 | | | | 2011 | |
| | | | 15,159,280 | | | | 2009 | | | | | | 10,100,201 | | | | 2012 | |
| | | | | | | | | | | | |
|
| | | | | |
| | | | 8,468,860 | | | | 2010 | | | | | $ | 80,461,870 | | | | | |
| | | | | | | | | | | | |
|
| | | | | |
| | | | 4,771,417 | | | | 2011 | | | | | | | | | | | |
| | | | 316,410 | | | | 2012 | | Strategic Bond | | | $ | 432,713 | | | | 2011 | |
| | |
|
| | | | | | | | |
|
| | | | | |
| | | $ | 35,429,881 | | | | | | | | | | | | | | | |
| | |
|
| | | | | | | | | | | | | | | |
80
Details of open financial futures contracts at April 30, 2005 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | Number of
Contracts | | Type | | Expiration
Date | | Value at
Trade Date | | Value at
April 30, 2005 | | Unrealized
Appreciation
(Depreciation) | |
| |
| |
| |
| |
| |
| |
| |
Long Position: | | | | | | | | | | | | | |
Core Bond | | | | 13 | | | | 10 Yr. U.S. T-Note | | | Sept. ’05 | | $ | 1,441,615 | | $ | 1,448,891 | | $ | 7,276 | |
| | | | 693 | | | | 30 Yr. U.S. T-Bond | | | June ’05 | | | 78,516,124 | | | 79,586,719 | | | 1,070,595 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | 1,077,871 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | |
Income Opportunity | | | | 14 | | | | 10 Yr. U.S. T-Note | | | Sept. ’05 | | | 1,552,508 | | | 1,560,344 | | | 7,836 | |
| | | | 982 | | | | 30 Yr. U.S. T-Bond | | | June ’05 | | | 111,299,193 | | | 112,776,566 | | | 1,477,373 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | 1,485,209 | |
| | | | | | | | | | | | | | | | | | |
|
| |
Income Trust | | | | 74 | | | | 10 Yr. U.S. T-Note | | | June ’05 | | | 8,151,980 | | | 8,245,219 | | | 93,239 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | |
Short Position: | | | | | | | | | | | | | | | | | | | | | |
Core Bond | | | | 1,146 | | | | 5 Yr. U.S. T-Note | | | June ’05 | | | 124,082,393 | | | 124,287,242 | | | (204,849 | ) |
| | | | 622 | | | | 10 Yr. U.S. T-Note | | | June ’05 | | | 68,804,447 | | | 69,304,406 | | | (499,959 | ) |
| | | | 101 | | | | Euro Bond | | | June ’05 | | | 14,665,306 | | | 14,851,388 | | | (186,082 | ) |
| | | | 35 | | | | Euro Dollar | | | June ’05 | | | 8,512,877 | | | 8,450,313 | | | 62,564 | |
| | | | 38 | | | | Euro Dollar | | | Mar. ’06 | | | 9,179,244 | | | 9,114,300 | | | 64,944 | |
| | | | 38 | | | | Euro Dollar | | | June ’05 | | | 9,163,194 | | | 9,103,850 | | | 59,344 | |
| | | | 32 | | | | Euro Dollar | | | June ’05 | | | 7,712,999 | | | 7,659,200 | | | 53,799 | |
| | | | 25 | | | | Euro Dollar | | | Sept. ’05 | | | 6,016,296 | | | 5,979,063 | | | 37,233 | |
| | | | 25 | | | | Euro Dollar | | | Sept. ’05 | | | 6,008,484 | | | 5,977,500 | | | 30,984 | |
| | | | 25 | | | | Euro Dollar | | | June ’05 | | | 6,000,671 | | | 5,975,313 | | | 25,358 | |
| | | | 25 | | | | Euro Dollar | | | June ’05 | | | 5,993,421 | | | 5,973,438 | | | 19,983 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | (536,681 | ) |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | | |
Income Opportunity | | | | 1,279 | | | | 5 Yr. U.S. T-Note | | | June ’05 | | | 138,179,885 | | | 138,711,547 | | | (531,662 | ) |
| | | | 330 | | | | 30 Yr. U.S. T-Bond | | | June ’05 | | | 36,486,269 | | | 36,769,219 | | | (282,950 | ) |
| | | | 35 | | | | Euro Dollar | | | June ’05 | | | 8,512,877 | | | 8,450,313 | | | 62,564 | |
| | | | 35 | | | | Euro Dollar | | | Sept. ’05 | | | 8,495,479 | | | 8,422,313 | | | 73,166 | |
| | | | 32 | | | | Euro Dollar | | | Dec. ’05 | | | 7,752,899 | | | 7,685,200 | | | 67,699 | |
| | | | 32 | | | | Euro Dollar | | | Mar. ’06 | | | 7,737,699 | | | 7,675,200 | | | 62,499 | |
| | | | 32 | | | | Euro Dollar | | | June ’06 | | | 7,724,499 | | | 7,666,400 | | | 58,099 | |
| | | | 32 | | | | Euro Dollar | | | Sept. ’06 | | | 7,712,999 | | | 7,659,200 | | | 53,799 | |
| | | | 25 | | | | Euro Dollar | | | Dec. ’06 | | | 6,016,296 | | | 5,979,063 | | | 37,233 | |
| | | | 25 | | | | Euro Dollar | | | Mar. ’07 | | | 6,008,484 | | | 5,977,500 | | | 30,984 | |
| | | | 25 | | | | Euro Dollar | | | June ’07 | | | 6,000,671 | | | 5,975,313 | | | 25,358 | |
| | | | 25 | | | | Euro Dollar | | | Sept. ’07 | | | 5,993,421 | | | 5,973,438 | | | 19,983 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | (323,228 | ) |
| | | | | | | | | | | | | | | | | | |
|
| |
Income Trust | | | | 39 | | | | 5 Yr. U.S. T-Note | | | June ’05 | | | 4,199,638 | | | 4,229,672 | | | (30,034 | ) |
| | | | 891 | | | | 30 Yr. U.S. T-Bond | | | June ’05 | | | 100,889,522 | | | 102,325,815 | | | (1,436,293 | ) |
| | | | 54 | | | | Euro Dollar | | | June ’05 | | | 13,116,599 | | | 13,037,625 | | | 78,974 | |
| | | | 54 | | | | Euro Dollar | | | Sept. ’05 | | | 13,088,448 | | | 12,994,425 | | | 94,023 | |
| | | | 49 | | | | Euro Dollar | | | Dec. ’05 | | | 11,851,290 | | | 11,767,963 | | | 83,327 | |
| | | | 49 | | | | Euro Dollar | | | Mar. ’06 | | | 11,827,265 | | | 11,752,650 | | | 74,615 | |
| | | | 39 | | | | Euro Dollar | | | June ’06 | | | 9,414,215 | | | 9,343,425 | | | 70,790 | |
| | | | 39 | | | | Euro Dollar | | | Sept. ’06 | | | 9,400,190 | | | 9,334,650 | | | 65,540 | |
| | | | 30 | | | | Euro Dollar | | | Dec. ’06 | | | 7,219,556 | | | 7,174,875 | | | 44,681 | |
| | | | 30 | | | | Euro Dollar | | | Mar. ’07 | | | 7,210,181 | | | 7,173,000 | | | 37,181 | |
| | | | 30 | | | | Euro Dollar | | | June ’07 | | | 7,200,806 | | | 7,170,375 | | | 30,431 | |
| | | | 30 | | | | Euro Dollar | | | Sept. ’07 | | | 7,192,106 | | | 7,168,125 | | | 23,981 | |
| | | | | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | | | | (862,784 | ) |
| | | | | | | | | | | | | | | | | | |
|
| |
81
Details of open forward currency contracts at April 30, 2005 were as follows:
| | | | | | | | | | | | | | | | | | | |
Trust | | Foreign Currency | | Settlement
Date | | Contract to
Purchase/
Receive | | Value at
Settlement
Date | | Value at
April 30, 2005 | | Unrealized
Appreciation | |
| |
| |
| |
| |
| |
| |
| |
Core Bond | | | | | | | | | | | | | | | | | | | |
