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: 811-05757
BlackRock Preferred Opportunity Trust
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(Exact name of registrant as specified in charter)
100 Bellevue Parkway, Wilmington, DE 19809
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(Address of principal executive offices) (Zip code)
Robert S. Kapito, President
BlackRock Preferred Opportunity Trust
40 East 52nd Street, New York, NY 10022
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(Name and address of agent for service)
Registrant's telephone number, including area code: (302) 797-2449
Date of fiscal year end: 12/31/03
Date of reporting period: 6/30/03
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:
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BlackRock
Closed-End Funds
Semi-Annual Report
JUNE 30, 2003 (UNAUDITED)
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BlackRock Advantage Term Trust (BAT)
BlackRock Investment Quality Term Trust (BQT)
BlackRock Preferred Opportunity Trust (BPP)
NOT FDIC INSURED [LOGO]
MAY LOSE VALUE
NO BANK GUARANTEE
TABLE OF CONTENTS
Letter to Shareholders .................................................... 1
Trust Summaries ........................................................... 2
Portfolios of Investments ................................................. 5
Financial Statements
Statements of Assets and Liabilities .................................. 16
Statements of Operations .............................................. 17
Statements of Cash Flows .............................................. 18
Statements of Changes in Net Assets ................................... 19
Financial Highlights ...................................................... 20
Notes to Financial Statements ............................................. 23
Dividend Reinvestment Plans ............................................... 29
Additional Information .................................................... 30
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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.
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LETTER TO SHAREHOLDERS
July 31, 2003
Dear Shareholder:
We are pleased to report that during the semi-annual period, the
Trusts provided 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 June 30, 2003.
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CURRENT
TRUST YIELD(1) MARKET PRICE NAV
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BlackRock Advantage Term Trust (BAT) 5.89% $11.89 $11.88
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BlackRock Investment Quality Term Trust (BQT) 1.06 9.43 9.42
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BlackRock Preferred Opportunity Trust (BPP) 7.99 25.02 26.04
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(1) Current yield is based on market price.
BlackRock, Inc. ("BlackRock"), a world leader in asset management, has
a proven commitment to fixed income. As of June 30, 2003, BlackRock managed $194
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
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Laurence D. Fink Ralph L. Schlosstein
Chief Executive Officer President
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
1
CONSOLIDATED TRUST SUMMARIES (UNAUDITED)
JUNE 30, 2003
BLACKROCK ADVANTAGE TERM TRUST
TRUST INFORMATION
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Symbol on New York Stock Exchange: BAT
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Initial Offering Date: April 27, 1990
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Termination Date (on or shortly before): December 31, 2005
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Closing Market Price as of 6/30/03: $11.89
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Net Asset Value as of 6/30/03: $11.88
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Yield on Closing Market Price as of 6/30/03 ($11.89):(1) 5.89%
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Current Monthly Distribution per Share:(2) $ 0.058333
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Current Annualized Distribution per Share:(2) $ 0.699996
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(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:
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6/30/03 12/31/02 CHANGE HIGH LOW
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Market Price $11.89 $11.85 0.34% $12.03 $11.70
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NAV $11.88 $12.01 (1.08)% $12.06 $11.87
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The following charts compare the Trust's asset composition and
credit quality allocations:
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SECTOR BREAKDOWN(1)
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COMPOSITION JUNE 30, 2003 DECEMBER 31, 2002
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Agency Zero Coupon Bonds 68% 66%
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Stripped Money Market Instrument 7 7
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Agency Multiple Class Mortgage Pass-Throughs 5 1
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Taxable Municipal Bonds 5 5
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Corporate Bonds 4 7
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Inverse Floating Rate Mortgages 4 6
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Commercial Mortgage-Backed Securities 2 2
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Principal Only Mortgage-Backed Securities 2 1
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U.S. Government and Agency Securities 1 1
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Interest Only Mortgage-Backed Securities 1 3
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Mortgage Pass-Throughs 1 1
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(1) Percentages based on long-term investments.
2
CONSOLIDATED TRUST SUMMARIES (UNAUDITED)
JUNE 30, 2003
BLACKROCK INVESTMENT QUALITY TERM TRUST
TRUST INFORMATION
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Symbol on New York Stock Exchange: BQT
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Initial Offering Date: April 21, 1992
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Termination Date (on or about): December 31, 2004
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Closing Market Price as of 6/30/03: $9.43
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Net Asset Value as of 6/30/03: $9.42
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Yield on Closing Market Price as of 6/30/03 ($9.43):(1) 1.06%
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Current Monthly Distribution per Share:(2) $0.008333
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Current Annualized Distribution per Share:(2) $0.099996
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(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:
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6/30/03 12/31/02 CHANGE HIGH LOW
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Market Price $9.43 $9.69 (2.68)% $9.82 $9.33
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NAV $9.42 $9.44 (0.21)% $9.53 $9.39
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The following charts compare the Trust's asset composition and
credit quality allocations:
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SECTOR BREAKDOWN(1)
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COMPOSITION JUNE 30, 2003 DECEMBER 31, 2002
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Corporate Bonds 19% 27%
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Inverse Floating Rate Mortgages 18 2
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Agency Multiple Class Mortgage Pass-Throughs 14 3
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U.S. Government and Agency Securities 12 14
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Stripped Money Market Instrument 9 11
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Non-Agency Multiple Class Mortgage Pass-Throughs 6 14
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Taxable Municipal Bonds 5 6
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Principal-Only Mortgage-Backed Securities 5 1
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Mortgage Pass-Throughs 4 8
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Federal Housing Administration 3 5
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Interest-Only Mortgage-Backed Securities 2 3
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Commercial Mortgage-Backed Securities 1 2
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Foreign Government Bonds 1 2
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Asset-Backed Securities 1 1
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Adjustable Rate Mortgages -- 1
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(1) Percentages based on long-term investments.
3
TRUST SUMMARIES (UNAUDITED)
JUNE 30, 2003
BLACKROCK PREFERRED OPPORTUNITY TRUST
TRUST INFORMATION
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Symbol on New York Stock Exchange: BPP
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Initial Offering Date: February 28, 2003
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Closing Market Price as of 6/30/03: $25.02
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Net Asset Value as of 6/30/03: $26.04
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Yield on Closing Market Price as of 6/30/03 ($25.02):(1) 7.99%
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Current Monthly Distribution per Share:(2) $ 0.166667
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Current Annualized Distribution per Share:(2) $ 2.000004
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(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 since inception:
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6/30/03 HIGH LOW
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Market Price $25.02 $25.06 $24.31
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NAV $26.04 $26.06 $23.55
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The following charts compare the Trust's asset composition and
credit quality allocations:
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SECTOR BREAKDOWN(1)
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COMPOSITION JUNE 30, 2003
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Finance & Banking 60%
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Energy 13
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Real Estate 10
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Consumer Products 2
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Telecommunication 2
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Media 2
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Automotive 1
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Transportation 1
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Conglomerates 1
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Hotels & Casinos 1
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Containers & Glass 1
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Industrial Equipment 1
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Health Care 1
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Electronics 1
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Ecological Services & Equipment 1
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Forest Products 1
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Leisure 1
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CREDIT BREAKDOWN(2)
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CREDIT RATING JUNE 30, 2003
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AA/Aa 13%
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A 33
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BBB/Baa 31
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BB/Ba 7
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B 12
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Not Rated 4
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(1) Percentages based on long-term investments.
(2) Using the higher of S&P, Moody's or Fitch rating. Percentage based on
long-term investments.
4
CONSOLIDATED PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
BLACKROCK ADVANTAGE TERM TRUST
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--123.0%
MORTGAGE PASS-THROUGHS--0.9%
Federal Home Loan Mortgage Corp.,
$ 285 6.50%, 8/01/25 - 10/01/25 ........................................................ $ 297,874
21 9.50%, 1/01/05 ................................................................... 23,512
2 Federal National Mortgage Assoc., 9.50%, 7/01/20 ................................... 2,442
674 Government National Mortgage Assoc., 8.00%, 1/15/26 - 7/15/27 ...................... 728,580
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Total Mortgage Pass-Throughs ....................................................... 1,052,408
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--6.4%
6 Federal Home Loan Mortgage Corp., Ser. 1518, Class E, 4/15/22 ...................... 5,737
Federal National Mortgage Assoc.,
1,136 Ser. 10, Class V, 7/25/13 ........................................................ 1,160,363
318 Ser. 43, Class E, 4/25/22 ........................................................ 341,086
3,461 Ser. 57, Class PE, 9/25/15 ....................................................... 3,699,117
2,000 Ser. 58, Class ZD, 7/25/33 ....................................................... 1,998,125
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Total Agency Multiple Class Mortgage Pass-Throughs ................................. 7,204,428
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INVERSE FLOATING RATE MORTGAGES--5.1%
Federal Home Loan Mortgage Corp.,
470 Ser. 1601, Class SD, 10/15/08 .................................................... 474,786
727 Ser. 1621, Class SH, 11/15/22 .................................................... 772,567
5 Ser. 1635, Class P, 12/15/08 ..................................................... 4,790
18 Ser. 1655, Class SB, 12/15/08 .................................................... 18,337
Federal National Mortgage Assoc.,
959 Ser. 32, Class SA, 5/25/32 ....................................................... 1,010,947
974 Ser. 48, Class SC, 6/25/33 ....................................................... 992,000
793 Ser. 190, Class S, 11/25/07 ...................................................... 1,016,147
328 Ser. 214, Class S, 12/25/08 ...................................................... 341,846
340 Ser. 214, Class SL, 12/25/08 ..................................................... 358,949
AAA 829 Sears Mortgage Securities Corp., Ser. 7, Class S3, 4/25/08 ......................... 828,897
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Total Inverse Floating Rate Mortgages .............................................. 5,819,266
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INTEREST ONLY MORTGAGE-BACKED SECURITIES--1.3%
Federal Home Loan Mortgage Corp.,
3 Ser. 1543, Class VU, 4/15/23 ..................................................... 39,741
526 Ser. 1588, Class PM, 9/15/22 ..................................................... 45,217
372 Ser. 2115, Class IA, 11/15/10 .................................................... 2,152
923 Ser. 2130, Class PF, 4/15/11 ..................................................... 8,225
7,423 Ser. 2542, Class IY, 5/15/16 ..................................................... 320,105
6,400 Ser. 2543, Class IJ, 10/15/12 .................................................... 527,000
Federal National Mortgage Assoc.,
2,528 Ser. 9, Class PI, 7/25/09 ........................................................ 11,628
1,682 Ser. 14, Class PI, 4/25/12 ....................................................... 9,727
2,182 Ser. 61, Class S, 12/25/08 ....................................................... 76,707
1,856 Ser. 68, Class EC, 9/25/10 ....................................................... 28,772
2,817 Ser. 84, Class PJ, 1/25/08 ....................................................... 55,772
487 Ser. 188, Class VA, 3/25/13 ...................................................... 29,366
1,066 Ser. 194, Class PV, 6/25/08 ...................................................... 67,939
403 Ser. 223, Class PT, 10/25/23 ..................................................... 36,966
Government National Mortgage Assoc.,
296 Ser. 17, Class PF, 10/16/25 ...................................................... 1,594
6,696 Ser. 25, Class SL, 7/20/29 ....................................................... 196,691
11,420 Residential Funding Mortgage Securities I, Inc., Ser. S14, Class I-A16, 7/25/29 .... 3,569
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Total Interest Only Mortgage-Backed Securities ..................................... 1,461,171
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See Notes to Financial Statements.
