UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-10635 BlackRock Strategic Bond Trust - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 100 Bellevue Parkway, Wilmington, DE 19809 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Robert S. Kapito, President, BlackRock Strategic Bond Trust 40 East 52nd Street, New York, New York 10022 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 302-797-2449 Date of fiscal year end: 10-31-2003 Date of reporting period: 04-30-2003 ITEM 1. REPORTS TO STOCKHOLDERS. The Trust's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: BlackRock Closed-End Funds Semi-Annual Report APRIL 30, 2003 (UNAUDITED) BlackRock Broad Investment Grade 2009 Term Trust (BCT) BlackRock Core Bond Trust (BHK) BlackRock High Yield Trust (BHY) BlackRock Income Opportunity Trust (BNA) BlackRock Income Trust (BKT) BlackRock Strategic Bond Trust (BHD) [BLACKROCK LOGO] NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE TABLE OF CONTENTS Letter to Shareholders .................................................... 1 Trust Summaries ........................................................... 2 Portfolios of Investments ................................................. 8 Financial Statements Statements of Assets and Liabilities ................................... 33 Statements of Operations ............................................... 35 Statements of Cash Flows ............................................... 37 Statements of Changes in Net Assets .................................... 39 Financial Highlights ...................................................... 42 Notes to Financial Statements ............................................. 48 Dividend Reinvestment Plans ............................................... 56 Additional Information .................................................... 56 - -------------------------------------------------------------------------------- PRIVACY PRINCIPLES OF THE TRUSTS The Trusts are committed to maintaining the privacy of shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Trusts collect, how we protect that information and why, in certain cases, we may share information with select other parties. Generally, the Trusts do not receive any non-public personal information relating to their shareholders, although certain non-public personal information of shareholders may become available to the Trusts. The Trusts do not disclose any non-public personal information about their shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator). The Trusts restrict access to non-public personal information about their shareholders to BlackRock employees with a legitimate business need for the information. The Trusts maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of their shareholders. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS May 31, 2003 Dear Shareholder: We are pleased to report that during the semi-annual period, the Trusts continued to provide monthly income, as well as the opportunity to invest in various portfolios of fixed income securities. This report contains the Trusts' unaudited financial statements and a listing of the portfolios' holdings. The portfolio management team continuously monitors the fixed income markets and adjusts the portfolios in order to gain exposure to various issuers and security types. This strategy enables the Trusts to move among different sectors, credits and coupons to capitalize on changing market conditions. The following table shows the Trusts' yields, closing market prices per share and net asset values ("NAV") per share as of April 30, 2003. - ------------------------------------------------------------------------------------------------- TRUST YIELD(1) MARKET PRICE NAV - ------------------------------------------------------------------------------------------------- BlackRock Broad Investment Grade 2009 Term Trust (BCT) 5.49% $16.40 $16.98 - ------------------------------------------------------------------------------------------------- BlackRock Core Bond Trust (BHK) 8.06 14.88 15.31 - ------------------------------------------------------------------------------------------------- BlackRock High Yield Trust (BHY) 11.30 10.29 6.55 - ------------------------------------------------------------------------------------------------- BlackRock Income Opportunity Trust (BNA) 7.52 11.17 12.27 - ------------------------------------------------------------------------------------------------- BlackRock Income Trust (BKT) 7.59 8.07 7.55 - ------------------------------------------------------------------------------------------------- BlackRock Strategic Bond Trust (BHD) 9.83 14.65 14.27 - ------------------------------------------------------------------------------------------------- (1) Yield is based on market price. BlackRock, Inc. ("BlackRock"), a world leader in asset management, has a proven commitment to fixed income. As of March 31, 2003, BlackRock managed $187 billion in bonds, including 16 open-end and 44 closed-end bond funds. BlackRock is recognized for its emphasis on risk management and proprietary analytics and for its reputation managing money for the world's largest institutional investors. BlackRock Advisors, Inc., which manages the Trusts, is a wholly owned subsidiary of BlackRock, Inc. On behalf of BlackRock, we thank you for your continued trust and assure you that we remain committed to excellence in managing your assets. Sincerely, /s/ Laurence D. Fink /s/ Ralph L. Schlosstein Laurence D. Fink Ralph L. Schlosstein Chief Executive Officer President BlackRock Advisors, Inc. BlackRock Advisors, Inc. 1 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - ------------------------------------------------ BlackRock Broad Investment Grade 2009 Term Trust - ------------------------------------------------ TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on American Stock Exchange: BCT - -------------------------------------------------------------------------------- Initial Offering Date: June 17, 1993 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $16.40 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $16.98 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($16.40):(1) 5.49% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.075 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 0.900 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. (2) The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: ----------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $16.40 $16.18 1.36% $16.55 $15.84 - ------------------------------------------------------------------------------- NAV $16.98 $17.33 (2.02)% $17.38 $16.86 - -------------------------------------------------------------------------------- The following charts show the Trust's asset composition and credit quality allocations: - -------------------------------------------------------------------------------- SECTOR BREAKDOWN - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- U.S. Government and Agency Securities 49% 36% - -------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 14 18 - -------------------------------------------------------------------------------- Inverse Floating Rate Mortgages 13 18 - -------------------------------------------------------------------------------- Corporate Bonds 9 10 - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 7 8 - -------------------------------------------------------------------------------- Taxable Municipal Bonds 5 5 - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 2 2 - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 1 1 - -------------------------------------------------------------------------------- Asset-Backed Securities -- 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATING % OF CORPORATES* - -------------------------------------------------------------------------------- CREDIT RATING APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- AAA/Aaa 10% 8% - -------------------------------------------------------------------------------- AA/Aa 22 19 - -------------------------------------------------------------------------------- A 40 42 - -------------------------------------------------------------------------------- BBB/Baa 28 30 - -------------------------------------------------------------------------------- BB/Ba -- 1 - -------------------------------------------------------------------------------- - ---------- * Using the higher of Standard & Poor's ("S&P"), Moody's Investors Service ("Moody's") or Fitch Ratings ("Fitch") rating. Corporate bonds represented approximately 11.4% and 13.3% of net assets on April 30, 2003 and October 31, 2002, respectively. 2 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - ------------------------- BlackRock Core Bond Trust - ------------------------- TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BHK - -------------------------------------------------------------------------------- Initial Offering Date: November 27, 2001 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $14.88 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $15.31 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($14.88):(1) 8.06% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.10 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 1.20 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. (2) The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: --------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $14.88 $13.82 7.67% $14.95 $13.45 - -------------------------------------------------------------------------------- NAV $15.31 $14.33 6.84% $15.31 $14.36 - -------------------------------------------------------------------------------- The following charts show the Trust's asset composition and credit quality allocations: - -------------------------------------------------------------------------------- SECTOR BREAKDOWN - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- Corporate Bonds 48% 44% - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 26 28 - -------------------------------------------------------------------------------- U.S. Government and Agency Securities 12 17 - -------------------------------------------------------------------------------- Foreign Government Bonds 8 3 - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 3 6 - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 2 2 - -------------------------------------------------------------------------------- Taxable Municipal Bonds 1 -- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATING % OF CORPORATES* - -------------------------------------------------------------------------------- CREDIT RATING APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- AAA/Aaa 11% 14% - -------------------------------------------------------------------------------- AA/Aa 6 6 - -------------------------------------------------------------------------------- A 23 20 - -------------------------------------------------------------------------------- BBB/Baa 18 18 - -------------------------------------------------------------------------------- BB/Ba 12 10 - -------------------------------------------------------------------------------- B 27 29 - -------------------------------------------------------------------------------- CCC/Caa 3 1 - -------------------------------------------------------------------------------- Not Rated -- 2 - -------------------------------------------------------------------------------- - ---------- * Using the higher of S&P's, Moody's or Fitch's rating. Corporate bonds represented approximately 67.8% and 62.1% of net assets on April 30, 2003 and October 31, 2002, respectively. 3 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - -------------------------- BlackRock High Yield Trust - -------------------------- TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BHY - -------------------------------------------------------------------------------- Initial Offering Date: December 23, 1998 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $10.29 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $ 6.55 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($10.29):(1) 11.30% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.096875 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 1.162500 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the annualized distribution per share as of April 30, 2003 by the closing market price. (2) Effective June 2, 2003, the monthly distribution per share has been changed to $0.0905. The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: --------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $10.29 $8.68 18.55% $10.50 $7.91 - -------------------------------------------------------------------------------- NAV $ 6.55 $6.13 6.85% $ 6.55 $6.02 - -------------------------------------------------------------------------------- The following chart shows the Trust's credit quality allocations: - -------------------------------------------------------------------------------- RATING % OF CORPORATES* - -------------------------------------------------------------------------------- CREDIT RATING APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- BBB/Baa --% 4% - -------------------------------------------------------------------------------- BB/Ba 16 18 - -------------------------------------------------------------------------------- B 60 62 - -------------------------------------------------------------------------------- CCC/Caa 18 10 - -------------------------------------------------------------------------------- CC/Ca 1 3 - -------------------------------------------------------------------------------- C 1 -- - -------------------------------------------------------------------------------- Not Rated 4 3 - -------------------------------------------------------------------------------- - ---------- * Using the higher of S&P's, Moody's or Fitch's rating. Corporate bonds represented approximately 140.9% and 144.5% of net assets on April 30, 2003 and October 31, 2002, respectively. 4 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - ---------------------------------- BlackRock Income Opportunity Trust - ---------------------------------- TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BNA - -------------------------------------------------------------------------------- Initial Offering Date: December 20, 1991 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $11.17 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $12.27 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($11.17):(1) 7.52% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.07 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 0.84 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. (2) The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: --------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $11.17 $10.50 6.38% $11.20 $10.37 - -------------------------------------------------------------------------------- NAV $12.27 $11.83 3.72% $12.27 $11.65 - -------------------------------------------------------------------------------- The following charts show the Trust's asset composition and credit quality allocations: - -------------------------------------------------------------------------------- SECTOR BREAKDOWN - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- Corporate Bonds 52% 30% - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 37 55 - -------------------------------------------------------------------------------- U.S. Government and Agency Securities 5 7 - -------------------------------------------------------------------------------- Federal Housing Administration 3 4 - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 1 1 - -------------------------------------------------------------------------------- Inverse Floating Rate Mortgages 1 1 - -------------------------------------------------------------------------------- Principal Only Mortgage-Backed Securities 1 2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- RATING % OF CORPORATES* - -------------------------------------------------------------------------------- CREDIT RATING APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- AAA/Aaa 9% 14% - -------------------------------------------------------------------------------- AA/Aa 12 8 - -------------------------------------------------------------------------------- A 21 21 - -------------------------------------------------------------------------------- BBB/Baa 21 13 - -------------------------------------------------------------------------------- BB/Ba 16 24 - -------------------------------------------------------------------------------- B 20 20 - -------------------------------------------------------------------------------- CCC/Caa 1 -- - -------------------------------------------------------------------------------- - ---------- * Using the higher of S&P's, Moody's or Fitch's rating. Corporate bonds represented approximately 73.4% and 40.9% of net assets on April 30, 2003 and October 31, 2002, respectively. 5 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - ---------------------- BlackRock Income Trust - ---------------------- TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BKT - -------------------------------------------------------------------------------- Initial Offering Date: July 22, 1988 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $8.07 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $7.55 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($8.07):(1) 7.59% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $0.051042 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $0.612504 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the current annualized distribution per share by the closing market price. (2) The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: ---------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $8.07 $8.07 -- $8.17 $7.80 - -------------------------------------------------------------------------------- NAV $7.55 $8.13 (7.13)% $8.09 $7.48 - -------------------------------------------------------------------------------- The following chart shows the Trust's asset composition: SECTOR BREAKDOWN - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 43% 48% - -------------------------------------------------------------------------------- U.S. Government and Agency Securities 20 16 - -------------------------------------------------------------------------------- Principal Only Mortgage-Backed Securities 11 8 - -------------------------------------------------------------------------------- Inverse Floating Rate Mortgages 8 9 - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 8 8 - -------------------------------------------------------------------------------- FHA Project Loans 4 5 - -------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 2 2 - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 2 2 - -------------------------------------------------------------------------------- Non-Agency Multiple Class Mortgage Pass-Throughs 1 1 - -------------------------------------------------------------------------------- Adjustable Rate Mortgage Securities -- 1 - -------------------------------------------------------------------------------- Other 1 -- - -------------------------------------------------------------------------------- 6 TRUST SUMMARIES (unaudited) APRIL 30, 2003 - ------------------------------ BlackRock Strategic Bond Trust - ------------------------------ TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BHD - -------------------------------------------------------------------------------- Initial Offering Date: February 26, 2002 - -------------------------------------------------------------------------------- Closing Market Price as of 4/30/03: $14.65 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/03: $14.27 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 4/30/03 ($14.65):(1) 9.83% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.12 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 1.44 - -------------------------------------------------------------------------------- (1) Yield on closing market price is calculated by dividing the annualized distribution per share as of April 30, 2003 by the closing market price. (2) Effective June 2, 2003, the monthly distribution per share has been changed to $0.13. The distribution is not constant and is subject to change. The table below summarizes the changes in the Trust's market price and NAV: ---------------------------------------------------------------- 4/30/03 10/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- MARKET PRICE $14.65 $12.35 18.62% $14.70 $12.41 - -------------------------------------------------------------------------------- NAV $14.27 $12.63 12.98% $14.27 $12.91 - -------------------------------------------------------------------------------- The following chart shows the Trust's credit quality allocations: - -------------------------------------------------------------------------------- RATING % OF CORPORATES* - -------------------------------------------------------------------------------- CREDIT RATING APRIL 30, 2003 OCTOBER 31, 2002 - -------------------------------------------------------------------------------- AAA/Aaa 1% 1% - -------------------------------------------------------------------------------- AA/Aa 4 6 - -------------------------------------------------------------------------------- A 11 10 - -------------------------------------------------------------------------------- BBB/Baa 10 12 - -------------------------------------------------------------------------------- BB/Ba 27 29 - -------------------------------------------------------------------------------- B 44 41 - -------------------------------------------------------------------------------- CCC/Caa 2 -- - -------------------------------------------------------------------------------- Not Rated 1 1 - -------------------------------------------------------------------------------- - ---------- * Using the higher of S&P's, Moody's or Fitch's rating. Corporate bonds represented approximately 142.0% and 143.4% of net assets on April 30, 2003 and October 31, 2002, respectively. 7 CONSOLIDATED PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - ------------------------------------------------ BlackRock Broad Investment Grade 2009 Term Trust - ------------------------------------------------ PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--130.8% MORTGAGE PASS-THROUGHS--2.5% Federal National Mortgage Assoc., $1,085 5.50%, 1/01/17 - 2/01/17 ................................................................ $ 1,129,219 108 6.50%, 7/01/29 .......................................................................... 112,965 ------------ Total Mortgage Pass-Throughs .............................................................. 1,242,184 ------------ AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--17.6% Federal Home Loan Mortgage Corp., 2,168 Ser. 1510, Class G, 5/15/13 ............................................................. 2,438,068 400 Ser. 1534, Class IG, 2/15/10 ............................................................ 417,860 253 Ser. 1601, Class SD, 10/15/08 ........................................................... 258,403 Federal National Mortgage Assoc., 405 Ser. 13, Class SJ, 2/25/09 .............................................................. 420,193 180 Ser. 43, Class E, 4/25/22 ............................................................... 192,767 1,000 Ser. 49, Class H, 4/25/13 ............................................................... 1,137,290 30 Ser. 69, Class Z, 1/25/22 ............................................................... 30,506 3,146 Ser. 87, Class J, 4/25/22 ............................................................... 3,222,794 629 Ser. 214, Class SK, 12/25/08 ............................................................ 721,506 ------------ Total Agency Multilple Class Mortgage Pass-Throughs ....................................... 8,839,387 ------------ INVERSE FLOATING RATE MORTGAGES--17.2% AAA 462 Citicorp Mortgage Securities, Inc., Ser. 14, Class A-4, 11/25/23 .......................... 549,245 AAA 550 Countrywide Funding Corp., Ser. 2, Class A-12S, 2/25/09 ................................... 574,923 AAA 723 Countrywide Mortgage-Backed Securities, Inc., Ser. D, Class A-15, 1/25/09 ................. 733,815 Federal Home Loan Mortgage Corp., 336 Ser. 1425, Class SB, 12/15/07 ........................................................... 430,945 193 Ser. 1506, Class S, 5/15/08 ............................................................. 221,905 255 Ser. 1515, Class S, 5/15/08 ............................................................. 273,866 37 Ser. 1580, Class SD, 9/15/08 ............................................................ 37,712 232 Ser. 1618, Class SA, 11/15/08 ........................................................... 240,370 395 Ser. 1621, Class SH, 11/15/22 ........................................................... 422,538 445 Ser. 1626, Class SA, 12/15/08 ........................................................... 447,634 329 Ser. 1661, Class SB, 1/15/09 ............................................................ 355,204 481 Ser. 1688, Class S, 12/15/13 ............................................................ 512,700 Federal National Mortgage Assoc., 8 Ser. 156, Class SE, 10/25/19 ............................................................ 7,683 528 Ser. 187, Class SB, 10/25/07 ............................................................ 