| | | Sold: | | | | | | | | | | | | | | | | |
| | | Euro | | | 07/26/05 | | | 4,702,796 | € | $ | 6,174,884 | | $ | 6,087,605 | | $ | 87,279 | |
| | | | | | | | | | | | | | | | |
|
| |
Limited Duration | | | | | | | | | | | | | | | | | | | |
| | | Sold: | | | | | | | | | | | | | | | | |
| | | Euro | | | 07/26/05 | | | 6,336,400 | € | | 8,314,067 | | | 8,202,248 | | | 111,819 | |
| | | | | | | | | | | | | | | | |
|
| |
Details of open interest rate swaps at April 30, 2005 were as follows:
| | | | | | | | | | | | | | | | |
Trust | | Notional
Amount
(000) | | Fixed
Rate | | Floating
Rate | | Termination
Date | | Unrealized
Appreciation
(Depreciation) | |
| |
| |
| |
| |
| |
| |
Core Bond | | $ | 19,435 | | | 3.215 | %(a) | | 3-month LIBOR | | | 6/14/06 | | $ | 44,655 | |
| | | 14,300 | | | 3.21 | (a) | | 3-month LIBOR | | | 6/17/06 | | | 28,841 | |
| | | 25,000 | | | 2.635 | (a) | | 3-month LIBOR | | | 8/14/06 | | | (377,250 | ) |
| | | 49,200 | | | 3.225 | (a) | | 3-month LIBOR | | | 11/17/06 | | | (54,272 | ) |
| | | 50,000 | | | 3.00 | (b) | | 3-month LIBOR | | | 4/16/07 | | | 945,500 | |
| | | 5,700 | | | 3.52 | (a) | | 3-month LIBOR | | | 9/26/08 | | | (120,840 | ) |
| | | 10,525 | | | 4.102 | (a) | | 3-month LIBOR | | | 1/21/10 | | | 9,999 | |
| | | 20,000 | | | 4.458 | (a) | | 3-month LIBOR | | | 4/18/10 | | | 113,329 | |
| | | 5,400 | | | 4.412 | (b) | | 3-month LIBOR | | | 2/17/14 | | | 49,052 | |
| | | 41,200 | | | 4.51 | (b) | | 3-month LIBOR | | | 10/29/14 | | | 340,000 | |
| | | 4,800 | | | 4.729 | (a) | | 3-month LIBOR | | | 4/28/15 | | | 33,648 | |
| | | 950 | | | 5.365 | (b) | | 3-month LIBOR | | | 7/29/19 | | | (68,091 | ) |
| | | 1,300 | | | 5.155 | (a) | | 3-month LIBOR | | | 8/13/19 | | | 53,963 | |
| | | 800 | | | 4.78 | (a) | | 3-month LIBOR | | | 10/27/19 | | | (3,600 | ) |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | $ | 994,934 | |
| | | | | | | | | | | | | |
|
| |
Income Opportunity Trust | | | 20,735 | | | 3.215 | (a) | | 3-month LIBOR | | | 6/14/06 | | | 47,642 | |
| | | 15,300 | | | 3.21 | (a) | | 3-month LIBOR | | | 6/17/06 | | | 30,858 | |
| | | 50,000 | | | 2.635 | (a) | | 3-month LIBOR | | | 8/14/06 | | | (754,500 | ) |
| | | 46,800 | | | 3.225 | (a) | | 3-month LIBOR | | | 11/17/06 | | | (51,624 | ) |
| | | 48,000 | | | 3.50 | (a) | | 3-month LIBOR | | | 2/2/07 | | | (290,991 | ) |
| | | 50,000 | | | 3.00 | (b) | | 3-month LIBOR | | | 4/16/07 | | | 945,500 | |
| | | 8,000 | | | 3.52 | (a) | | 3-month LIBOR | | | 9/26/08 | | | (169,600 | ) |
| | | 4,825 | | | 4.102 | (a) | | 3-month LIBOR | | | 1/21/10 | | | 4,584 | |
| | | 10,000 | | | 4.458 | (a) | | 3-month LIBOR | | | 4/18/10 | | | 56,664 | |
| | | 5,700 | | | 4.412 | (b) | | 3-month LIBOR | | | 2/17/14 | | | 51,777 | |
| | | 27,500 | | | 4.399 | (b) | | 3-month LIBOR | | | 10/25/14 | | | 460,692 | |
| | | 13,800 | | | 4.51 | (b) | | 3-month LIBOR | | | 10/29/14 | | | 113,884 | |
| | | 5,100 | | | 4.729 | (a) | | 3-month LIBOR | | | 4/28/15 | | | 35,751 | |
| | | 1,050 | | | 5.365 | (b) | | 3-month LIBOR | | | 7/29/19 | | | (75,258 | ) |
| | | 1,400 | | | 5.155 | (a) | | 3-month LIBOR | | | 8/13/19 | | | 58,112 | |
| | | 900 | | | 4.78 | (a) | | 3-month LIBOR | | | 10/27/19 | | | (4,050 | ) |
| | | 3,000 | | | 5.23 | (b) | | 3-month LIBOR | | | 11/4/21 | | | (178,910 | ) |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | $ | 280,531 | |
| | | | | | | | | | | | | |
|
| |
82
| | | | | | | | | | | | | | | | |
Trust | | Notional
Amount
(000) | | Fixed
Rate | | Floating
Rate | | Termination
Date | | Unrealized
Appreciation
(Depreciation) | |
| |
| |
| |
| |
| |
| |
Income Trust | | | 22,295 | | | 3.215 | %(a) | | 3-month LIBOR | | | 6/14/06 | | $ | 51,227 | |
| | | 16,400 | | | 3.21 | (a) | | 3-month LIBOR | | | 6/17/06 | | | 33,077 | |
| | | 50,000 | | | 2.635 | (a) | | 3-month LIBOR | | | 8/14/06 | | | (754,500 | ) |
| | | 24,000 | | | 3.55 | (a) | | 3-month LIBOR | | | 10/24/06 | | | (112,653 | ) |
| | | 50,000 | | | 3.00 | (b) | | 3-month LIBOR | | | 4/16/07 | | | 945,500 | |
| | | 11,200 | | | 3.52 | (a) | | 3-month LIBOR | | | 9/26/08 | | | (237,440 | ) |
| | | 19,000 | | | 4.889 | (b) | | 3-month LIBOR | | | 4/22/14 | | | (426,446 | ) |
| | | 12,500 | | | 4.399 | (b) | | 3-month LIBOR | | | 10/25/14 | | | 209,405 | |
| | | 9,400 | | | 4.902 | (b) | | 3-month LIBOR | | | 3/17/15 | | | (216,774 | ) |
| | | 25,000 | | | 4.883 | (a) | | 3-month LIBOR | | | 3/21/15 | | | 515,750 | |
| | | 16,000 | | | 4.925 | (b) | | 3-month LIBOR | | | 3/22/15 | | | (392,743 | ) |
| | | 5,100 | | | 4.729 | (a) | | 3-month LIBOR | | | 4/28/15 | | | 35,751 | |
| | | 2,800 | | | 5.94 | (a) | | 3-month LIBOR | | | 12/7/15 | | | 256,760 | |
| | | 1,075 | | | 5.365 | (b) | | 3-month LIBOR | | | 7/29/19 | | | (77,050 | ) |
| | | 1,450 | | | 5.155 | (a) | | 3-month LIBOR | | | 8/13/19 | | | 60,188 | |
| | | 900 | | | 4.78 | (a) | | 3-month LIBOR | | | 10/27/19 | | | (4,050 | ) |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | $ | (113,998 | ) |
| | | | | | | | | | | | | |
|
| |
|
Details of open total return swaps at April 30, 2005 were as follows: |
|
Core Bond | | $ | 7,210 | | | 8.50 | (a) | | 1-month LIBOR - 0.70% | | | 7/31/05 | | $ | 146,308 | |
| | | 8,870 | | | 8.50 | (a) | | NO INDEX + 0 bps | | | 9/1/05 | | | (30,279 | ) |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 116,029 | |
| | | | | | | | | | | | | |
|
| |
Income Opportunity | | | 9,385 | | | 8.50 | (a) | | NO INDEX + 0 bps | | | 9/1/05 | | $ | (32,036 | ) |
| | | | | | | | | | | | | |
|
| |
Income Trust | | | 9,560 | | | 8.50 | (a) | | NO INDEX + 0 bps | | | 9/1/05 | | $ | (32,637 | ) |
| | | | | | | | | | | | | |
|
| |
|
Details of open credit default swaps at April 30, 2005 were as follows: |
|
Income Opportunity | | | 3,000 | | | 8.80 | (a) | | 3-month LIBOR | | | 6/20/10 | | $ | 3 | |
| | | | | | | | | | | | | |
|
| |
(a) Trust pays floating interest rate and receives fixed rate.