5
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--2.0%
AAA $ 17 Collateralized Mortgage Obligation Trust, Ser. 29, Class A, 5/23/17 ................ $ 15,322
Federal National Mortgage Assoc.,
1,444 Ser. 193, Class E, 9/25/23 ....................................................... 1,012,480
1,406 Ser. 225, Class ME, 11/25/23 ..................................................... 1,198,615
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Total Principal Only Mortgage-Backed Securities .................................... 2,226,417
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COMMERCIAL MORTGAGE-BACKED SECURITIES--2.0%
AAA 2,000 New York City Mortgage Loan Trust, Multifamily, Ser. 1996, Class A-2, 6.75%,
6/25/11(2) ....................................................................... 2,303,437
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ASSET-BACKED SECURITIES--0.0%
NR 398 Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 9/15/07(2),(4),(5) ...... 17,930
NR 853 Structured Mortgage Asset Residential Trust, Ser. 3, 8.724%, 4/15/06(4),(5) ........ 25,597
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Total Asset-Backed Securities ...................................................... 43,527
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U.S. GOVERNMENT AND AGENCY SECURITIES--1.8%
420 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 ................... 450,884
1,450(3) U.S. Treasury Notes, 3.50%, 11/15/06 ............................................... 1,528,448
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Total U.S. Government and Agency Securities ........................................ 1,979,332
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AGENCY ZERO COUPON BONDS--83.4%
12,407 Aid to Israel, 2/15/05 - 8/15/05 ................................................... 11,797,266
11,026 Financing Corp. (FICO) Strips, 12/06/05 ............................................ 10,544,836
Government Trust Certificates,
5,220 Israel, Class 2-F, 5/15/05 ....................................................... 5,064,674
13,760 Turkey, Class T-1, 5/15/05 ....................................................... 13,350,557
22,926(3) Resolution Funding Corp., 7/15/05 .................................................. 22,287,970
6,216(3) Tennessee Valley Authority, 11/01/05 ............................................... 5,934,353
26,000(3) U.S. Treasury Note Strips, 8/15/05 - 11/15/05 ...................................... 25,238,424
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Total Agency Zero Coupon Bonds ..................................................... 94,218,080
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TAXABLE MUNICIPAL BONDS--6.2%
AAA 1,000 Alameda County California Pension Oblig., Zero Coupon, 12/01/05 .................... 951,330
AAA 1,000 Alaska Energy Auth. Pwr. Rev., Zero Coupon, 7/01/05 ................................ 964,700
Aaa 1,167 Kern County California Pension Oblig., Zero Coupon, 8/15/03 - 8/15/05 .............. 1,116,049
Long Beach California Pension Oblig.,
AAA 1,170 Zero Coupon, 9/01/03 - 9/01/05 ..................................................... 1,118,122
AAA 500 7.09%, 9/01/09 ................................................................... 606,270
Los Angeles County California Pension Oblig.,
AAA 1,135 Zero Coupon, 12/31/03 - 6/30/05 .................................................. 1,088,195
AAA 1,000 Series A, 8.62%, 6/30/06 ......................................................... 1,182,020
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Total Taxable Municipal Bonds ...................................................... 7,026,686
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CORPORATE BONDS--5.2%
ENERGY--0.9%
BBB+ 1,000 Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel)(2) .......................... 1,087,310
-----------
FINANCE & BANKING--1.9%
AA+ 950(3) Citigroup, Inc., 5.75%, 5/10/06 .................................................... 1,046,681
NR 1,174 Equitable Life Assurance Society, Zero Coupon, 12/01/03 - 12/01/05(2) .............. 1,100,593
-----------
Total Finance & Banking ............................................................ 2,147,274
-----------
TELECOMMUNICATION--1.0%
A 1,000 Alltel Corp., 7.50%, 3/01/06 ....................................................... 1,132,410
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TRANSPORTATION--1.4%
NR 1,613 Union Pacific Corp., Zero Coupon, 11/01/03 - 5/01/05 ............................... 1,551,933
-----------
Total Corporate Bonds .............................................................. 5,918,927
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STRIPPED MONEY MARKET INSTRUMENT--8.7%
10,000 Vanguard Prime Money Market Portfolio, 12/31/04 .................................... 9,778,000
-----------
Total Long-Term Investments (cost $126,440,234) .................................... 139,031,679
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See Notes to Financial Statements.
6
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE
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SHORT-TERM INVESTMENT--0.4%
DISCOUNT NOTE--0.4%
$ 500 Federal Home Loan Bank, 0.95%, 7/01/03 (cost $500,000) ............................. $ 500,000
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Total investments--123.4% (cost $126,940,234) ...................................... 139,531,679
Liabilities in excess of other assets--(23.4)% ..................................... (26,498,270)
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NET ASSETS--100% ................................................................... $113,033,409
============
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(1) Using the higher of S&P's, Moody's or Fitch's rating.
(2) Security is not registered under the Securities Act of 1933. These
securities may be resold in transactions in accordance with Rule 144A under
that Act, to qualified institutional buyers. As of June 30, 2003, the Trust
held 4.0% of its net assets, with a current market value of $4,509,270, in
securities restricted as to resale.
(3) Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
(4) Illiquid securities representing 0.04% of net assets.
(5) Security is fair valued.
See Notes to Financial Statements.
7
CONSOLIDATED PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
BLACKROCK INVESTMENT QUALITY TERM TRUST
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--123.5%
MORTGAGE PASS-THROUGHS--5.0%
Federal Home Loan Mortgage Corp.,
$ 3,714 6.50%, 9/01/25 - 6/01/29 ......................................................... $ 3,870,734
1,840 7.00%, 12/01/28 .................................................................. 1,932,230
11,049 Federal National Mortgage Assoc., 6.50%, 8/01/28 - 6/01/29 ......................... 11,537,304
-----------
Total Mortgage Pass-Throughs ....................................................... 17,340,268
-----------
FEDERAL HOUSING ADMINISTRATION--4.2%
1,198 Colonial Project, Ser. 37, 7.40%, 12/01/22 ......................................... 1,309,902
4,127 GMAC Project, Ser. 51, 7.43%, 2/01/21 .............................................. 4,513,631
USGI Projects,
530 Ser. 99, 7.43%, 10/01/23 ......................................................... 579,864
7,366 Ser. 885, 7.43%, 3/01/22 ......................................................... 8,059,914
-----------
Total Federal Housing Administration ............................................... 14,463,311
-----------
AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--17.6%
Federal Home Loan Mortgage Corp.,
552 Ser. 1666, Class K, 1/15/24 ...................................................... 556,476
3,1972 Ser. 1680, Class Z, 2/15/24 ...................................................... 3,210,650
682 Ser. 2061, Class K, 4/20/25 ...................................................... 683,378
485(2) Ser. 2360, Class GM, 6/15/29 ..................................................... 487,420
5,000 Ser. 2424, Class OL, 2/15/25 ..................................................... 5,037,550
2,727 Ser. 2601, Class WS, 11/15/29 .................................................... 2,783,522
Federal National Mortgage Assoc.,
1,344 Ser. 43, Class E, 4/25/22 ........................................................ 1,441,087
16,688(2) Ser. 44, Class ZB, 6/25/33 ....................................................... 16,678,541
10,067(2) Ser. 58, Class ZD, 7/25/33 ....................................................... 10,057,562
18,400(2) Ser. 58, Class ZG, 7/25/33 ....................................................... 18,388,500
644(2) Ser. 73, Class JC, 11/15/17 ...................................................... 646,517
1,000 Ser. 86, Class AK, 12/25/32 ...................................................... 1,000,960
-----------
Total Agency Multiple Class Mortgage Pass-Throughs ................................. 60,972,163
-----------
NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--7.2%
AAA 2,152 Countrywide Home Loans, Inc., Ser. 21, Class A2, 5.75%, 11/25/17 ................... 2,187,101
GE Capital Mortgage Services, Inc.,
AAA 18,747 Ser. 10, Class A10, 6.50%, 3/25/24 ............................................... 18,776,245
AAA 1,093 Ser. 13, Class A11, 6.50%, 4/25/24 ............................................... 1,096,449
A 2,478 GSR Mortgage Loan Trust, Ser. 4, Class B2, 6.887%, 4/25/32 ......................... 2,534,249
AAA 300 Residential Asset Securitization Trust, Ser. A4, Class A3, 6.75%, 5/25/32 .......... 304,125
-----------
Total Non-Agency Multiple Class Mortgage Pass-Throughs ............................. 24,898,169
-----------
ADJUSTABLE RATE MORTGAGE SECURITIES--0.4%
AAA 1,544 Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A16, 4/25/08 ...... 1,549,230
-----------
INVERSE FLOATING RATE MORTGAGES--21.5%
Federal Home Loan Mortgage Corp.,
79 Ser. 1565, Class OA, 8/15/08 ..................................................... 79,026
58 Ser. 1635, Class P, 12/15/08 ..................................................... 58,128
79 Ser. 1655, Class SB, 12/15/08 .................................................... 81,900
13,851(2) Ser. 2499, Class JS, 10/15/29 .................................................... 13,933,070
1,732 Ser. 2513, Class SI, 10/15/32 .................................................... 1,737,091
872 Ser. 2528, Class SE, 11/15/32 .................................................... 87,740
13,910(2) Ser. 2539, Class SC, 6/15/31 ..................................................... 14,144,869
6,150(2) Ser. 2543, Class CY, 12/15/32 .................................................... 6,272,796
1,569 Ser. 2550, Class TD, 2/15/28 ..................................................... 1,573,140
333 Ser. 2557, Class SA, 1/15/33 ..................................................... 334,222
2,264 Ser. 2565, Class SD, 1/15/33 ..................................................... 2,268,790
8,866(2) Ser. 2572, Class SW, 2/15/33 ..................................................... 8,999,044
2,286(2) Ser. 2575, Class QS, 9/15/31 ..................................................... 2,301,413
See Notes to Financial Statements.