627,376 381 Ser. 190, Class S, 11/25/07 ............................................................. 483,462 433 Ser. 191, Class SD, 10/25/08 ............................................................ 515,306 354 Ser. 202, Class VB, 11/25/23 ............................................................ 396,146 453 Ser. 214, Class SH, 12/25/08 ............................................................ 502,420 AAA 600 PaineWebber Mortgage Acceptance Corp., Ser. 6, Class A-9, 4/25/09 ......................... 624,750 Residential Funding Mortgage Securities I, Inc., AAA 323 Ser. S23, Class A-12, 6/25/08 ........................................................... 330,300 AAA 334 Ser. S23, Class A-16, 6/25/08 ........................................................... 342,810 ------------ Total Inverse Floating Rate Mortgages ..................................................... 8,631,110 ------------ INTEREST ONLY MORTGAGE-BACKED SECURITIES--9.2% Federal Home Loan Mortgage Corp., 3 Ser. 65, Class I, 8/15/20 ............................................................... 54,947 1 Ser. 141, Class H, 5/15/21 .............................................................. 2,384 4 Ser. 1114, Class J, 7/15/06 ............................................................. 42,797 3 Ser. 1285, Class M, 5/15/07 ............................................................. 31,441 1,321 Ser. 1645, Class IB, 9/15/08 ............................................................ 121,814 1,465 Ser. 2063, Class PU, 10/15/26 ........................................................... 37,081 3,177 Ser. 2081, Class S, 5/15/25 ............................................................. 45,674 1,889 Ser. 2306, Class PM, 5/15/26 ............................................................ 47,232 3,224 Ser. 2370, Class EI, 2/15/21 ............................................................ 26,197 5,308 Ser. 2376, Class MI, 7/15/11 ............................................................ 106,168 2,137 Ser. 2417, Class EI, 3/15/12 ............................................................ 34,916 1,728 Ser. 2462, Class NI, 8/15/21 ............................................................ 196,608 3,235 Ser. 2513, Class BI, 12/15/15 ........................................................... 256,747 3,100 Ser. 2542, Class IY, 5/15/16 ............................................................ 232,500 See Notes to Financial Statements. 8 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- INTEREST ONLY MORTGAGE-BACKED SECURITIES--(CONT'D) $ 2,688 Ser. 2543, Class IJ, 10/15/12 ........................................................... $ 284,802 4,000 Ser. 2543, Class IM, 9/15/12 ............................................................ 425,792 5,419 Ser. 2572, Class IT, 5/15/19 ............................................................ 614,666 Federal National Mortgage Assoc., 1 Ser. G-21, Class L, 7/25/21 ............................................................. 21,967 9 Ser. 8, Class HA, 1/25/08 ............................................................... 130,225 1,357 Ser. 9, Class IB, 5/25/27 ............................................................... 15,266 2,117 Ser. 14, Class PI, 4/25/12 .............................................................. 23,822 918 Ser. 20, Class SL, 9/25/08 .............................................................. 168,121 5,007 Ser. 22, Class SE, 11/25/23 ............................................................. 9,261 517 Ser. 29, Class BE, 5/25/28 .............................................................. 4,771 597 Ser. 30, Class QG, 12/18/25 ............................................................. 7,278 243 Ser. 39, Class PE, 1/25/23 .............................................................. 20,641 898 Ser. 42, Class SO, 3/25/23 .............................................................. 56,756 23 Ser. 49, Class L, 4/25/13 ............................................................... 197,653 23 Ser. 51, Class K, 4/25/07 ............................................................... 290,760 3 Ser. 72, Class H, 7/25/06 ............................................................... 37,991 4,272 Ser. 80, Class PI, 9/25/23 .............................................................. 202,898 2,000 Ser. 82, Class IR, 9/25/12 .............................................................. 231,250 1,463 Ser. 90, Class M, 1/25/28 ............................................................... 242,557 15 Ser. 174, Class S, 9/25/22 .............................................................. 43,900 458 Ser. 194, Class PV, 6/25/08 ............................................................. 34,603 3,334 Ser. 208, Class S, 2/25/23 .............................................................. 162,512 508 Ser. 223, Class PT, 10/25/23 ............................................................ 50,150 267 PNC Mortgage Securities Corp., Ser. 8, Class 4-X, 10/25/13 ................................ 9,934 446 Residential Funding Mortgage Securities I, Inc., Ser. S44, Class A-4, 11/25/23 ............ 3,412 9,549 Structured Asset Securities Corp., Ser. ALS1, Class 3AX, 5/25/29 .......................... 25,364 30,900 Vendee Mortgage Trust, Ser. 1, Class 1IO, 10/15/31 ........................................ 62,766 ------------ Total Interest Only Mortgage-Backed Securities ............................................ 4,615,624 ------------ PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--0.1% Aaa 66 Salomon Brothers Mortgage Securities Inc. VI, Ser. 3, Class A, 10/23/17 ................... 66,045 ------------ COMMERCIAL MORTGAGE-BACKED SECURITIES--1.7% AAA 750 New York City Mortgage Loan Trust, Multifamily, Ser. 1996, Class A-2, 6.75%, 6/25/11(2).... 853,693 ------------ ASSET-BACKED SECURITIES--0.1% NR 239 Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 3/15/06(2,4,5) ................. 10,745 Structured Mortgage Asset Residential Trust,(4,5,6) NR 578 Ser. 2, 8.24%, 3/15/06 .................................................................. 17,331 NR 640 Ser. 3, 8.724%, 4/15/06 ................................................................. 19,212 ------------ Total Asset-Backed Securities ............................................................. 47,288 ------------ U.S. GOVERNMENT AND AGENCY SECURITIES--64.0% 240 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 .......................... 253,549 27,0003 U.S. Treasury Bond, Zero Coupon, 11/15/09 ................................................. 21,190,248 U.S. Treasury Notes, 1,450 3.50%, 11/15/06 ......................................................................... 1,511,512 5,4253 4.375%, 8/15/12 ......................................................................... 5,664,253 500 5.00%, 8/15/11 .......................................................................... 547,500 1,700 5.75%, 11/15/05 ......................................................................... 1,868,339 550 6.00%, 8/15/09 .......................................................................... 636,668 385 6.625%, 5/15/07 ......................................................................... 446,299 ------------ Total U.S. Government and Agency Securities ............................................... 32,118,368 ------------ CORPORATE BONDS--11.4% CHEMICAL--2.4% A- 1,000 Dow Capital BV, 9.20%, 6/01/10 ............................................................ 1,223,950 ------------ CONSUMER PRODUCTS--1.1% BBB+ 500 Ralcorp Holdings, Inc., 8.75%, 9/15/04 .................................................... 545,715 ------------ ENERGY--2.2% A 500 Alltel Corp., 7.50%, 3/01/06 .............................................................. 565,540 BBB+ 500 Israel Electric Corp., Ltd., 7.25%, 12/15/06 (Israel)(2)................................... 538,965 ------------ 1,104,505 ------------ FINANCE & BANKING--4.6% A+ 500 Metropolitan Life Insurance Co., 6.30%, 11/01/03(2)........................................ 512,111 AA- 1,0003 Morgan Stanley Group, Inc., 10.00%, 6/15/08 ............................................... 1,257,350 AAA 500 UBS PaineWebber Group, Inc., 8.875%, 3/15/05 .............................................. 560,000 ------------ 2,329,461 ------------ See Notes to Financial Statements. 9 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- TRANSPORTATION--0.1% Caa2 $ 100 American Airlines, Inc., 10.44%, 3/04/07 .................................................. $ 31,500 ------------ UTILITIES--1.0% BBB+ 500 Ohio Edison Co., 8.625%, 9/15/03 .......................................................... 512,769 ------------ Total Corporate Bonds ..................................................................... 5,747,900 ------------ TAXABLE MUNICIPAL BONDS--7.0% AAA 500 Fresno California Pension Obligation, 7.80%, 6/01/14 ...................................... 619,075 AAA 500 Kern County California Pension Obligation, 6.98%, 8/15/09 ................................. 584,340 Los Angeles County California Pension Obligation, AAA 1,000 Ser. A, 8.62%, 6/30/06 .................................................................. 1,176,380 AAA 500 Ser. D, 6.97%, 6/30/08 .................................................................. 582,185 AAA 500 Orleans Parish Louisiana School Board, Ser. A, 6.60%, 2/01/08 ............................. 562,600 ------------ Total Taxable Municipal Bonds ............................................................. 3,524,580 ------------ Total Long-Term Investments (cost $64,689,325) ............................................ 65,686,179 ------------ SHORT-TERM INVESTMENT--3.6% DISCOUNT NOTE--3.6% 1,800 Federal Home Loan Bank, 1.25%, 5/01/03 (cost $1,800,000) .................................. 1,800,000 ------------ TOTAL INVESTMENTS--134.4% (cost $66,489,325) .............................................. 67,486,179 LIABILITIES IN EXCESS OF OTHER ASSETS--(34.4)% (17,288,606) NET ASSETS--100% .......................................................................... $ 50,197,573 ------------ - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 3.8% of its net assets, with a current market value of $1,915,514, in securities restricted as to resale. (3) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (4) Security is fair valued. (5) Illiquid securities representing 0.09% of net assets. (6) Security is restricted as to public resale. The security was acquired in 1997 and has a current cost of $105,042. See Notes to Financial Statements. 10 PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - ------------------------- BlackRock Core Bond Trust - ------------------------- PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--142.6% MORTGAGE PASS-THROUGHS--37.1% Federal Home Loan Mortgage Corp., $ 252 7.00%, 9/01/31 .......................................................................... $ 266,404 7,500 5.50%, TBA .............................................................................. 7,710,352 44,000 6.00%, TBA .............................................................................. 46,021,250 57,800 6.50%, TBA .............................................................................. 60,355,847 Federal National Mortgage Assoc., TBA 8,000 5.00% ................................................................................... 8,245,000 12,600 5.50% ................................................................................... 13,039,625 5,900 6.00% ................................................................................... 6,141,578 2,000 7.00% ................................................................................... 2,113,750 9,200 Government National Mortgage Assoc., 5.50%, TBA ........................................... 9,496,125 ------------ Total Mortgage Pass-Throughs .............................................................. 153,389,931 ------------ INTEREST ONLY MORTGAGE-BACKED SECURITIES--2.8% Federal Home Loan Mortgage Corp., 10,167 Ser. 2471, Class UI, 1/15/26 ............................................................ 767,078 33,102 Ser. 2496, Class ID, 9/15/26 ............................................................ 2,953,277 8,918 Ser. 2553, Class IT, 10/15/22 ........................................................... 1,323,741 6,467 Ser. 2579, Class HI, 8/15/17 ............................................................ 824,586 Federal National Mortgage Assoc., 9,700 Ser. 16, Class IW, 11/25/12 ............................................................. 982,125 6,100 Ser. 70, Class IN, 5/25/15 .............................................................. 808,250 3,685 Residential Funding Mortgage Securities I, Inc., Ser. S6, Class A6, 4/25/17 ............... 3,758,700 ------------ Total Interest Only Mortgage-Backed Securities ............................................ 11,417,757 ------------ COMMERCIAL MORTGAGE-BACKED SECURITIES--4.7% AAA 2,560 Capco America Securitization Corp., Ser. D7, Class A1B, 6.26%, 10/15/30 ................... 2,875,878 Caa1 1,099 Citicorp Mortgage Securities, Inc., Ser. 8, Class B1, 6.50%, 7/25/08 ...................... 1,044,335 AAA 1,900 GMAC Commercial Mortgage Securities, Inc., Ser. C2, Class A2, 6.945%, 9/15/33 ............. 2,185,000 AAA 1,677 Heller Financial Commercial Mortgage Asset Co., Ser. PH1, Class A2, 6.847%, 5/15/31 ....... 1,929,858 Morgan Stanley Capital I, Inc., AAA 2,125 Ser. FNV1, Class A2, 6.53%, 3/15/31 ....................................................... 2,413,702 AAA 1,470 Ser. HF2, Class A2, 6.48%, 11/15/30 ..................................................... 1,651,264 Residential Funding Mortgage Securities I, Inc., AAA 1,843 Ser. S6, Class A7, 6.00%, 4/25/17 ....................................................... 1,885,669 AAA 4,621 Ser. S29, Class A6, 6.50%, 12/26/31 ..................................................... 306,139 AAA 3,500 Salomon Brothers Mortgage Securities VII, Ser. C1, Class A2, 7.52%, 12/18/09 .............. 4,145,859 AAA 1,043 Washington Mutual Mortgage Securitization Corp., Ser. 12, Class A, 6.50%, 5/25/32 ......... 1,070,715 ------------ Total Commercial Mortgage-Backed Securities ............................................... 19,508,419 ------------ U.S. GOVERNMENT AND AGENCY SECURITIES--17.1% 1,050 Resolution Funding Corp., Zero Coupon, 7/15/18 - 10/15/18 ................................. 472,008 9,950(2) U.S. Treasury Bond, Zero Coupon, 11/15/21 ................................................. 3,820,760 U.S. Treasury Bonds, 9,060(2) 3.875%, 2/15/13 ......................................................................... 9,072,032 10,390(2) 5.375%, 2/15/31 ......................................................................... 11,337,277 7,325(2) 6.00%, 2/15/26 .......................................................................... 8,461,518 5,215 6.75%, 8/15/26 .......................................................................... 6,572,527 6,865(2) 8.125%, 8/15/19 ......................................................................... 9,629,233 285 8.50%, 2/15/20 .......................................................................... 413,561 5,310(2) 10.375%, 11/15/12 ....................................................................... 7,035,750 3,330 12.00%, 8/15/13 ......................................................................... 4,800,401 U.S. Treasury Notes, 1,590(2) 1.625%, 1/31/05 ......................................................................... 1,596,025 2,005 3.00%, 2/15/08 .......................................................................... 2,025,676 1,515(2) 4.00%, 11/15/12 ......................................................................... 1,534,351 3,445(2) 5.00%, 8/15/11 .......................................................................... 3,772,275 ------------ Total U.S. Government and Agency Securities ............................................... 70,543,394 ------------ See Notes to Financial Statements. 11 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS--67.8% AEROSPACE & DEFENSE--2.1% B- $ 3,000 BE Aerospace, Inc., Ser. B, 8.00%, 3/01/08 ................................................ $ 1,950,000 Lockheed Martin Corp., BBB+ 1,485 7.20%, 5/01/36 .......................................................................... 1,741,255 BBB+ 1,000 7.25%, 5/15/06 .......................................................................... 1,126,750 BBB+ 1,275 7.75%, 5/01/26 .......................................................................... 1,560,588 BBB+ 475 8.50%, 12/01/29 ......................................................................... 621,211 Northrop Grumman Corp., BBB- 380 7.125%, 2/15/11 ......................................................................... 444,560 BBB- 250 7.75%, 2/15/31 .......................................................................... 311,572 BBB- 1,000 Raytheon Co., 6.55%, 3/15/10 .............................................................. 1,106,210 ------------ 8,862,146 ------------ AUTOMOTIVE--2.7% B1 3,000 Collins & Aikman Products Co., 10.75%, 12/31/11 ........................................... 3,135,000 B 2,000 CSK Auto, Inc., 12.00%, 6/15/06 ........................................................... 2,170,000 A3 940 DaimlerChrysler NA Holding Corp., 4.75%, 1/15/08 .......................................... 967,298 B3 3,000 Delco Remy Intl., Inc., 11.00%, 5/01/09 ................................................... 1,590,000 B+ 2,000 Sonic Automotive, Inc., Ser. D, 11.00%, 8/01/08 ........................................... 2,130,000 B+ 1,000 TRW Automotive, Inc., 9.375%, 2/15/13(3) .................................................. 1,090,000 ------------ 11,082,298 ------------ BASIC MATERIAL--0.5% B+ 2,000 Oregon Steel Mills, Inc., 10.00%, 7/15/09 ................................................. 1,980,000 ------------ BUILDING & DEVELOPMENT--1.4% B- 2,000 Ainsworth Lumber Co. Ltd., 12.50%, 7/15/07 (Canada) ....................................... 2,200,000 BB 3,000 Hovnanian Enterprises, Inc., 10.50%, 10/01/07 ............................................. 3,390,000 ------------ 5,590,000 ------------ CHEMICAL--3.3% B- 3,000 Avecia Group PLC, 11.00%, 7/01/09 (United Kingdom) ........................................ 2,670,000 Dow Chemical Co., A- 1,650 5.97%, 1/15/09 .......................................................................... 1,713,887 A- 1,460 7.375%, 11/01/29 ........................................................................ 1,624,443 A- 175 6.00%, 10/01/12 ......................................................................... 185,500 BB 4,000 Lyondell Chemical Co., Ser. B, 9.875%, 5/01/07 ............................................ 4,100,000 B- 3,000 Resolution Performance Products, Inc., 13.50%, 11/15/10 ................................... 3,210,000 ------------ 13,503,830 ------------ CONGLOMERATES--1.3% AAA 1,980 General Electric Co., 5.00%, 2/01/13 ...................................................... 2,045,777 A 225 Honeywell Intl., Inc., 6.875%, 10/03/05 ................................................... 244,040 Tyco Intl. Group SA, (Luxembourg) BBB- 930 5.80%, 8/01/06 .......................................................................... 920,700 BBB- 2,239 6.375%, 2/15/06 ......................................................................... 2,227,805 ------------ 5,438,322 ------------ CONSUMER PRODUCTS--5.6% BB+ 3,000 American Greetings Corp., 11.75%, 7/15/08 ................................................. 3,435,000 A 1,025 Avery Dennison Corp., 4.875%, 1/15/13 ..................................................... 1,044,209 B 3,000 Elizabeth Arden, Inc., Ser. B, 11.75%, 2/01/11 ............................................ 3,300,000 General Mills, Inc., BBB+ 510 5.125%, 2/15/07 ......................................................................... 545,371 BBB+ 1,765 6.00%, 2/15/12 .......................................................................... 1,946,453 Kellogg Co., Ser. B, BBB 725 6.00%, 4/01/06 .......................................................................... 792,227 BBB 690 6.60%, 4/01/11 .......................................................................... 785,458 Kraft Foods, Inc., A3 400 5.25%, 6/01/07 .......................................................................... 420,386 A3 3,050 5.625%, 11/01/11 ........................................................................ 3,195,136 A3 275 6.25%, 6/01/12 .......................................................................... 299,360 Kroger Co., BBB 650 6.80%, 4/01/11 .......................................................................... 724,672 BBB 550 Ser. B, 7.70%, 6/01/29 .................................................................. 627,754 BB- 3,000 Levi Strauss & Co., 12.25%, 12/15/12(3) ................................................... 2,520,000 B2 3,000 National Wine & Spirits, Inc., 10.125%, 1/15/09 ........................................... 2,730,000 B- 1,000 Pantry, Inc., The, 10.25%, 10/15/07 ....................................................... 995,000 ------------ 23,361,026 ------------ See Notes to Financial Statements. 12 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- CONTAINERS & GLASS--0.6% B $ 1,000 Crown European Holdings SA, 10.875%, 3/01/13 (France)(3) .................................. $ 1,050,000 BB 1,500 Owens-Brockway Glass Container, Inc., 8.75%, 11/15/12 ..................................... 1,575,000 ------------ 2,625,000 ------------ ECOLOGICAL SERVICES & EQUIPMENT--1.3% B+ 5,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ............................................ 5,337,500 ------------ ELECTRONICS--1.2% B+ 2,000 FIMEP SA, 10.50%, 2/15/13 (France)(3) ..................................................... 2,190,000 CCC- 2,500 Knowles Electronics Holdings, Inc., 13.125%, 10/15/09 ..................................... 1,825,000 B 1,000 Stoneridge, Inc., 11.50%, 5/01/12 ......................................................... 1,090,000 ------------ 5,105,000 ------------ ENERGY--7.8% Amerada Hess Corp., BBB 625 7.125%, 3/15/33 ......................................................................... 673,530 BBB 350 7.30%, 8/15/31 .......................................................................... 389,405 BBB+ 765(2) Anadarko Petroleum Corp., 5.375%, 3/01/07 ................................................. 822,699 B2 3,500 Baytex Energy Ltd., 10.50%, 2/15/11 (Canada) .............................................. 3,832,500 B+ 1,000 Calpine Canada Energy Finance ULC, 8.50%, 5/01/08 (Canada) ................................ 740,000 BB- 1,250 Chesapeake Energy Corp., 9.00%, 8/15/12 ................................................... 1,393,750 BB 1,000 Compagnie Generale De Geophysique SA, 10.625%, 11/15/07 (France) .......................... 1,000,000 A- 1,000 Conoco Funding Co., 5.45%, 10/15/06 (Canada) .............................................. 1,092,175 A- 1,220 Conoco, Inc., 6.95%, 4/15/29 .............................................................. 1,419,776 A- 950 ConocoPhillips, 5.90%, 10/15/32 ........................................................... 971,005 BBB 550 Devon Energy, Corp., 7.95%, 4/15/32 ....................................................... 689,279 BBB 140 Devon Financing Corp. ULC, 7.875%, 9/30/31 ................................................ 173,785 BBB+ 1,500 Dominion Resources, Inc., Ser. E, 6.75%, 12/15/32 ......................................... 1,632,744 B 3,000 Dresser, Inc., 9.375%, 4/15/11 ............................................................ 3,120,000 DTE Energy Co., BBB 250 6.00%, 6/01/04 .......................................................................... 260,650 BBB 660 6.45%, 6/01/06 .......................................................................... 725,226 A- 1,165 Duke Energy Corp., 5.625%, 11/30/12 ....................................................... 1,219,198 B+ 265 El Paso Natural Gas Co., 8.375%, 6/15/32(3) ............................................... 238,500 BBB+ 805 Exelon Corp., 6.75%, 5/01/11 .............................................................. 914,420 Baa2 530 FirstEnergy Corp., Ser. C, 7.375%, 11/15/31 ............................................... 580,275 A1 1,520 Florida Power Corp., 4.80%, 3/01/13 ....................................................... 1,537,693 Kinder Morgan Energy Partners LP, BBB+ 870 7.30%, 8/15/33 .......................................................................... 1,028,775 BBB+ 185 7.75%, 3/15/32 .......................................................................... 226,840 BBB 930 Kinder Morgan, Inc., 7.25%, 3/01/28 ....................................................... 992,874 BB- 2,000 Leviathan Gas Pipeline Partners LP, Ser. B, 10.375%, 6/01/09 .............................. 2,165,000 BBB+ 360 Occidental Petroleum Corp., 7.20%, 4/01/28 ................................................ 421,829 BBB+ 350 Oncor Electric Delivery Co., 7.25%, 1/15/33(3) ............................................ 392,711 Baa1 1,650 Petroleos Mexicanos, 9.375%, 12/02/08 (Mexico) ............................................ 1,963,500 BBB 110 Progress Energy, Inc., 5.85%, 10/30/08 .................................................... 119,735 A- 500 Texas Eastern Transmission LP, 7.00%, 7/15/32 ............................................. 560,952 A3 725 Virginia Electric & Power Co., Ser. A, 5.75%, 3/31/06 ..................................... 790,672 ------------ 32,089,498 ------------ FINANCE & BANKING--14.3% AA+ 1,000 2 American General Instl. Capital A, 7.57%, 12/01/45(3) ..................................... 