(b) Trust pays fixed interest rate and receives floating rate.
Transaction in options written during the period ended April 30, 2005, were as follows:
| | | | | | | | | | |
Trust | | | | | Contracts/
Notional Amount
(000) | | Premium
Received | |
| | | | |
| |
| |
Core Bond | | | | | | | | | | | | |
| | | Options outstanding at October 31, 2004 | | | $ | 151,700 | | | $ | 2,196,443 | |
| | | Options written | | | | 38,750 | | | | 1,918,115 | |
| | | Options expired | | | | (5,150 | ) | | | (19,740 | ) |
| | | Options terminated in closing purchase transactions | | | | (112,700 | ) | | | (1,399,848 | ) |
| | | | | |
|
| | |
|
| |
| | | Options outstanding at April 30, 2005 | | | $ | 72,600 | | | $ | 2,694,970 | |
| | | | | |
|
| | |
|
| |
| | | | | | | | | | | | |
Income Opportunity | | | | | | | | | | | | |
| | | Options outstanding at October 31, 2004 | | | $ | 177,400 | | | $ | 2,557,620 | |
| | | Options written | | | | 41,800 | | | | 2,067,583 | |
| | | Options expired | | | | — | | | | (7,151 | ) |
| | | Options terminated in closing purchase transactions | | | | (128,000 | ) | | | (1,431,672 | ) |
| | | | | |
|
| | |
|
| |
| | | Options outstanding at April 30, 2005 | | | $ | 91,200 | | | $ | 3,186,380 | |
| | | | | |
|
| | |
|
| |
| | | | | | | | | | | | |
Income Trust | | | | | | | | | | | | |
| | | Options outstanding at October 31, 2004 | | | $ | 182,800 | | | $ | 2,915,666 | |
| | | Options written | | | | 41,700 | | | | 1,865,113 | |
| | | Options expired | | | | (19,000 | ) | | | (163,600 | ) |
| | | Options terminated in closing purchase transactions | | | | (92,300 | ) | | | (1,090,566 | ) |
| | | | | |
|
| | |
|
| |
| | | Options outstanding at April 30, 2005 | | | $ | 113,200 | | | $ | 3,526,613 | |
| | | | | |
|
| | |
|
| |
83
Note 4. Borrowings
Reverse Repurchase Agreements: The Trusts may enter into reverse repurchase agreements with qualified third-party broker-dealers as determined by and under the direction of the Trusts’ Board. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time a Trust enters into a reverse repurchase agreement, it will establish and maintain a segregated account with the lender, containing liquid investment grade securities having a value not less than the repurchase price, including accrued interest of the reverse repurchase agreement. Details of open reverse repurchase agreements at April 30, 2005 were as follows (please see Corresponding Underlying Collateral Chart on pages 85-87):
| | | | | | | | | | | | | | | | |
Trust/Counter Party | | Rate | | Trade
Date | | Maturity
Date | | Net Closing
Amount | | Par | |
| |
| |
| |
| |
| |
| |
Core Bond | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | | 2.60 | % | | 4/28/05 | | | 5/20/05 | | $ | 8,481,532 | | $ | 8,468,688 | |
| | | 2.94 | | | 4/28/05 | | | 5/20/05 | | | 61,512,012 | | | 61,406,700 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 69,875,388 | |
| | | | | | | | | | | | | |
|
| |
Lehman Brothers | | | 2.90 | | | 4/29/05 | | | 5/19/05 | | | 748,454 | | | 747,250 | |
| | | | | | | | | | | | | |
|
| |
Income Opportunity | | | | | | | | | | | | | | | | |
Lehman Brothers | | | 2.65 | | | 4/28/05 | | | 5/19/05 | | | 21,968,983 | | | 21,936,688 | |
| | | 2.95 | | | 4/28/05 | | | 5/19/05 | | | 21,968,983 | | | 38,200,000 | |
| | | 1.55 | | | 4/29/05 | | | 5/19/05 | | | 4,582,422 | | | 4,575,000 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 64,711,688 | |
| | | | | | | | | | | | | |
|
| |
Income Trust | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | | 2.70 | | | 4/28/05 | | | 5/2/05 | | | 21,136,005 | | | 21,131,250 | |
| | | 2.93 | | | 4/13/05 | | | 5/17/05 | | | 15,310,250 | | | 15,268,000 | |
| | | 2.93 | | | 4/13/05 | | | 5/17/05 | | | 3,087,520 | | | 3,079,000 | |
| | | 2.75 | | | 4/28/05 | | | 5/20/05 | | | 20,181,072 | | | 20,148,750 | |
| | | 2.94 | | | 4/28/05 | | | 5/20/05 | | | 39,467,571 | | | 39,400,000 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 99,027,000 | |
| | | | | | | | | | | | | |
|
| |
Lehman Brothers | | | 2.93 | | | 4/25/05 | | | 5/13/05 | | | 50,864,029 | | | 50,793,750 | |
| | | 2.89 | | | 4/8/05 | | | 5/16/05 | | | 28,660,302 | | | 28,580,000 | |
| | | 2.95 | | | 4/28/05 | | | 5/19/05 | | | 8,932,728 | | | 8,918,113 | |
| | | 2.95 | | | 4/28/05 | | | 5/19/05 | | | 2,938,470 | | | 2,933,662 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 91,225,525 | |
| | | | | | | | | | | | | |
|
| |
Limited Duration | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | | 2.90 | | | 4/5/05 | | | 5/12/05 | | | 4,949,709 | | | 4,935,000 | |
| | | 2.94 | | | 4/5/05 | | | 5/12/05 | | | 6,708,209 | | | 6,688,000 | |
| | | 2.98 | | | 4/5/05 | | | 5/12/05 | | | 13,891,416 | | | 13,849,000 | |
| | | 2.92 | | | 4/8/05 | | | 5/16/05 | | | 1,694,206 | | | 1,689,000 | |
| | | 2.99 | | | 4/12/05 | | | 5/16/05 | | | 4,330,194 | | | 4,318,000 | |
| | | 3.00 | | | 4/8/05 | | | 5/16/05 | | | 6,686,106 | | | 6,665,000 | |
| | | 3.00 | | | 4/8/05 | | | 5/16/05 | | | 27,121,614 | | | 27,036,000 | |
| | | 3.17 | | | 4/12/05 | | | 5/16/05 | | | 48,425,548 | | | 48,281,000 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 113,461,000 | |
| | | | | | | | | | | | | |
|
| |
Lehman Brothers | | | 2.90 | | | 4/29/05 | | | 5/2/05 | | | 8,051,945 | | | 8,050,000 | |
| | | 3.40 | | | 4/25/05 | | | 5/2/05 | | | 8,773,969 | | | 8,769,000 | |
| | | 3.45 | | | 4/26/05 | | | 5/2/05 | | | 5,784,771 | | | 5,782,000 | |
| | | 2.75 | | | 4/8/05 | | | 5/12/05 | | | 2,990,748 | | | 2,983,000 | |
| | | 2.85 | | | 4/5/05 | | | 5/12/05 | | | 10,897,828 | | | 10,866,000 | |
| | | 2.89 | | | 4/8/05 | | | 5/12/05 | | | 1,412,506 | | | 1,409,000 | |
| | | 3.00 | | | 4/5/05 | | | 5/12/05 | | | 4,668,965 | | | 4,655,000 | |
| | | 3.15 | | | 4/27/05 | | | 5/13/05 | | | 1,360,903 | | | 1,359,000 | |
| | | 2.92 | | | 4/11/05 | | | 5/16/05 | | | 814,004 | | | 811,700 | |
| | | 3.20 | | | 4/8/05 | | | 5/16/05 | | | 2,991,069 | | | 2,981,000 | |
| | | 2.85 | | | 4/21/05 | | | 5/24/05 | | | 35,306,122 | | | 35,216,906 | |
| | | 2.95 | | | 4/21/05 | | | 5/24/05 | | | 19,516,042 | | | 19,465,000 | |
| | | 3.15 | | | 4/27/05 | | | 6/2/05 | | | 1,363,162 | | | 1,359,000 | |