8
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
INVERSE FLOATING RATE MORTGAGES (CONTINUED)
Federal National Mortgage Assoc.,
$ 9,153(2) Ser. 11, Class SN, 2/25/33 ....................................................... $ 9,299,260
6 Ser. 17, Class SA, 1/25/09 ....................................................... 6,521
10,118(2) Ser. 18, Class SE, 3/25/33 ....................................................... 10,187,394
1,912 Ser. 93, Class SK, 1/25/33 ....................................................... 1,941,056
1,000 Ser. 143, Class SC, 8/25/23 ...................................................... 1,056,760
AAA 159 Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A17, 4/25/08 ...... 162,401
-----------
Total Inverse Floating Rate Mortgages .............................................. 74,524,621
-----------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--2.0%
24,647 Citicorp Mortgage Securities, Inc., Ser. 3, Class A3, 5/25/29 ...................... 23,415
7,496 Credit Suisse First Boston Mortgage Securities Corp., Ser. S15, Class 2AIO, 7/25/04 304,535
Federal Home Loan Mortgage Corp.,
103 Ser. 1489, Class K, 10/15/07 ..................................................... 2,879
3,309 Ser. 1918, Class SC, 1/15/04 ..................................................... 36,191
1,000 Ser. 2134, Class PJ, 4/15/11 ..................................................... 10,469
6,986 Ser. 2417, Class PI, 4/15/25 ..................................................... 85,136
Federal National Mortgage Assoc.,
3,086 Ser. 24, Class SE, 3/25/09 ....................................................... 512,487
12,734 Ser. 37, Class SD, 10/25/22 ...................................................... 449,660
1,146 Ser. 42, Class SO, 3/25/23 ....................................................... 62,633
6,244 Ser. 60, Class PI, 10/25/20 ...................................................... 28,721
11,672 Ser. 68, Class IK, 8/25/10 ....................................................... 164,140
4,091 Ser. 81, Class S, 12/18/04 ....................................................... 130,406
22,174 GMAC Mortgage Corp. Loan Trust, Ser. HE2, Class AIO, 6/25/27 ....................... 1,876,364
20,000 Impac Secured Assets Corp., Ser. 1, Class AIO, 7/25/04 ............................. 850,914
46 PNC Mortgage Securities Corp., Ser. 5, Class 1A-11, 7/25/29 ........................ 43
28,972 Residential Asset Mortgage Products, Inc., Ser. RS2, Class AIIO, 9/25/04 ........... 906,824
16,250 Residential Funding Mortgage Securities II, Inc., Ser. HI2, Class AIO, 9/25/04 ..... 1,588,437
-----------
Total Interest Only Mortgage-Backed Securities ..................................... 7,033,254
-----------
PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--5.5%
Federal Home Loan Mortgage Corp.,
2,332 Ser. 2412, Class CO, 2/15/32 ..................................................... 2,325,119
4,872(2) Ser. 2576, Class O, 2/15/33 ...................................................... 4,858,990
Federal National Mortgage Assoc.,
1,384 Ser. 1, Class A, 2/25/24 ......................................................... 1,373,333
6,234(2) Ser. 18, Class OG, 3/25/33 ....................................................... 6,042,627
3,434 Ser. 64, Class CO, 10/25/32 ...................................................... 3,357,053
411 Ser. 100, Class J, 6/25/23 ....................................................... 409,575
164 Ser. 100, Class L, 6/25/23 ....................................................... 163,830
288 Ser. 100, Class M, 6/25/23 ....................................................... 286,703
329 Ser. 100, Class N, 6/25/23 ....................................................... 327,660
-----------
Total Principal Only Mortgage-Backed Securities .................................... 19,144,890
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES--1.7%
AAA 5,000 New York City Mortgage Loan Trust, Multifamily, Ser. 1996, Class A2, 6.75%,
6/25/11(3) ....................................................................... 5,758,594
-----------
ASSET-BACKED SECURITIES--1.2%
NR 2,550 Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 9/15/07(3),(4),(5) ...... 114,729
Structured Mortgage Asset Residential Trust,(4),(5)
NR 3,849 Ser. 2, 8.24%, 3/15/06 ........................................................... 115,460
NR 4,266 Ser. 3, 8.724%, 4/15/06 .......................................................... 127,988
Aa1 4,000 Student Loan Marketing Assoc., Ser. 1, Class CTFS, 1.83%, 10/25/09 ................. 4,000,000
-----------
Total Asset-Backed Securities ...................................................... 4,358,177
-----------
U.S. GOVERNMENT AND AGENCY SECURITIES--14.1%
Small Business Administration,
1,165 Ser. 20F, 7.55%, 6/01/16 ......................................................... 1,336,676
1,034 Ser. 20G, 7.70%, 7/01/16 ......................................................... 1,192,762
2,977 Ser. 20K, 6.95%, 11/01/16 ........................................................ 3,356,762
719 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 ................... 772,061
1,000 U.S. Treasury Bond, 5.375%, 2/15/31 ................................................ 1,126,055
30,000 U.S. Treasury Bond Strip, Zero Coupon, 11/15/04 .................................... 29,527,590
See Notes to Financial Statements.
9
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES--(CONT'D) U.S.
Treasury Notes,
$ 5,400(2) 5.25%, 5/15/04 .................................................................... $ 5,597,861
870 5.875%, 11/15/04 .................................................................. 925,904
4,950(2) 6.00%, 8/15/04 .................................................................... 5,222,636
------------
Total U.S. Government and Agency Securities ......................................... 49,058,307
------------
TAXABLE MUNICIPAL BONDS--6.4%
AAA 2,000 Fresno California Pension Oblig., 7.15%, 6/01/04 .................................... 2,108,240
AAA 4,000 Los Angeles County California Pension Oblig., 6.77%, 6/30/05 ........................ 4,401,280
AAA 7,000 New Jersey Econ. Dev. Auth., Zero Coupon, 2/15/04 ................................... 6,928,180
A 5,000 New York City, G.O., 7.50%, 4/15/04 ................................................. 5,221,700
AA- 1,000 New York State Envir. Facs. Corp., Service Contract Rev., 6.95%, 9/15/04 ............ 1,061,580
AAA 2,250 San Francisco City & Cnty. Arpt. Comn., Intl. Arpt. Rev., 6.55%, 5/01/04 ............ 2,345,355
------------
Total Taxable Municipal Bonds ....................................................... 22,066,335
------------
CORPORATE BONDS--23.8%
AEROSPACE & DEFENSE--0.9%
BBB- 3,000 Northrop Grumman Corp., 8.625%, 10/15/04 ............................................ 3,256,740
------------
BUILDING & DEVELOPMENT--1.5%
BBB+ 5,000 Pulte Corp., 8.375%, 8/15/04 ........................................................ 5,347,050
------------
CONSUMER PRODUCTS--0.6%
BBB+ 2,000 General Mills, Inc., 8.75%, 9/15/04 ................................................. 2,170,400
------------
ENERGY--3.3%
BBB 4,000 Amerada Hess Corp., 5.30%, 8/15/04 .................................................. 4,157,949
BBB+ 3,500 Israel Electric Corp., Ltd., 7.25%, 12/15/06 (Israel)(3) ............................ 3,805,585
Baa1 2,000 Ohio Edison Co., 8.625%, 9/15/03 .................................................... 2,029,290
BB+ 1,225 Pinnacle One Partners LP, 8.83%, 8/15/04(3) ......................................... 1,280,125
------------
Total Energy ........................................................................ 11,272,949
------------
FINANCE & BANKING--9.3%
Aa2 2,500 Bank of America Corp., 7.875%, 5/16/05 .............................................. 2,790,550
AA+ 1,850 Citigroup, Inc., 5.75%, 5/10/06 ..................................................... 2,038,274
Aa3 3,000 Den Danske Bank, 7.25%, 6/15/05 (Denmark)3 .......................................... 3,309,148
A3 4,000 Ford Motor Credit Co., 6.70%, 7/16/04 ............................................... 4,160,000
A 4,000 John Deere Capital Corp., 5.52%, 4/30/04 ............................................ 4,129,400
Aa3 4,000 Merrill Lynch & Co., Inc., 6.00%, 11/15/04 .......................................... 4,246,880
A+ 1,000 MetLife, Inc., 6.30%, 11/01/033 ..................................................... 1,016,740
A+ 3,100 Reliaster Financial Corp., 6.625%, 9/15/03 .......................................... 3,132,829
UBS PaineWebber Group, Inc.,
AAA 500 6.90%, 2/09/04 .................................................................... 517,030
AAA 2,000 8.875%, 3/15/05 ................................................................... 2,222,640
Xtra, Inc.,
A- 2,000 6.50%, 1/15/04 .................................................................... 2,037,740
A- 2,500 7.22%, 7/31/04 .................................................................... 2,612,600
------------
Total Finance & Banking ............................................................. 32,213,831
------------
TELECOMMUNICATION--2.2%
A 2,000 Alltel Corp., 7.50%, 3/01/06 ........................................................ 2,264,820
BBB+ 5,000 Telekom Malaysia Berhad, 7.125%, 8/01/05 (Malaysia)(3) .............................. 5,409,700
------------
Total Telecommunication ............................................................. 7,674,520
------------
TRANSPORTATION--0.1%
Caa2 400 American Airlines, Inc., 10.44%, 3/04/07 ............................................ 192,000
------------
OTHER--5.9%
A3 18,320(2) Targeted Return Index Securities Trust, Ser. 5, Floating Coupon, 1/25/07(3) ......... 20,357,184
------------
Total Corporate Bonds ............................................................... 82,484,674
------------
FOREIGN GOVERNMENT BONDS--1.6%
A+ 5,000(2) Quebec Province, 8.625%, 1/19/05 (Canada) ........................................... 5,537,300
------------
STRIPPED MONEY MARKET INSTRUMENTS--11.3%
40,000 Vanguard Prime Money Market Portfolio, 12/31/04 ..................................... 39,112,000
------------
Total Long-Term Investments--123.5% (cost $407,252,718) ............................. 428,301,293
------------
See Notes to Financial Statements.
10
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT--5.2%
DISCOUNT NOTE
$17,900 Federal Home Loan Bank, 0.95%, 7/01/03 (cost $17,900,000) ........................... $ 17,900,000
------------
Total investments before investment sold short--128.7% (cost $425,152,718) .......... 446,201,293
------------
INVESTMENT SOLD SHORT--(0.3%)
1,000 U.S. Treasury Note, 3.25%, 5/31/04 (proceeds $1,008,125) ............................ (1,020,195)
------------
Total investments, net of investment sold short--128.4% (cost $424,144,593) ......... 445,181,098
Liabilities in excess of other assets--(28.4)% ...................................... (98,517,696)
------------
NET ASSETS--100% .................................................................... $346,663,402
============
- -----------------
(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 June 30, 2003, the Trust
held 11.8% of its net assets, with a current market value of $41,051,805,
in securities restricted as to resale.
(4) Illiquid securities representing 0.10% of net assets.
(5) Security is fair valued.
See Notes to Financial Statements.