1,234,965 AAA 1,550 2 Asif Global Financing XVIII, 3.85%, 11/26/07(3) ........................................... 1,576,118 Bank of America Corp., Aa3 150 7.40%, 1/15/11 .......................................................................... 177,702 Aa3 640 7.80%, 2/15/10 .......................................................................... 770,536 Aa2 325 Bank One NA, 3.70%, 1/15/08 ............................................................... 331,991 Aa3 800 Barclays Bank PLC, 6.86%, 9/29/49 (United Kingdom)(3) ..................................... 884,608 Citigroup, Inc., AA+ 1,060 5.75%, 5/10/06 .......................................................................... 1,157,711 AA 1,700 5.875%, 2/22/33 ......................................................................... 1,747,194 AA 2,465 7.25%, 10/01/10 ......................................................................... 2,916,963 Aa3 290 Credit Suisse First Boston USA, Inc., 6.125%, 11/15/11 .................................... 313,906 Federal Home Loan Mortgage Corp., AAA 1,875 3.50%, 4/01/08 .......................................................................... 1,889,887 AAA 3,370 4.875%, 3/15/07 ......................................................................... 3,651,159 AAA 3,515 7.00%, 3/15/10 .......................................................................... 4,229,986 See Notes to Financial Statements. 13 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- FINANCE & BANKING--(CONT'D) Federal National Mortgage Assoc., AAA $ 1,450 5.00%, 1/15/07 .......................................................................... $ 1,576,237 AAA 6,630(2) 6.00%, 5/15/08 - 5/15/11 ................................................................ 7,554,626 AAA 635 7.25%, 1/15/10 .......................................................................... 771,385 A1 610 FleetBoston Financial Corp., Ser. T, 4.20%, 11/30/07 ...................................... 627,451 Ford Motor Credit Co., A3 3,355 7.375%, 10/28/09 - 2/01/11 .............................................................. 3,427,893 A3 505 7.875%, 6/15/10 ......................................................................... 520,760 General Electric Capital Corp., Ser. A, AAA 620 5.875%, 2/15/12 ......................................................................... 680,591 AAA 2,775 6.00%, 6/15/12 .......................................................................... 3,052,347 AAA 580 6.125%, 2/22/11 ......................................................................... 647,396 General Motors Acceptance Corp., A2 2,969 6.875%, 9/15/11 ......................................................................... 3,001,011 A2 1,130 8.00%, 11/01/31 ......................................................................... 1,158,189 Goldman Sachs Group, Inc., Aa3 370 6.125%, 2/15/33 ......................................................................... 381,174 AA- 355 6.60%, 1/15/12 .......................................................................... 401,161 AA- 190 6.875%, 1/15/11 ......................................................................... 217,729 AA- 135 7.35%, 10/01/09 ......................................................................... 158,868 A 1,760 Household Finance Corp., 6.375%, 8/01/10 - 11/27/12 ....................................... 1,934,278 Aa2 1,750 ING Bank NV, 5.125%, 5/01/15 (Netherlands)(3) ............................................. 1,769,010 A- 550 John Deere Capital Corp., 5.10%, 1/15/13 .................................................. 564,485 A 1,155 JP Morgan Chase & Co., 6.75%, 2/01/11 ..................................................... 1,312,632 Lehman Brothers Holdings, Inc., A 295 4.00%, 1/22/08 .......................................................................... 300,962 A+ 810 6.25%, 5/15/06 .......................................................................... 887,502 MetLife, Inc., A 300 6.125%, 12/01/11 ........................................................................ 334,547 A 1,175 6.50%, 12/15/32 ......................................................................... 1,264,961 Morgan Stanley, Aa3 130 5.30%, 3/01/13 .......................................................................... 133,609 AA- 285 6.75%, 4/15/11 .......................................................................... 323,756 A+ 1,000 Prudential Funding LLC, 6.60%, 5/15/08(3) ................................................. 1,104,853 Sears Roebuck Acceptance Corp., BBB+ 725 6.75%, 8/15/11 .......................................................................... 740,898 BBB+ 960 7.00%, 6/01/32 .......................................................................... 973,824 AAA 1,875 Tiaa Global Markets, Inc., 3.875%, 1/22/08(3) ............................................. 1,995,000 Aa3 610 U.S. Bancorp, Ser. N, 3.95%, 8/23/07 ...................................................... 627,932 ------------ 59,327,793 ------------ FOREST PRODUCTS--1.9% Ba2 3,425 Caraustar Industries, Inc., 9.875%, 4/01/11 ............................................... 3,527,750 BBB 725 International Paper Co., 5.30%, 4/01/15(3) ................................................ 729,207 Weyerhaeuser Co., BBB 160 6.00%, 8/01/06 .......................................................................... 170,826 BBB 400 6.125%, 3/15/07 ......................................................................... 436,237 BBB 900 6.875%, 12/15/33 ........................................................................ 964,908 BBB 1,060 6.95%, 10/01/27 ......................................................................... 1,104,637 BBB 745 7.375%, 3/15/32 ......................................................................... 841,180 ------------ 7,774,745 ------------ HEALTH CARE--2.0% AA 425 Bristol-Myers Squibb Co., 4.75%, 10/01/06 ................................................. 449,438 B- 3,000 Hanger Orthopedic Group, Inc., 11.25%, 6/15/09 ............................................ 3,247,500 Caa2 2,000 HealthSouth Corp., 7.625%, 6/01/12 ........................................................ 1,290,000 AAA 500 Pharmacia Corp., 6.50%, 12/01/18 .......................................................... 582,500 B- 2,000 United Surgical Partners Intl., Inc., 10.00%, 12/15/11 .................................... 2,120,000 A- 525 Wellpoint Health Networks, Inc., 6.375%, 6/15/06 .......................................... 576,337 ------------ 8,265,775 ------------ HOTELS & CASINO--1.2% B+ 1,000 Circus & Eldorado Joint Venture, 10.125%, 3/01/12 ......................................... 945,000 Ba3 3,000 HMH Properties, Inc., Ser. A, 7.875%, 8/01/05 ............................................. 3,030,000 B 1,000 Resorts Intl. Hotel & Casino, Inc., 11.50%, 3/15/09 ....................................... 870,000 ------------ 4,845,000 ------------ See Notes to Financial Statements. 14 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- INDUSTRIAL EQUIPMENT--1.2% B $ 3,000 Terex Corp., 9.25%, 7/15/11 ............................................................... $ 3,195,000 B+ 2,000 United Rentals, Inc., Ser. B, 9.25%, 1/15/09 .............................................. 1,910,000 ------------ 5,105,000 ------------ LEISURE--0.7% BB+ 3,000 Royal Caribbean Cruises Ltd., 8.125%, 7/28/04 (Liberia) ................................... 3,075,000 ------------ MEDIA--5.8% B1 4,000 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 (Canada) ......................... 4,560,000 AOL Time Warner, Inc., BBB+ 80 6.125%, 4/15/06 ......................................................................... 86,489 BBB+ 525 7.625%, 4/15/31 ......................................................................... 573,246 CCC- 4,000 Charter Communications Holdings LLC, 10.75%, 10/01/09 ..................................... 2,660,000 Comcast Cable Communications, Inc., BBB 450 6.75%, 1/30/11 .......................................................................... 482,203 BBB 1,050 6.875%, 6/15/09 ......................................................................... 1,160,250 BBB 4,175 Comcast Corp., 5.50%, 3/15/11 ............................................................. 4,303,173 BB- 4,000 EchoStar DBS Corp., 10.375%, 10/01/07 ..................................................... 4,480,000 Time Warner, Inc., BBB+ 90 6.625%, 5/15/29 ......................................................................... 88,566 BBB+ 260 6.875%, 6/15/18 ......................................................................... 278,284 BBB+ 4,380 7.57%, 2/01/24 .......................................................................... 4,710,658 BBB+ 360 Turner Broadcasting Systems, Inc., 8.375%, 7/01/13 ........................................ 419,850 ------------ 23,802,719 ------------ REAL ESTATE--0.9% BBB+ 775 AvalonBay Communities, Inc., 8.25%, 7/15/08 ............................................... 928,270 ERP Operating LP, A- 1,950 5.20%, 4/01/13 .......................................................................... 1,976,715 A- 825 6.95%, 3/02/11 .......................................................................... 919,543 ------------ 3,824,528 ------------ TELECOMMUNICATION--4.6% AA- 170 Ameritech Capital Funding Corp., 6.45%, 1/15/18 ........................................... 176,038 BBB+ 1,320 AT&T Corp., 8.50%, 11/15/31 ............................................................... 1,438,800 A- 1,000 British Telecommunications PLC, 8.875%, 12/15/30 (United Kingdom) ......................... 1,321,947 BBB+ 1,060 Deutsche Telekom Intl. Finance BV, 8.50%, 6/15/10 (Netherlands) ........................... 1,294,472 Nextel Communications, Inc., B+ 2,000 9.375%, 11/15/09 ........................................................................ 2,150,000 B+ 3,000 9.50%, 2/01/11 .......................................................................... 3,255,000 CCC+ 3,000 Rural Cellular Corp., Ser. B, 9.625%, 5/15/08 ............................................. 2,550,000 AA- 2,030 SBC Communications, Inc., 6.25%, 3/15/11 .................................................. 2,277,115 A+ 805 Verizon Global Funding Corp., 7.75%, 12/01/30 - 6/15/32 ................................... 994,973 AA 375 Verizon Maryland, Inc., 6.125%, 3/01/12 ................................................... 408,143 AA 1,750 Verizon New Jersey, Inc., Ser. A, 5.875%, 1/17/12 ......................................... 1,899,800 Aa3 790 Verizon Pennsylvania, Inc., Ser. A, 5.65%, 11/15/11 ....................................... 827,953 A 350 Vodafone Group PLC, 6.25%, 11/30/32 (United Kingdom) ...................................... 371,000 ------------ 18,965,241 ------------ TRANSPORTATION--2.0% BBB- 362 American Airlines, Inc., Ser. 1, 6.855%, 10/15/10 ......................................... 300,184 BBB+ 1,400 Burlington Northern Santa Fe Corp., 5.90%, 7/01/12 ........................................ 1,522,080 BBB+ 1,410 Canadian National Railway Co., 6.90%, 7/15/28 (Canada) .................................... 1,626,717 BBB 1,450 Canadian Pacific Railway Ltd., 6.25%, 10/15/11 (Canada) ................................... 1,615,724 A- 636 Continental Airlines, Inc., Ser. A, 6.545%, 2/02/19 ....................................... 540,487 Baa1 375 Norfolk Southern Corp., 7.05%, 5/01/37 .................................................... 432,440 B 2,000 Pacer Intl., Inc., Ser. B, 11.75%, 6/01/07 ................................................ 2,120,000 ------------ 8,157,632 ------------ OTHER--5.4% A- 20,300 Traded Custody Receipts, Floating Coupon, 9/15/11(3) ...................................... 22,309,700 ------------ TOTAL CORPORATE BONDS ..................................................................... 280,427,753 ------------ TAXABLE MUNICIPAL BONDS--1.4% California Dept. of Wtr. Res. Pwr. Sply., A- 5,000 3.585%, 5/01/04 ......................................................................... 5,070,800 A- 650 3.975%, 5/01/05 ......................................................................... 663,280 ------------ Total Taxable Municipal Bonds ............................................................. 5,734,080 ------------ See Notes to Financial Statements. 15 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- FOREIGN GOVERNMENT BONDS--11.8% Aaa $19,503 Bundesobligation, 4.50%, 8/17/07 (Germany) ................................................ $ 22,956,677 Canada Government (Canada) AAA 7,545 4.50%, 9/01/07 .......................................................................... 5,324,644 AAA 12,790 5.25%, 6/01/12 .......................................................................... 9,137,626 Kingdom of Sweden (Sweden) Aaa 17,740 5.00%, 1/28/09 .......................................................................... 2,253,241 Aaa 22,455 8.00%, 8/15/07 .......................................................................... 3,174,419 United Mexican States (Mexico) Baa2 350 4.625%, 10/08/08 ........................................................................ 354,725 Baa2 24,000 6.625%, 3/03/15 ......................................................................... 4,174,000 Baa2 1,225 8.30%, 8/15/31 .......................................................................... 1,386,081 ------------ Total Foreign Government Bonds ............................................................ 48,761,413 ------------ Total Long-Term Investments (cost $572,125,325) ........................................... 589,782,747 ------------ SHORT-TERM INVESTMENTS--3.6% U.S. GOVERNMENT SECURITIES--1.2% U.S. Treasury Bills, 4,000 1.09%, 7/31/03 - 8/07/03 ................................................................ 3,988,470 200 1.115%, 5/22/03 ......................................................................... 199,870 500 1.155%, 5/01/03 ......................................................................... 500,000 ------------ Total U.S. Government Securities .......................................................... 4,688,340 ------------ DISCOUNT NOTES--2.4% 9,200 Federal Home Loan Bank, 1.25%, 5/01/03 .................................................... 9,200,000 800 Federal Home Loan Mortgage Corp., Ser. RB, 1.14%, 7/03/03 ................................. 798,404 ------------ Total Discount Notes ...................................................................... 9,998,404 ------------ Total Short-Term Investments (cost $14,686,744) ........................................... 14,686,744 ------------ TOTAL INVESTMENTS--146.1% (cost $586,812,069) ............................................. 604,469,491 LIABILITIES IN EXCESS OF OTHER ASSETS--(46.1)% ............................................ (190,721,376) ------------ NET ASSETS--100% .......................................................................... $413,698,115 ============ - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (3) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 9.4% of its net assets, with a current market value of $39,084,672, in securities restricted as to resale. See Notes to Financial Statements. 16 PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - -------------------------- BlackRock High Yield Trust - -------------------------- PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--140.9% CORPORATE BONDS--140.9% AEROSPACE & DEFENSE--2.8% B- $ 1,000 BE Aerospace, Inc., 9.50%, 11/01/08 ....................................................... $ 715,000 NR 1,500 Condor Systems Inc., Ser. B, 11.88%, 5/01/09(2) ........................................... 450,000 ------------ 1,165,000 ------------ AUTOMOTIVE--6.4% B 1,000 CSK Auto, Inc., 12.00%, 6/15/06 ........................................................... 1,085,000 B3 1,000 Delco Remy Intl., Inc., 11.00%, 5/01/09 ................................................... 530,000 B+ 1,000 Sonic Automotive, Inc., Ser. D, 11.00%, 8/01/08 ........................................... 1,065,000 ------------ 2,680,000 ------------ BASIC MATERIALS--1.2% NR 2,000 Golden Northwest Aluminum Inc., 12.00%, 12/15/06 .......................................... 120,000 NR 376 Republic Engineered Products LLC, 10.00%, 8/16/09(3) ...................................... 376,470 NR 2,000 Republic Technologies Intl. LLC, 13.75%, 7/15/092 ......................................... 20,000 ------------ 516,470 ------------ BUILDING & DEVELOPMENT--11.2% B- 1,500 Ainsworth Lumber Co. Ltd., 12.50%, 7/15/07 (Canada) ....................................... 1,650,000 Ba1 1,000 D.R. Horton, Inc., 10.50%, 4/01/05 ........................................................ 1,095,000 D 500 Encompass Services Corp., 10.50%, 5/01/09(2) .............................................. 10,000 BB 1,000 Hovnanian Enterprises, Inc., 10.50%, 10/01/07 ............................................. 1,130,000 B2 1,000 MMI Products Inc., Ser. B, 11.25%, 4/15/07 ................................................ 760,000 ------------ 4,645,000 ------------ CHEMICAL--7.9% B- 250 Avecia Group PLC, 11.00%, 7/01/09 (United Kingdom) ........................................ 222,500 Ba2 1,000 Hercules Inc., 11.13%, 11/15/07 ........................................................... 1,140,000 B+ 1,000 Lyondell Chemical Co., 10.88%, 5/01/09 .................................................... 1,000,000 CCC 1,750 Mississippi Chemical Corp., 7.25%, 11/15/17 ............................................... 175,000 Ba3 1,000 Solutia, Inc., 11.25%, 7/15/09 ............................................................ 760,000 ------------ 3,297,500 ------------ CONGLOMERATES--2.3% B- 500 MSX Intl., Inc., 11.38%, 1/15/08 .......................................................... 255,000 NR 1,200 Nebco Evans Holding Co., 12.375%, 7/15/07(2,3) ............................................ 0 B 1,000 Penhall Intl., Inc., 12.00%, 8/01/06 ...................................................... 700,000 ------------ 955,000 ------------ CONSUMER PRODUCTS--26.7% BB+ 1,000 American Greetings Corp., 11.75%, 7/15/08 ................................................. 1,145,000 B 1,000 Elizabeth Arden, Inc., Ser. B, 11.75%, 2/01/11 ............................................ 1,100,000 BB- 1,000 Levi Strauss & Co., 11.63%, 1/15/08 ....................................................... 850,000 NR 1,000 Mattress Discounters Corp., 12.63%, 7/15/07(2) ............................................ 180,000 B3 464 National Vision Inc., 12.00%, 3/30/09 ..................................................... 301,343 CCC+ 1,760 O'Sullivan Industries Inc., 13.38%, 10/15/09 .............................................. 1,548,800 B- 1,100 Pantry, Inc., The, 10.25%, 10/15/07 ....................................................... 1,094,500 Revlon Consumer Products Corp., CCC- 2,000 8.63%, 2/01/08 .......................................................................... 900,000 CCC+ 1,000 12.00%, 12/01/05 ........................................................................ 950,000 B 1,000 Salton, Inc., 12.25%, 4/15/08 ............................................................. 1,035,000 B+ 1,000 Sbarro, Inc., 11.00%, 9/15/09 ............................................................. 970,000 B- 1,000 St. John Knits Intl., Inc., 12.50%, 7/01/09 ............................................... 1,065,000 ------------ 11,139,643 ------------ CONTAINERS & GLASS--4.7% B 1,000 Radnor Holdings Inc., 11.00%, 3/15/10(4) .................................................. 1,000,000 CCC+ 1,500 U.S. Can Co., Ser. B, 12.38%, 10/01/10 .................................................... 960,000 ------------ 1,960,000 ------------ ECOLOGICAL SERVICES & EQUIPMENT--2.5% B+ 1,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ............................................ 1,067,500 ------------ See Notes to Financial Statements. 17 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- ELECTRONICS--12.3% B $ 1,788 Asat Finance LLC, 12.50%, 11/01/06 ........................................................ $ 1,430,080 B3 1,000 Communications & Power Industry Inc., 12.00%, 8/01/05 ..................................... 1,000,000 CCC- 2,500 Knowles Electronics Holdings, Inc., 13.125%, 10/15/09 ..................................... 1,825,000 B 825 ON Semiconductor Corp., 12.00%, 3/15/104 .................................................. 891,000 ------------ 5,146,080 ------------ ENERGY--8.4% B- 1,000 AES Corp., 8.38%, 8/15/07 ................................................................. 900,000 B+ 1,000 Calpine Corp., 10.50%, 5/15/06 ............................................................ 845,000 B- 1,000 Mission Energy Holding Co., 13.50%, 7/15/08 ............................................... 660,000 B3 1,000 Orion Power Holdings Inc., 12.00%, 5/01/10 ................................................ 1,085,000 ------------ 3,490,000 ------------ FARMING & AGRICULTURE--0.8% NR 1,000 Precision Partners Inc., 12.00%, 3/15/09(2) ............................................... 330,000 ------------ FINANCE & BANKING--12.9% NR 500 Ameriserve Finance Capital Corp., 12.00%, 9/15/06(2,4) .................................... 25,000 Ba2 1,000 Capital Guardian High Yield, CBO, Ltd., Ser. 1A, 11.45%, 5/24/13(4) ....................... 622,200 BB 1,000 Fairfax Financial Holdings Ltd., 6.88%, 4/15/08 ........................................... 850,000 Ba3 2,500 First Dominion Funding II, Ser. 1A, 11.61%, 4/25/14(4) .................................... 1,037,500 CCC+ 1,000 Madison River Capital Corp., 13.25%, 3/01/10 .............................................. 850,000 B1 2,000 Zais Investment Grade Ltd., Class C, Pay-in-Kind, 9.95%, 9/23/14(4) ....................... 2,000,000 ------------ 5,384,700 ------------ FOREST PRODUCTS--2.4% B+ 1,000 FiberMark Inc., 10.75%, 4/15/11 ........................................................... 1,010,000 ------------ HEALTH CARE--4.9% B- 1,000 Concentra Operating Corp., Ser. B, 13.00%, 8/15/09 ........................................ 1,110,000 B- 1,000 Medquest Inc., Ser. B, 11.88%, 8/15/12 .................................................... 925,000 ------------ 2,035,000 ------------ INDUSTRIAL EQUIPMENT--1.4% CC 2,000 National Equipment Services Inc., Ser. D, 10.00%, 11/30/04 ................................ 600,000 ------------ MEDIA--14.0% B1 2,000 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 (Canada) ......................... 2,280,000 Charter Communications Holdings LLC, CCC- 1,000 10.75%, 10/01/09 ........................................................................ 665,000 CCC- 1,000 11.13%, 1/15/11 ......................................................................... 665,000 B- 1,000 WRC Media Corp., 12.75%, 11/15/09 ......................................................... 1,025,000 Caa1 980 XM Satellite Radio Inc., 14.00%, 3/15/10 .................................................. 921,200 NR 607 Ziff Davis Media Inc., Ser. B, 13.00%, 8/12/09 ............................................ 303,525 ------------ 5,859,725 ------------ TELECOMMUNICATION--6.2% C 1,500 Allegiance Telecom Inc., 12.88%, 5/15/08 (Canada)(2) ...................................... 330,000 NR 2,000 Asia Global Crossing Ltd., 13.38%, 10/15/10 (United Kingdom)(2) ........................... 250,000 B+ 1,000 Nextel Communications Inc., 12.00%, 11/01/08 .............................................. 1,080,000 NR 1,000 Northeast Optic, 12.75%, 8/15/08(2) ....................................................... 70,000 NR 600 PF.Net Communications, Inc., 13.75%, 5/15/10(2) ........................................... 0 B3 1,000 Time Warner Telecom LLC, 9.75%, 7/15/08 ................................................... 840,000 ------------ 2,570,000 ------------ TRANSPORTATION--11.9% Amtran Inc., CCC 2,000 9.63%, 12/15/05 ......................................................................... 600,000 CCC 1,000 10.50%, 8/01/04 ......................................................................... 400,000 B 2,000 Pacer Intl., Inc., Ser. B, 11.75%, 6/01/07 ................................................ 2,120,000 B1 1,000 Sea Containers Ltd., Ser B, 10.75%, 10/15/06 (United Kingdom) ............................. 780,000 BB- 1,000 TFM SA de CV, 12.50%, 6/15/12 (Mexico) .................................................... 1,050,000 ------------ 4,950,000 ------------ Total Corporate Bonds--140.9% (cost $77,043,025) .......................................... 58,801,618 ------------ See Notes to Financial Statements. 18 RATING(1) SHARES DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCK--0.0% TELECOMMUNICATION--0.0% NR 1,098 Adelphia Business Solutions, Inc., Ser. B, 12.88%, 10/15/07 (cost $925,576)2 .............. $ 0 ------------ UNITS WARRANTS--0.0% ----- 1,000 Mattress Discounters Corp., Expires 7/15/072 .............................................. 0 600 PF.Net Communications, Inc., Expires 5/15/102 ............................................. 0 2,000 Republic Technologies Intl. Inc., Expires 7/15/092 ........................................ 0 ------------ 0 ------------ TOTAL WARRANTS (cost $377,115) ............................................................ 0 ------------ TOTAL INVESTMENTS--140.9% (cost $78,345,716) .............................................. 58,801,618 LIABILITIES IN EXCESS OF OTHER ASSETS--(40.9)% ............................................ (17,078,034) ------------ NET ASSETS--100% .......................................................................... $ 41,723,584 ============ - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Issuer is technically in default. (3) Security is fair valued. (4) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 13.4% of its net assets, with a current market value of $5,575,700, in securities restricted as to resale. See Notes to Financial Statements. 19 PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - ---------------------------------- BlackRock Income Opportunity Trust - ---------------------------------- PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--140.2% MORTGAGE PASS-THROUGHS--51.8% $ 49,273(2) Federal Home Loan Mortgage Corp., 6.50%, 1/01/26 - 11/01/32 ............................... $ 51,450,965 Federal National Mortgage Assoc., 109,469(2) 5.50%, 12/01/13 - 2/01/33 ............................................................... 113,025,632 50,321(2) 6.00%, 12/01/09 - 11/01/32 .............................................................. 52,599,725 1,173 7.00%, 2/01/24 - 1/01/29 ................................................................ 1,244,342 408 Government National Mortgage Assoc., 8.00%, 4/15/24 - 11/15/25 ............................ 446,820 ------------ Total Mortgage Pass-Throughs .............................................................. 218,767,484 ------------ FEDERAL HOUSING ADMINISTRATION--4.4% GMAC Projects, 1,314 Ser. 37, 7.43%, 10/01/22 ................................................................ 1,419,271 631 Ser. 44, 7.43%, 8/01/22 ................................................................. 681,235 Merrill Projects, 1,044 Ser. 29, 7.43%, 6/01/22 ................................................................. 1,127,271 10,266 Ser. 42, 7.43%, 9/01/22 ................................................................. 11,089,000 2,017 Reilly Project, Series B-11, 7.40%, 4/01/21 ............................................... 2,175,867 2,051 Westmore Project 8240, 7.25%, 4/01/21 ..................................................... 2,203,103 ------------ Total Federal Housing Administration ...................................................... 18,695,747 ------------ NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGH--0.1% AAA 353 Summit Mortgage Trust, Ser. 1, Class B1, 12/28/12(3) ...................................... 356,696 ------------ ADJUSTABLE RATE MORTGAGE SECURITIES--0.1% 280 Federal National Mortgage Assoc., Ser. 256, Class F, 11/25/23 ............................. 253,428 ------------ INVERSE FLOATING RATE MORTGAGES--1.0% Federal Home Loan Mortgage Corp., 844 Ser. 1601, Class SE, 10/15/08 ........................................................... 855,276 1,000(2) Ser. 1611, Class JC, 8/15/23 ............................................................ 1,120,000 Federal National Mortgage Assoc., 1,808(2) Ser. 23, Class PS, 4/25/23 .............................................................. 1,985,320 196 Ser. 87, Class S, 8/25/21 ............................................................... 246,165 101 Ser. 145, Class S, 10/25/06 ............................................................. 126,841 ------------ Total Inverse Floating Rate Mortgages ..................................................... 4,333,602 ------------ INTEREST ONLY MORTGAGE-BACKED SECURITIES--1.3% BA Mortgage Securities, Inc., 1,596 Ser. 1, Class A7, 3/25/29 ............................................................... 9,228 179 Ser. 1, Class X, 7/25/26 ................................................................ 954 264 Ser. 1, Class 2X, 5/28/13 ............................................................... 3,915 27,030 Countrywide Home Loans, Inc., Ser. 6, Class X, 6/25/13 .................................... 59,127 Federal Home Loan Mortgage Corp., 1,192 Ser. 1223, Class H, 3/15/22 ............................................................. 224,958 856 Ser. 1254, Class Z, 4/15/22 ............................................................. 186,727 105 Ser. 1644, Class DA, 12/15/23 ........................................................... 362 6,975 Ser. 1809, Class SC, 12/15/23 ........................................................... 207,073 1,899 Ser. 1831, Class PG, 3/15/11 ............................................................ 235,509 1,957 Ser. 2080, Class PL, 1/15/27 ............................................................ 52,592 253 Ser. 2137, Class CI, 10/15/26 ........................................................... 3,644 Federal National Mortgage Assoc., 15 Ser. G46, Class H, 12/25/09 ............................................................. 241,218 307 Ser. G92-5, Class H, 1/25/22 ............................................................ 61,279 1,681 Ser. 7, Class PH, 4/25/11 ............................................................... 139,747 10,300 Ser. 16, Class IW, 11/25/12 ............................................................. 1,042,875 1,727 Ser. 50, Class SI, 4/25/23 .............................................................. 42,638 6,400 Ser. 70, Class IN, 5/25/15 .............................................................. 848,000 10,546 G.E. Capital Mortgage Services, Inc., Ser. 11, Class A5, 7/25/29 .......................... 148,303 17,582 GMAC Commercial Mortgage Securities Inc., Ser. C2, Class X, 5/15/35 ....................... 540,199 14,434 Goldman Sachs Mortgage Securities Corp., Ser. 5, Class IO, 6/19/27(3) ..................... 322,513 See Notes to Financial Statements. 20 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- INTEREST ONLY MORTGAGE-BACKED SECURITIES--(CONT'D) $ 580 Government National Mortgage Assoc., Ser. 3, Class E, 6/16/25 ............................. $ 98,530 9,339 Hanover Grantor Trust, Ser. A, Class 1IO, 8/28/27(3) ...................................... 70,044 4,162 Morgan Stanley Capital 1, Inc., Ser. HF1, Class X, 7/15/29(3) ............................. 175,809 13,285 Prudential Home Mortgage Securities Co., Ser. 5, Class A9, 2/25/24 ........................ 0 Residential Asset Securitization Trust, 14,022 Ser. A3, Class X, 5/25/29 ............................................................... 78,876 11,932 Ser. A5, Class A2, 9/25/30 .............................................................. 514,563 521 Residential Funding Mortgage Securities I Inc., Ser. S30, Class A7, 12/25/28 .............. 4,072 18,958 Salomon Brothers Mortgage Securities VII Inc., Ser. 1, Class IO, 3/25/22 .................. 29,622 33,031 Vendee Mortgage Trust, Ser. 1, Class IO, 2/15/27 .......................................... 216,764 ------------ Total Interest Only Mortgage-Backed Securities ............................................ 5,559,141 ------------ PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--0.8% Federal Home Loan Mortgage Corp., 426(2) Ser. 1739, Class B, 2/15/24 ............................................................. 400,989 130 Ser. 1857, Class PB, 12/15/08 ........................................................... 128,911 Federal National Mortgage Assoc., 1,154(2) Ser. 26, Class L, 3/25/23 ............................................................... 1,134,189 285 Ser. 279, Class 1, 7/01/26 .............................................................. 255,008 AAA 5,490 Fund America Investors Corp., Ser. C, Class B, 4/29/30 .................................... 1,276,843 ------------ Total Principal Only Mortgage-Backed Securities ........................................... 3,195,940 ------------ U.S. GOVERNMENT AND AGENCY SECURITIES--6.5% 14,968 Overseas Private Investment Corp., 4.30% - 7.35%, 5/29/12 ................................. 16,260,093 2,366 Small Business Administration, Ser. 20K-1, 6.95%, 11/01/16 ................................ 2,634,080 U.S. Treasury Notes, 1,800 3.25%, 8/15/07 .......................................................................... 1,849,079 2,100 4.00%, 11/15/12 ......................................................................... 2,126,823 4,200(2) 4.875%, 2/15/12 ......................................................................... 4,553,392 ------------ Total U.S. Government and Agency Securities ............................................... 27,423,467 ------------ CORPORATE BONDS--73.4% AEROSPACE & DEFENSE--1.6% B- 1,235 BE Aerospace, Inc., 9.50%, 11/01/08 ....................................................... 815,100 BB- 1,500 L-3 Communications Corp., 7.625%, 6/15/12 ................................................. 1,653,750 BBB+ 1,250 Lockheed Martin Corp., 8.50%, 12/01/29 .................................................... 1,634,766 BBB- 1,000 Northrop Grumman Corp., 7.125%, 2/15/11 ................................................... 1,169,895 BBB- 1,200 Raytheon Co., 6.15%, 11/01/08 ............................................................. 1,324,648 ------------ 6,598,159 ------------ AUTOMOTIVE--2.3% B 2,000 Asbury Automotive Group, Inc., 9.00%, 6/15/12 ............................................. 1,880,000 BB+ 1,500 Autonation, Inc., 9.00%, 8/01/08 .......................................................... 1,627,500 BB+ 2,000 Briggs & Stratton Corp., 8.875%, 3/15/11 .................................................. 2,230,000 B+ 3,715 Dura Operating Corp., Ser. B, 8.625%, 4/15/12 ............................................. 3,826,450 ------------ 9,563,950 ------------ BASIC MATERIAL--1.4% BB 3,000 AK Steel Corp., 7.875%, 2/15/09 ........................................................... 2,662,500 A 2,000 Alcoa, Inc., 7.375%, 8/01/10 .............................................................. 2,353,913 B+ 1,000 Oregon Steel Mills, Inc., 10.00%, 7/15/09 990,000 ------------ 6,006,413 ------------ BUILDING & DEVELOPMENT--0.9% B- 1,000 Ainsworth Lumber Co. Ltd., 12.50%, 7/15/07 (Canada) ....................................... 1,100,000 Ba1 2,500 D.R. Horton, Inc., 10.50%, 4/01/05 ........................................................ 2,737,500 ------------ 3,837,500 ------------ CHEMICAL--1.9% B- 500 Avecia Group PLC, 11.00%, 7/01/09 (United Kingdom) ........................................ 445,000 Dow Chemical Co., A- 750 5.75%, 12/15/08 ......................................................................... 794,905 A- 1,400 6.00%, 10/01/12 ......................................................................... 1,484,000 BB 3,000 Lyondell Chemical Co., 11.125%, 7/15/12 ................................................... 3,225,000 B 1,750 Noveon, Inc., Ser. B, 11.00%, 2/28/11 ..................................................... 1,960,000 ------------ 7,908,905 ------------ CONGLOMERATES--1.2% AAA 3,650 General Electric Co., 5.00%, 2/01/13 ...................................................... 3,771,256 A 1,300 Honeywell, Inc., 6.125%, 11/01/11 ......................................................... 1,447,169 ------------ 5,218,425 ------------ See Notes to Financial Statements. 21 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- CONSUMER PRODUCTS--8.8% B $ 1,875 American Seafoods Group LLC, 10.125%, 4/15/10 ............................................. $ 2,015,625 A 2,000 Avery Dennison Corp., 4.875%, 1/15/13 ..................................................... 2,037,480 B 2,000 Buffets, Inc., 11.25%, 7/15/10 ............................................................ 1,950,000 General Mills, Inc., BBB+ 550 5.125%, 2/15/07 ......................................................................... 588,145 BBB+ 1,700 6.00%, 2/15/12 .......................................................................... 1,874,771 Kellogg Co., Ser. B, BBB 700 6.00%, 4/01/06 .......................................................................... 764,908 BBB 2,000 6.60%, 4/01/11 .......................................................................... 2,276,690 A- 3,000 Kohls Corp., 6.30%, 3/01/11 ............................................................... 3,374,647 A3 2,000 Kraft Foods, Inc., 5.625%, 11/01/11 ....................................................... 2,095,171 BBB- 1,000 Kroger Co., 5.50%, 2/01/13 ................................................................ 1,025,931 BB- 2,000 Levi Strauss & Co., 12.25%, 12/15/123 ..................................................... 1,680,000 AA- 3,000 Procter & Gamble Co., 6.875%, 9/15/09 ..................................................... 3,561,734 B 2,000 Roundys, Inc., Ser. B, 8.875%, 6/15/12 .................................................... 2,050,000 BBB 2,495 Safeway, Inc., 6.50%, 3/01/11 ............................................................. 2,742,903 A+ 2,000 Unilever Capital Corp., 7.125%, 11/01/10 .................................................. 2,376,297 AA 3,000 Wal-Mart Stores, Inc., 6.875%, 8/10/09 .................................................... 3,529,022 BB+ 3,000 Yum! Brands, Inc., 8.875%, 4/15/11 ........................................................ 3,487,500 ------------ 37,430,824 ------------ CONTAINERS & GLASS--1.8% B+ 1,500 Crown European Holdings SA, 9.50%, 3/01/11 (France)3 ...................................... 1,597,500 BB 2,250 Owens-Brockway Glass Container, Inc., 8.875%, 2/15/09 ..................................... 2,413,125 Plastipak Holdings, Inc., B+ 1,590 10.75%, 9/01/11 ......................................................................... 1,717,200 B+ 685 10.75%, 9/01/113 ........................................................................ 739,800 B 1,240 Stone Container Corp., 9.25%, 2/01/08 ..................................................... 1,370,200 ------------ 7,837,825 ------------ ECOLOGICAL SERVICES & EQUIPMENT--1.3% B+ 3,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ............................................ 3,202,500 B 2,250 Casella Waste Systems, Inc., 9.75%, 2/01/133 .............................................. 2,430,000 ------------ 5,632,500 ------------ ELECTRONICS--0.5% B- 1,750 Chippac Int. Ltd., Ser. B, 12.75%, 8/01/09 ................................................ 1,960,000 ------------ ENERGY--7.8% BBB 2,000 Amerada Hess Corp., 6.65%, 8/15/11 ........................................................ 2,237,768 BBB+ 600 Anadarko Petroleum Corp., 5.375%, 3/01/07 ................................................. 645,254 B2 500 Baytex Energy Ltd., 10.50%, 2/15/11 (Canada) .............................................. 547,500 BB- 2,500 Chesapeake Energy Corp., 9.00%, 8/15/12 ................................................... 2,787,500 A- 3,000 Conoco Funding Co., 6.35%, 10/15/11 ....................................................... 3,399,647 BBB+ 2,000 Dominion Resources, Inc., 5.70%, 9/17/12 .................................................. 2,125,668 B 2,500 Dresser, Inc., 9.375%, 4/15/11 ............................................................ 2,600,000 BBB 1,500 DTE Energy Co., 7.05%, 6/01/11 ............................................................ 1,728,503 B 400 El Paso Corp., 7.875%, 6/15/123 ........................................................... 351,000 BBB+ 3,000 Exelon Corp., 6.75%, 5/01/11 .............................................................. 3,407,777 Baa2 1,500 FirstEnergy Corp., Ser. C, 7.375%, 11/15/31 ............................................... 1,642,286 BBB+ 1,250 Kinder Morgan Energy Partners LP, 7.30%, 8/15/33 .......................................... 1,478,125 BBB 1,000 Kinder Morgan, Inc., 6.50%, 9/01/12 ....................................................... 1,110,149 BB- 2,500 Leviathan Gas Pipeline Partners LP, Ser. B, 10.375%, 6/01/09 .............................. 2,706,250 BBB 1,800 Occidental Petroleum Corp., 6.75%, 1/15/12 ................................................ 2,056,077 Progress Energy, Inc., BBB 1,800 6.75%, 3/01/06 .......................................................................... 1,973,010 BBB 2,000 7.10%, 3/01/11 .......................................................................... 2,289,215 ------------ 33,085,729 ------------ FINANCE & BANKING--18.0% Aa3 2,450 Bank of America Corp., 7.80%, 2/15/10 ..................................................... 2,949,709 Aa3 1,400(2) Bank One Corp., 6.50%, 2/01/06 ............................................................ 1,552,991 Aa3 2,000 Barclays Bank PLC, 6.86%, 6/15/32 (United Kingdom)3 ....................................... 2,211,520 A 500 Bear Stearns Co., Inc., 6.50%, 5/01/06 .................................................... 555,239 Aa2 6,000 Citigroup, Inc., 5.625%, 8/27/12 .......................................................... 6,472,398 Credit Suisse First Boston USA, Inc., Aa3 700(2) 6.125%, 11/15/11 ........................................................................ 757,705 Aa3 1,000 7.125%, 7/15/32 ......................................................................... 1,164,829 See Notes to Financial Statements. 22 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- FINANCE & BANKING--(CONT'D) Federal Home Loan Mortgage Corp., AAA $ 4,000(2) 4.875%, 3/15/07 ......................................................................... $ 4,333,720 AAA 4,000(2) 6.875%, 9/15/10 ......................................................................... 4,795,200 AAA 8,000(2) Federal National Mortgage Assoc., 4.375%, 10/15/06 - 9/15/12 .............................. 8,319,720 A3 3,000(2) Ford Motor Credit Co., 6.875%, 2/01/06 .................................................... 3,113,936 AAA 3,000 General Electric Capital Corp., Ser. A, 6.75%, 3/15/32 .................................... 3,472,642 General Motors Acceptance Corp., A2 700 6.75%, 1/15/06 .......................................................................... 732,984 A2 4,000 6.875%, 8/28/12 ......................................................................... 4,072,138 AA- 1,000 Goldman Sachs Group, Inc., 6.60%, 1/15/12 ................................................. 1,130,030 A 3,650 Household Finance Corp., 6.375%, 10/15/11 - 11/27/12 ...................................... 4,030,270 A- 2,000 John Deere Capital Corp., 5.10%, 1/15/13 .................................................. 2,052,672 JP Morgan Chase & Co., A+ 2,100 5.25%, 5/30/07 .......................................................................... 2,266,176 A 1,000 6.75%, 2/01/11 .......................................................................... 1,136,478 AAA 3,000 KFW Intl. Finance, Inc., 5.25%, 6/28/06 ................................................... 3,288,636 Ba1 1,000 Labranche & Co., Inc., 12.00%, 3/02/07 .................................................... 1,095,000 Lehman Brothers Holdings, Inc., A+ 850 6.25%, 5/15/06 .......................................................................... 931,330 A+ 1,500 6.625%, 1/18/12 ......................................................................... 1,707,022 A 2,000 MetLife, Inc., 5.375%, 12/15/12 ........................................................... 2,102,303 Morgan Stanley, Aa3 600 5.80%, 4/01/07 .......................................................................... 658,781 AA- 1,600 6.75%, 4/15/11 .......................................................................... 1,817,575 AA 2,000 Northern Trust Co., 6.30%, 3/07/11 ........................................................ 2,256,534 BBB+ 2,000 Sears Roebuck Acceptance Corp., 6.75%, 8/15/11 ............................................ 2,043,857 AA- 2,000 UBS Preferred Funding Trust I, 8.622%, 10/29/49 ........................................... 2,524,200 Aa2 2,000 Wells Fargo Bank, 7.55%, 6/21/10 .......................................................... 2,415,320 ------------ 75,960,915 ------------ FOREST PRODUCTS--1.8% Ba2 2,000 Caraustar Industries, Inc., 9.875%, 4/01/11 ............................................... 2,060,000 BB+ 2,500 Tembec Industries, Inc., 8.50%, 2/01/11 (Canada) .......................................... 2,587,500 Weyerhaeuser Co., BBB 1,550 5.95%, 11/01/08 ......................................................................... 1,679,586 BBB 1,000 6.75%, 3/15/12 .......................................................................... 1,121,274 ------------ 7,448,360 ------------ HEALTH CARE--1.4% AA 1,000 Bristol Myers Squibb Co., 5.75%, 10/01/11 ................................................. 1,086,540 B- 1,200 Concentra Operating Corp., Ser. B, 13.00%, 8/15/09 ........................................ 1,332,000 Caa2 3,000 HealthSouth Corp., 7.00%, 6/15/084 ........................................................ 1,935,000 BB+ 1,500 Omnicare, Inc., Ser. B, 8.125%, 3/15/11 ................................................... 1,627,500 ------------ 5,981,040 ------------ HOTELS & CASINO--4.8% B+ 2,100 Argosy Gaming Co., 10.75%, 6/01/09 ........................................................ 2,310,000 B+ 2,000 Boyd Gaming Corp., 8.75%, 4/15/12 ......................................................... 2,140,000 B 2,000 Extended Stay America, Inc., 9.875%, 6/15/11 .............................................. 2,055,000 B 1,700 Hammons John Q. Hotels LP, Ser. B, 8.875%, 5/15/12 ........................................ 1,759,500 B 1,500 Herbst Gaming, Inc., Ser. B, 10.75%, 9/01/08 .............................................. 1,646,250 Ba3 1,500 HMH Properties, Inc., Ser. B, 7.875%, 8/01/08 ............................................. 1,485,000 BB+ 1,000 MGM Mirage, Inc., 9.75%, 6/01/07 .......................................................... 1,120,000 BB- 2,200 Mohegan Tribal Gaming Authority, 8.75%, 1/01/09 ........................................... 2,337,500 BB+ 2,000 Park Place Entertainment Corp., 8.875%, 9/15/08 ........................................... 2,160,000 BBB- 3,000 Starwood Hotels & Resorts, 7.875%, 5/01/12 ................................................ 3,157,500 ------------ 20,170,750 ------------ INDUSTRIAL EQUIPMENT--1.0% B+ 2,010 Manitowoc, Inc., 10.50%, 8/01/12 .......................................................... 2,130,600 BB- 2,000 United Rentals NA, Inc., 10.75%, 4/15/08(3) ............................................... 2,150,000 ------------ 4,280,600 ------------ LEISURE--0.4% B 1,500 Six Flags, Inc., 9.50%, 2/01/09 ........................................................... 1,543,125 ------------ MEDIA--5.0% B1 2,000 Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 (Canada) ......................... 2,280,000 AOL Time Warner, Inc., BBB+ 2,000 7.70%, 5/01/32 .......................................................................... 2,224,467 BBB+ 3,000 9.125%, 1/15/13 ......................................................................... 3,669,000 See Notes to Financial Statements. 23 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- MEDIA--(CONT'D) CCC- $ 3,000 Charter Communications Holdings LLC, 10.75%, 10/01/09 ...................................... $ 1,995,000 Comcast Cable Communications, Inc., BBB 1,000 6.75%, 1/30/11 ........................................................................... 1,071,563 BBB 1,800 8.875%, 5/01/17 .......................................................................... 2,288,359 BB- 3,000 EchoStar DBS Corp., 10.375%, 10/01/07 ...................................................... 3,360,000 B 1,000 Quebecor Media, Inc., 11.125%, 7/15/11 (Canada) ............................................ 1,130,000 B- 3,000 WRC Media Corp., 12.75%, 11/15/09 .......................................................... 3,075,000 ------------ 21,093,389 ------------ REAL ESTATE--0.5% BBB+ 1,000 Avalonbay Communities, Inc., 6.625%, 9/15/11 ............................................... 1,112,109 BBB+ 800 EOP Operating LP, 7.00%, 7/15/11 ........................................................... 896,099 ------------ 2,008,208 ------------ TECHNOLOGY--0.5% BB+ 2,000 Seagate Technology Holdings, 8.00%, 5/15/09 ................................................ 2,150,000 ------------ TELECOMMUNICATION--3.9% BBB+ 2,000 Deutsche Telekom Intl. Finance BV, 8.50%, 6/15/10 (Netherlands) ............................ 2,442,400 B3 1,340 Dobson Communications Corp., 10.875%, 7/01/10 .............................................. 1,407,000 B+ 2,000 Nextel Communications, Inc., 9.95%, 2/15/08 ................................................ 2,100,000 Ba3 3,000 PanAmSat Corp., 8.50%, 2/01/12 ............................................................. 3,240,000 SBC Communications, Inc., AA- 450 5.875%, 8/15/12 .......................................................................... 495,190 AA- 1,000 6.25%, 3/15/11 ........................................................................... 1,121,732 A+ 1,000 Verizon Global Funding Corp., 7.75%, 6/15/32 ............................................... 1,239,757 Aa3 3,000 Verizon Pennsylvania, Inc., Ser. A, 5.65%, 11/15/11 ........................................ 3,144,126 A 1,000 Vodafone Group PLC, 7.75%, 2/15/10 (United Kingdom) ........................................ 1,210,540 ------------ 16,400,745 ------------ TRANSPORTATION--1.9% BBB+ 1,000 Burlington Northern Santa Fe Corp., 5.90%, 7/01/12 ......................................... 1,087,200 BBB+ 1,000 Canadian National Railway Co., 6.375%, 10/15/11 (Canada) ................................... 1,126,363 BBB 1,475 Canadian Pacific Railway Ltd., 6.25%, 10/15/11 (Canada) .................................... 1,643,581 B 2,000 RailAmerica Transp. Corp., 12.875%, 8/15/10 ................................................ 2,180,000 BBB 2,000 Union Pacific Corp., 6.125%, 1/15/12 ....................................................... 2,204,988 ------------ 8,242,132 ------------ OTHER--4.7% A3 17,520 2 Targeted Return Index Securities Trust, Ser. 10-2002, Floating Coupon, 1/15/12(3) .......... 