| | | 3.10 | | | 4/15/05 | | | 6/2/05 | | | 2,744,594 | | | 2,734,000 | |
| | | 3.20 | | | 4/15/05 | | | 6/2/05 | | | 16,662,384 | | | 16,596,000 | |
| | | 3.35 | | | 4/27/05 | | | 6/2/05 | | | 8,168,518 | | | 8,142,000 | |
| | | 3.06 | | | 4/13/05 | | | 6/13/05 | | | 3,678,566 | | | 3,659,900 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 134,838,506 | |
| | | | | | | | | | | | | |
|
| |
84
| | | | | | | | | | | | | | | | |
Trust/Counter Party | | Rate | | Trade
Date | | Maturity
Date | | Net Closing
Amount | | Par | |
| |
| |
| |
| |
| |
| |
Strategic Bond | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | | 3.10 | % | | 4/19/05 | | | 6/20/05 | | $ | 10,166,992 | | $ | 10,113,000 | |
| | | | | | | | | | | | | |
|
| |
Lehman Brothers | | | 3.00 | | | 3/31/05 | | | 5/10/05 | | | 9,533,584 | | | 9,502,700 | |
| | | 3.20 | | | 3/31/05 | | | 5/10/05 | | | 1,163,720 | | | 1,159,700 | |
| | | 3.20 | | | 3/31/05 | | | 5/10/05 | | | 2,508,667 | | | 2,500,000 | |
| | | 3.20 | | | 4/1/05 | | | 5/10/05 | | | 1,531,290 | | | 1,526,000 | |
| | | 2.90 | | | 4/4/05 | | | 5/10/05 | | | 226,655 | | | 226,000 | |
| | | 3.45 | | | 4/4/05 | | | 5/10/05 | | | 163,547 | | | 163,000 | |
| | | 3.03 | | | 4/7/05 | | | 5/12/05 | | | 344,010 | | | 343,000 | |
| | | 2.90 | | | 4/7/05 | | | 5/12/05 | | | 762,082 | | | 760,000 | |
| | | 3.02 | | | 4/8/05 | | | 5/16/05 | | | 7,202,084 | | | 7,181,000 | |
| | | 3.07 | | | 4/14/05 | | | 5/16/05 | | | 971,644 | | | 969,000 | |
| | | 3.10 | | | 4/21/05 | | | 5/16/05 | | | 691,426 | | | 690,000 | |
| | | 3.15 | | | 4/27/05 | | | 5/16/05 | | | 697,157 | | | 696,000 | |
| | | 2.86 | | | 4/21/05 | | | 5/26/05 | | | 3,708,458 | | | 3,698,467 | |
| | | 2.55 | | | 4/22/05 | | | 5/26/05 | | | 460,306 | | | 459,200 | |
| | | 3.20 | | | 4/20/05 | | | 6/20/05 | | | 5,098,045 | | | 5,071,000 | |
| | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | 34,945,067 | |
| | | | | | | | | | | | | |
|
| |
Details of underlying collateral for open reverse repurchase agreements at April 30, 2005 were as follows:
| | | | | | | | | | | | | | | | | | |
Trust / Counter Party | | Description | | Rate | | Maturity
Date | | Original
Face | | Current
Face | | Market Value | |
| |
| |
| |
| |
| |
| |
| |
Core Bond | | | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | U.S. Treasury Bonds | | | 5.500 | % | | 8/15/28 | | $ | 50,670,000 | | $ | 50,670,000 | | $ | 57,051,380 | |
| | U.S. Treasury Bonds | | | 6.750 | | | 8/15/26 | | | 3,000,000 | | | 3,000,000 | | | 3,864,360 | |
| | U.S. Treasury Bonds | | | 5.375 | | | 2/15/31 | | | 7,445,000 | | | 7,445,000 | | | 8,412,850 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 69,328,590 | |
| | | | | | | | | | | | | | | |
|
| |
Lehman Brothers | | U.S. Treasury Notes | | | 5.000 | | | 2/15/11 | | | 700,000 | | | 700,000 | | | 737,954 | |
| | | | | | | | | | | | | | | |
|
| |
Income Opportunity | | | | | | | | | | | | | | | | | | |
Lehman Brothers | | U.S. Treasury Bonds | | | 5.375 | | | 2/15/31 | | | 19,285,000 | | | 19,285,000 | | | 21,792,050 | |
| | U.S. Treasury Bonds | | | 5.500 | | | 8/15/28 | | | 4,000,000 | | | 4,000,000 | | | 4,503,760 | |
| | U.S. Treasury Bonds | | | 6.000 | | | 2/15/26 | | | 32,000,000 | | | 32,000,000 | | | 37,863,744 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 64,159,554 | |
| | | | | | | | | | | | | | | |
|
| |
Income Trust | | | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | Federal National Mortgage Assoc. | | | 5.50 | | | 9/1/17 | | | 30,215,381 | | | 10,839,036 | | | 11,096,463 | |
| | Federal National Mortgage Assoc. | | | 6.00 | | | 8/1/32 | | | 24,000,000 | | | 4,534,865 | | | 4,658,168 | |
| | Federal National Mortgage Assoc. | | | 6.50 | | | 5/1/31 | | | 45,000,000 | | | 3,051,514 | | | 3,176,443 | |
| | U.S. Treasury Notes | | | 1.50 | | | 3/31/06 | | | 40,000,000 | | | 40,000,000 | | | 39,337,600 | |
| | U.S. Treasury Notes | | | 4.25 | | | 8/15/14 | | | 19,900,000 | | | 19,900,000 | | | 19,990,147 | |
| | U.S. Treasury Notes | | | 3.75 | | | 3/31/07 | | | 21,000,000 | | | 21,000,000 | | | 21,042,630 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 99,301,451 | |
| | | | | | | | | | | | | | | |
|
| |
Lehman Brothers | | Federal National Mortgage Assoc. | | | 6.00 | | | 1/25/34 | | | 12,264,000 | | | 12,264,000 | | | 12,894,860 | |
| | Federal Home Loan Mortgage Corp. | | | 5.50 | | | 5/15/23 | | | 12,584,000 | | | 12,168,300 | | | 12,595,286 | |
| | Federal National Mortgage Assoc. | | | 6.00 | | | 8/25/28 | | | 5,400,000 | | | 4,866,757 | | | 4,961,464 | |
| | U.S. Treasury Bonds | | | 0.00 | | | 11/15/24 | | | 129,000,000 | | | 129,000,000 | | | 51,459,132 | |
| | U.S. Treasury Notes | | | 4.25 | | | 11/15/13 | | | 8,690,000 | | | 8,690,000 | | | 8,755,175 | |
| | U.S. Treasury Notes | | | 2.50 | | | 5/31/06 | | | 2,930,000 | | | 2,930,000 | | | 2,900,700 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 93,566,617 | |
| | | | | | | | | | | | | | | |
|
| |
Union Bank of Switzerland | | U.S. Treasury Notes | | | 4.375 | | | 8/15/12 | | | 300,000 | | | 300,000 | | | 311,343 | |
| | | | | | | | | | | | | | | |
|
| |
85
| | | | | | | | | | | | | | | | | | |
Trust / Counter Party | | Description | | Rate | | Maturity
Date | | Original
Face | | Current
Face | | Market Value | |
| |
| |
| |
| |
| |
| |
| |
Limited Duration | | | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | Federal National Mortgage Assoc. | | | 4.532 | % | | 1/1/34 | | $ | 52,657,926 | | $ | 5,069,588 | | $ | 5,178,151 | |
| | DaimlerChrysler NA | | | 4.050 | | | 6/4/08 | | | 7,500,000 | | | 7,500,000 | | | 7,229,550 | |
| | Comcast Cable Communications, Inc. | | | 6.875 | | | 6/15/09 | | | 6,685,000 | | | 6,685,000 | | | 7,257,550 | |
| | Honda Auto Receivables | | | 2.300 | | | 10/18/07 | | | 7,125,000 | | | 7,125,000 | | | 7,049,254 | |
| | Weyerhauser Co. | | | 5.250 | | | 12/15/09 | | | 7,500,000 | | | 7,500,000 | | | 7,735,133 | |
| | Ford Motor Credit Co. | | | 7.375 | | | 2/1/11 | | | 7,500,000 | | | 7,500,000 | | | 7,024,470 | |
| | General Motors Acceptance Corp. | | | 6.875 | | | 8/28/12 | | | 7,500,000 | | | 7,500,000 | | | 6,461,025 | |
| | Deutsche Telekom Intl. | | | 8.500 | | | 6/15/10 | | | 5,000,000 | | | 5,000,000 | | | 5,804,000 | |