11
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
BLACKROCK PREFERRED OPPORTUNITY TRUST
RATING(1) SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--143.0%
PREFERRED SECURITIES--67.0%
ENERGY--8.8%
BBB+ 330,000 Alabama Power Co., Class A, 5.20% ................................................... $ 8,563,500
BBB- 21,800 Anadarko Petroleum Corp., Ser. B, 5.46% ............................................. 2,267,200
BBB 105,000 Apache Corp., Ser. B, 5.68% ......................................................... 11,130,000
BBB+ 900 Central Maine Power Co., 3.50% ...................................................... 51,300
B- 60,000 Chesapeake Energy Corp., 6.00%(2) ................................................... 3,645,000
BBB- 8,000 EOG Resources Inc., Ser. B, 7.20% ................................................... 8,868,960
B- 115,000 Hanover Compressor Capital Trust, 7.25% ............................................. 5,405,000
BBB+ 24,000 Peco Energy Company, Ser. D, 4.68% .................................................. 2,142,000
------------
42,072,960
------------
FINANCE & BANKING--42.2%
A2 5,000 ABN Amro N.A. Capital Funding Right, 6.97%(2) ....................................... 5,837,050
Baa2 210,000 ACE Ltd., Ser. C, 7.80% (Cayman Islands) ............................................ 5,453,438
AMBAC Financial Group Inc.,
AA 65,000 5.88% ............................................................................. 1,667,250
AA 111,443 5.95% ............................................................................. 2,841,797
BBB+ 253,100 AOL Time Warner Inc., Ser. A-1, 7.63% (CABCO) ....................................... 6,473,823
A3 30,000 Banesto Hldgs. Ltd., Ser. A, 10.50% (Guernsey)(2) ................................... 870,000
Bear Stearns Cos. Inc., The,
A- 75,000 Ser. E, 6.15% ..................................................................... 4,007,813
A- 25,000 Ser. F, 5.72% ..................................................................... 1,297,000
A- 75,000 Ser. G, 5.49% ..................................................................... 3,903,750
B 60,000 Chevy Chase Preferred Capital Corp., Ser. A, 10.38% ................................. 3,319,800
AA 10,050 Citigroup Inc., Ser. M, 5.86% ....................................................... 536,168
Aa3 7,200 Credit Suisse First Boston, Ser. 10, 7.00% (SATURNS) ................................ 190,800
BBB+ 137,500 Everest Re Capital Trust, 7.85% ..................................................... 3,778,500
Federal National Mortgage Assoc.,
AA 200,000 4.75% ............................................................................. 9,700,000
AA 500,000 5.13% ............................................................................. 25,900,000
BBB- 120,000 First Republic Preferred Capital Corp., 7.25% ....................................... 3,000,000
A2 85,000 Fleet Capital Trust VII, 7.20% ...................................................... 2,306,953
A2 26,100 Fleet Capital Trust VIII, 7.20% ..................................................... 716,119
A- 16,000 Fortis Funding Trust, 7.68%(2) ...................................................... 18,489,370
ING Groep NV, (Netherlands)
A- 76,700 7.05% ............................................................................. 2,062,463
A- 560,337 7.20% ............................................................................. 15,207,896
JP Morgan Chase & Co.,
A 40,000 Ser. A, 5.00% ..................................................................... 3,884,400
A 20,000 Ser. L, 4.50% ..................................................................... 1,997,200
A3 90,000 Lehman Brothers Holdings Capital Trust III, Ser. K, 6.38% ........................... 2,367,900
BBB+ 79,160 Lehman Brothers Holdings Inc., Ser. C, 5.94% ........................................ 4,185,981
A1 20,000 Merrill Lynch Preferred Capital Trust III, 7.00% .................................... 546,400
A1 11,900 Merrill Lynch Preferred Capital Trust V, 7.28% ...................................... 330,701
Aa3 1,300 Morgan Stanley, Class A, 7.05% (PPLUS) .............................................. 35,295
A1 537,000 Morgan Stanley Capital Trust III, 6.25% ............................................. 13,911,656
A1 200,000 Morgan Stanley Capital Trust IV, 6.25% .............................................. 5,162,000
BBB+ 175,200 NB Capital Corp., 8.35% ............................................................. 4,949,400
A 160,000 Partner Re Ltd., Ser. C, 6.75% (Bermuda) ............................................ 4,152,000
BBB+ 18,400 PLC Capital Trust IV, 7.25% ......................................................... 493,120
BBB 271,725 Renaissance Re Holdings Ltd., Ser. B, 7.30% (Bermuda) ............................... 7,092,023
A1 200,000 Royal Bank of Scotland Group PLC, 5.75% (United Kingdom) ............................ 4,900,000
Safeco Capital Trust,
Baa2 17,600 Ser. 5, 8.25% (SATURNS) ........................................................... 464,464
Baa2 6,000 Ser. 7, 8.25% (SATURNS) .......................................................... 161,100
See Notes to Financial Statements.
12
RATING(1) SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING--(CONT'D)
Safeco Capital Trust I,
Baa2 4,100 8.072% (CORTS) .................................................................... $ 109,470
Baa2 2,000 8.375% (CORTS) .................................................................... 54,400
Baa2 29,200 8.75% (CORTS) ..................................................................... 831,324
Baa2 6,500 Ser. 4, Class A-1, 8.75% (CORTS) .................................................. 176,995
Baa2 14,700 Safeco Capital Trust II, 8.70% (CORTS) .............................................. 399,840
A 10,000 SG Preferred Capital II LLC, 6.302%2 ................................................ 11,084,500
A3 60 Union Planters Preferred Funding Corp., 7.75%(2) .................................... 5,619,998
BBB 11,100 Valero Energy Corp., Class A, 7.25% (PPLUS) ......................................... 297,966
Baa1 5,200 Washington Mutual Capital I, Ser. 22, Class A-1, 7.65% (CORTS) ...................... 140,920
Aa3 105,500 Wells Fargo Capital VII, 5.85% ...................................................... 2,700,800
XL Capital Ltd., (Cayman Islands)
A- 13,500 Ser. A, 8.00% ..................................................................... 375,975
A 53,090 Ser. B, 7.625% .................................................................... 1,464,753
Baa1 143,865 Zions Capital Trust, Ser. B, 8.00% .................................................. 4,010,953
Baa2 2,000 Zurich Regcaps Funding Trust II, 6.58%(2) ........................................... 1,899,920
------------
201,361,444
------------
MEDIA--1.4%
BBB- 110,000 Comcast Corp., 2.00%, 11/15/29 ...................................................... 3,630,000
B 30,000 CSC Holdings Inc., Ser. M, 11.13% ................................................... 3,090,000
------------
6,720,000
------------
REAL ESTATE--12.6%
BBB 170,000 AMB Property Corp., Ser. L, 6.50% ................................................... 4,250,000
BBB 33,000 Avalonbay Cmnts. Inc., Ser. H, 8.70% ................................................ 953,771
BBB- 120,000 Developers Diversified Reality, 7.38% ............................................... 3,000,000
BBB 77,400 Equity Office Properties Trust, Ser. G, 7.75% ....................................... 2,145,528
BBB 300,000 Equity Residential, Ser. N, 6.48% ................................................... 7,504,688
A2 5,000 Firstar Realty LLC, 8.875%(2) ....................................................... 6,966,000
BBB+ 255,000 Kimco Realty Corp., Class F, 6.65% .................................................. 6,579,000
BBB- 324,000 Regency Ctrs. Corp., 7.45% .......................................................... 8,453,160
A 30 Sun Trust Real Estate Investment Corp., 9.00%(2) .................................... 4,286,952
A2 271,200 Wachovia Preferred Funding Corp., Ser. A, 7.25% ..................................... 7,509,528
A- 320,000 Weingarten Reality Investors, Ser. D, 6.75% ......................................... 8,400,000
------------
60,048,627
------------
TELECOMMUNICATION--1.9%
BBB+ 8,000 Centaur Funding, 9.08% (Cayman Islands)(2) .......................................... 9,041,600
------------
Total Preferred Securities .......................................................... 319,244,631
------------
-----------
PRINCIPAL
AMOUNT
(000)
-----------
BANK TRUST PREFERRED SECURITIES--51.9%
ENERGY--7.4%
BBB $10,000 ComEd Financing III, 6.35%, 3/15/33 ................................................. 10,320,417
Baa2 10,180 Dominion Resources Capital Trust III, 8.40%, 1/15/31 ................................ 12,622,561
BBB- 8,000 KN Capital Trust III, 7.63%, 4/15/28 ................................................ 8,982,826
Ba1 3,000 Puget Sound Energy Capital Trust I, Ser. B, 8.231%, 6/01/27 ......................... 3,236,700
------------
35,162,504
------------
FINANCE & BANKING--41.5%
A 12,000 Abbey National Capital, 8.963%, 12/29/49 ............................................ 17,218,800
A- 5,0003 ABN Amro N.A. Holding, 6.523%, 12/29/49(2) .......................................... 5,700,000
BBB+ 5,000 ACE Capital Trust II, 9.70%, 4/01/30 ................................................ 6,685,200
AA 11,000 American General Institutional Capital B, 8.125%, 3/15/46(2) ........................ 14,988,110
BBB 6,000 Aon Capital A, 8.205%, 1/01/27 ...................................................... 7,050,190
A 7,000 AXA SA, 8.60%, 12/15/30 (France) .................................................... 8,963,836
Aa3 14,000 Barclays Bank PLC, 6.86%, 9/29/49 (United Kingdom)(2) ............................... 16,156,420
NR 5,500 BNP Paribas Capital Trust, 7.20% .................................................... 5,830,000
NR 9,000 California Preferred Funding Trust, 7.00%, 12/31/49 ................................. 9,427,500
A 2,623 Chase Capital I, Ser. A, 7.67%, 12/01/26 ............................................ 2,900,118
See Notes to Financial Statements.