19,934,606 ------------ Total Corporate Bonds ...................................................................... 310,294,100 ------------ FOREIGN GOVERNMENT BONDS--0.8% Baa2 3,000 United Mexican States, 8.00%, 9/24/22 (Mexico) ............................................. 3,315,000 ------------ TOTAL LONG-TERM INVESTMENTS (cost $572,542,044) ............................................ 592,194,605 ------------ SHORT-TERM INVESTMENT--1.8% DISCOUNT NOTE--1.8% 7,800 Federal Home Loan Bank, 1.25%, 5/01/03 (cost $7,800,000) ................................... 7,800,000 ------------ Total investments before outstanding option written (cost $580,342,044) ....................$599,994,605 ------------ See Notes to Financial Statements. 24 NOTIONAL AMOUNT (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- OUTSTANDING OPTION WRITTEN--(0.1)% CALL OPTION--(0.1)% $3,000 Interest Rate Swap, 5.50%, over 3 month LIBOR, expires 5/06/03 (premium received $56,660) $ (323,740) ------------- TOTAL INVESTMENTS, NET OF OUTSTANDING OPTION WRITTEN--141.9% ............................. 599,670,865 OTHER LIABILITIES IN EXCESS OF OTHER ASSETS--(41.9)% ..................................... (177,142,546) ------------- NET ASSETS--100% ......................................................................... $ 422,528,319 ============= - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (3) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 7.6% of its net assets, with a current market value of $32,019,488, in securities restricted as to resale. (4) Issuer is technically in default. See Notes to Financial Statements. 25 PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - ---------------------- BlackRock Income Trust - ---------------------- PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--121.9% MORTGAGE PASS-THROUGHS--52.0% Federal Home Loan Mortgage Corp., $40,470(2) 5.50%, 10/01/16 - 5/01/17 ............................................................... $ 42,080,683 271 6.50%, 5/01/29 - 5/01/30 ................................................................ 283,308 68 7.50%, 2/01/23 .......................................................................... 73,504 253 8.00%, 11/01/15 ......................................................................... 268,692 245 8.50%, 10/01/06 - 3/01/08 ............................................................... 261,324 554 9.00%, 9/01/20 .......................................................................... 618,550 Federal National Mortgage Assoc., 97,777(2) 5.50%, 12/01/13 - 9/01/17 ............................................................... 101,678,868 32,338(2) 6.00%, 11/01/31 - 10/01/32 .............................................................. 33,646,603 24,324(2) 6.50%, 2/01/26 - 5/01/31 ................................................................ 25,407,794 31,002(2) 7.00%, 6/01/26 - 2/01/32 ................................................................ 32,767,532 5,336 7.50%, 11/01/14 - 9/01/23 ............................................................... 6,106,048 1,171 8.00%, 5/01/08 - 5/01/22 ................................................................ 1,267,112 16 9.50%, 1/01/19 - 6/01/20 ................................................................ 17,325 Government National Mortgage Assoc., 250 7.00%, 10/15/17 ......................................................................... 267,135 1,974 7.50%, 8/15/21 - 12/15/23 ............................................................... 2,121,681 1,391 8.00%, 10/15/22 - 2/15/29 ............................................................... 1,511,782 127 9.00%, 6/15/18 - 9/15/21 ................................................................ 141,219 ------------ Total Mortgage Pass-Throughs .............................................................. 248,519,160 ------------ FEDERAL HOUSING ADMINISTRATION--5.4% GMAC Projects, 2,002 Ser. 33, 7.43%, 9/01/21 ................................................................. 2,162,718 1,940 Ser. 46, 7.43%, 3/01/22 ................................................................. 2,095,487 1,093 Ser. 51, 7.43%, 2/01/23 ................................................................. 1,180,399 2,221 Ser. 56, 7.43%, 11/01/22 ................................................................ 2,399,082 490 Merrill Project, Ser. 54, 7.43%, 2/01/23 .................................................. 529,058 923 Reilly Project, Ser. 41, 8.767%, 12/01/18 ................................................. 966,930 USGI Projects, 466 Ser. 87, 7.43%, 12/01/22 ................................................................ 503,590 1,920 Ser. 99, 7.43%, 10/01/23 ................................................................ 2,074,162 2,482 Ser. 6302, 7.43%, 12/01/21 .............................................................. 2,682,452 3,894 Polaris, Ser. 982, 7.43%, 11/01/21 ...................................................... 4,206,094 6,307 Yorkville, Ser. 6094, 7.43%, 6/01/21 .................................................... 6,811,502 ------------ Total Federal Housing Administration ...................................................... 25,611,474 ------------ AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--3.2% Federal Home Loan Mortgage Corp., 10,192 Ser. T11, Class A9, 3.068%, 1/25/28 ..................................................... 9,477,280 784 Ser. 19, Class F, 8.50%, 3/15/20 ........................................................ 828,513 Federal National Mortgage Assoc., 977 Ser. 12, Class G, 4.50%, 2/25/20 ........................................................ 996,867 1,173 Ser. 43, Class E, 7.50%, 4/25/22 ........................................................ 1,254,914 2,500 Government National Mortgage Assoc., Ser. 33, Class PB, 6.50%, 7/20/31 .................... 2,649,686 ------------ Total Agency Multiple Class Mortgage Pass-Throughs ........................................ 15,207,260 ------------ NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--0.9% AAA 2,822 Bank One, Ser. 1, Class 2A, 3/15/15 ....................................................... 2,878,668 AAA 561 Prudential Home Mortgage Securities Co., Ser. 35, Class A12, 6.75%, 9/25/08 ............... 559,474 AAA 1,158 Summit Mortgage Trust, Ser. 1, Class B1, 12/28/12(3) ...................................... 1,070,087 ------------ Total Non-Agency Multiple Class Mortgage Pass-Throughs .................................... 4,508,229 ------------ ADJUSTABLE RATE MORTGAGE SECURITIES--0.2% Federal National Mortgage Assoc., 430 Ser. 38, Class F, 8.325%, 4/25/21 ....................................................... 403,991 631 Ser. 256, Class F, 2.844%, 11/25/23 ..................................................... 570,213 ------------ Total Adjustable Rate Mortgage Securities ................................................. 974,204 ------------ See Notes to Financial Statements. 26 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- INVERSE FLOATING RATE MORTGAGES--10.0% AAA $ 6,460 Countrywide Mortgage-Backed Securities, Inc., Ser. D, Class A15, 1/25/09 .................. $ 6,552,896 Federal Home Loan Mortgage Corp., 157 Ser. 1160, Class F, 10/15/21 ............................................................ 198,967 294 Ser. 1580, Class SD, 9/15/08 ............................................................ 297,857 915 Ser. 1601, Class SE, 10/15/08 ........................................................... 927,510 517 Ser. 1608, Class SC, 11/15/23 ........................................................... 520,674 1,457(2) Ser. 1616, Class SB, 11/15/08 ........................................................... 1,544,584 4,328 Ser. 1688, Class S, 12/15/13 ............................................................ 4,614,302 10,536 Ser. 2575, Class QS, 9/15/31 ............................................................ 10,671,077 Federal National Mortgage Assoc., 102 Ser. 19, Class SB, 1/25/24 .............................................................. 102,341 436 Ser. 38, Class SA, 4/25/21 .............................................................. 458,805 3,109 Ser. 79, Class SE, 1/25/22 .............................................................. 3,184,279 428 Ser. 87, Class S, 8/25/21 ............................................................... 537,870 1,920 Ser. 93, Class S, 5/25/08 ............................................................... 2,035,472 204 Ser. 129, Class SE, 8/25/08 ............................................................. 214,046 206 Ser. 145, Class S, 10/25/06 ............................................................. 258,158 1,651 Ser. 170, Class SC, 9/25/08 ............................................................. 1,695,385 4,327 Ser. 196, Class SC, 10/25/08 ............................................................ 4,575,732 2,173 Ser. 214, Class S, 12/25/08 ............................................................. 2,278,190 1,358 Ser. 214, Class SH, 12/25/08 ............................................................ 1,507,259 2,562 Ser. 247, Class SN, 12/25/23 ............................................................ 2,851,265 AAA 1,911 Kidder Peabody Acceptance Corp., Ser. 1, Class A6, 8/25/23 ................................ 1,927,602 AAA 649 Residential Funding Mortgage Securities Inc., Ser. S36, Class A13, 10/25/08 ............... 681,383 ------------ Total Inverse Floating Rate Mortgages ..................................................... 47,635,654 ------------ INTEREST ONLY MORTGAGE-BACKED SECURITIES--10.0% American Housing Trust, 489 Ser. III, Class 4, 3/25/19 .............................................................. 9,999 115 Ser. VII, Class 2, 11/25/20 ............................................................. 340,000 BA Mortgage Securities, Inc., 405 Ser. 1, Class X, 7/25/26 ................................................................ 2,150 300 Ser. 1, Class 2X, 5/28/13 ............................................................... 4,457 104,801 Commercial Mortgage Acceptance Corp., Ser. ML1, Class IO, 12/15/30 ........................ 2,489,033 38,360 Credit Suisse First Boston Mortgage Securities Corp. Trust, Ser. C1, Class AX, 6/20/29(3) . 2,140,039 Federal Home Loan Mortgage Corp., 1,387 Ser. G-13, Class PP, 5/25/21 ............................................................ 50,778 41,587 Ser. G-60, Class HS, 4/25/24 ............................................................ 2,339,260 11,543 Ser. 204, Class IO, 5/01/29 ............................................................. 1,460,651 22 Ser. 1494, Class PL, 3/15/22 ............................................................ 37,301 2,384 Ser. 1706, Class IA, 10/15/23 ........................................................... 254,786 622 Ser. 1720, Class PK, 1/15/24 ............................................................ 88,587 18,484 Ser. 1809, Class SC, 12/15/23 ........................................................... 548,743 20,310 Ser. 1914, Class PC, 12/15/11 ........................................................... 258,751 22,106 Ser. 2002, Class HJ, 10/15/08 ........................................................... 951,772 763 Ser. 2037, Class IB, 12/15/26 ........................................................... 21,660 3,042 Ser. 2050, Class PI, 12/15/11 ........................................................... 132,043 1,708 Ser. 2063, Class PI, 4/15/12 ............................................................ 52,292 5,434 Ser. 2080, Class PL, 1/15/27 ............................................................ 146,046 27 Ser. 2099, Class JB, 9/15/22 ............................................................ 359,527 2,029 Ser. 2138, Class PI, 3/15/11 ............................................................ 36,885 8,630 Ser. 2289, Class S, 2/15/31 ............................................................. 1,159,665 457 Ser. 2296, Class IO, 8/15/27 ............................................................ 594 6,762 Ser. 2296, Class SA, 3/15/16 ............................................................ 458,578 7,359 Ser. 2358, Class IB, 7/15/21 ............................................................ 55,191 6,240 Ser. 2444, Class ST, 9/15/29 ............................................................ 438,732 9,078 Ser. 2512, Class QS, 10/15/22 ........................................................... 453,911 5,101 Ser. 2513, Class BI, 12/15/15 ........................................................... 404,883 4,545 Ser. 2542, Class MX, 5/15/22 ............................................................ 721,182 5,028 Ser. 2543, Class IM, 9/15/12 ............................................................ 535,200 11,648 Ser. 2545, Class NI, 3/15/22 ............................................................ 1,565,167 See Notes to Financial Statements. 27 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- INTEREST ONLY MORTGAGE-BACKED SECURITIES--(CONT'D) Federal National Mortgage Assoc., $ 3 Ser. G-50, Class G, 12/25/21 ............................................................ $ 49,796 790 Ser. G92-5, Class H, 1/25/22 ............................................................ 157,575 2 Ser. G92-12, Class C, 2/25/22 ........................................................... 41,409 2,679 Ser. G92-60, Class SB, 10/25/22 ......................................................... 61,061 3,050 Ser. W4, Class IO, 12/25/28 ............................................................. 304,968 12,851 Ser. 2, Class ID, 3/25/23 ............................................................... 16,063 28,816 Ser. 16, Class PI, 11/25/12 ............................................................. 2,845,549 2,898 Ser. 19, Class PI, 8/25/12 .............................................................. 48,903 48,277 Ser. 23, Class ES, 10/25/22 ............................................................. 5,124,842 11,048 Ser. 33, Class SG, 3/25/09 .............................................................. 975,359 13,508 Ser. 37, Class SE, 10/25/22 ............................................................. 171,147 3,454 Ser. 50, Class SI, 4/25/23 .............................................................. 85,275 3,955 Ser. 62, Class IC, 7/25/15 .............................................................. 475,781 5,597 Ser. 62, Class IL, 3/25/24 .............................................................. 574,563 12,371 Ser. 68, Class SC, 1/25/24 .............................................................. 1,136,575 7,989 Ser. 82, Class IR, 9/25/12 .............................................................. 923,679 49,725 Ser. 90, Class M, 1/25/28 ............................................................... 8,246,945 8,070 Ser. 199, Class SB, 10/25/23 ............................................................ 791,874 6,157 Ser. 301, Class 2, 4/01/29 .............................................................. 758,048 11,935 Ser. 302, Class 2, 6/01/29 .............................................................. 1,564,555 249 First Boston Mortgage Securities Corp., Ser. C, Class IO, 4/25/17 ......................... 46,701 37,916 GMAC Commercial Mortgage Securities, Inc., Ser. C1, Class X, 7/15/29 ...................... 2,400,132 28,694 Goldman Sachs Mortgage Securities Corp., Ser. 5, Class IO, 6/19/27(3) ..................... 641,131 1,632 Government National Mortgage Assoc., Ser. 7, Class PS, 1/20/28 ............................ 182,016 17,779 Hanover Grantor Trust, Ser. A, Class 1IO, 8/28/27(3) ...................................... 133,344 305 Kidder Peabody Acceptance Corp., Ser. B, Class A2, 4/22/18 ................................ 81,944 7,874 Merrill Lynch Mortgage Investors, Inc., Ser. C2, Class IO, 6/15/21 ........................ 182,089 13,005 Morgan Stanley Capital 1, Inc., Ser. HF1, Class X, 7/15/293 ............................... 549,361 24,675 Prudential Home Mortgage Securities Co., Ser. 5, Class A9, 2/25/24 ........................ 0 65 Prudential Securities Inc., Ser. 15, Class 1G, 5/20/21 .................................... 26,302 4,500 Residential Accredit Loans, Inc., Ser. QS7, Class A1, 4/25/33 ............................. 736,875 30,340 Small Business Administration, Ser. 1, Class IO, 4/01/15 .................................. 360,289 285,951 Vendee Mortgage Trust, Ser. 2, Class 1IO, 5/15/29 ......................................... 357,439 ------------ Total Interest Only Mortgage-Backed Securities ............................................ 47,569,453 ------------ PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--13.3% AAA 342 Chase Mortgage Finance Corp., Ser. A, Class AP, 1/25/10 ................................... 284,121 AAA 235 Collateralized Mortgage Obligation Trust, Ser. 29, Class A, 5/23/17 ....................... 214,693 Countrywide Home Loan Mortgage Certificates, AAA 1,585 Ser. J2, Class A30, 4/25/33 ............................................................. 1,394,800 AAA 1,322 Ser. 11, Class A14, 5/25/33 ............................................................. 1,209,756 AAA 4,199 Ser. 11, Class A28, 5/25/33 ............................................................. 3,842,303 Drexel Burnham Lambert, Inc., AAA 90 Ser. K, Class 1, 9/23/17 ................................................................ 81,411 AAA 1,005 Ser. V, Class 1, 9/01/18 ................................................................ 934,973 Federal Home Loan Mortgage Corp., 1,061 Ser. T-8, Class A10, 11/15/28 ........................................................... 817,273 634 Ser. 1418, Class M, 11/15/22 ............................................................ 526,202 3,077 Ser. 1571, Class G, 8/15/23 ............................................................. 2,480,152 7,271 Ser. 1691, Class B, 3/15/24 ............................................................. 6,606,564 955 Ser. 1739, Class B, 2/15/24 ............................................................. 898,608 288 Ser. 1750, Class PC, 3/15/24 ............................................................ 286,716 532 Ser. 1857, Class PB, 12/15/08 ........................................................... 526,874 1,506 Ser. 1896, Class PA, 11/15/23 ........................................................... 1,483,420 Federal National Mortgage Assoc., 1,428 Ser. G93-2, Class KB, 1/25/23 ........................................................... 1,298,233 1,468 Ser. W4, Class PO, 2/25/29 .............................................................. 1,212,529 120 Ser. 5, Class PV, 11/25/23 .............................................................. 119,839 166 Ser. 7, Class J, 2/25/21 ................................................................ 150,037 6,137 Ser. 13, Class PR, 3/25/32 .............................................................. 5,705,686 3,148 Ser. 26, Class L, 3/25/23 ............................................................... 3,092,713 2,589 Ser. 82, Class PO, 12/25/32 ............................................................. 2,466,072 1,609 Ser. 273, Class 1, 7/01/26 .............................................................. 1,509,594 734 Ser. 279, Class 1, 7/01/26 .............................................................. 657,623 24,949 Ser. 328, Class1, 11/01/32 .............................................................. 22,110,564 See Notes to Financial Statements. 28 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--(CONT'D) AAA $ 467 First Union Residential Securitization Trust, Ser. A, Class 1-APO, 3/25/15 ................ $ 430,516 AAA 11,786 Fund America Investors Corp., Ser. C, Class B, 4/29/30 .................................... 2,741,364 AAA 150 Housing Security Inc., Ser. D, Class D8, 6/25/23 .......................................... 139,750 AAA 110 Structured Mortgage Asset Residential Trust, Ser. 3C, Class CX, 4/25/24 ................... 99,670 ------------ Total Principal Only Mortgage-Backed Securities ........................................... 63,322,056 ------------ COMMERCIAL MORTGAGE-BACKED SECURITIES--2.4% AAA 10,250 New York City Mortgage Loan Trust, Ser. 1996, Class A2, 6.75%, 6/25/11(3) ................. 11,667,135 ------------ U.S. GOVERNMENT AND AGENCY SECURITIES--24.4% 13,607 Overseas Private Investment Corp., 4.30% - 7.35%, 5/29/12 ................................. 14,781,903 Small Business Administration, 1,763 Ser. 20C-1, 7.15%, 3/01/17 .............................................................. 1,974,757 2,843 Ser. 20E-1, 7.60%, 5/01/16 .............................................................. 3,226,310 3,518 Ser. 20F-1, 7.55%, 6/01/16 .............................................................. 3,967,576 2,223 Ser. 20G-1, 7.70%, 7/01/16 .............................................................. 2,518,714 2,884 Ser. 20H-1, 7.25%, 8/01/16 .............................................................. 3,231,871 4,480 Ser. 20K-1, 6.95%, 11/01/16 ............................................................. 4,987,438 2,105 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 .......................... 2,227,169 U.S. Treasury Bonds, 155,700(2) Zero Coupon, 11/15/24 ................................................................... 50,674,901 8,325(2) 8.00%, 11/15/21 ......................................................................... 11,678,085 U.S. Treasury Notes, 3,000(2) 3.875%, 2/15/13 ......................................................................... 3,003,984 14,000(2) 4.00%, 11/15/12 ......................................................................... 14,178,822 ------------ Total U.S. Government and Agency Securities ............................................... 116,451,530 ------------ COLLATERALIZED MORTGAGE OBLIGATION RESIDUALS--0.1% 45 FBC Mortgage Securities Trust 16, CMO, Ser. A1, 7/01/17(4) ................................ 399,200 ------------ Total Long-Term Investments (cost $578,980,223) ........................................... 581,865,355 ------------ SHORT-TERM INVESTMENT--2.6% DISCOUNT NOTE--2.6% 12,700 Federal Home Loan Bank, 1.25%, 5/01/03 (cost $12,700,000) ................................. 12,700,000 ------------ Total investments before investment sold short and outstanding option written (cost $591,680,223) ....................................................................... 594,565,355 ------------ INVESTMENT SOLD SHORT--(3.5)% 15,750 U.S. Treasury Notes, 4.375%, 8/15/12 (proceeds $16,213,984) ............................... (16,444,606) ------------ NOTIONAL AMOUNT (000) -------- OUTSTANDING OPTION WRITTEN--(0.2)% CALL OPTION--(0.2)% $11,000 Interest Rate Swap, 5.50%, over 3 month LIBOR, expires 5/06/03 (premium received $207,753) (1,187,046) ------------ Total investments, net of investment sold short and outstanding option written--120.8% .... 576,933,703 Other liabilities in excess of other assets--(20.8)% ...................................... (99,475,468) ------------ NET ASSETS--100% .......................................................................... $477,458,235 ============ - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (3) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 3.4% of its net assets, with a current market value of $16,201,097, in securities restricted as to resale. (4) Illiquid security representing 0.1% of net assets. See Notes to Financial Statements. 29 PORTFOLIO OF INVESTMENTS (UNAUDITED) APRIL 30, 2003 - ------------------------------ BlackRock Strategic Bond Trust - ------------------------------ PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--144.0% CORPORATE BONDS--142.0% AEROSPACE & DEFENSE--4.4% B- $ 2,000(2) BE Aerospace, Inc., 9.50%, 11/01/08 ....................................................... $ 1,320,000 BBB 1,000 Lockheed Martin Corp., 8.20%, 12/01/09 .................................................... 1,225,369 BBB- 650(2) Raytheon Co., 6.55%, 3/15/10 .............................................................. 719,036 A+ 1,000(2) United Technologies Corp., 6.35%, 3/01/11 ................................................. 1,130,995 ------------ 4,395,400 ------------ AUTOMOTIVE--15.8% BB+ 2,000(2) Autonation, Inc., 9.00%, 8/01/08 .......................................................... 2,170,000 B1 2,000(2) Collins & Aikman Products Co., 10.75%, 12/31/11 ........................................... 2,090,000 A3 1,000(2) Daimler Chrysler NA Holding Corp., 7.30%, 1/15/12 ......................................... 1,141,141 BB 2,000 Dana Corp., 10.125%, 3/15/10 .............................................................. 2,220,000 B3 2,000(2) Delco Remy Intl., Inc., 11.00%, 5/01/09 ................................................... 1,060,000 B 2,000 Dura Operating Corp., Ser. D, 9.00%, 5/01/09 .............................................. 1,840,000 B+ 2,000(2) Sonic Automotive, Inc., Ser. D, 11.00%, 8/01/08 ........................................... 2,130,000 B+ 1,000 TRW Automotive, Inc., 9.375%, 2/15/13(3) .................................................. 1,090,000 B 2,000 United Auto Group Inc., 9.625%, 3/15/12 ................................................... 2,095,000 ------------ 15,836,141 ------------ BASIC MATERIAL--2.1% BB- 2,000(2) Century Aluminum Co., 11.75%, 4/15/08 ..................................................... 2,055,000 ------------ BUILDING & DEVELOPMENT--5.3% BB 1,000(2) Beazer Homes USA, Inc., 8.625%, 5/15/11 ................................................... 1,080,000 B- 2,000 Great Lakes Dredge & Dock Corp., 11.25%, 8/15/08 .......................................... 2,120,000 Ba1 2,000 Schuler Homes, Inc., 9.375%, 7/15/09 ...................................................... 