| | DaimlerChrysler Auto Trust | | | 2.250 | | | 8/8/07 | | | 6,900,000 | | | 6,900,000 | | | 6,852,635 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 10/1/33 | | | 2,317,378 | | | 1,685,146 | | | 1,701,475 | |
| | TRW Automotive Acquisition | | | 9.375 | | | 2/15/13 | | | 4,640,000 | | | 4,640,000 | | | 4,802,400 | |
| | Chesapeake Energy Corp. | | | 7.500 | | | 9/15/13 | | | 5,290,000 | | | 5,290,000 | | | 5,528,050 | |
| | CSC Holdings, Inc. | | | 7.875 | | | 12/15/07 | | | 6,000,000 | | | 6,000,000 | | | 6,135,000 | |
| | Echostar DBS Corp, | | | 6.350 | | | 10/1/08 | | | 4,500,000 | | | 4,500,000 | | | 4,601,250 | |
| | Georgia PAC Corp. | | | 8.875 | | | 2/1/10 | | | 5,685,000 | | | 5,685,000 | | | 6,310,350 | |
| | Qwest Corp. | | | 9.125 | | | 3/15/12 | | | 6,000,000 | | | 6,000,000 | | | 6,360,000 | |
| | Amerisourcebergen Corp. | | | 8.125 | | | 9/1/08 | | | 5,000,000 | | | 5,000,000 | | | 5,412,500 | |
| | Sequa Corp. | | | 8.875 | | | 4/1/08 | | | 5,350,000 | | | 5,350,000 | | | 5,537,250 | |
| | Flextronics Intl. Ltd. | | | 6.500 | | | 5/15/13 | | | 3,972,000 | | | 3,972,000 | | | 3,783,330 | |
| | Western Financial Bank | | | 9.625 | | | 5/15/12 | | | 4,215,000 | | | 4,215,000 | | | 4,573,275 | |
| | Goldman Sachs Mortgage Secs. Corp. | | | 4.516 | | | 10/25/33 | | | 5,300,000 | | | 4,442,287 | | | 4,344,291 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 119,680,939 | |
| | | | | | | | | | | | | | | |
|
| |
Lehman Brothers | | Goldman Sachs Mortgage Secs. Corp. | | | 4.482 | | | 10/25/33 | | | 10,000,000 | | | 8,415,202 | | | 8,145,495 | |
| | Goldman Sachs Mortgage Secs. Corp. | | | 4.516 | | | 10/25/33 | | | 4,700,000 | | | 3,939,397 | | | 3,852,484 | |
| | Tyco Intl. Group SA | | | 6.125 | | | 11/1/08 | | | 4,500,000 | | | 4,500,000 | | | 4,742,055 | |
| | Tyco Intl. Group SA | | | 6.125 | | | 11/1/08 | | | 3,000,000 | | | 3,000,000 | | | 3,161,370 | |
| | IPSCO, Inc. | | | 8.750 | | | 6/1/13 | | | 3,100,000 | | | 3,100,000 | | | 3,433,250 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 3/1/32 | | | 1,100,000 | | | 507,117 | | | 515,386 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 9/1/33 | | | 925,928 | | | 526,341 | | | 531,998 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 9/1/33 | | | 425,677 | | | 417,767 | | | 422,257 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 2/1/32 | | | 397,360 | | | 132,255 | | | 133,765 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 4/1/29 | | | 463,491 | | | 107,468 | | | 109,090 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 7/1/33 | | | 409,601 | | | 315,185 | | | 318,572 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 8/1/33 | | | 411,912 | | | 281,148 | | | 284,169 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 3/1/33 | | | 1,006,453 | | | 438,749 | | | 443,464 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 7/1/33 | | | 872,153 | | | 641,341 | | | 648,233 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 6/1/33 | | | 800,952 | | | 531,166 | | | 536,874 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 9/1/33 | | | 824,340 | | | 630,523 | | | 637,299 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 8/1/33 | | | 692,810 | | | 442,766 | | | 447,524 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 9/1/33 | | | 811,381 | | | 638,811 | | | 645,676 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 9/1/33 | | | 782,237 | | | 438,747 | | | 443,462 | |
| | American Real Estate Partners | | | 8.125 | | | 6/1/12 | | | 5,860,000 | | | 5,860,000 | | | 5,918,600 | |
| | American Real Estate Partners | | | 7.125 | | | 2/15/13 | | | 1,480,000 | | | 1,480,000 | | | 1,450,400 | |
| | Graphic Packaging Intl., Inc. | | | 9.500 | | | 8/15/13 | | | 5,000,000 | | | 5,000,000 | | | 5,050,000 | |
| | Unisys Corp. | | | 6.875 | | | 3/15/10 | | | 3,000,000 | | | 3,000,000 | | | 2,865,000 | |
| | DR Horton, Inc. | | | 5.875 | | | 7/1/13 | | | 2,000,000 | | | 2,000,000 | | | 1,998,790 | |
| | Federal National Mortgage Assoc. | | | 5.500 | | | 1/25/33 | | | 19,000,000 | | | 16,255,437 | | | 3,000,591 | |
| | U.S. Treasury Notes | | | 3.375 | | | 12/15/08 | | | 17,000,000 | | | 17,000,000 | | | 16,760,980 | |
| | U.S. Treasury Notes | | | 4.250 | | | 11/15/13 | | | 8,660,000 | | | 8,660,000 | | | 8,724,950 | |
| | U.S. Treasury Notes | | | 3.875 | | | 5/15/09 | | | 6,000,000 | | | 6,000,000 | | | 6,009,360 | |
| | U.S. Treasury Notes | | | 3.375 | | | 9/15/09 | | | 3,425,000 | | | 3,425,000 | | | 3,360,781 | |
| | Federal National Mortgage Assoc. | | | 7.250 | | | 1/15/10 | | | 17,000,000 | | | 17,000,000 | | | 19,163,590 | |
| | JP Morgan HYDI B Trust | | | 6.400 | | | 6/20/08 | | | 10,000,000 | | | 10,000,000 | | | 9,876,700 | |
| | JP Morgan HYDI B Trust | | | 9.000 | | | 6/20/08 | | | 400,000 | | | 392,593 | | | 388,667 | |
| | JP Morgan HYDI B Trust | | | 9.000 | | | 6/20/08 | | | 7,000,000 | | | 6,870,370 | | | 6,801,667 | |
| | General Motors Acceptance Corp. | | | 4.050 | | | 1/16/07 | | | 1,500,000 | | | 1,500,000 | | | 1,431,510 | |
| | General Motors Acceptance Corp. | | | 4.050 | | | 1/16/07 | | | 1,500,000 | | | 1,500,000 | | | 1,431,510 | |
| | JC Penney Corp., Inc. | | | 8.000 | | | 3/1/10 | | | 4,400,000 | | | 4,400,000 | | | 4,807,000 | |
| | MGM Mirage | | | 9.750 | | | 6/1/07 | | | 4,000,000 | | | 4,000,000 | | | 4,310,000 | |
| | U.S. Treasury Notes | | | 3.750 | | | 3/31/07 | | | 8,000,000 | | | 8,000,000 | | | 8,016,240 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 140,818,759 | |
| | | | | | | | | | | | | | | |
|
| |
86
| | | | | | | | | | | | | | | | | | |
Trust / Counter Party | | Description | | Rate | | Maturity
Date | | Original
Face | | Current
Face | | Market Value | |
| |
| |
| |
| |
| |
| |
| |
Strategic Bond | | | | | | | | | | | | | | | | | | |
Credit Suisse First Boston LLC | | Wells Fargo & Co. | | | 3.500 | % | | 4/4/08 | | $ | 2,000,000 | | $ | 2,000,000 | | $ | 1,961,760 | |
| | Verizon New England, Inc. | | | 6.500 | | | 9/15/11 | | | 2,000,000 | | | 2,000,000 | | | 2,161,260 | |
| | HSBC Bank USA Global | | | 3.875 | | | 9/15/09 | | | 1,500,000 | | | 1,500,000 | | | 1,468,665 | |