13
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING--(CONT'D)
NR $ 80 Chase Capital XI, 5.875%, 6/15/33 ................................................... $ 1,996,000
BBB- 1,000 Colonial Capital II, Ser. A, 8.92%, 1/15/27 ......................................... 1,111,600
A2 3,000 Dresdner Funding Trust I, 8.151%, 6/30/31(2) ........................................ 3,315,869
Baa2 500 FCB/NC Capital Trust I, 8.05%, 3/23/28 .............................................. 491,299
Baa2 5,000 Greenpoint Capital Trust I, 9.10%, 6/01/27 .......................................... 5,904,150
NR 6,000 HBOS Capital Funding LP, 6.85%, 3/01/49 ............................................. 6,360,000
A2 11,000 HSBC Capital Funding LP, 10.176%, 12/29/49 (Jersey)2 ................................ 17,164,400
BBB 1,400 Hubco Capital Trust I, Ser. B, 8.98%, 2/01/27 ....................................... 1,574,174
BBB 3,000 Hubco Capital Trust II, Ser. B, 7.65%, 6/15/28 ...................................... 3,180,000
BBB+ 3,000 HVB Funding Trust, 8.741%, 6/30/31 (Germany)(2) ..................................... 3,053,910
A 769 JPM Capital Trust I, 7.54%, 1/15/27 ................................................. 853,360
A 1,000 JPM Capital Trust II, 7.95%, 2/01/27 ................................................ 1,132,294
NR 4,500 Lloyds TSB Bank, 6.90%, 10/10/49 .................................................... 4,597,031
BB+ 145 Markel Capital Trust I, Ser. B, 8.71%, 1/01/46 ...................................... 145,000
A- 3,000 North Fork Capital Trust II, 8.00%, 12/15/27 ........................................ 2,835,000
AA- 13,000 Royal Bank of Scotland Group PLC, 7.648%, 8/31/49 (United Kingdom) .................. 16,334,240
Baa2 4,000 Safeco Capital Trust I, 8.072%, 7/15/37 ............................................. 4,692,964
A+ 7,500 Sun Life Canada U.S. Capital Trust I, 8.526%, 5/29/49(2) ............................ 8,837,272
A+ 7,270 Transamerica Capital III, 7.625%, 11/15/37 .......................................... 7,995,927
BBB- 5,000 Webster Capital Trust I, 9.36%, 1/29/27(2) .......................................... 5,648,450
A- 6,000 Zurich Capital Trust, 8.376%, 6/01/37(2) ............................................ 5,509,200
------------
197,652,314
------------
REAL ESTATE--1.8%
BB+ 6,000 Sovereign Real Estate Investor Trust, 12.00%, 8/29/49(2) ............................ 8,692,200
------------
TELECOMMUNICATION--1.2%
BBB- 5,000 TCI Communications Financing III, 9.65%, 3/31/27 .................................... 5,834,050
------------
Total Bank Trust Preferred Securities ............................................... 247,341,068
------------
CORPORATE BONDS--24.1%
AUTOMOTIVE--1.9%
B 2,750 Asbury Automotive Group, Inc., 9.00%, 6/15/12 ....................................... 2,695,000
B+ 3,000 Dura Operating Corp., Ser. B, 8.625%, 4/15/12 ....................................... 3,075,000
B- 2,850 Rexnord Corp., 10.125%, 12/15/12(2) ................................................. 3,149,250
------------
8,919,250
------------
BASIC MATERIAL--0.5%
BB- 3,000 Alaska Steel Corp., 7.75%, 6/15/12 .................................................. 2,505,000
------------
BUILDING & DEVELOPMENT--0.5%
B 2,200 Collins & Aikman Floorcovering, Ser. B, 9.75%, 2/15/10 .............................. 2,299,000
------------
CHEMICAL--0.6%
BB 3,000 Lyondell Chemical Co., 11.125%, 7/15/12 ............................................. 3,030,000
------------
CONGLOMERATES--1.7%
BBB- 8,000 Tyco Intl. Group SA, 5.80%, 8/01/06 (Luxembourg) .................................... 8,230,000
------------
CONSUMER PRODUCTS--3.4%
B- 3,000 Buffets Inc., 11.25%, 7/15/10 ....................................................... 2,955,000
BB+ 8,000 Delhaize America Inc., 8.125%, 4/15/11 .............................................. 8,720,000
BB+ 2,000 JC Penney Inc., 8.25%, 8/15/22 ...................................................... 1,980,000
BB- 3,000 Levi Strauss & Co., 12.25%, 12/15/12(2) ............................................. 2,400,000
------------
16,055,000
------------
CONTAINERS & GLASS--1.3%
B+ 3,000 Crown European Holdings SA, 9.50%, 3/01/11 (France)(2) .............................. 3,255,000
B 3,000 Radnor Holdings Inc., 11.00%, 3/15/10(2) ............................................ 3,120,000
------------
6,375,000
------------
ECOLOGICAL SERVICES & EQUIPMENT--0.7%
B+ 3,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ...................................... 3,195,000
------------
ELECTRONICS--0.7%
B 3,000 Stoneridge, Inc., 11.50%, 5/01/12 ................................................... 3,390,000
------------
ENERGY--2.6%
B 3,000 AES Corp., 8.875%, 2/15/11 .......................................................... 2,925,000
B 3,000 Dresser, Inc., 9.375%, 4/15/11 ...................................................... 3,090,000
See Notes to Financial Statements.
14
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
- --------------------------------------------------------------------------------------------------------------------------------
ENERGY--(CON'T)
BB- $ 3,000 Midwest Generation LLC, Ser. A, 8.30%, 7/02/09 ...................................... $ 2,970,000
B2 2,950 Orion Power Holdings, Inc., 12.00%, 5/01/10 3,407,250
-------------
12,392,250
-------------
FINANCE & BANKING--1.8%
BB 1,000 Crum & Forster Holdings Corp., 10.375%, 6/15/13(2) .................................. 1,012,500
A3 5,000 Ford Motor Credit Co., 6.50%, 1/25/07 ............................................... 5,260,000
BB 2,010 Midland Funding Corp. II, Ser. A, 11.75%, 7/23/05 ................................... 2,170,800
-------------
8,443,300
-------------
FOREST PRODUCTS--0.7%
Ba2 3,000 Caraustar Industries, Inc., 9.875%, 4/01/11 ......................................... 3,180,000
-------------
HEALTH CARE--1.1%
B- 3,000 Insight Health Services Corp., Ser. B, 9.875%, 11/01/11 ............................. 3,150,000
B- 2,000 MedQuest Inc., Ser. B, 11.875%, 8/15/12 ............................................. 2,110,000
-------------
5,260,000
-------------
HOTELS & CASINOS--1.3%
Ba3 3,000 HMH Properties, Inc., Ser. B, 7.875%, 8/01/08 ....................................... 3,045,000
B- 3,000 Venetian Casino Resort, LLC, 11.00%, 6/15/10 ........................................ 3,390,000
-------------
6,435,000
-------------
INDUSTRIAL EQUIPMENT--1.3%
BB- 3,000 Mail-Well I Corp., 9.625%, 3/15/12 .................................................. 3,180,000
B+ 3,000 United Rentals, Inc., Ser. B, 9.25%, 1/15/09 ........................................ 2,910,000
-------------
6,090,000
-------------
LEISURE--0.7%
B 3,000 Extended Stay America Inc., 9.15%, 3/15/08 .......................................... 3,120,000
-------------
MEDIA--1.6%
B 3,000 Dex Media East LLC, Ser. B, 12.125%, 11/15/12 ....................................... 3,570,000
B 1,000 PEI Holdings Inc., 11.00%, 3/15/10(2) ............................................... 1,105,000
B- 3,000 WRC Media Inc., 12.75%, 11/15/09 .................................................... 3,120,000
-------------
7,795,000
-------------
TRANSPORTATION--1.7%
B3 2,030 Dunlop Standard Aerospace Holdings PLC, 11.875%, 5/15/09 (United Kingdom) ........... 2,192,400
B+ 3,000 Hornbeck Leevac Marine Services Inc., 10.625%, 8/01/08 .............................. 3,300,000
B 2,500 RailAmerica Transp. Corp., 12.875%, 8/15/10 ......................................... 2,775,000
-------------
8,267,400
-------------
Total Corporate Bonds ............................................................... 114,981,200
-------------
Total Long-Term Investments--143.0% (cost $649,446,565) ............................. 681,566,899
-------------
SHORT-TERM INVESTMENTS--1.9%
DISCOUNT NOTES--1.9%
A-1+ 9,200 Federal Home Loan Bank, Zero Coupon, 7/01/03 (cost $9,200,000) ...................... 9,200,000
-------------
TOTAL INVESTMENTS--144.9% (cost $658,646,565) ....................................... 690,766,899
Other assets in excess of liabilities--1.4% ......................................... 6,814,879
Preferred shares at redemption value, including dividends payable--(46.3)% .......... (220,832,550)
-------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS--100% .................................. $ 476,749,228
=============
- ----------------
(1) Using the higher of S&P's, Moody's or Fitch's rating.
(2) Security is not registered under the Securities Act of 1933. These
securities may be resold in transactions in accordance with Rule 144A under
that Act, to qualified institutional buyers. As of June 30, 2003, the Trust
held 31.7% of its net assets, with a current market value of $150,926,199,
in securities restricted as to resale.
(3) Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
- ----------------------------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
CABCO -- Corporate Asset Backed Corporation PPLUS -- Preferred Plus
CORTS -- Corporate Backed Trust Securities SATURNS -- Structured Asset Trust Unit Repackagings
- ----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
15
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2003
- --------------------------------------------------------------------------------
BLACKROCK BLACKROCK
BLACKROCK INVESTMENT PREFERRED
ADVANTAGE TERM QUALITY OPPORTUNITY
ASSETS TRUST(1) TERM TRUST(1) TRUST
-------------- ------------- -----------
Investments at value(2) ........................................... $ 139,531,679 $ 446,201,293 690,766,899
Cash .............................................................. 226,977 365,225 9,694,367
Receivable from investments sold .................................. 26,313 144,506 3,619,000
Variation margin receivable ....................................... 68,750 -- --
Collateral deposited with brokers ................................. -- 1,022,500 --
Income receivable ................................................. 326,320 4,115,621 6,083,633
Unrealized appreciation on interest rate swaps .................... -- -- 1,843,157
Other assets ...................................................... 29,385 79,557 66,299
------------- ------------- -------------
140,209,424 451,928,702 712,073,355
------------- ------------- -------------
LIABILITIES
Reverse repurchase agreements ..................................... 26,814,570 103,781,268 --
Payable for investments purchased ................................. -- -- 13,951,766
Investments sold short at value(3) ................................ -- 1,020,195 --
Interest payable .................................................. 4,951 24,441 87,656
Investment advisory fee payable ................................... 46,789 170,835 372,118
Administration fee payable ........................................ 7,486 22,778 --
Deferred Directors/Trustees fees .................................. 18,295 50,714 2,137
Other accrued expenses ............................................ 283,924 195,069 77,900
------------- ------------- -------------
27,176,015 105,265,300 14,491,577
------------- ------------- -------------
PREFERRED SHARES AT REDEMPTION VALUE
$0.001 par value per share and $25,000 liquidation value per share,
including dividends payable4 ................................... -- -- 220,832,550
------------- ------------- -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ...................... $ 113,033,409 $ 346,663,402 $ 476,749,228
============= ============= =============
Composition of Net Assets:
Par value ...................................................... $ 95,107 $ 368,106 $ 18,306
Paid-in capital in excess of par ............................... 86,123,272 366,785,094 433,535,477
Undistributed net investment income ............................ 15,943,813 5,852,050 2,002,262
Accumulated net realized gain (loss) ........................... (1,437,797) (47,378,353) 7,229,692
Net unrealized appreciation .................................... 12,309,014 21,036,505 33,963,491
------------- ------------- -------------
Net assets applicable to common shareholders, June 30, 2003 ....... $ 113,033,409 $ 346,663,402 $ 476,749,228
============= ============= =============
Net asset value per common share(5) ............................... $11.88 $9.42 $26.04
====== ===== ======
(1) Consolidated Statement of Assets and Liabilities
(2) Investments at cost ........................................... $ 126,940,234 $ 425,152,718 $ 658,646,565
(3) Proceeds received ............................................. -- 1,008,125 --
(4) Preferred shares outstanding .................................. -- -- 8,832
(5) Common shares issued and outstanding .......................... 9,510,667 36,810,639 18,305,777
See Notes to Financial Statements.