2,095,000 ------------ 5,295,000 ------------ CHEMICAL--5.4% BB 2,000 Lyondell Chemical Co., Ser. B, 9.875%, 5/01/07 ............................................ 2,050,000 B 1,796 Noveon, Inc., Ser. B, 11.00%, 2/28/11 ..................................................... 2,011,520 B- 1,250 Resolution Performance Products, Inc., 13.50%, 11/15/10 ................................... 1,337,500 ------------ 5,399,020 ------------ CONGLOMERATES--4.5% A 325 Honeywell Intl., Inc., 7.50%, 3/01/10 ..................................................... 389,409 B 1,500 MDP Acquisitions PLC, 9.625%, 10/01/12 (Ireland)(3) ....................................... 1,620,000 B 2,000 Penhall Intl., Inc., 12.00%, 8/01/06 ...................................................... 1,400,000 BBB- 1,132(2) Tyco Intl. Group SA, 6.375%, 2/15/06 (Luxembourg) ......................................... 1,126,340 ------------ 4,535,749 ------------ CONSUMER PRODUCTS--7.8% B- 2,000 Friendly Ice Cream Corp., 10.50%, 12/01/07 ................................................ 2,010,000 BBB+ 1,000(2) General Mills, Inc., 5.125%, 2/15/07 ...................................................... 1,069,354 BBB 575(2) Kellogg Co., Ser. B, 6.00%, 4/01/06 ....................................................... 628,318 BB- 2,000 Levi Strauss & Co., 12.25%, 12/15/12(3) ................................................... 1,680,000 B- 500 Pantry, Inc., The, 10.25%, 10/15/07 ....................................................... 497,500 B+ 2,000 Sbarro, Inc., 11.00%, 9/15/09 ............................................................. 1,940,000 ------------ 7,825,172 ------------ CONTAINERS & GLASS--3.0% B 1,000 Crown European Holdings SA, 10.875%, 3/01/13 (France)(3) .................................. 1,050,000 B+ 1,800 Plastipak Holdings, Inc., 10.75%, 9/01/11 ................................................. 1,944,000 ------------ 2,994,000 ------------ ECOLOGICAL SERVICES & EQUIPMENT--3.8% B+ 2,000(2) Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ............................................ 2,135,000 B 1,500 Casella Waste Systems, Inc., 9.75%, 2/01/13(3) ............................................ 1,620,000 ------------ 3,755,000 ------------ ELECTRONICS--4.4% B+ 2,000 FIMEP SA, 10.50%, 2/15/13 (France)(3) ..................................................... 2,190,000 Ba2 2,000(2) Flextronics Intl. Ltd., 9.875%, 7/01/10 (Singapore) ....................................... 2,220,000 ------------ 4,410,000 ------------ See Notes to Financial Statements. 30 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- ENERGY--18.9% BBB+ $ 1,000(2) Anadarko Petroleum Corp., 5.375%, 3/01/07 ................................................. $ 1,075,424 B+ 2,000(2) Calpine Corp., 10.50%, 5/15/06 ............................................................ 1,690,000 BB 2,000(2) Compagnie Generale De Geophysique SA, 10.625%, 11/15/07 (France) .......................... 2,000,000 A- 1,000(2) Conoco, Inc., 6.95%, 4/15/29 .............................................................. 1,163,751 B 2,000(2) Dresser, Inc., 9.375%, 4/15/11 ............................................................ 2,080,000 BBB 250(2) DTE Energy Co., 7.05%, 6/01/11 ............................................................ 288,084 El Paso Corp., B 165 7.75%, 1/15/32 .......................................................................... 127,050 B 85 7.80%, 8/01/31 .......................................................................... 65,450 BB- 1,000 GulfTerra Energy Partners L.P., Ser. B, 8.50%, 6/01/11 .................................... 1,070,000 BBB+ 250(2) Exelon Corp., 6.75%, 5/01/11 .............................................................. 283,981 Baa2 325(2) FirstEnergy Corp., Ser. C, 7.375%, 11/15/31 ............................................... 355,829 B+ 2,000 Hanover Equipment Trust, Ser. A, 8.50%, 9/01/08 ........................................... 2,040,000 BB- 1,000 Leviathan Gas Pipeline Partners LP, Ser. B, 10.375%, 6/01/09 .............................. 1,082,500 BBB 250 Occidental Petroleum Corp., 6.75%, 1/15/12 ................................................ 285,566 BBB 1,000(2) Progress Energy, Inc., 6.75%, 3/01/06 ..................................................... 1,096,117 B 2,000 Swift Energy Co., 10.25%, 8/01/09 ......................................................... 2,100,000 BB- 2,000 Western Gas Resources, Inc., 10.00%, 6/15/09 .............................................. 2,180,000 ------------ 18,983,752 ------------ FINANCE & BANKING--16.9% A+ 500(2) Allstate Corp., 7.875%, 5/01/05 ........................................................... 557,728 Aa3 1,000(2) Bank One Corp., 6.50%, 2/01/06 ............................................................ 1,109,280 Aa3 650(2) Barclays Bank PLC, 8.55%, 9/29/49 (United Kingdom)3 ....................................... 809,900 A 325(2) Bear Stearns Co., Inc., 6.50%, 5/01/06 .................................................... 360,906 B+ 2,000(2) Bluewater Finance Ltd., 10.25%, 2/15/12 (United Kingdom) .................................. 2,007,000 AA+ 3,000(2) Citigroup, Inc., 5.75%, 5/10/06 ........................................................... 3,276,540 Ford Motor Credit Co., A3 750(2) 5.80%, 1/12/09 .......................................................................... 709,781 A3 2,000(2) 6.875%, 2/01/06 ......................................................................... 2,075,957 General Motors Acceptance Corp., A2 250(2) 6.75%, 1/15/06 .......................................................................... 261,780 A2 900(2) 6.875%, 9/15/11 ......................................................................... 909,703 A2 300(2) 8.00%, 11/01/31 ......................................................................... 307,484 AAA 850(2) KFW Intl. Finance, Inc., 5.25%, 6/28/06 ................................................... 931,780 Ba1 1,000 Labranche & Co., Inc., 12.00%, 3/02/07 .................................................... 1,095,000 A+ 1,000(2) Lehman Brothers Holdings, Inc., 6.25%, 5/15/06 ............................................ 1,095,682 A 325(2) MetLife, Inc., 6.125%, 12/01/11 ........................................................... 362,426 BBB+ 1,000 Sears Roebuck Acceptance Corp., 6.75%, 8/15/11 ............................................ 1,021,929 ------------ 16,892,876 ------------ FOREST PRODUCTS--3.1% Ba2 2,000(2) Caraustar Industries, Inc., 9.875%, 4/01/11 ............................................... 2,060,000 BBB 1,000(2) Weyerhaeuser Co., 6.125%, 3/15/07 ......................................................... 1,090,593 ------------ 3,150,593 ------------ HEALTH CARE--6.7% D 2,000 HealthSouth Corp., 6.875%, 6/15/05 ........................................................ 1,300,000 B- 2,000 Insight Health Services Corp., Ser. B, 9.875%, 11/01/11 ................................... 1,860,000 B+ 2,000 Matria Healthcare, Inc., Ser. B, 11.00%, 5/01/08 .......................................... 1,960,000 B- 1,500 United Surgical Partners Intl., Inc., 10.00%, 12/15/11 .................................... 1,590,000 ------------ 6,710,000 ------------ HOTELS & CASINO--2.9% BB+ 2,000 Park Place Entertainment Corp., 7.875%, 3/15/10 ........................................... 2,065,000 B 1,000 Resorts Intl. Hotel & Casino, Inc., 11.50%, 3/15/09 ....................................... 870,000 ------------ 2,935,000 ------------ INDUSTRIAL EQUIPMENT--4.0% BB- 2,000 Mail Well I Corporation, 9.625%, 3/15/12 .................................................. 2,060,000 B+ 2,000(2) United Rentals, Inc., Ser. B, 9.25%, 1/15/09 .............................................. 1,910,000 ------------ 3,970,000 ------------ See Notes to Financial Statements. 31 PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - --------------------------------------------------------------------------------------------------------------------------------- LEISURE--1.5% BB+ $ 1,500 Royal Caribbean Cruises Ltd., 8.75%, 2/02/11 (Liberia) .................................... $ 1,522,500 ------------ MEDIA--13.4% NR 2,000(2) Adelphia Communications Corporation, Ser. B, 10.50%, 7/15/04(4) ........................... 990,000 B1 1,500(2) Alliance Atlantis Communications, Inc., 13.00%, 12/15/09 (Canada) ......................... 1,710,000 BBB+ 1,000(2) AOL Time Warner, Inc., 7.70%, 5/01/32 ..................................................... 1,112,233 CCC- 2,000 Charter Communications Holdings LLC, 11.125%, 1/15/11 ..................................... 1,330,000 BBB 1,000 Comcast Cable Communications, Inc., 6.875%, 6/15/09 ....................................... 1,105,000 BB- 2,000 EchoStar DBS Corp., 10.375%, 10/01/07 ..................................................... 2,240,000 B- 2,000 Nextmedia Operating, Inc., 10.75%, 7/01/11 ................................................ 2,215,000 A- 1,000(2) Viacom, Inc., 6.625%, 5/15/11 ............................................................. 1,145,111 B- 1,500 WRC Media Corp., 12.75%, 11/15/09 ......................................................... 1,537,500 ------------ 13,384,844 ------------ REAL ESTATE--2.5% A- 500(2) ERP Operating LP, 6.95%, 3/02/11 .......................................................... 557,298 Felcore Lodging LP, Ba3 1,000 8.50%, 6/01/11 .......................................................................... 967,500 Ba3 1,000 9.50%, 9/15/08 .......................................................................... 997,500 ------------ 2,522,298 ------------ TECHNOLOGY--2.1% BB+ 2,000 Unisys Corp., 8.125%, 6/01/06 ............................................................. 2,145,000 ------------ TELECOMMUNICATION--8.2% BBB+ 900(2) AT&T Corp., 6.50%, 11/15/06 ............................................................... 964,676 B3 1,000 Crown Castle Int'l. Corp., 10.75%, 8/01/11 ................................................ 1,035,000 Ba3 2,000 PanAmSat Corp., 8.50%, 2/01/12 ............................................................ 2,160,000 CCC+ 450 Qwest Capital Funding, Inc., 5.875%, 8/03/04 .............................................. 418,500 Aa3 2,000(2) Verizon New England, Inc., 6.50%, 9/15/11 ................................................. 2,261,075 A 1,000(2) Vodafone Group PLC, 7.75%, 2/15/10 (United Kingdom) ....................................... 1,210,540 Worldcom, Inc., NR 400 7.375%, 1/15/06(3,4) .................................................................... 112,000 NR 200 8.00%, 5/15/06(4) ....................................................................... 56,000 ------------ 8,217,791 ------------ TRANSPORTATION--5.3% BBB+ 500 Canadian National Railway Co., 6.90%, 7/15/28 (Canada) .................................... 576,850 Baa1 400 Norfolk Southern Corp., 7.05%, 5/01/37 .................................................... 461,269 B 2,000 Pacer Intl., Inc., Ser. B, 11.75%, 6/01/07 ................................................ 2,120,000 B 2,000 RailAmerica Transp. Corp., 12.875%, 8/15/10 ............................................... 2,180,000 ------------ 5,338,119 ------------ Total Corporate Bonds ..................................................................... 142,273,255 ------------ FOREIGN GOVENMENT BONDS--1.1% Baa2 1,000 United Mexican States, 8.125%, 12/30/19 (Mexico) .......................................... 1,130,000 ------------ SUPRANATIONAL--0.9% AAA 850(2) European Investment Bank, 4.875%, 9/06/06 ................................................. 919,861 ------------ TOTAL INVESTMENTS--144.0% (COST $143,798,660) ............................................. 144,323,116 LIABILITIES IN EXCESS OF OTHER ASSETS--(44.0)% ............................................ (44,098,269) ------------ NET ASSETS--100% .......................................................................... $100,224,847 ------------ - ---------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (3) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of April 30, 2003, the Trust held 10.0% of its net assets, with a current market value of $10,071,100, in securities restricted as to resale. (4) Issuer is technically in default. See Notes to Financial Statements. 32 STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2003 - -------------------------------------------------------------------------------- Broad Investment Grade 2009 Core Assets Term Trust(1) Bond Trust ---------------- ------------- Investments at value(2) .............................................. $ 67,486,179 $ 604,469,491 Cash ................................................................. 75,072 267,764 Receivable from investments sold ..................................... 142,795 33,363,149 Variation margin receivable .......................................... 39,188 499,366 Collateral deposited with brokers .................................... -- -- Receivable for closed forward foreign currency contracts, net ........ -- 102,514 Interest receivable .................................................. 825,961 9,556,326 Unrealized appreciation on interest rate swaps ....................... -- -- Other assets ......................................................... 10,547 20,603 ------------- ------------- 68,579,742 648,279,213 ------------- ------------- Liabilities Reverse repurchase agreements ........................................ 18,166,250 52,728,594 Payable to custodian ................................................. -- -- Payable for investments purchased .................................... -- 181,314,682 Loan payable ......................................................... -- -- Investments sold short at value(3) ................................... -- -- Outstanding options written at value(4) .............................. -- -- Interest payable ..................................................... 4,348 100 Interest rate floors at value ........................................ -- -- Payable for open forward foreign currency contracts .................. -- 232,302 Unrealized depreciation on interest rate swaps and purchase commitment -- -- Variation margin payable ............................................. -- -- Investment advisory fee payable ...................................... 22,668 216,107 Administration fee payable ........................................... 6,182 -- Deferred Directors/Trustees fees ..................................... 9,500 13,524 Other accrued expenses ............................................... 173,221 75,789 ------------- ------------- 18,382,169 234,581,098 ------------- ------------- Net Assets ........................................................... $ 50,197,573 $ 413,698,115 ============= ============= Composition of Net Assets: Par value .......................................................... $ 29,571 $ 27,019 Paid-in capital in excess of par ................................... 40,240,039 386,206,969 Cost of shares held in treasury(5) ................................. -- -- Undistributed (distributions in excess of) net investment income ... 7,769,200 (3,746,782) Accumulated net realized gain (loss) ............................... 1,208,563 13,661,944 Net unrealized appreciation (depreciation) ......................... 950,200 17,073,033 Accumulated net realized and unrealized foreign currency loss ...... -- 475,932 ------------- ------------- Net assets, April 30, 2003 ........................................... $ 50,197,573 $ 413,698,115 ============= ============= Net asset value per common share(6) .................................. $16.98 $15.31 ====== ====== (1)Consolidated Statement of Assets and Liabilities (2)Investments at cost $ 66,489,325 $ 586,812,069 (3)Proceeds received -- -- (4)Premium received -- -- (5)Shares held in treasury -- -- (6)Common shares issued and outstanding 2,957,093 27,018,774 See Notes to Financial Statements. 33 - -------------------------------------------------------------------------------- INCOME HIGH OPPORTUNITY INCOME STRATEGIC YIELD TRUST TRUST TRUST BOND TRUST ------------ ------------ ------------ ------------ $ 58,801,618 $599,994,605 $594,565,355 $144,323,116 -- 103,912 349,511 58,472 -- 2,974,659 1,278,602 -- -- 1,445,063 -- -- -- 1,180,000 16,464,688 -- -- -- -- -- 2,420,967 7,652,624 5,454,311 3,834,357 -- 1,146,903 -- -- 51,781 76,914 85,796 2,933 ------------ ------------ ------------ ------------ 61,274,366 614,574,680 618,198,263 148,218,878 ------------ ------------ ------------ ------------ -- 187,816,125 110,819,750 47,747,000 130,057 -- -- -- -- 2,946,894 -- -- 19,250,000 -- -- -- -- -- 16,444,606 -- -- 323,740 1,187,046 -- 28,690 536,147 1,523,155 -- -- -- 1,626,107 -- -- -- -- -- -- 11,220 8,474,732 -- -- 38 103,380 -- 51,575 204,004 253,933 65,021 4,912 34,001 78,133 -- 14,185 69,232 84,681 2,933 71,363 104,960 144,505 179,077 ------------ ------------ ------------ ------------ 19,550,782 192,046,361 140,740,028 47,994,031 ------------ ------------ ------------ ------------ $ 41,723,584 $422,528,319 $477,458,235 $100,224,847 ------------ ------------ ------------ ------------ $ 6,367 $ 344,497 $ 632,471 $ 7,026 93,758,505 406,532,068 563,097,029 100,127,403 -- (17,377,850) -- -- (70,114) 5,340,133 8,842,687 1,377,247 (32,427,076) 9,827,500 (86,680,931) (1,811,285) (19,544,098) 18,057,969 (8,433,021) 524,456 -- (195,998) -- -- ------------ ------------ ------------ ------------ $ 41,723,584 $422,528,319 $477,458,235 $100,224,847 ------------ ------------ ------------ ------------ $6.55 $12.27 $7.55 $14.27 ===== ====== ===== ====== $ 78,345,716 $580,342,044 $591,680,223 $143,798,660 -- -- 16,810,234 -- -- 56,660 207,753 -- -- 1,757,400 -- -- 6,367,294 34,449,693 63,247,058 7,025,735 34 STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2003 - -------------------------------------------------------------------------------- BROAD INVESTMENT GRADE 2009 CORE INVESTMENT INCOME TERM TRUST(1) BOND TRUST ---------------- ------------ Interest income .............................................. $ 2,267,041 $ 14,561,365 ------------ ------------ EXPENSES Investment advisory .......................................... 138,035 1,519,509 Administration ............................................... 37,646 -- Transfer agent ............................................... 5,380 8,305 Custodian .................................................... 33,703 71,335 Reports to shareholders ...................................... 28,287 47,965 Directors/Trustees fees ...................................... 7,109 23,542 Registration ................................................. 1,175 15,620 Independent accountants ...................................... 24,697 21,502 Interest expense ............................................. 131,598 180,954 Excise tax ................................................... 219,172 -- Legal ........................................................ 9,663 13,885 Miscellaneous ................................................ 11,751 54,133 ------------ ------------ Total expenses ............................................. 648,216 1,956,750 Less fees waived by Advisor ................................ -- -- Less fees paid indirectly .................................. -- (4,390) ------------ ------------ Net expenses ............................................... 648,216 1,952,360 ------------ ------------ Net investment income .......................................... 1,618,825 12,609,005 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ................................................ (127,696) 8,567,737 Foreign currency ........................................... -- 573,241 Futures .................................................... 322,209 5,078,583 Interest rate caps ......................................... -- -- Interest rate swaps ........................................ -- -- Options written ............................................ -- -- Short sales ................................................ -- -- ------------ ------------ 194,513 14,219,561 ------------ ------------ Net change in unrealized appreciation/depreciation on: Investments ................................................ (1,409,314) 15,838,819 Foreign currency ........................................... -- (49,074) Futures .................................................... (119,548) (81,596) Interest rate caps ......................................... -- -- Interest rate floors ....................................... -- -- Interest rate swaps ........................................ -- -- Options written ............................................ -- 134,580 Short sales ................................................ -- -- ------------ ------------ (1,528,862) 15,842,729 ------------ ------------ Net gain (loss) on investments ................................. (1,334,349) 30,062,290 ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ 284,476 $ 42,671,295 ============ ============ - ---------- (1) Consolidated Statement of Operations. See Notes to Financial Statements. 35 INCOME HIGH OPPORTUNITY INCOME STRATEGIC YIELD TRUST TRUST TRUST BOND TRUST ------------ ------------ ------------ ------------ $ 4,262,804 $ 16,474,347 $ 21,284,662 $ 6,268,135 ------------ ------------ ------------ ------------ 308,225 1,218,930 1,560,470 515,550 29,355 203,155 480,145 -- 10,909 17,035 43,141 7,831 15,762 102,040 86,904 25,055 29,753 67,383 61,985 14,828 5,950 26,633 32,351 6,229 11,157 15,620 24,049 11,157 17,209 54,465 54,103 20,426 186,714 849,627 857,092 366,074 -- -- -- -- 12,397 44,902 21,660 6,089 10,916 76,704 87,481 13,577 ------------ ------------ ------------ ------------ 638,347 2,676,494 3,309,381 986,816 -- -- -- (137,480) (1,382) (2,863) (6,094) (6,112) ------------ ------------ ------------ ------------ 636,965 2,673,631 3,303,287 843,224 ------------ ------------ ------------ ------------ 3,625,839 13,800,716 17,981,375 5,424,911 ------------ ------------ ------------ ------------ (2,083,995) (1,268,598) 920,149 (1,494,577) -- (195,998) -- -- -- 10,871,248 (65,475) -- -- -- (1,317) -- -- 5,570 (882,431) -- -- 64,050 234,850 -- -- (27,844) (162,481) -- ------------ ------------ ------------ ------------ (2,083,995) 9,448,428 43,295 (1,494,577) ------------ ------------ ------------ ------------ 4,784,614 16,220,556 (8,646,770) 12,621,690 -- 168,091 -- -- -- (2,262,090) (1,162,947) -- -- -- 354,083 -- -- -- 381,599 -- -- (969,381) (439,203) -- -- (157,822) (578,680) -- -- 599,240 (230,622) -- ------------ ------------ ------------ ------------ 4,784,614 13,598,594 (10,322,540) 12,621,690 ------------ ------------ ------------ ------------ 2,700,619 23,047,022 (10,279,245) 11,127,113 ------------ ------------ ------------ ------------ $ 6,326,458 $ 36,847,738 $ 7,702,130 $ 16,552,024 ============ ============ ============ ============ 36 STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2003 - -------------------------------------------------------------------------------- RECONCILIATION OF NET INCREASE (DECREASE) BROAD INVESTMENT IN NET ASSETS RESULTING FROM OPERATIONS TO GRADE 2009 CORE NET CASH FLOWS PROVIDED BY (USED FOR) TERM TRUST(1) BOND TRUST OPERATING ACTIVITIES ---------------- ------------ Net increase in net assets resulting from operations ................ $ 284,476 $ 42,671,295 ------------ ------------ Decrease (increase) in investments .................................. 5,505,802 (5,899,816) Net realized loss (gain) ............................................ (194,513) (14,219,561) Decrease (increase) in unrealized appreciation/depreciation ......... 1,528,862 (15,842,729) Decrease in interest rate caps ...................................... -- -- Increase in interest rate floors .................................... -- -- Decrease in interest rate swaps and purchase commitments ............ -- -- Decrease (increase) in receivable for investments sold .............. (142,795) (2,055,612) Increase in receivable for forward foreign currency contracts ....... -- (102,514) Decrease (increase) in variation margin receivable .................. (15,626) (89,091) Decrease (increase) in collateral deposited with brokers ............ -- -- Decrease (increase) in interest receivable .......................... 39,201 (1,672,899) Decrease (increase) in other assets ................................. (1,384) (8,094) Decrease in payable for investments purchased ....................... -- (3,196,129) Increase (decrease) in payable for forward foreign currency contracts -- 103,042 Decrease in variation margin payable ................................ -- -- Increase (decrease) in interest payable ............................. (12,975) (48) Increase (decrease) in outstanding options written .................. -- (334,219) Increase (decrease) in investments sold short ....................... -- -- Increase (decrease) in investment advisory fee payable .............. (1,361) (4,694) Decrease in administration fee payable .............................. (371) -- Increase in deferred Directors/Trustees fees ........................ 1,823 4,428 Increase (decrease) in other accrued expenses ....................... (158,318) (35,753) ------------ ------------ Total adjustments ................................................. 