| | Comcast Cable Communications, Inc. | | | 6.875 | | | 6/15/09 | | | 1,000,000 | | | 1,000,000 | | | 1,085,647 | |
| | DaimlerChrysler NA | | | 7.300 | | | 1/15/12 | | | 1,000,000 | | | 1,000,000 | | | 1,069,370 | |
| | Progress Energy, Inc. | | | 6.750 | | | 3/1/06 | | | 1,000,000 | | | 1,000,000 | | | 1,023,170 | |
| | Progress Energy, Inc. | | | 7.750 | | | 3/1/31 | | | 1,000,000 | | | 1,000,000 | | | 1,218,150 | |
| | Northrop Grumman Corp. | | | 7.125 | | | 2/15/11 | | | 500,000 | | | 500,000 | | | 562,195 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | | 10,550,217 | |
| | | | | | | | | | | | | | | |
|
| |
Lehman Brothers | | European Investment Bank | | | 4.875 | | | 9/6/06 | | | 850,000 | | | 850,000 | | | 863,770 | |
| | KFW Intl. Finance, Inc. | | | 5.250 | | | 6/28/06 | | | 850,000 | | | 850,000 | | | 865,028 | |
| | United Mexican States | | | 8.125 | | | 12/30/19 | | | 1,000,000 | | | 1,000,000 | | | 1,170,000 | |
| | Wellpoint, Inc. | | | 5.950 | | | 12/15/34 | | | 900,000 | | | 900,000 | | | 927,198 | |
| | Merck & Co., Inc. | | | 4.375 | | | 2/15/13 | | | 1,000,000 | | | 1,000,000 | | | 976,830 | |
| | United Technologies Corp. | | | 6.350 | | | 3/1/11 | | | 1,000,000 | | | 1,000,000 | | | 1,096,890 | |
| | Vodafone Airtouch PLC | | | 7.750 | | | 2/15/10 | | | 1,000,000 | | | 1,000,000 | | | 1,138,540 | |
| | General Mills, Inc. | | | 5.125 | | | 2/15/07 | | | 1,000,000 | | | 1,000,000 | | | 1,016,980 | |
| | Wyeth Co. | | | 6.500 | | | 2/1/34 | | | 1,000,000 | | | 1,000,000 | | | 1,123,690 | |
| | Telecom Italio Capital | | | 4.950 | | | 9/30/14 | | | 1,000,000 | | | 1,000,000 | | | 978,370 | |
| | First Energy Corp. | | | 7.375 | | | 11/15/31 | | | 1,075,000 | | | 1,075,000 | | | 1,266,931 | |
| | Lockheed Martin Corp. | | | 8.500 | | | 12/1/29 | | | 2,000,000 | | | 2,000,000 | | | 2,777,140 | |
| | El Paso Productions Holdings Co. | | | 7.750 | | | 6/1/13 | | | 1,750,000 | | | 1,750,000 | | | 1,745,625 | |
| | Barclays Bank PLC | | | 8.550 | | | 9/29/49 | | | 200,000 | | | 200,000 | | | 237,899 | |
| | WRC Media, Inc. | | | 12.750 | | | 11/15/09 | | | 200,000 | | | 200,000 | | | 194,000 | |
| | Tyco Intl. Group SA | | | 6.375 | | | 2/15/06 | | | 350,000 | | | 350,000 | | | 356,468 | |
| | Tyco Intl. Group SA | | | 6.375 | | | 2/15/06 | | | 782,000 | | | 782,000 | | | 796,451 | |
| | General Electric Capital Corp. | | | 3.450 | | | 7/16/07 | | | 2,000,000 | | | 2,000,000 | | | 1,974,160 | |
| | TIAA Global Markets, Inc. | | | 3.875 | | | 1/22/08 | | | 1,000,000 | | | 1,000,000 | | | 996,140 | |
| | Bellsouth Corp. | | | 4.200 | | | 9/15/09 | | | 1,000,000 | | | 1,000,000 | | | 988,000 | |
| | Conoco, Inc. | | | 6.950 | | | 4/15/29 | | | 200,000 | | | 200,000 | | | 243,964 | |
| | Citigroup, Inc. | | | 5.750 | | | 5/10/06 | | | 3,000,000 | | | 3,000,000 | | | 3,055,470 | |
| | Bank One Corp. | | | 6.500 | | | 2/1/06 | | | 300,000 | | | 300,000 | | | 306,135 | |
| | News America, Inc. | | | 6.200 | | | 12/15/34 | | | 1,000,000 | | | 1,000,000 | | | 1,019,610 | |
| | SBC Communications, Inc. | | | 6.450 | | | 6/15/34 | | | 1,500,000 | | | 1,500,000 | | | 1,619,235 | |
| | Dominion Resources, Inc. | | | 5.700 | | | 9/17/12 | | | 1,000,000 | | | 1,000,000 | | | 1,048,700 | |
| | TCI Communications, Inc. | | | 7.875 | | | 2/15/26 | | | 1,000,000 | | | 1,000,000 | | | 1,236,540 | |
| | Ford Motor Credit Co. | | | 4.710 | | | 1/15/10 | | | 1,600,000 | | | 1,600,000 | | | 1,420,032 | |
| | U.S. Treasury Notes | | | 4.250 | | | 8/15/13 | | | 1,000,000 | | | 1,000,000 | | | 1,007,970 | |
| | U.S. Treasury Notes | | | 2.625 | | | 11/15/06 | | | 933,000 | | | 933,000 | | | 919,882 | |
| | U.S. Treasury Notes | | | 4.750 | | | 5/15/14 | | | 710,000 | | | 710,000 | | | 740,289 | |
| | U.S. Treasury Notes | | | 2.500 | | | 5/31/06 | | | 1,010,000 | | | 1,010,000 | | | 999,900 | |
| | U.S. Treasury Bonds | | | 5.375 | | | 2/15/31 | | | 410,000 | | | 410,000 | | | 463,300 | |
| | Bank One Corp. | | | 6.500 | | | 2/1/06 | | | 700,000 | | | 700,000 | | | 714,315 | |
| | Conoco, Inc. | | | 6.950 | | | 4/15/29 | | | 600,000 | | | 600,000 | | | 731,892 | |
| | | | | | | | | | | | | | | |
|
| |
| | | | | | | | | | | | | | | | $ | 37,017,344 | |
| | | | | | | | | | | | | | | |
|
| |
The average daily balance and weighted average interest rate of reverse repurchase agreements during the six months ended April 30, 2005 were as follows:
| | | | | | | | |
Trust | | Average Daily
Balance | | Weighted Average
Interest Rate | |
| |
| |
| |
Broad Investment Grade | | $ | 15,820,133 | | | 2.32 | % | |
Core Bond | | | 76,422,947 | | | 2.24 | | |
Income Opportunity | | | 105,778,814 | | | 2.30 | | |
Income Trust | | | 196,891,987 | | | 2.35 | | |
Limited Duration | | | 176,984,531 | | | 2.62 | | |
Strategic Bond | | | 24,012,161 | | | 2.75 | | |
87
Dollar Rolls: The Trusts may enter into dollar rolls in which a Trust sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Trusts forgo principal and interest paid on the securities. The Trusts will be compensated by the interest earned on the cash proceeds of the initial sale and/or by the lower repurchase price at the future date.
Loan Payable: High Yield has a $32 million committed credit facility (the “facility”). Under the terms of the facility, the Trust borrows at the London Interbank Offered Rate (“LIBOR”) plus facility and administrative fees. In addition, the Trust pays a liquidity fee on the unused portion of the facility. The Trust may borrow up to 331/3% of its total assets up to the committed amount. In accordance with the terms of the facility, the Trust has pledged its portfolio assets as collateral for the borrowing.
For the six months ended April 30, 2005, High Yield borrowed a daily weighted average balance of $19,987,569 at a weighted average interest rate at 1.48%.
Note 5. Commitments
Bridge Debt Commitments: At April 30, 2005, High Yield and Limited Duration had $1,091,873 and $13,971,734, respectively, in commitments outstanding to fund high yield bridge debt. The Trusts are entitled to a fee upon the expiration of the commitment period, generally within six months of the initial commitment date. The bridge debt terms approximate market rates at the time the commitment is entered into.