16
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD(1) ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
BLACKROCK BLACKROCK
BLACKROCK INVESTMENT PREFERRED
ADVANTAGE TERM QUALITY OPPORTUNITY
INVESTMENT INCOME TRUST(2) TERM TRUST(2) TRUST
-------------- ------------- ------------
Interest income ............................................. $ 4,947,556 $ 8,265,960 $ 7,869,627
Dividend income ............................................. -- -- 5,736,575
------------ ------------ ------------
Total investment income ................................... 4,947,556 8,265,960 13,606,202
------------ ------------ ------------
EXPENSES
Investment advisory ......................................... 282,394 1,036,648 1,314,011
Administration .............................................. 45,183 138,220 --
Transfer agent .............................................. 9,668 12,397 6,066
Custodian ................................................... 45,115 72,179 44,051
Reports to shareholders ..................................... 30,578 47,109 25,274
Directors/Trustees fees ..................................... 7,531 21,818 22,166
Registration ................................................ 11,267 15,620 10,615
Independent accountants ..................................... 20,128 47,109 16,176
Legal ....................................................... 12,268 67,386 13,963
Organization ................................................ -- -- 15,000
Auction agent ............................................... -- -- 113,739
Miscellaneous ............................................... 15,282 25,920 18,544
------------ ------------ ------------
Total expenses excluding interest expense and excise tax .. 479,414 1,484,406 1,599,605
Interest expense ........................................ 180,932 460,716 330,878
Excise tax .............................................. 123,973 -- --
------------ ------------ ------------
Total expenses ............................................ 784,319 1,945,122 1,930,483
Less fees paid indirectly ............................... (486) (771) (6,098)
------------ ------------ ------------
Net expenses .............................................. 783,833 1,944,351 1,924,385
------------ ------------ ------------
Net investment income .......................................... 4,163,723 6,321,609 11,681,817
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investments ............................................... (2,550,482) 538,688 6,288,457
Futures ................................................... -- (7,896,920) 941,235
Options written ........................................... -- 55,500 --
------------ ------------ ------------
(2,550,482) (7,302,732) 7,229,692
------------ ------------ ------------
Net change in unrealized appreciation/depreciation on:
Investments ............................................... 220,028 (267,615) 32,120,334
Interest rate swaps ....................................... -- -- 1,843,157
Futures ................................................... (282,431) 1,792,500 --
Short sales ............................................... -- 6,635 --
------------ ------------ ------------
(62,403) 1,531,520 33,963,491
------------ ------------ ------------
Net gain (loss) ................................................ (2,612,885) (5,771,212) 41,193,183
------------ ------------ ------------
DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT
INCOME ...................................................... -- -- (526,808)
------------ ------------ ------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ................................... $ 1,550,838 $ 550,397 $ 52,348,192
============ ============ ============
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. The other Trusts' statements are for six months.
(2) Consolidated Statement of Operations.
See Notes to Financial Statements.
17
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIOD(1) ENDED JUNE 30, 2003
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE BLACKROCK BLACKROCK
IN NET ASSET RESULTING FROM OPERATIONS BLACKROCK INVESTMENT PREFERRED
TO NET CASH FLOWS PROVIDED BY ADVANTAGE QUALITY OPPORTUNITY
(USED FOR) OPERATING ACTIVITIES TERM TRUST(2) TERM TRUST(2) TRUST
------------- ------------- -------------
Net increase in net assets resulting from operations ............................ $ 1,550,838 $ 550,397 $ 52,348,192
------------- ------------- -------------
Decrease (increase) in investments .............................................. 358,623 2,415,563 (649,573,716)
Net realized loss (gain) ........................................................ 2,550,482 7,302,732 (7,229,692)
Decrease (increase) in unrealized appreciation .................................. 62,403 (1,531,520) (33,963,491)
Decrease (increase) in receivable for investments sold .......................... (26,313) 161,110 (3,619,000)
Decrease (increase) in variation margin receivable .............................. (68,750) 218,750 --
Decrease in collateral deposited with brokers ................................... -- 3,750 --
Decrease (increase) in income receivable ........................................ 504,997 72,757 (6,083,633)
Increase in unrealized appreciation on interest rate swaps ...................... -- -- (1,843,157)
Decrease (increase) in other assets ............................................. (11,175) 393,996 (66,299)
Increase (decrease) in payable for investments purchased ........................ -- (207,860) 13,951,766
Decrease in payable to broker ................................................... (37,282) (1,855,606) --
Increase (decrease) in interest payable ......................................... 4,428 (75,267) 87,656
Decrease in investments sold short .............................................. -- (6,635) --
Increase (decrease) in investment advisory fee payable .......................... (1,680) (6,256) 372,118
Decrease in administration fee payable .......................................... (269) (6,737) --
Increase in deferred Directors/Trustees fees .................................... 2,009 5,780 2,137
Increase (decrease) in other accrued expenses ................................... (453,937) (1,053) 77,900
------------- ------------- -------------
Total adjustments ............................................................ 2,883,536 6,883,504 (687,887,411)
------------- ------------- -------------
Net cash flows provided by (used for) operating activities ...................... $ 4,434,374 $ 7,433,901 $(635,539,219)
============= ============= =============
INCREASE IN CASH
Net cash flows provided by (used for) operating activities ...................... $ 4,434,374 $ 7,433,901 $(635,539,219)
------------- ------------- -------------
Cash flows provided by (used for) financing activities:
Capital contributions ........................................................ -- -- 433,553,783
Decrease in reverse repurchase agreements .................................... (1,059,180) (4,533,732) --
Increase in preferred shares at redemption value including dividends payable . -- -- 220,832,550
Cash dividends paid to common shareholders ................................... (3,328,570) (2,760,679) (9,152,747)
------------- ------------- -------------
Net cash flows provided by (used for) financing activities ...................... (4,387,750) (7,294,411) 645,233,586
------------- ------------- -------------
Net increase in cash ......................................................... 46,624 139,490 9,694,367
Cash at beginning of period .................................................. 180,353 225,735 --
------------- ------------- -------------
Cash at end of period ........................................................ $ 226,977 $ 365,225 $ 9,694,367
============= ============= =============
- ---------------------------
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. This information includes the initial investments by
BlackRock Funding, Inc. The other Trusts' statements are for six months.
(2) Consolidated Statement of Cash Flows.
See Notes to Financial Statements.
18
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD(1) ENDED JUNE 30, 2003 (UNAUDITED) AND FOR THE YEAR ENDED
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
PREFERRED
ADVANTAGE INVESTMENT QUALITY OPPORTUNITY
TERM TRUST(2) TERM TRUST(2) TRUST
---------------------------- ------------------------------ --------------
2003 2002 2003 2002 2003
---------------------------- ------------------------------ --------------
INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS:
Net investment income ........................ $ 4,163,723 $ 11,342,172 $ 6,321,609 $ 22,878,195 $ 11,681,817
Net realized gain (loss) ..................... (2,550,482) 945,967 (7,302,732) (1,426,523) 7,229,692
Net change in unrealized appreciation/
depreciation ............................... (62,403) (2,615,557) 1,531,520 (4,784,710) 33,963,491
Dividends to preferred shareholders from net
investment income .......................... -- -- -- -- (526,808)
------------ ------------ ------------ ------------ ------------
Net increase in net assets applicable to common
shareholders resulting from operations ....... 1,550,838 9,672,582 550,397 16,666,962 52,348,192
------------ ------------ ------------ ------------ ------------
DIVIDENDS TO COMMON SHAREHOLDERS
FROM NET INVESTMENT INCOME ................... (2,773,784) (6,100,825) (1,533,670) (14,723,808) (9,152,747)
------------ ------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the issuance of common
shares ..................................... -- -- -- -- 388,477,506
Net proceeds from the underwriters'
overallotment option exercised ............. -- -- -- -- 47,650,000
Offering costs relating to the issuance
of preferred shares ........................ -- -- -- -- (2,597,000)
Reinvestment of common dividends ............. -- -- -- -- 23,277
------------ ------------ ------------ ------------ ------------
Net proceeds from capital share transactions -- -- -- -- 433,553,783
------------ ------------ ------------ ------------ ------------
Total increase (decrease) ....................... (1,222,946) 3,571,757 (983,273) 1,943,154 476,749,228
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS
Beginning of period ............................. 114,256,355 110,684,598 347,646,675 345,703,521 --
------------ ------------ ------------ ------------ ------------
End of period ................................... $113,033,409 $114,256,355 $346,663,402 $347,646,675 $476,749,228
============ ============ ============ ============ ============
End of period undistributed net
investment income ............................ $ 15,943,813 $ 14,553,874 $ 5,852,050 $ 1,064,111 $ 2,002,262
- -------------------
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. This information includes the initial investment by
BlackRock Funding, Inc. The other Trusts' statements are for six months.
(2) Consolidated Statement of Changes in Net Assets.
See Notes to Financial Statements
19
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK ADVANTAGE TERM TRUST
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2003 -----------------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------------- -------- -------- -------- -------- ---------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period(1) ....... $ 12.01 $ 11.64 $ 10.83 $ 10.04 $ 11.07 $ 10.60
------- ------- ------- ------- ------- -------
Investment operations:
Net investment income ...................... 0.44 1.19 1.00 0.59 0.59 0.68
Net realized and unrealized gain (loss) ....... (0.28) (0.18) 0.41 0.80 (1.02) 0.41
------- ------- ------- ------- ------- -------
Net increase (decrease) from
investment operations ...................... 0.16 1.01 1.41 1.39 (0.43) 1.09
------- ------- ------- ------- ------- -------
Dividends from net investment income .......... (0.29) (0.64) (0.60) (0.60) (0.60) (0.62)
------- ------- ------- ------- ------- -------
Net asset value, end of period(1) ............. $ 11.88 $ 12.01 $ 11.64 $ 10.83 $ 10.04 $ 11.07
======= ======= ======= ======= ======= =======
Market price, end of period(1) ................ $ 11.89 $ 11.85 $ 11.15 $ 9.88 $ 9.06 $ 9.81
======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN(2) .................... 2.82% 12.26% 19.44% 16.28% (1.58)% 11.03%
======= ======= ======= ====== ======= =======
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................................ 1.39%(3) 1.82% 2.87% 4.06% 3.60% 3.71%
Net expenses .................................. 1.39%(3) 1.82% 2.87% 4.06% 3.60% 3.71%
Net expenses excluding interest expense
and excise tax ............................. 0.85%(3) 0.86% 0.92% 0.88% 0.91% 0.91%
Net investment income ......................... 7.37%(3) 9.98% 8.78% 5.72% 5.58% 6.23%
SUPPLEMENTALDATA:
Average net assets (000) ...................... $113,894 $113,632 $108,142 $ 98,368 $100,534 $103,812
Portfolio turnover ............................ 7% 4% 17% 17% 9% 11%
Net assets, end of period (000) ............... $113,033 $114,256 $110,685 $103,010 $ 95,443 $105,238
Reverse repurchase agreements
outstanding, end of period (000) ........... $ 26,815 $ 27,874 $ 34,500 $ 48,262 $ 47,039 $ 50,051
Asset coverage(4) ............................. $ 5,215 $ 5,099 $ 4,208 $ 3,134 $ 3,029 $ 3,103
- ---------------
(1) Net asset value and market price 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 price data for the Trust's shares.