6,548,345 (43,353,689) ------------ ------------ Net cash flows provided by (used for) operating activities .......... $ 6,832,821 $ (682,394) ============ ============ INCREASE (DECREASE) IN CASH AND FOREIGN CURRENCY Net cash flows provided by (used for) operating activities .......... $ 6,832,821 $ (682,394) ------------ ------------ Cash flows provided by (used for) financing activities: Increase (decrease) in reverse repurchase agreements .............. (5,502,937) 17,326,094 Cash dividends paid ............................................... (1,330,536) (16,211,242) ------------ ------------ Net cash flows provided by (used for) financing activities .......... (6,833,473) 1,114,852 ------------ ------------ Effect of changes in exchange rate .................................. -- -- ------------ ------------ Net increase (decrease) in cash ................................... (652) 432,458 Cash at beginning of period ....................................... 75,724 (164,694) ------------ ------------ Cash at end of period ............................................. $ 75,072 $ 267,764 ============ ============ - ---------- (1) Consolidated Statement of Cash Flows. See Notes to Financial Statements. 37 - -------------------------------------------------------------------------------- INCOME HIGH OPPORTUNITY INCOME STRATEGIC YIELD TRUST TRUST TRUST BOND TRUST ------------- ------------ ------------ ------------ $ 6,326,458 $ 36,847,738 $ 7,702,130 $ 16,552,024 ------------ ------------ ------------ ------------ 175,007 (18,213,420) 83,353,851 (3,797,110) 2,083,995 (9,448,428) (43,295) 1,494,577 (4,784,614) (13,598,594) 10,322,540 (12,621,690) -- -- 20 -- -- -- (560,474) -- -- 980,601 449,403 -- -- 98,916,946 18,402,695 -- -- -- -- -- -- (756,221) 296,214 -- -- (1,180,000) 769,687 -- (108,956) (1,857,398) 1,368,150 (149,088) 488 16,537 (5,500) (476) -- (98,621,183) (1,460,612) -- -- -- -- -- -- 38 103,380 -- (11,874) 256,256 (763,696) (35,552) -- 90,022 330,080 -- -- (73,551,740) 16,444,606 -- (2,379) (2,181) (25,901) 1,787 (226) (363) (7,476) -- 1,593 8,037 11,006 1,182 8,101 (190,923) (103,353) 17,978 ------------ ------------ ------------ ------------ (2,638,865) (117,152,014) 128,881,325 (15,088,392) ------------ ------------ ------------ ------------ $ 3,687,593 $(80,304,276) $136,583,455 $ 1,463,632 ============ ============ ============ ============ $ 3,687,593 $(80,304,276) $136,583,455 $ 1,463,632 ------------ ------------ ------------ ------------ -- 102,112,338 (94,972,514) 3,523,625 (3,555,578) (21,799,162) (41,629,035) (4,921,483) ------------ ------------ ------------ ------------ (3,555,578) 80,313,176 (136,601,549) 1,397,858 ------------ ------------ ------------ ------------ -- 3,681 -- -- ------------ ------------ ------------ ------------ 132,015 12,581 (18,094) 65,774 (262,072) 91,331 367,605 (7,302) ------------ ------------ ------------ ------------ $ (130,057) $ 103,912 $ 349,511 $ 58,472 ============ ============ ============ ============ 38 STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED) AND FOR THE PERIOD(1) ENDED OCTOBER 31, 2002 - -------------------------------------------------------------------------------- BROAD INVESTMENT GRADE 2009 TERM TRUST(2) CORE BOND TRUST ----------------------------- ------------------------------ 2003 2002 2003 2002 ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income ............................ $ 1,618,825 $ 5,953,008 $ 12,609,005 $ 26,838,280 Net realized gain (loss) ......................... 194,513 2,180,535 14,219,561 78,567 Net change in unrealized appreciation/depreciation (1,528,862) (2,064,590) 15,842,729 1,070,052 ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations .................................. 284,476 6,068,953 42,671,295 27,986,899 ------------- ------------- ------------- ------------- DIVIDENDS AND DISTRIBUTIONS: From net investment income ....................... (1,330,536) (2,291,473) (16,211,242) (26,838,280) From net realized gains .......................... -- -- -- -- Tax return of capital distributions .............. -- -- -- -- In excess of net investment income ............... -- -- -- (179,545) ------------- ------------- ------------- ------------- Total dividends and distributions .............. (1,330,536) (2,291,473) (16,211,242) (27,017,825) ------------- ------------- ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from the issuance of common shares .. -- -- -- 357,484,731 Net proceeds from the underwriters' overallotment option exercised ................. -- -- -- 28,650,000 Trust shares issued in conjunction with reinvestment of dividends ...................... -- -- -- 134,257 Cost of Trust shares reacquired .................. -- -- -- -- ------------- ------------- ------------- ------------- Net proceeds from capital share transactions ... -- -- -- 386,268,988 ------------- ------------- ------------- ------------- Total increase (decrease) .................... (1,046,060) 3,777,480 26,460,053 387,238,062 ------------- ------------- ------------- ------------- NET ASSETS Beginning of period ................................ 51,243,633 47,466,153 387,238,062 -- ------------- ------------- ------------- ------------- End of period ...................................... $ 50,197,573 $ 51,243,633 $ 413,698,115 $ 387,238,062 ============= ============= ============= ============= End of period undistributed (distributions in excess of) net investment income ................. $ 7,769,200 $ 7,480,911 $ (3,746,782) $ (144,545) - ---------- (1) Commencement of investment operations for Core Bond was November 30, 2001. This information includes the initial investment by BlackRock Funding, Inc. The other Trusts' statements are for a full year. (2) Consolidated Statement of Changes in Net Assets. See Notes to Financial Statements. 39 HIGH YIELD TRUST INCOME OPPORTUNITY TRUST INCOME TRUST --------------------------------- --------------------------------- --------------------------------- 2003 2002 2003 2002 2003 2002 ------------ ------------ ------------ ------------ ------------ ------------ $ 3,625,839 $ 7,613,863 $ 13,800,716 $ 39,603,548 $ 17,981,375 $ 62,183,766 (2,083,995) (8,468,860) 9,448,428 (6,747,774) 43,295 28,398,002 4,784,614 2,224,397 13,598,594 5,135,503 (10,322,540) (50,286,165) ------------ ------------ ------------ ------------ ------------ ------------ 6,326,458 1,369,400 36,847,738 37,991,277 7,702,130 40,295,603 ------------ ------------ ------------ ------------ ------------ ------------ (3,625,839) (7,613,863) (13,434,708) (25,885,698) (44,475,823) (35,876,922) -- -- (8,364,454) -- -- -- -- (584,069) -- -- -- -- (70,114) -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ (3,695,953) (8,197,932) (21,799,162) (25,885,698) (44,475,823) (35,876,922) ------------ ------------ ------------ ------------ ------------ ------------ -- -- -- -- -- -- -- -- -- -- -- -- 140,375 261,647 -- -- 2,846,788 202,011 -- -- -- (2,381,796) -- -- ------------ ------------ ------------ ------------ ------------ ------------ 140,375 261,647 -- (2,381,796) 2,846,788 202,011 ------------ ------------ ------------ ------------ ------------ ------------ 2,770,880 (6,566,885) 15,048,576 9,723,783 (33,926,905) 4,620,692 ------------ ------------ ------------ ------------ ------------ ------------ 38,952,704 45,519,589 407,479,743 397,755,960 511,385,140 506,764,448 ------------ ------------ ------------ ------------ ------------ ------------ $ 41,723,584 $ 38,952,704 $422,528,319 $407,479,743 $477,458,235 $511,385,140 ============ ============ ============ ============ ============ ============ $ (70,114) $ -- $ 5,340,133 $ 4,974,125 $ 8,842,687 $ 35,337,135 40 STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED) AND FOR THE PERIOD(1) ENDED OCTOBER 31, 2002 - -------------------------------------------------------------------------------- STRATEGIC BOND TRUST ------------------------------ 2003 2002 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS: Net investment income .............................. $ 5,424,911 $ 6,886,556 Net realized loss .................................. (1,494,577) (316,708) Net change in unrealized appreciation/depreciation . 12,621,690 (12,097,234) ------------- ------------- Net increase (decrease) in net assets resulting from operations .................................... 16,552,024 (5,527,386) ------------- ------------- DIVIDENDS FROM NET INVESTMENT INCOME ................. (5,053,253) (5,890,967) ------------- ------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from the issuance of common shares .... -- 99,920,015 Trust shares issued in conjunction with reinvestment of dividends ..................................... 131,770 92,644 ------------- ------------- Net proceeds from capital share transactions ..... 131,770 100,012,659 ------------- ------------- Total increase ................................. 11,630,541 88,594,306 ------------- ------------- NET ASSETS Beginning of period .................................. 88,594,306 -- ------------- ------------- End of period ........................................ $ 100,224,847 $ 88,594,306 ============= ============= End of period undistributed net investment income .... $ 1,377,247 $ 1,005,589 - ---------- (1) Commencement of investment operations for Strategic Bond was February 28, 2002. This information includes the initial investment by BlackRock Funding, Inc. See Notes to Financial Statements. 41 CONSOLIDATED FINANCIAL HIGHLIGHTS - ------------------------------------------------ BlackRock Broad Investment Grade 2009 Term Trust - ------------------------------------------------ SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, 2003 ---------------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ---------------- ---------- ---------- ---------- ---------- ---------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(1) . $ 17.33 $ 16.05 $ 13.64 $ 13.64 $ 15.01 $ 14.48 -------- -------- -------- -------- -------- -------- Investment operations: Net investment income ................. 0.55 2.01 1.17 0.91 0.93 1.20 Net realized and unrealized gain (loss) (0.45) 0.04 2.01 (0.09) (1.45) 0.23 -------- -------- -------- -------- -------- -------- Net increase (decrease) from investment operations ................. 0.10 2.05 3.18 0.82 (0.52) 1.43 -------- -------- -------- -------- -------- -------- Dividends from net investment income .... (0.45) (0.77) (0.77) (0.82) (0.85) (0.90) -------- -------- -------- -------- -------- -------- Net asset value, end of period(1) ....... $ 16.98 $ 17.33 $ 16.05 $ 13.64 $ 13.64 $ 15.01 ======== ======== ======== ======== ======== ======== Market value, end of period(1) .......... $ 16.40 $ 16.18 $ 14.39 $ 11.94 $ 11.44 $ 13.25 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN(2) .............. 4.18% 18.34% 27.66% 12.11% (7.68)% 17.15% ======== ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Total expenses .......................... 2.58%(3) 2.50% 3.52% 4.36% 3.49% 3.51% Net expenses ............................ 2.58%(3) 2.50% 3.52% 4.36% 3.49% 3.51% Net expenses excluding interest expense and excise tax ........................ 1.19%(3) 1.16% 1.16% 1.31% 1.03% 1.01% Net investment income ................... 6.45%(3) 12.22% 7.93% 6.83% 6.58% 8.13% SUPPLEMENTALDATA: Average net assets (000) ................ $ 50,611 $ 48,731 $ 43,701 $ 39,425 $ 41,909 $ 43,482 Portfolio turnover ...................... 12% 35% 19% 36% 25% 25% Net assets, end of period (000) ......... $ 50,198 $ 51,244 $ 47,466 $ 40,321 $ 40,345 $ 44,395 Reverse repurchase agreements outstanding, end of period (000) ...... $ 18,166 $ 23,669 $ 13,373 $ 18,850 $ 16,304 $ 19,770 Asset coverage(4) ....................... $ 3,763 $ 3,165 $ 4,550 $ 3,139 $ 3,475 $ 3,246 - ---------- (1) Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (2) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (3) Annualized. (4) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 42 FINANCIAL HIGHLIGHTS - ------------------------- BlackRock Core Bond Trust - ------------------------- SIX MONTHS FOR THE PERIOD ENDED NOVEMBER 30, 2001(1) APRIL 30, 2003 THROUGH (UNAUDITED) OCTOBER 31, 2002 -------------- ------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(2) ...................... $ 14.33 $ 14.33 --------- --------- Investment operations: Net investment income ..................................... 0.47 0.99 Net realized and unrealized gain .......................... 1.11 0.04 --------- --------- Net increase from investment operations ...................... 1.58 1.03 --------- --------- Dividends and distributions from net investment income ....... (0.60) (1.00) --------- --------- Capital charges with respect to issuance of shares ........... (0.60) (0.03) --------- --------- Net asset value, end of period(2) ............................ $ 15.31 $ 14.33 ========= ========= Market value, end of period(2) ............................... $ 14.88 $ 13.82 ========= ========= TOTAL INVESTMENT RETURN(3) ................................... 12.23% (1.02)% ========= ========= RATIOS TO AVERAGE NET ASSETS:(4) Total expenses ............................................... 0.99% 1.04% Net expenses ................................................. 0.99% 1.04% Net expenses excluding interest expense ...................... 0.90% 0.93% Net investment income ........................................ 6.40% 7.67% SUPPLEMENTAL DATA: Average net assets (000) ..................................... $ 397,596 $ 380,277 Portfolio turnover ........................................... 208% 419% Net assets, end of period (000) .............................. $ 413,698 $ 387,238 Reverse repurchase agreements outstanding, end of period (000) $ 52,729 $ 165,215 Asset coverage(5) ............................................ $ 8,846 $ 3,342 - ---------- (1) Commencement of investment operations. This information includes the initial investments by BlackRock Funding, Inc. Net asset value immediately after the closing of the public offering was $14.30. (2) Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (3) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (4) Annualized. (5) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 43 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FOR THE PERIOD DECEMBER 23, 1998(1) SIX MONTHS ENDED YEAR ENDED OCTOBER 31, THROUGH APRIL 30, 2003 ---------------------------------------- OCTOBER 31, (UNAUDITED) 2002 2001 2000 1999 ---------- ---------- ---------- ---------- ------------------ PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(2) .......... $ 6.13 $ 7.20 $ 10.60 $ 13.58 $ 15.00 -------- -------- -------- -------- -------- Investment operations: Net investment income ......................... 0.57 1.20 1.32 1.66 1.29 Net realized and unrealized gain (loss) ....... 0.43 (0.98) (3.13) (3.02) (1.52) -------- -------- -------- -------- -------- Net increase (decrease) from investment operations 1.00 0.22 (1.81) (1.36) (0.23) -------- -------- -------- -------- -------- Dividends and distributions: From net investment income .................... (0.58) (1.20) (1.48) (1.62) (1.17) Tax return of capital ......................... -- (0.09) (0.11) -- -- -------- -------- -------- -------- -------- Total dividends and distributions ................ (0.58) (1.29) (1.59) (1.62) (1.17) -------- -------- -------- -------- -------- Capital charge with respect to issuance of shares -- -- -- -- (0.02) -------- -------- -------- -------- -------- Net asset value, end of period(2) ................ $ 6.55 $ 6.13 $ 7.20 $ 10.60 $ 13.58 ======== ======== ======== ======== ======== Market value, end of period(2) ................... $ 10.29 $ 8.68 $ 9.18 $ 11.88 $ 12.50 ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN(3) ....................... 26.28% 7.97% (11.31)% 8.23% (9.68)% ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Total expenses ................................... 3.22%(4) 3.47% 4.90% 5.29% 4.16%(4) Net expenses ..................................... 3.22%(4) 3.47% 4.90% 5.29% 4.08%(4) Net expenses excluding interest expense .......... 2.27%(4) 2.20% 2.03% 1.99% 1.98%(4) Net investment income ............................ 18.32%(4) 16.29% 14.23% 13.12% 10.34%(4) SUPPLEMENTAL DATA: Average net assets (000) ......................... $ 39,917 $ 46,751 $ 58,553 $ 79,602 $ 92,116 Portfolio turnover ............................... 22% 147% 71% 92% 121% Net assets, end of period (000) .................. $ 41,724 $ 38,953 $ 45,520 $ 66,867 $ 85,652 Loan outstanding, end of period (000) ............ $ 19,250 $ 19,250 $ 23,000 $ 33,000 $ 41,000 Asset coverage(5) ................................ $ 3,167 $ 3,024 $ 2,983 $ 3,032 $ 3,094 - ---------- (1) Commencement of investment operations. This information includes the initial investment by BlackRock Financial Management, Inc. (2) Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (3) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (4) Annualized. (5) Per $1,000 of loan outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 44 FINANCIAL HIGHLIGHTS - ---------------------------------- BlackRock Income Opportunity Trust - ---------------------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, 2003 --------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ---------------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(1) .. $ 11.83 $ 11.47 $ 11.03 $ 11.45 $ 11.88 $ 12.47 -------- -------- -------- -------- -------- -------- Investment operations: Net investment income ................. 0.40 1.15 0.87 0.70 0.84 0.78 Net realized and unrealized gain (loss) 0.67 (0.05) 0.34 (0.31) (0.46) (0.53) -------- -------- -------- -------- -------- -------- Net increase from investment operations .. 1.07 1.10 1.21 0.39 0.38 0.25 -------- -------- -------- -------- -------- -------- Dividends and distributions: From net investment income ............ (0.39) (0.75) (0.23) (0.39) (0.84) (0.84) From net realized gains ............... (0.24) -- -- (0.04) -- -- Tax return of capital ................. -- -- (0.54) (0.41) -- -- -------- -------- -------- -------- -------- -------- Total dividends and distributions ........ (0.63) (0.75) (0.77) (0.84) (0.84) (0.84) -------- -------- -------- -------- -------- -------- Increase resulting from Trust shares repurchased ........................... -- 0.01 0.002 0.03 0.03 -- -------- -------- -------- -------- -------- -------- Net asset value, end of period(1) ........ $ 12.27 $ 11.83 $ 11.47 $ 11.03 $ 11.45 $ 11.88 ======== ======== ======== ======== ======== ======== Market value, end of period(1) ........... $ 11.17 $ 10.50 $ 10.41 $ 9.75 $ 9.69 $ 9.88 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN(3) ............... 12.68% 8.44% 15.09% 9.82% 6.70% 1.34% ======== ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Total expenses ........................... 1.32%(4) 1.40% 3.62% 3.76% 3.18% 3.01% Net expenses ............................. 1.32%(4) 1.40% 3.62% 3.76% 3.18% 3.01% Net expenses excluding interest expense .. 0.90%(4) 0.93% 1.01% 0.88% 0.85% 0.88% Net investment income .................... 6.79%(4) 10.04% 7.76% 6.14% 7.14% 6.39% SUPPLEMENTAL DATA: Average net assets (000) ................. $409,677 $394,495 $388,478 $396,157 $426,283 $444,051 Portfolio turnover ....................... 36% 153% 83% 82% 186% 153% Net assets, end of period (000) .......... $422,528 $407,480 $397,756 $383,651 $406,178 $430,107 Reverse repurchase agreements outstanding, end of period (000) ................... $187,816 $ 85,704 $136,385 $178,033 $149,346 $173,520 Asset coverage(5) ........................ $ 3,250 $ 5,755 $ 3,916 $ 3,155 $ 3,720 $ 3,479 - ---------- (1) Net asset value and market value published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (2) Less than $0.005 per share. (3) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (4) Annualized. (5) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 45 FINANCIAL HIGHLIGHTS - ---------------------- BlackRock Income Trust - ---------------------- SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, 2003 ------------------------------------------------------------ (UNAUDITED) 2002 2001 2000 1999 1998 ---------------- -------- -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(1) .. $ 8.13 $ 8.06 $ 7.23 $ 7.31 $ 7.94 $ 8.12 -------- -------- -------- -------- -------- -------- Investment operations: Net investment income ................. 0.28 0.99 0.56 0.50 0.73 0.62 Net realized and unrealized gain (loss) (0.15) (0.35) 0.83 (0.02) (0.80) (0.24) -------- -------- -------- -------- -------- -------- Net increase (decrease) from investment operations ................. 0.13 0.64 1.39 0.48 (0.07) 0.38 -------- -------- -------- -------- -------- -------- Dividends from net investment income ..... (0.71) (0.57) (0.56) (0.56) (0.56) (0.56) -------- -------- -------- -------- -------- -------- Net asset value, end of period(1) ........ $ 7.55 $ 8.13 $ 8.06 $ 7.23 $ 7.31 $ 7.94 ======== ======== ======== ======== ======== ======== Market value, end of period(1) ........... $ 8.07 $ 8.07 $ 7.26 $ 6.38 $ 6.13 $ 6.94 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN(2) ............... 9.47% 15.35% 23.23% 14.01% (4.04)% 9.29% ======== ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Total expense ............................ 1.38%(3) 2.05% 2.54% 2.78% 3.03% 3.33% Net expenses ............................. 1.38%(3) 2.05% 2.54% 2.78% 3.03% 3.33% Net expenses excluding interest expense .. 1.02%(3) 1.03% 1.03% 1.05% 1.01% 1.01% Net investment income .................... 7.49%(3) 12.28% 7.43% 7.11% 9.54% 7.74% SUPPLEMENTAL DATA: Average net assets (000) ................. $484,124 $506,533 $470,185 $448,027 $482,685 $506,858 Portfolio turnover ....................... 32% 125% 32% 114% 144% 214% Net assets, end of period (000) .......... $477,458 $511,385 $506,764 $454,510 $459,399 $499,075 Reverse repurchase agreements outstanding, end of period (000) ................... $110,820 $205,792 $118,634 $ 64,460 $186,451 $198,336 Asset coverage(4) ........................ $ 5,308 $ 3,485 $ 5,272 $ 8,095 $ 3,478 $ 3,520 - ---------- (1) Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (2) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (3) Annualized. (4) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 46 FINANCIAL HIGHLIGHTS - ------------------------------ BlackRock Strategic Bond Trust - ------------------------------ FOR THE PERIOD SIX MONTHS ENDED FEBRUARY 28, 2002(1) APRIL 30, 2003 THROUGH (UNAUDITED) OCTOBER 31, 2002 ---------------- ------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(2) ...................... $ 12.63 $ 14.33 -------- -------- Investment operations: Net investment income ..................................... 0.77 0.98 Net realized and unrealized loss .......................... 1.59 (1.77) -------- -------- Net increase from investment operations ...................... 2.36 (0.79) -------- -------- Dividends from net investment income ......................... -- (0.84) -------- -------- Capital charges with respect to issuance of shares ........... (0.72) (0.07) -------- -------- Net asset value, end of period(2) ............................ $ 14.27 $ 12.63 ======== ======== Market value, end of period(2) ............................... $ 14.65 $ 12.35 ======== ======== TOTAL INVESTMENT RETURN(3) ................................... 25.05% (12.34)% ======== ======== RATIOS TO AVERAGE NET ASSETS:(4) Total expenses ............................................... 2.11% 2.57% Net expenses ................................................. 1.80% 2.26% Net expenses excluding interest expense ...................... 1.02% 1.25% Net investment income ........................................ 11.60% 10.68% SUPPLEMENTAL DATA: Average net assets (000) ..................................... $ 94,271 $ 95,675 Portfolio turnover ........................................... 19% 22% Net assets, end of period (000) .............................. $100,225 $ 88,594 Reverse repurchase agreements outstanding, end of period (000) $ 47,747 $ 44,223 Asset coverage(5) ............................................ $ 3,099 $ 3,003 - ---------- (1) Commencement of investment operations. This information includes the initial investments by BlackRock Funding, Inc. Net asset value immediately after the closing of the public offering was $14.25. (2) Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (3) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (4) Annualized. (5) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 47 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1. ORGANIZATION & ACCOUNTING POLICIES The BlackRock Broad Investment Grade 2009 Term Trust Inc. ("Broad Investment Grade"), BlackRock Core Bond Trust ("Core Bond"), The BlackRock High Yield Trust ("High Yield"), BlackRock Income Opportunity Trust ("Income Opportunity"), The BlackRock Income Trust Inc. ("Income Trust") and BlackRock Strategic Bond Trust ("Strategic Bond") are registered as diversified, closed-end management investment companies under the Investment Company Act of 1940, as amended. Broad Investment Grade, Income Opportunity and Income Trust are Maryland corporations. Core Bond, High Yield and Strategic Bond are organized as Delaware statutory trusts. On December 3, 1999, Broad Investment Grade transferred a substantial portion of its total assets to a 100% owned regulated investment company subsidiary called BCT Subsidiary, Inc. The financial statements and these notes to the financial statements for Broad Investment Grade are consolidated and include the operations of both Broad Investment Grade and its wholly owned subsidiary after elimination of all intercompany transactions and balances. The following is a summary of significant accounting policies followed by the Trusts. SECURITIES VALUATION: The Trusts value most of their securities on the basis of current market quotations provided by dealers or pricing services selected under the supervision of each Trust's Board of Directors/Trustees (the "Board"). In determining the value of a particular security, pricing services may use certain information with respect to transactions in such securities, quotations from dealers, market transactions in comparable securities, various relationships observed in the market between securities, and calculated yield measures based on valuation technology commonly employed in the market for such securities. Exchange traded options are valued at their last sales price as of the close of options trading on applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. A futures contract is valued at the last sale price as of the close of the commodities exchange on which it trades. Short-term securities may be valued at amortized cost. Securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by, and under the general supervision and responsibility of, each Trust's Board. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Each Trust also records interest income on an accrual basis and amortizes premium and/or accretes discount on securities purchased using the interest method. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a Trust's custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by a Trust may be delayed or limited. OPTION SELLING/PURCHASING: When a Trust sells or purchases an option, an amount equal to the premium received or paid by the Trust is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether a Trust has realized a gain or a loss on investment transactions. A Trust, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Options, when used by the Trusts, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of "one" means that a portfolio's or a security's price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates. Option selling and purchasing may be used by the Trusts as an attempt to manage the duration of positions, or collections of positions, so that changes in interest rates do not adversely affect the targeted duration of the portfolio unexpectedly. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put or call options can be purchased or sold to effectively help manage the targeted duration of the portfolio. The main risk that is associated with purchasing options is that the option expires without being exercised. In this case, the option expires worthless and the premium paid for the option is considered the loss. The risk associated with writing call options is that a Trust may forgo the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The risk in writing put options is that a Trust may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, as with futures contracts, the Trust risks not being able to enter into a closing transaction for the written option as the result of an illiquid market. INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate 48 and receive a floating rate. Interest rate swaps are efficient as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by "marking-to-market" to reflect the market value of the swap. When the swap is terminated, a Trust will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract, if any. The Trusts are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Trusts closely monitor swaps and do not anticipate non-performance by any counterparty. SWAP OPTIONS: Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by a Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether a Trust has realized a gain or loss on investment transactions. The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option. Swap options may be used by the Trusts to manage the duration of the Trusts' portfolios in a manner similar to more generic options described above. INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate over a specified fixed or floating rate. Interest rate caps are intended to both manage the duration of the Trusts' portfolios and their exposure to changes in short-term interest rates. Owning interest rate caps reduces a portfolio's duration, making them 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. Transactions 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 portfolios 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 advantage 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. Transactions 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 secu- 49 rity 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 New York City noon 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 the Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received. SECURITY LENDING: The Trusts may lend their portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trusts may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trusts receive compensation for lending their securities in the form of interest on the loan. The Trusts also continue to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the accounts of the Trusts. The Trusts did not enter into any security lending transactions during the six months ended April 30, 2003. SEGREGATION: In cases in which the Investment Company Act of 1940, as amended, and the interpretive positions of the Securities and Exchange Commission ("SEC") require that each Trust segregate assets in connection with certain investments (e.g., when issued securities, reverse repurchase agreements or futures contracts), each Trust will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid debt securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. FEDERAL INCOME TAXES: It is each Trust's (excluding Strategic Bond) intention to continue, and Strategic Bond intends to elect, to be treated as a regulated investment company under the Internal Revenue Code and to distribute sufficient amounts of their taxable income to shareholders. Therefore, no Federal income tax provisions are required. As part of a tax planning strategy, Broad Investment Grade intends to retain a portion of its taxable income and pay an 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 PLAN: Under the revised deferred compensation plan approved by each Trust's Board, non-interested Trustees may elect to defer receipt of all or a portion of their annual compensation. As of January 1, 2003, the Board elected to require its members to defer a portion of their annual complex compensation pursuant to the plan. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of other BlackRock Trusts selected by the Directors/Trustees. 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 Directors/Trustees in order to match its deferred compensation obligations. 50 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 both Core Bond and Strategic Bond. BlackRock, Inc. is an indirect, majority owned subsidiary of The PNC Financial Services Group, Inc. The investment management agreement on Core Bond and Strategic Bond covers both investment advisory and administration services. Broad Investment Grade has an Administration Agreement with Princeton Administrators, L.P. ("Princeton"), an indirect wholly owned affiliate of Merrill Lynch & Co., Inc. High Yield, Income Opportunity and Income Trust have an Administration Agreement with Prudential Investments LLC ("Prudential"), an indirect wholly owned subsidiary of Prudential Financial, Inc. 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, 1.05% for High Yield and 0.75% for Strategic Bond, of each Trust's average weekly managed assets. 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. The administration fee paid to each Trust's respective administrator, on other than Core Bond and Strategic Bond, is computed weekly and payable monthly based on an annual rate, 0.15% for Broad Investment Grade, 0.10% for Income Opportunity and 0.20% of the first $500 million and 0.15% on any excess for Income Trust, of each Trust's average net assets and 0.10% for High Yield based on its average weekly managed assets. Pursuant to the agreements, the Advisor provides continuous supervision of the investment portfolio and pays the compensation of officers of each Trust who are affiliated persons of the Advisor. The Advisor pays occupancy and certain clerical and accounting costs for Core Bond and Strategic Bond. Each Trust's respective administrator pays occupancy and certain clerical and accounting costs of their respective Trust(s). Each Trust bears all other costs and expenses, which include reimbursements to the Advisor for certain operational support services provided to each Trust. Pursuant to the terms of their custody agreements, Core Bond, High Yield, Income Opportunity, Income Trust and Strategic Bond received earnings credits from its custodian for positive cash balances maintained, which are used to offset custody fees during the six months ended April 30, 2003, the amounts earned were $4,390, $1,382, $2,863, $6,094 and $6,112, respectively. NOTE 3. PORTFOLIO SECURITIES Purchases and sales of investment securities, other than short-term investments, dollar rolls and U.S. government securities, for the six months ended April 30, 2003, aggregated as follows: TRUST PURCHASES SALES - ----- -------------- --------------- Broad Investment Grade $ 2,793,709 $ 10,778,554 Core Bond 1,093,538,346 1,050,553,478 High Yield 12,358,553 12,848,350 Income Opportunity 244,183,901 184,572,814 Income Trust 65,856,647 83,410,882 Strategic Bond 25,405,635 23,286,165 Purchases and sales of U.S. government securities for the six months ended April 30, 2003, aggregated as follows: TRUST PURCHASES SALES - ----- -------------- --------------- Broad Investment Grade $ 5,144,969 $ -- Core Bond 243,923,419 266,608,529 High Yield -- -- Income Opportunity 5,983,552 19,938,516 Income Trust 130,038,105 122,103,351 Strategic Bond 1,940,222 3,130,971 The 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 PNCBank or its affiliates, including Midland Loan Services, 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, 2003, the total cost of securities for Federal income tax purposes and the aggregate gross/net unrealized appreciation/depreciation for securities held by each Trust were as follows: TRUST COST APPRECIATION DEPRECIATION NET - ----- ------------ ------------ ------------ ------------ Broad Investment Grade $ 66,508,995 $ 1,304,156 $ 326,972 $ 977,184 Core Bond 586,812,069 22,486,965 4,829,543 17,657,422 High Yield 78,346,743 3,566,520 23,111,645 (19,545,125) Income Opportunity 580,342,044 25,157,150 5,504,589 19,652,561 Income Trust 591,719,044 31,266,170 28,419,859 2,846,311 Strategic Bond 143,798,660 5,946,949 5,422,493 524,456 51 For Federal income tax purposes, the following Trusts had capital loss carryforwards at October 31, 2002: CAPITAL LOSS CAPITAL LOSS TRUST CARRYFORWARDS AMOUNT EXPIRES TRUST CARRYFORWARDS AMOUNT EXPIRES - ----- -------------------- ------- -------------- -------------------- ------- Broad Investment Grade $ 472,280 2003 Income Trust $10,359,634 2003 85,817 2008 27,373,194 2004 ----------- $ 558,097 33,107,952 2007 =========== High Yield $ 3,443,603 2007 1,352,206 2008 3,270,311 2008 13,940,898 2009 ----------- 15,159,280 2009 $86,133,884 =========== 8,468,860 2010 Strategic Bond $ 316,708 2010 ----------- =========== $30,342,054 =========== Accordingly, no capital gain distributions are expected to be paid to shareholders of a Trust until that Trust has net realized capital gains in excess of its carryforward amounts. Details of open financial futures contracts at April 30, 2003, were as follows: NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED TRUST CONTRACTS TYPE DATE TRADE DATE APRIL 30, 2003 DEPRECIATION - ----- --------- ------------------ ---------- ------------- -------------- ------------ LONG POSITION: Broad Investment Grade 66 10 Yr. U.S. T-Note Jun. '03 $ 7,644,904 $ 7,598,250 $ (46,654) ----------- Core Bond 27 10 Yr. U.S. T-Note Jun. '03 3,106,266 3,092,344 $ (13,922) 1,109 30 Yr. U.S. T-Bond Jun. '03 126,610,509 125,420,969 (1,189,540) ----------- $(1,203,462) =========== Income Opportunity 1,233 10 Yr. U.S. T-Note Jun. '03 142,711,378 141,949,125 $ (762,253) 1,261 30 Yr. U.S. T-Bond Jun. '03 144,436,146 143,793,407 (642,739) ----------- $(1,404,992) =========== Income Trust 296 10 Yr. U.S. T-Note Jun. '03 34,286,235 34,077,000 $ (209,235) ----------- SHORT POSITION: Core Bond 653 5 Yr. U.S. T-Note Jun. '03 73,837,578 73,972,656 $ (135,078) ---------- Income Opportunity 1,001 5 Yr. U.S. T-Note Jun. '03 112,794,327 113,863,750 $(1,069,423) ----------- Income Trust 204 30 Yr. U.S. T-Bond Jun. '03 23,006,571 23,262,375 $ (255,804) 30 Eurodollar Jun. '04 7,346,137 7,367,625 (21,488) 30 Eurodollar Sep. '04 7,316,513 7,341,375 (24,862) 30 Eurodollar Dec. '04 7,289,138 7,312,125 (22,987) 30 Eurodollar Mar. '05 7,266,638 7,287,375 (20,737) 25 Eurodollar Jun. '05 6,036,781 6,053,125 (16,344) 25 Eurodollar Sep. '05 6,021,156 6,035,625 (14,469) 25 Eurodollar Dec. '05 6,006,156 6,019,063 (12,907) 25 Eurodollar Mar. '06 5,992,407 6,005,000 (12,593) ----------- $ (402,191) =========== Details of open forward currency contracts at April 30, 2003, were as follows: VALUE AT VALUE AT UNREALIZED SETTLEMENT CONTRACT SETTLEMENT APRIL 30, APPRECIATION TRUST AND FOREIGN CURRENCY DATE TO RECEIVE DATE 2003 (DEPRECIATION) - -------------------------- ---------- ------------- ----------- ----------- -------------- Core Bond BOUGHT: Euro 5/13/03 5,935,723e $ 6,291,865 $ 6,633,688 $ 341,823 Swedish Krona 5/14/03 7,088,380kr 855,051 866,445 11,394 -------- $ 353,217 ======== SOLD: Canadian Dollar 5/12/03 20,693,686$ $14,033,260 $14,420,700 $(387,440) Swedish Krona 5/14/03 50,391,090kr 5,961,453 6,159,532 (198,079) -------- $(585,519) ======== 52 Income Trust held one interest rate cap. Under the agreement, Income Trust receives the excess, if any, of a floating rate over a fixed rate. Income Trust paid a transaction fee for each cap. Transaction fees are amortized through the termination of the agreement. Details of the cap at April 30, 2003, were as follows: NOTIONAL VALUE AT AMOUNT FIXED FLOATING TERMINATION AMORTIZED APRIL 30, UNREALIZED (000) RATE RATE DATE COST 2003 DEPRECIATION --------- ------ ------------- ----------- --------- --------- ------------ $100,000 7.75% 3-month LIBOR 5/4/03 $2,423 -- $(2,423) ====== ====== ======= Income Trust held one interest rate floor. Under the agreement, Income Trust pays the excess, if any, of a fixed rate over a floating rate. Income Trust received a transaction fee for the floor. Transaction fees are amortized through the termination of the agreement. Details of the interest rate floor held at April 30, 2003, were as follows: NOTIONAL VALUE AT AMOUNT FIXED FLOATING TERMINATION AMORTIZED APRIL 30, UNREALIZED (000) RATE RATE DATE COST 2003 DEPRECIATION --------- ------ ------------- ----------- --------- ---------- ------------ $35,000 6.00% 1-month LIBOR 1/25/05 $596,250 $1,626,107 $(1,029,857) ======== ========== =========== Details of open interest rate swaps at April 30, 2003, were as follows: NOTIONAL UNREALIZED AMOUNT FIXED FLOATING TERMINATION APPRECIATION TRUST (000) RATE RATE DATE (DEPRECIATION) - ----- -------- --------- ------------- ----------- -------------- Income Opportunity $ 10,000 4.47% (a) 3-month LIBOR 11/04/12 $ (270,265) 7,000 5.23% (a) 3-month LIBOR 11/04/21 (295,267) 26,000 5.46% (a) 3-month LIBOR 10/28/22 (1,840,418) 9,000 5.71% (b) 3-month LIBOR 5/22/06 904,864 47,000 5.73% (b) 3-month LIBOR 5/04/06 2,647,989 ----------- $ 1,146,903 =========== Income Trust $ 24,000 3.55% (b) 3-month LIBOR 10/24/06 $841,526 162,000 4.22% (b) 3-month LIBOR 5/04/06 4,441,003 32,000 5.46% (a) 3-month LIBOR 10/17/12 (3,379,213) 24,000 6.04% (a) 3-month LIBOR 11/15/21 (3,468,213) 46,300 6.07% (a) 3-month LIBOR 8/28/22 (6,899,635) ----------- $(8,464,532) =========== - ---------- (a) Trust pays fixed interest rate and receives floating rate. (b) Trust pays floating interest rate and receives fixed rate. 53 Transactions in options written during the six months ended April 30, 2003, were as follows: CONTRACTS/ NOTIONAL AMOUNT PREMIUM TRUST (000) RECEIVED - --------- ---------- ---------- CORE BOND Options outstanding at October 31, 2002 138 $ 199,639 Options expired (138) (199,639) -------- --------- Options outstanding at April 30, 2003 -- $-- ======== ========= INCOME OPPORTUNITY Options outstanding at October 31, 2002 $ 6,000 $ 124,460 Options terminated in closing purchase transactions (3,000) (67,800) -------- --------- Options outstanding at April 30, 2003 $ 3,000 $ 56,660 ======== ========= INCOME TRUST Options outstanding at October 31, 2002 $ 22,000 $ 456,353 Options terminated in closing purchase transactions (11,000) (248,600) -------- --------- Options outstanding at April 30, 2003 $ 11,000 $ 207,753 ======== ========= 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. The average daily balance and weighted average interest rate of reverse repurchase agreements during the six months ended April 30, 2003, were as follows: AVERAGE DAILY WEIGHTED AVERAGE TRUST BALANCE INTEREST RATE - ----- -------------- ----------------- Broad Investment Grade $ 19,884,350 1.33% Core Bond 36,555,171 1.00 Income Opportunity 129,194,462 1.33 Income Trust 131,038,100 1.32 Strategic Bond 44,339,122 1.66 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 debt agreement, the Trust has pledged its portfolio assets as collateral for the borrowing. For the six months ended April 30, 2003, High Yield borrowed a daily weighted average balance of $19,250,000 at a weighted average interest rate at 1.96%. 54 NOTE 5. CAPITAL There are 200 million of $0.01 par value common shares authorized for Broad Investment Grade, Income Opportunity and Income Trust. There are an unlimited number of $0.001 par value common shares authorized for Core Bond, High Yield and Strategic Bond. At April 30, 2003, the common shares outstanding and the shares owned by affiliates of the Advisor of each Trust were: COMMON SHARES COMMON SHARES TRUST OUTSTANDING OWNED - ------ ------------- ------------- Broad Investment Grade 2,957,093 7,093 Core Bond 27,018,774 9,425 High Yield 6,367,294 -- Income Opportunity 34,449,693 -- Income Trust 63,247,058 -- Strategic Bond 7,025,735 9,425 During the six months ended April 30, 2003, High Yield, Income Trust and Strategic Bond issued 15,326, 372,241 and 9,581 shares, respectively, under the terms of each Trust's Dividend Reinvestment Plan. NOTE 6. DIVIDENDS Subsequent to April 30, 2003, the Board of each of the Trusts declared dividends from undistributed earnings per common share payable May 30, 2003, to shareholders of record on May 15, 2003. The per share common dividends declared were as follows: COMMON DIVIDEND TRUST PER SHARE - ----- --------------- Broad Investment Grade $0.075000 Core Bond 0.100000 High Yield 0.096875 Income Opportunity 0.070000 Income Trust 0.051042 Strategic Bond 0.120000 NOTE 7. COMMITMENT On October 9, 1997, Income Opportunity and Income Trust each entered into a commitment to purchase an aggregate of up to $22,000,000 and $20,000,000, respectively, of Overseas Private Investment Corp. securities prior to the commitment expiration on September 30, 2003. As of April 30, 2003, Income Opportunity and Income Trust have purchased such securities with market values of $16,260,093 and $14,781,903, respectively. As of April 30, 2003, the remaining outstanding commitments of Income Opportunity and Income Trust were $8,975,780 and $8,159,800, respectively. NOTE 8. SUBSEQUENT EVENT On May 22, 2003, the Boards of High Yield and Strategic Bond voted to change each Trust's monthly distribution per share, effective with the distribution declared on June 2, 2003, to $0.0905 and $0.13, respectively. 55 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 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 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. All correspondence concerning the Plan should be directed to the Plan Agent at 150 Royall Street, Canton, MA 02021 or (800) 699-1BFM. ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- The Joint Annual Meeting of Shareholders was held on May 22, 2003, to elect a certain number of Directors/Trustees for each of the following Trusts to three year terms, unless otherwise indicated, expiring in 2006: BROAD INVESTMENT GRADE - ---------------------- Elected the Class III Directors and in accordance with Maryland law elected Walter F. Mondale, for the remainder of his term, as follows: DIRECTOR VOTES FOR VOTES WITHHELD - -------- --------- -------------- Andrew F. Brimmer 2,755,165 33,798 Kent Dixon 2,756,365 32,598 Robert S. Kapito 2,756,665 32,298 Walter F. Mondale(1) 2,741,445 47,518 CORE BOND - --------- Elected the Class II Trustees as follows: TRUSTEE VOTES FOR VOTES WITHHELD - ------- ---------- -------------- Frank J. Fabozzi 26,044,831 154,361 Walter F. Mondale 25,961,379 237,813 Ralph L. Schlosstein 26,047,238 151,954 - ---------- (1) Walter F. Mondale's term will expire in 2005. 56 HIGH YIELD - ---------- Elected the Class I Trustees as follows: TRUSTEE VOTES FOR VOTES WITHHELD - ------- --------- -------------- Richard E. Cavanagh 6,052,239 57,124 James Clayburn La Force, Jr. 6,047,853 61,510 INCOME OPPORTUNITY - ------------------ Elected the Class II Directors and in accordance with Maryland law elected Robert S. Kapito, for the remainder of his term, as follows: DIRECTOR VOTES FOR VOTES WITHHELD - -------- ---------- -------------- Frank J. Fabozzi 31,940,094 248,935 Robert S. Kapito(2) 31,945,672 243,357 Walter F. Mondale 31,855,311 333,718 Ralph L. Schlosstein 31,950,515 238,514 INCOME TRUST - ------------ Elected the Class II Directors and in accordance with Maryland law elected Robert S. Kapito, for the remainder of his term, as follows: DIRECTOR VOTES FOR VOTES WITHHELD - -------- ---------- -------------- Frank J. Fabozzi 58,207,702 677,691 Robert S. Kapito2 58,219,376 666,017 Walter F. Mondale 57,970,768 914,625 Ralph L. Schlosstein 58,222,291 663,102 STRATEGIC BOND - -------------- Elected the Class II Trustees as follows: TRUSTEE VOTES FOR VOTES WITHHELD - ------- --------- -------------- Frank J. Fabozzi 6,752,233 52,587 Walter F. Mondale 6,726,221 78,599 Ralph L. Schlosstein 6,750,877 53,943 - ---------- (2) Robert S. Kapito's term will expire in 2004. 57 [This page intentionally left blank.] [This page intentionally left blank.] BlackRock Closed-End Funds Directors/Trustees Ralph L. Schlosstein, CHAIRMAN Andrew F. Brimmer Richard E. Cavanagh Kent Dixon Frank J. Fabozzi Robert S. Kapito James Clayburn La Force, Jr. Walter F. Mondale Officers Robert S. Kapito, PRESIDENT Henry Gabbay, TREASURER Anne Ackerley, VICE PRESIDENT Richard M. Shea, VICE PRESIDENT/TAX James Kong, ASSISTANT TREASURER Vincent B. Tritto, SECRETARY Brian P. Kindelan, ASSISTANT SECRETARY Investment Advisor BlackRock Advisors, Inc. 100 Bellevue Parkway Wilmington, DE 19809 (800) 227-7BFM Sub-Advisor(1) BlackRock Financial Management, Inc. 40 East 52nd Street New York, NY 10022 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 (800) 699-1BFM Independent Accountants Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 Legal Counsel Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 Legal Counsel - Independent Directors/Trustees Debevoise & Plimpton 919 Third Avenue New York, NY 10022 This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Trust shares. Statements and other information contained in this report are as dated and are subject to change. - -------------------------------------------------------------------------------- BlackRockAdvisors, Inc.(2) Princeton Administrators, L.P.(2) Prudential Investments LLC(2) 100 Bellevue Parkway P.O. Box 9095 Gateway Center Three Wilmington, DE 19809 Princeton, NJ 08543-9095 100 Mulberry Street (800) 227-7BFM (800) 543-6217 Newark, NJ 07102-4077 BlackRock Core Bond Trust BlackRock Broad Investment Grade (800) 227-7BFM BlackRock Strategic Bond Trust 2009 Term Trust BlackRock High Yield Trust BlackRock Income Opportunity Trust BlackRock Income Trust - ---------- (1) For BlackRock Core Bond Trust and BlackRock Strategic Bond Trust only. (2) Provides administrative services for the Trust(s) listed directly below its name. The Trusts will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called "householding" and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Trusts at (800) 227-7BFM. 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 LOGO] 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. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual reports. ITEM 8. [RESERVED.] ITEM 9. CONTROLS AND PROCEDURES. The Trust's principal executive officer and principal financial officer have concluded that the Trust's disclosure controls and procedures are sufficient to ensure that information required to be disclosed by the Trust in this Form N-CSR was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, based upon such officers' evaluation of these controls and procedures as of a date within 90 days of the filing date of the report. There were no significant changes or corrective actions with regard to significant deficiencies or material weaknesses in the Trust's internal controls or in other factors that could significantly affect the Trust's internal controls subsequent to the date of their evaluation. ITEM 10. EXHIBITS. (a) Code of Ethics - Not applicable for semi-annual reports. (b)(1) Certification of Principal Executive Officer. (b)(2) Certification of Principal Financial Officer. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) BlackRock Strategic Bond Trust By: /s/ Henry Gabbay --------------------------- Name: Henry Gabbay Title: Treasurer Date: 6/30/03 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: 6/30/03 By: /s/ Henry Gabbay --------------------------- Name: Henry Gabbay Title: Principal Financial Officer Date: 6/30/03