Note 6. Distributions to Shareholders
The estimated tax character of distributions paid during the six months ended April 30, 2005, and the tax character of distributions paid during the year ended October 31, 2004, were as follows:
| | | | | | | | | | | | | |
| | Six months ended April 30, 2005 | |
| |
| |
Distributions Paid From: | | Ordinary
Income | | Non-taxable
Return of Capital | | Long-term
Capital Gains | | Total
Distributions | |
| |
| |
| |
| |
| |
Broad Investment Grade | | $ | 1,330,692 | | $ | — | | $ | — | | $ | 1,330,692 | |
Core Bond | | | 14,184,857 | | | — | | | 5,954,938 | | | 20,139,795 | |
High Yield | | | 2,265,952 | | | 360,233 | | | — | | | 2,626,185 | |
Income Opportunity | | | 15,151,265 | | | — | | | 8,932,515 | | | 24,083,780 | |
Income Trust | | | 17,286,889 | | | 2,246,409 | | | — | | | 19,533,298 | |
Limited Duration | | | 26,950,563 | | | — | | | 1,634,364 | | | 28,584,927 | |
Strategic Bond | | | 4,094,970 | | | 1,193,237 | | | — | | | 5,288,207 | |
| | | | | | | | | | | | | |
| | Year ended October 31, 2004 | |
| |
| |
Distributions Paid From: | | Ordinary
Income | | Non-taxable
Return of Capital | | Long-term
Capital Gains | | Total
Distributions | |
| |
| |
| |
| |
| |
Broad Investment Grade | | $ | 2,661,384 | | $ | — | | $ | — | | $ | 2,661,384 | |
Core Bond | | | 29,412,475 | | | — | | | 556,750 | | | 29,969,225 | |
High Yield | | | 5,864,606 | | | 187,188 | | | — | | | 6,051,794 | |
Income Opportunity | | | 28,937,742 | | | — | | | — | | | 28,937,742 | |
Income Trust | | | 38,921,208 | | | — | | | — | | | 38,921,208 | |
Limited Duration | | | 55,077,640 | | | — | | | — | | | 55,077,640 | |
Strategic Bond | | | 11,337,469 | | | — | | | — | | | 11,337,469 | |
As of April 30, 2005, the estimated components of distributable earnings on a tax basis were as follows:
| | | | | | | | | | |
Trust | | Undistributed
Ordinary
Income | | Undistributed
Long-term Gains | | Unrealized Net
Appreciation | |
| |
| |
| |
| |
Broad Investment Grade | | $ | 7,815,996 | | $ | — | | $ | 61,884 | |
Core Bond | | | 8,011,972 | | | 8,707,385 | | | — | |
High Yield | | | — | | | — | | | — | |
Income Opportunity | | | 9,870,858 | | | 6,268,838 | | | 3,031,149 | |
Income Trust | | | — | | | — | | | — | |
Limited Duration | | | 2,707,080 | | | 3,403,848 | | | 2,459,541 | |
Strategic Bond | | | — | | | — | | | — | |
88
Note 7. Capital
There are 200 million of $0.01 par value common shares authorized for each of the Broad Investment Grade, Income Opportunity and Income Trusts. There are an unlimited number of $0.001 par value common shares authorized for Core Bond, High Yield, Limited Duration and Strategic Bond. At April 30, 2005, the common shares outstanding and the shares owned by affiliates of the Advisor of each Trust were:
| | | | | | | |
Trust | | Common Shares
Outstanding | | Common Shares
Owned | |
| |
| |
| |
Broad Investment Grade | | | 2,957,093 | | | — | |
Core Bond | | | 27,018,774 | | | — | |
High Yield | | | 6,407,798 | | | — | |
Income Opportunity | | | 34,449,693 | | | — | |
Income Trust | | | 63,886,194 | | | — | |
Limited Duration | | | 36,768,498 | | | 6,021 | |
Strategic Bond | | | 7,054,135 | | | — | |
During the six months ended April 30, 2005, High Yield, Income Trust, Limited Duration and Strategic Bond issued additional shares under their dividend reinvestment plans of 4,192, 170,726, 41,211, and 5,417, respectively. During the year ended October 31, 2004, High Yield, Income Trust, Limited Duration and Strategic Bond issued additional shares under their dividend reinvestment plan of 21,958, 325,777, 21,266 and 13,097, respectively.
Note 8. Dividends
Subsequent to April 30, 2005, the Board of each of the Trusts declared dividends per common share payable May 31, 2005, to shareholders of record on May 16, 2005. The per share common dividends declared were as follows:
| | | | |
Trust | | Common Dividend
Per Share | |
| |
| |
Broad Investment Grade | | $ | 0.075000 | |
Core Bond | | | 0.087500 | |
High Yield | | | 0.068333 | |
Income Opportunity | | | 0.070000 | |
Income Trust | | | 0.051042 | |
Limited Duration | | | 0.116700 | |
Strategic Bond | | | 0.115000 | |
89
|
DIVIDEND REINVESTMENT PLANS |
|
Pursuant to each Trust’s respective Dividend Reinvestment Plan (the “Plan”), shareholders of Broad Investment Grade, Income Opportunity and Income Trust may elect, while shareholders of Core Bond, High Yield, Limited Duration and Strategic Bond are automatically enrolled, to have all distributions of dividends and capital gains reinvested by EquiServe Trust Company, N.A. (the “Plan Agent”) in the respective Trust’s shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, which serves as agent for the shareholders in administering the Plan.
After Broad Investment Grade and/or Income Opportunity Trust declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ account, by the purchase of outstanding shares on the open market, on the Trust’s primary exchange or elsewhere (“open market purchases”). The Trust will not issue any new shares under the Plan.
After Core Bond, High Yield, Income Trust, Limited Duration and/or Strategic Bond declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants’ account, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Trust (“newly issued shares”) or (ii) by open market purchases. If, on the dividend payment date, the NAV is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as “market premium”), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the payment date, the dollar amount of the dividend will be divided by 95% of the market price on the payment date. If, on the dividend payment date, the NAV is greater than the market value per share plus estimated brokerage commissions (such condition being referred to herein as “market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases.
The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by each Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal income tax that may be payable on such dividends or distributions.
Each Trust reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, each Trust reserves the right to amend the Plan to include a service charge payable by the participants. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commisson. All correspondence concerning the Plan should be directed to the Plan Agent at 250 Royall Street, Canton, MA 02021 or (800) 699-1BFM.