See Notes to Financial Statements
20
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK INVESTMENT QUALITY TERM TRUST
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, 2003 -----------------------------------------------------------------
(UNAUDITED) 2002 2001 2000 1999 1998
----------------- -------- -------- -------- -------- ---------
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of period1 ......... $ 9.44 $ 9.39 $ 9.21 $ 8.79 $ 9.56 $ 9.43
-------- -------- -------- -------- -------- --------
Investment operations:
Net investment income ...................... 0.17 0.62 0.55 0.51 0.52 0.66
Net realized and unrealized gain (loss) ....... (0.15) (0.17) 0.03 0.36 (0.79) 0.02
-------- -------- -------- -------- -------- --------
Net increase (decrease) from
investment operations ...................... 0.02 0.45 0.58 0.87 (0.27) 0.68
-------- -------- -------- -------- -------- --------
Dividends from net investment income .......... (0.04) (0.40) (0.40) (0.45) (0.50) (0.55)
-------- -------- -------- -------- -------- --------
Net asset value, end of period(1) ............. $ 9.42 $ 9.44 $ 9.39 $ 9.21 $ 8.79 $ 9.56
======== ======== ======== ======== ======== ========
Market price, end of period(1) ................ $ 9.43 $ 9.69 $ 9.26 $ 8.75 $ 7.88 $ 8.81
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(2) .................... (2.26)% 9.14% 10.62% 17.43% (4.99)% 11.50%
======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................................ 1.13%(3) 1.15% 2.34% 3.53% 3.70% 3.01%
Net expenses .................................. 1.13%(3) 1.15% 2.34% 3.53% 3.70% 3.01%
Net expenses excluding interest expense
and excise tax ............................. 0.86%(3) 0.88% 0.88% 0.91% 0.86% 0.85%
Net investment income ......................... 3.66%(3) 6.56% 5.87% 5.79% 5.65% 6.89%
SUPPLEMENTALDATA:
Average net assets (000) ...................... $348,413 $348,589 $346,413 $324,712 $334,553 $353,745
Portfolio turnover ............................ 73% 17% 32% 25% 81% 106%
Net assets, end of period (000) ............... $346,663 $347,647 $345,704 $338,843 $323,431 $351,971
Reverse repurchase agreements
outstanding, end of period (000) ........... $103,781 $108,315 $ 13,498 $135,044 $126,627 $105,869
Asset coverage(4) ............................. $ 4,340 $ 4,210 $ 26,611 $ 3,509 $ 3,554 $ 4,325
- ------------------
(1) Net asset value and market price 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 price data for the Trust's shares.
See Notes to Financial Statements
21
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK PREFERRED OPPORTUNITY TRUST
FOR THE PERIOD
FEBRUARY 28, 2003(1)
THROUGH
JUNE 30, 2003
(UNAUDITED)
-------------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period(2) ............................... $ 23.88
--------
Investment operations:
Net investment income .............................................. 0.64
Net realized and unrealized gain (loss) ............................ 2.24
Dividends to preferred shareholders from net investment income ..... (0.03)
--------
Net increase (decrease) from investment operations .................... 2.85
--------
Dividends to common shareholders from net investment income ........... (0.50)
--------
Capital charges with respect to issuance of:
Common shares ...................................................... (0.05)
Preferred shares ................................................... (0.14)
--------
Total capital charges ................................................. (0.19)
========
Net asset value, end of period(2) ..................................... $ 26.04
========
Market price, end of period(2) ........................................ $ 25.02
========
TOTAL INVESTMENT RETURN(3) ............................................ 2.12%
========
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:
Total expenses ........................................................ 1.31%(4)
Net expenses .......................................................... 1.31%(4)
Net expenses excluding interest expense ............................... 1.09%(4)
Net investment income before preferred share dividends ................ 7.95%(4)
Preferred share dividends ............................................. 0.36%
Net investment income available to common shareholders ................ 7.59%
SUPPLEMENTAL DATA:
Average net assets (000) .............................................. $435,777
Portfolio turnover .................................................... 59%
Net assets, end of period (000) ....................................... $476,749
Preferred shares outstanding (000) .................................... $220,800
Asset coverage per preferred share, end of period ..................... $ 78,983
- -------------------
(1) Commencement of investment operations. This information includes the
initial investment by BlackRock Funding, Inc. Net asset value immediately
after the closing of the public offering was $23.83.
(2) Net asset value and market price 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.
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 price data for the Trust's shares.
See Notes to Financial Statements
22
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION The BlackRock Advantage Term Trust Inc. ("Advantage")
& ACCOUNTING POLICIES and The BlackRock Investment Quality Term Trust Inc.
("Investment Quality"), Maryland corporations, are
registered as diversified, closed-end management investment companies under the
Investment Company Act of 1940, as amended. BlackRock Preferred Opportunity
Trust ("Preferred Opportunity"), a Delaware statutory trust, is registered as a
non-diversified, closed-end investment company under the Investment Company Act
of 1940, as amended.
Advantage and Investment Quality each transferred, on October 31, 1998, and
July 31, 2001, respectively, a substantial portion of their total assets to 100%
owned regulated investment company subsidiaries called BAT Subsidiary, Inc. and
BQT Subsidiary, Inc., respectively. The financial statements and these notes to
the financial statements for Advantage and Investment Quality are consolidated
and include the operations of both Advantage and Investment Quality and their
respective wholly owned subsidiary after elimination of all intercompany
transactions and balances.
The 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 and receive
23
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 portfolio's duration, making it less
sensitive to changes in interest rates from a market value perspective. The
Trusts' leverage provides extra income in a period of falling rates. Selling
floors reduces some of that 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.
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 securi-
24
ties and may be obligated to pay over any payments received on such borrowed
securities. A gain, limited to the price at which a Trust sold the security
short, or a loss, unlimited as to dollar amount, will be recognized upon the
termination of a short sale if the market price is greater or less than the
proceeds originally received.
SECURITY LENDING: The Trusts may lend their portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trusts may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trusts receive compensation
for lending their securities in the form of interest on the loan. The Trusts
also continue to receive interest on the securities loaned, and any gain or loss
in the market price of the securities loaned that may occur during the term of
the loan will be for the accounts of the Trusts. The Trusts did not enter into
any security lending transactions during the six months ended June 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 Preferred Opportunity)
intention to continue, and Preferred Opportunity intends to elect, to be treated
as a regulated investment company under the Internal Revenue Code and to
distribute sufficient amounts of their taxable income to shareholders.
Therefore, no Federal income tax provisions are required.
DIVIDENDS AND DISTRIBUTIONS: Each Trust declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Net long-term
capital gains, if any, in excess of loss carryforwards may be distributed
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from accounting
principles generally accepted in the United States of America.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
DEFERRED COMPENSATION AND BLACKROCK CLOSED-END SHARE EQUIVALENT INVESTMENT PLAN:
Under the revised deferred compensation plan approved by each Trust's Board,
non-interested Directors/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
closed-end funds 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.
NOTE 2. AGREEMENTS Each Trust has an Investment Management Agreement with
BlackRock Advisors, Inc. (the "Advisor"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Financial Management, Inc., a
wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to Preferred
Opportunity. BlackRock, Inc. is an indirect, majority owned subsidiary of The
PNC Financial Services Group, Inc. The investment management agreement on
Preferred Opportunity covers both investment advisory and administration
services. Advantage and Investment Quality 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, 0.50% for Advantage and 0.60% for
Investment Quality, of each Trust's average weekly net assets and 0.65% for
Preferred Opportunity of the Trust's average weekly managed assets. "Managed
assets" means the total assets of Preferred Opportunity (including any assets
attributable to any preferred shares that may be outstanding) minus the sum of
accrued liabilities (other than debt representing financial leverage).
The administration fee paid to Prudential is computed weekly and payable
monthly based on an annual rate of 0.08% for Advantage and Investment Quality
based on each Trust's average weekly net assets.
On May 22, 2003, the Boards of Advantage and Investment Quality approved the
change of each Trust's current administrator to the Advisor. The new
administration agreements become effective September 1, 2003. Each Trust's fee
structure, as described above, will remain unchanged under the new
administration agreements.
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 Preferred Opportunity. 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, Advantage, Investment
Quality and Preferred Opportunity received earnings credits from its custodian
for positive cash balances maintained, which are used to offset custody fees
during the period ended June 30, 2003, the amounts earned were $486, $771 and
$6,098, respectively.
25
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other
SECURITIES than short-term investments, dollar rolls and U.S.
government securities, for the period ended June 30,
2003, aggregated as follows:
TRUST PURCHASES SALES
- ----- --------- -----
Advantage $ 9,465,051 $ 10,101,760
Investment Quality 375,727,751 282,235,555
Preferred Opportunity 910,789,608 324,051,247
There were no transactions in U.S. government securities by any Trust for the
period ended June 30, 2003.
A Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by affiliates or
mortgage related securities containing loans or mortgages originated by 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 June 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
- ----- ---- ------------ ------------ ---
Advantage $127,000,074 $16,248,956 $3,717,351 $12,531,605
Investment Quality 425,159,190 25,177,056 4,134,953 21,042,103
Preferred Opportunity 658,646,565 34,427,962 2,307,628 32,120,334
For Federal income tax purposes, the following Trusts had capital loss
carryforwards at December 31, 2002:
CAPITAL LOSS CAPITAL LOSS
TRUST CARRYFORWARD AMOUNTS EXPIRES TRUST CARRYFORWARD AMOUNTS EXPIRES
- -------- -------------------- ------- ----- -------------------- -------
Advantage $ 98,294 2005 Investment Quality $ 3,844,468 2003
81,418 2008 1,498,011 2005
253,874 2010 9,901,383 2007
-------- 6,843,565 2008
$ 433,586 3,059,351 2009
======= 1,548,342 2010
-----------
$26,695,120
===========
Accordingly, no capital gain distributions are expected to be paid to
shareholders of a Trust until that Trust has net realized capital gains in
excess of its carryforward amounts.