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The Joint Annual Meeting of Shareholders was held on May 26, 2005, to elect a certain number of Directors/Trustees for each of the following Trusts to three year terms, unless otherwise indicated, expiring in 2008:
| | | | | | | | | |
Broad Investment Grade | | | | | | | |
| | | | | | | | |
| Elected the Class II Trustees as follows: | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Frank J. Fabozzi | | | 2,724,305 | | | 110,182 | | |
| Kathleen F. Feldstein | | | 2,805,454 | | | 29,033 | | |
| Walter F. Mondale | | | 2,798,565 | | | 35,922 | | |
| Ralph L. Schlosstein | | | 2,807,102 | | | 27,385 | | |
| | | | | | | | | |
| Elected the Class I Trustee as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| R. Glenn Hubbard1 | | | 2,806,685 | | | 27,802 | | |
| | | | | | | | | |
Core Bond | | | | | | | | |
| | | | | | | | | |
| Elected the Class I Trustees as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Richard E. Cavanagh | | | 23,643,324 | | | 404,054 | | |
| R. Glenn Hubbard | | | 23,623,775 | | | 423,603 | | |
| James Clayburn La Force, Jr. | | | 23,586,832 | | | 460,546 | | |
| | | | | | | | | |
| Elected the Class II Trustee as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Kathleen F. Feldstein1 | | | 23,620,007 | | | 427,371 | | |
| | | | | | | | | |
High Yield | | | | | | | | |
| | | | | | | | | |
| Elected the Class III Trustees as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Andrew F. Brimmer | | | 6,002,200 | | | 134,114 | | |
| Kent Dixon | | | 6,005,218 | | | 131,096 | | |
| Robert S. Kapito | | | 6,033,610 | | | 102,704 | | |
| | | | | | | | | |
Income Opportunity | | | | | | | | |
| | | | | | | | | |
| Elected the Class I Directors as follows: | | | | | | | | |
| Director | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Richard E. Cavanagh | | | 30,256,745 | | | 1,232,563 | | |
| R. Glenn Hubbard | | | 30,189,633 | | | 1,299,675 | | |
| James Clayburn La Force, Jr. | | | 30,168,983 | | | 1,320,325 | | |
| | | | | | | | | |
| Elected the Class II Director as follows: | | | | | | | | |
| Director | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Kathleen F. Feldstein1 | | | 30,240,041 | | | 1,249,267 | | |
| | | | | | | | | |
Income Trust | | | | | | | | |
| | | | | | | | | |
| Elected the Class I Directors as follows: | | | | | | | | |
| Director | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Richard E. Cavanagh | | | 57,413,396 | | | 884,310 | | |
| R. Glenn Hubbard | | | 57,414,518 | | | 883,188 | | |
| James Clayburn La Force, Jr. | | | 57,351,067 | | | 946,639 | | |
| | | | | | | | | |
| Elected the Class II Director as follows: | | | | | | | | |
| Director | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Kathleen F. Feldstein1 | | | 57,366,673 | | | 931,033 | | |
| | | | | | | | | |
Limited Duration | | | | | | | | |
| | | | | | | | | |
| Elected the Class II Trustees as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Frank J. Fabozzi | | | 33,675,201 | | | 389,514 | | |
| Kathleen F. Feldstein | | | 33,659,680 | | | 405,035 | | |
| Walter F. Mondale | | | 33,590,950 | | | 473,765 | | |
| Ralph L. Schlosstein | | | 33,663,141 | | | 401,574 | | |
91
| | | | | | | | | | |
Strategic Bond | | | | | | | | |
| | | | | | | | | |
| Elected the Class I Trustees as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Richard E. Cavanagh | | | 5,904,793 | | | 69,039 | | |
| R. Glenn Hubbard | | | 5,905,293 | | | 68,539 | | |
| James Clayburn La Force, Jr. | | | 5,896,023 | | | 77,809 | | |
| | | | | | | | | |
| Elected the Class II Trustee as follows: | | | | | | | | |
| Trustee | | | Votes For | | | Votes Withheld | |
|
| | | |
| | |
| |
| Kathleen F. Feldstein1 | | | 5,905,293 | | | 68,539 | | |
| | |
1 | Mr. Hubbard and Ms. Feldstein will serve until the end of the term for the class of Directors/Trustees to which they were elected, if such class was not standing for election at the May 26, 2005 annual shareholders meeting. |
The following Trusts had an additional proposal (Proposal #2A) to amend its respective Declaration of Trust in order to change the maximum number of permitted Trustees allowed on its respective Board to 11:
| | | | | | | | | | | | |
| | | Votes For | | | Votes Against | | | Votes Withheld | |
| | |
| | |
| | |
| |
Core Bond | | | 23,442,122 | | | 419,368 | | | | 185,888 | | |
Limited Duration | | | 33,074,495 | | | 646,876 | | | | 343,344 | | |
Strategic Bond | | | 5,800,367 | | | 93,187 | | | | 80,278 | | |
The following Trust had an additional proposal (Proposal #2B) to amend its respective Declaration of Trust in order to reduce the maximum number of permitted Trustees allowed on its respective Board from 15 to 11:
| | | | | | | | | | | | |
| | | Votes For | | | Votes Against | | | Votes Withheld | |
| | |
| | |
| | |
| |
High Yield | | | 6,027,273 | | | 64,513 | | | | 44,528 | | |
There has been no material changes in the Trusts’ investment objective or policies or to their charters or by-laws that have not been approved by 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/indiv/products/closedendfunds/funds.html. This reference to BlackRock’s website is intended to allow investors public access to information regarding the Trusts and does not, and is not intended, to incorporate BlackRock’s website into this report.
Certain of the officers of the Trusts listed on the inside back cover of this Report to Shareholders are also officers of the Advisor or Sub-Advisor. They serve in the following capacities for the Advisor or Sub-Advisor: Robert S. Kapito—Director and Vice Chairman of the Advisor and the Sub-Advisor, Kevin M. Klingert—Director of BlackRock Advisors, Inc. and Managing Director of the Advisor and the Sub-Advisor, Henry Gabbay, Anne Ackerley and Bartholomew Battista—Managing Directors of the Advisor and the Sub-Advisor, James Kong and Vincent Tritto—Managing Directors of the Sub-Advisor, and Brian P. Kindelan—Managing Director of the Advisor.
92
BlackRock Closed-End Funds
| | |
Directors/Trustees | | Transfer Agent |
Ralph L. Schlosstein, Chairman | | EquiServe Trust Company, N.A. |
Andrew F. Brimmer | | 250 Royall Street |
Richard E. Cavanagh | | Canton, MA 02021 |
Kent Dixon | | (800) 699-1BFM |
Frank J. Fabozzi | | |
Kathleen F. Feldstein1 | | Independent Registered Public Accounting Firm |
R. Glenn Hubbard2 | | Deloitte & Touche LLP |
Robert S. Kapito | | 200 Berkeley Street |
James Clayburn La Force, Jr. | | Boston, MA 02116 |
Walter F. Mondale | | |
| | Legal Counsel |
Officers | | Skadden, Arps, Slate, Meagher & Flom LLP |
Robert S. Kapito, President | | 4 Times Square |
Henry Gabbay, Treasurer | | New York, NY 10036 |
Bartholomew Battista, Chief Compliance Officer | | |
Anne Ackerley, Vice President
James Kong, Assistant Treasurer
Vincent B. Tritto, Secretary
Brian P. Kindelan, Assistant Secretary | | Legal Counsel – Independent Trustees
Debevoise & Plimpton LLP
919 Third Avenue
New York, NY 10022 |
| | |
Investment Advisor | | 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 Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM | |
| | BlackRock Closed-End Funds |
| | c/o BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM |
Sub-Advisor3 | |
BlackRock Financial Management, Inc. | |
40 East 52nd Street | |
New York, NY 10022 | | |
| | |
Accounting Agent and Custodian | | |
State Street Bank and Trust Company | | |
225 Franklin Street | | |
Boston, MA 02110 | | |
| |
|
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1 | Appointed as a Trustee of Broad Investment Grade, High Yield, Income Opportunity and Income Trust on January 19, 2005. Appointed as an Advisory Board Member of Core Bond, Limited Duration and Strategic Bond on January 19, 2005. Elected by Shareholders on May 26, 2005 as a Trustee of each Trust, except High Yield, for which Ms. Feldstein’s class of directors did not stand for election. |
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2 | Appointed as a Trustee of each Trust on November 16, 2004. Elected by Shareholders on May 26, 2005 as a Trustee of each Trust, except High Yield and Limited Duration, for which Mr. Hubbard’s class of directors did not stand for election. |
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3 | For Core Bond, Limited Duration and Strategic Bond. |
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.
The Trusts have delegated to the Advisor the voting of proxies relating to their voting securities pursuant to the Advisor’s proxy voting policies and procedures. You may obtain a copy of these proxy voting policies and procedures, without charge, by calling (800) 699-1BFM. These policies and procedures are also available on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.
Information on how proxies relating to the Trusts’ voting securities were voted (if any) by the Advisor during the most recent 12-month period ended June 30th is available, upon request, by calling (800) 699-1BFM or on the website of the Commission at http://www.sec.gov.
The Trusts file their complete schedule of portfolio holdings for the first and third quarters of their respective fiscal years with the Commission on Form N-Q. Each Trust’s Form N-Q will be available on the Commission’s website at http://www.sec.gov. Each Trust’s Form N-Q, when available, may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Each Trust’s Form N-Q, when available, may also be obtained, upon request, by calling (800) 699-1BFM.
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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-SEMI-3 | |
Item 2. Code of Ethics.Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
The Registrant’s Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable for semi-annual reports.
Item 9. Purchases of Equity Securities by Closed-End Management Company and Affiliated Purchasers.
Not applicable because no such purchases were made during the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable because no applicable matters were voted on by shareholders during the period covered by this report.
Item 11. Controls and Procedures.
(a) The Registrant's principal executive officer and principal financial officer have evaluated the Registrant's disclosure controls and procedures as of a date within 90 days of this filing and have concluded that the Registrant’s disclosure controls and procedures are effective, as of such date, in ensuring that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer are aware of no changes in the Registrant's internal control over financial reporting that occurred during the Registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting.
Item 12. Exhibits.
(a) (1) Not applicable.
(a) (2) Separate certifications of Principal Executive and Financial Officers pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(a) (3) Not applicable.
(b) Certification of Principal Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) BlackRock Income Opportunity Trust, Inc.
By: /s/ Henry Gabbay
_____________________________________________________________________
Name: Henry Gabbay
Title: Treasurer
Date: July 1, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Robert S. Kapito
_____________________________________________________________________
Name: Robert S. Kapito
Title: Principal Executive Officer
Date: July 1, 2005
By: /s/ Henry Gabbay
_____________________________________________________________________
Name: Henry Gabbay
Title: Principal Financial Officer
Date: July 1, 2005