Details of open financial futures contracts at June 30, 2003, were as
follows:
NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED
TRUST CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2003 DEPRECIATION
- -------- ----------- ---------- -------------- ---------------- ---------------- --------------
LONG POSITION:
Advantage 100 30 Yr. U.S. T-Bond Sep. '03 $ 12,016,806 $ 11,734,375 $ (282,431)
Details of open interest rate swap at June 30, 2003, were as follows:
NOTIONAL FIXED FLOATING TERMINATION UNREALIZED
TRUST AMOUNT (000) RATE RATE DATE APPRECIATION
- -------- ---------------- ---------- ---------------- --------------- ----------------
Preferred Opportunity $60,000 3.51% 3-month LIBOR 6/16/13 $1,843,157
Preferred Opportunity pays fixed interest rate and receives floating rate.
Transactions in options written during the period ended June 30, 2003, were
as follows:
PREMIUM
TRUST CONTRACTS RECEIVED
- --------- ----------- -----------
INVESTMENT QUALITY
Options outstanding at December 31, 2002 -- $ --
Options written 200 55,500
Options terminated in closing purchase transactions (200) (55,500)
--------- ----------
Options outstanding at June 30, 2003 -- $ --
========= ==========
26
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trusts may enter
into reverse repurchase agreements with qualified,
third-party broker-dealers as determined by and under the direction of each
Trust's Board. Interest on the value of reverse repurchase agreements issued and
outstanding is based upon competitive market rates at the time of issuance. At
the time a Trust enters into a reverse repurchase agreement, it will maintain
with the lender, 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 period ended June 30, 2003, were as follows:
AVERAGE DAILY WEIGHTED AVERAGE
TRUST BALANCE INTEREST RATE
- ----- ------------- ----------------
Advantage $27,740,093 1.32%
Investment Quality 68,846,949 1.35
Preferred Opportunity 45,573,984 1.47
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.
NOTE 5. CAPITAL There are 200 million of $0.01 par value common shares
authorized for Advantage and Investment Quality. There
are an unlimited number of $0.001 par value common shares authorized for
Preferred Opportunity. At June 30, 2003, the common shares outstanding and the
shares owned by affiliates of the Advisor of each Trust were as follows:
COMMON SHARES COMMON SHARES
TRUST OUTSTANDING OWNED
- ----- ---------------- ----------------
Advantage 9,510,667 8,378
Investment Quality 36,810,639 --
Preferred Opportunity 18,305,777 4,817
Transactions in common shares of beneficial interest from February 28, 2003
(commencement of investment operations) through June 30, 2003, for Preferred
Opportunity, were as follows:
SHARES FROM
-------------------------------------------------------------------
INITIAL UNDERWRITERS' EXERCISING REINVESTMENT NET INCREASE IN
TRUST PUBLIC OFFERING THE OVER-ALLOTMENT OPTION OF DIVIDENDS SHARES OUTSTANDING
- ----- --------------- ------------------------- ------------ ------------------
Preferred Opportunity 16,304,817 2,000,000 960 18,305,777
Offering costs of $900,000 incurred in connection with Preferred
Opportunity's offering of common shares have been charged to paid-in capital in
excess of par of the common shares.
On April 8, 2003, Preferred Opportuntiy reclassified common shares of
beneficial interest and issued several series of Auction Market Preferred Shares
("preferred shares") listed in the table below. The preferred shares have a
liquidation value of $25,000 per share plus any accumulated unpaid dividends.
TRUST AND SERIES SHARES
- ---------------- ------
Preferred Opportunity
T7 2,944
W7 2,944
R7 2,944
Underwriting discounts of $2,208,000 and offering costs of $389,000 incurred
in connection with the preferred share offering have been charged to paid-in
capital in excess of par of the common shares.
Dividends on seven-day preferred shares are cumulative at a rate which is
reset every seven days based on the results of an auction. The dividend range on
the preferred shares for Preferred Opportunity for the period ended June 30,
2003, was 0.96% to 1.35%.
Preferred Opportunity may not declare dividends or make other distributions
on common shares or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
preferred shares would be less than 200%. The preferred shares are redeemable at
the option of Preferred Opportunity, in whole or in part, on any dividend
payment date at $25,000 per share plus any accumulated or unpaid dividends
whether or not declared. The preferred shares are also subject to mandatory
redemption at $25,000 per share plus any accumulated or unpaid dividends,
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of Preferred Opportunity, as set forth in Preferred
Opportunity's Declaration of Trust, are not satisfied. The holders of preferred
shares have voting rights equal to the holders of common shares (one vote per
share) and will vote together with holders of common shares as a single class.
However, holders of preferred shares, voting as a separate class, are also
entitled to elect two Trustees for Preferred Opportunity. In addition, the
Investment Company Act of 1940, as amended, requires that along with approval by
shareholders that might otherwise be required, the approval of the holders of a
majority of any outstanding preferred shares, voting separately as a class would
be required
27
to (a) adopt any plan of reorganization that would adversely affect the
preferred shares, (b) change a Trust's sub-classification as a closed-end
investment company or change its fundamental investment restrictions and (c)
change the nature of its business so as to cease to be an investment company.
During the period ended June 30, 2003, Preferred Opportunity issued 960
shares, under the terms of its Dividend Reinvestment Plan.
NOTE 6. DIVIDENDS Subsequent to June 30, 2003, the Board of each of the
Trusts declared dividends from undistributed earnings
per common share payable July 31, 2003, to shareholders of record on July 15,
2003. The per share common dividends declared were as follows:
COMMON DIVIDEND
TRUST PER SHARE
- ----- -------------------
Advantage $0.058333
Investment Quality 0.008333
Preferred Opportunity 0.166667
The dividends declared on preferred shares for the period July 1, 2003 to
July 31, 2003, for Preferred Opportunity were as follows:
DIVIDENDS
TRUST AND SERIES DECLARED
- ---------------- -----------
Preferred Opportunity
T7 $77,604
W7 74,193
R7 53,875
28
DIVIDEND REINVESTMENT PLANS
- --------------------------------------------------------------------------------
Pursuant to each Trust's respective Dividend Reinvestment Plan (the "Plan"),
shareholders of Advantage and Investment Quality may elect, while shareholders
of Preferred Opportunity are automatically enrolled, to have all distributions
of dividends and capital gains reinvested by EquiServe Trust Company, N.A. (the
"Plan Agent") in the respective Trust's shares pursuant to the Plan.
Shareholders who do not participate in the Plan will receive all distributions
in cash paid by check and mailed directly to the shareholders of record (or if
the shares are held in street or other nominee name, then to the nominee) by the
Plan Agent, which serves as agent for the shareholders in administering the
Plan.
After Advantage and/or Investment Quality declares a dividend or determines
to make a capital gain distribution, the Plan Agent will acquire shares for the
participants' account, by the purchase of outstanding shares on the open market,
on the Trust's primary exchange or elsewhere ("open market purchases"). The
Trust will not issue any new shares under the Plan.
After Preferred Opportunity declares a dividend or determines to make a
capital gain distribution, the Plan Agent will acquire shares for the
participants' account, depending upon the circumstances described below, either
(i) through receipt of unissued but authorized shares from the Trust ("newly
issued shares") or (ii) by open market purchases. If, on the dividend payment
date, the NAV is equal to or less than the market price per share plus estimated
brokerage commissions (such condition being referred to herein as "market
premium"), the Plan Agent will invest the dividend amount in newly issued shares
on behalf of the participants. The number of newly issued shares to be credited
to each participant's account will be determined by dividing the dollar amount
of the dividend by the NAV on the date the shares are issued. However, if the
NAV is less than 95% of the market price on the payment date, the dollar amount
of the dividend will be divided by 95% of the market price on the payment date.
If, on the dividend payment date, the NAV is greater than the market value per
share plus estimated brokerage commissions (such condition being referred to
herein as "market discount"), the Plan Agent will invest the dividend amount in
shares acquired on behalf of the participants in open-market purchases.
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 by calling (800) 699-1BFM.
29
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Joint Annual Meeting of Shareholders was held on May 22, 2003, to
elect a certain number of Directors for each of the following Trusts to
three-year terms, unless otherwise indicated, expiring in 2006:
ADVANTAGE
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 8,755,790 247,273
Kent Dixon 8,807,518 195,545
Robert S. Kapito 8,807,831 195,232
Walter F. Mondale(1) 8,729,171 273,892
INVESTMENT QUALITY
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 34,307,423 665,060
Robert S. Kapito(2) 34,605,319 367,164
Walter F. Mondale 34,169,784 802,699
Ralph L. Schlosstein 34,604,688 367,795
- -----------------
(1) Walter F. Mondale's term will expire in 2005.
(2) Robert S. Kapito's term will expire in 2004.
30
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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
Auction Agent(1)
Bank of New York
100 Church Street, 8th Floor
New York, NY 10286
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.
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BlackRockAdvisors, Inc.(2) Prudential Investments LLC
100 Bellevue Parkway Gateway Center Three
Wilmington, DE 19809 100 Mulberry Street
(800) 227-7BFM Newark, NJ 07102-4077
BlackRock Preferred Opportunity Trust (800) 227-7BFM
BlackRock Advantage Term Trust
BlackRock Investment Quality Term
Trust
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(1) For Preferred Opportunity only.
(2) Provides administrative services for Preferred Opportunity only. Effective
September 1, 2003, BlackRock Advisors, Inc. will provide the administrative
services for all the Trusts.
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 [LOGO]
contained in this report are as dated and are subject
to change.
CLF-SEMI-5
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable for semi-annual reports.
ITEM 6. [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.
(a) The Trust's principal executive officer and principal financial officer
have evaluated the Trust's disclosure controls and procedures within 90
days of this filing and have concluded that the Trust's disclosure
controls and procedures were effective, as of that date, in ensuring that
information required to be disclosed by the registrant in this Form N-CSR
was recorded, processed, summarized, and reported timely.
(b) The Trust's principal executive officer and principal financial officer
are aware of no changes in the Trust's internal control over financial
reporting that occurred during the Trust's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially
affect, the Trust's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics - Not applicable for semi-annual reports.
(a)(2) Certifications of principal executive officer and principal financial
officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Certification of principal executive officer and principal financial
officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) BlackRock Preferred Opportunity Trust
By: /s/ Henry Gabbay
---------------------------
Name: Henry Gabbay
Title: Treasurer
Date: 6/27/03
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: 6/27/03
By: /s/ Henry Gabbay
---------------------------
Name: Henry Gabbay
Title: Principal Financial Officer
Date: 6/27/03