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: 811-08951
BAT Subsidiary, Inc.
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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
BAT Subsidiary, Inc.
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:
BLackRock
Closed-End Funds
Semi-Annual Report
JUNE 30, 2003 (UNAUDITED)
BAT Subsidiary, Inc.
BQT Subsidiary, Inc.
NOT FDIC INSURED [GRAPHIC OMITTED]
MAY LOSE VALUE
NO BANK GUARANTEE
TABLE OF CONTENTS
Portfolios of Investments ................................................. 1
Financial Statements
Statements of Assets and Liabilities ................................... 7
Statements of Operations ............................................... 8
Statements of Cash Flows ............................................... 9
Statements of Changes in Net Assets .................................... 10
Financial Highlights ...................................................... 11
Notes to Financial Statements ............................................. 13
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
BAT SUBSIDIARY, INC.
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--108.8%
MORTGAGE PASS-THROUGHS--0.0%
$ 2 Federal National Mortgage Assoc., 9.50%, 7/01/20 ........................................ $ 2,442
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--8.0%
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
-----------
Total Agency Multiple Class Mortgage Pass-Throughs ...................................... 7,204,428
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INVERSE FLOATING RATE MORTGAGES--5.3%
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
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
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 ................................................... 4,784,782
-----------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--1.6%
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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PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--2.5%
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
-----------
Total Principal Only Mortgage-Backed Securities ......................................... 2,226,417
-----------
See Notes to Financial Statements
1
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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COMMERCIAL MORTGAGE-BACKED SECURITIES--2.6%
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
-----------
Total Asset-Backed Securities ........................................................... 43,527
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U.S. GOVERNMENT AND AGENCY SECURITIES--2.2%
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--61.4%
12,407 Aid to Israel, 2/15/05 - 8/15/05 ........................................................ 11,797,266
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
26,000(3) U.S. Treasury Note Strips, 8/15/05 - 11/15/05 ........................................... 25,238,424
-----------
Total Agency Zero Coupon Bonds .......................................................... 55,450,921
-----------
TAXABLE MUNICIPAL BONDS--7.8%
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
-----------
Total Taxable Municipal Bonds ........................................................... 7,026,686
-----------
CORPORATE BONDS--6.6%
ENERGY--1.2%
BBB+ 1,000 Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel)(2) ............................... 1,087,310
-----------
FINANCE & BANKING--2.4%
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
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Total Finance & Banking ................................................................. 2,147,274
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TELECOMMUNICATION--1.3%
A 1,000 Alltel Corp., 7.50%, 3/01/06 ............................................................ 1,132,410
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TRANSPORTATION--1.7%
NR 1,613 Union Pacific Corp., Zero Coupon, 11/01/03 - 5/01/05 .................................... 1,551,933
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Total Corporate Bonds ................................................................... 5,918,927
-----------
STRIPPED MONEY MARKET INSTRUMENT--10.8%
10,000 Vanguard Prime Money Market Portfolio, 12/31/04 ......................................... 9,778,000
-----------
Total investments--108.8% (cost $90,363,029) ............................................ 98,180,070
Liabilities in excess of other assets--(8.8)% ........................................... (7,935,012)
-----------
Net Assets--100% ........................................................................ $90,245,058
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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 5.0% 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 0.05% of net assets.
(5) Security is fair valued.
See Notes to Financial Statements.
2
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JUNE 30, 2003
BQT SUBSIDIARY, INC.
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--136.8%
FEDERAL HOUSING ADMINISTRATION--5.3%
$ 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
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Total Federal Housing Administration .................................................... 14,463,311
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--22.0%
Federal Home Loan Mortgage Corp.,
552 Ser. 1666, Class K, 1/15/24 ........................................................... 556,476
3,197(2) Ser. 1680, Class Z, 2/15/24 ........................................................... 3,210,650
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
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Total Agency Multiple Class Mortgage Pass-Throughs ...................................... 60,288,785
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NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--9.0%
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 A-3, 6.75%, 5/25/32 .............. 304,125
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Total Non-Agency Multiple Class Mortgage Pass-Throughs .................................. 24,898,169
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ADJUSTABLE RATE MORTGAGE SECURITIES--0.6%
AAA 1,544 Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A16, 4/25/08 ........... 1,549,230
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INVERSE FLOATING RATE MORTGAGES--27.1%
Federal Home Loan Mortgage Corp.,
79 Ser. 1565, Class OA, 8/15/08 .......................................................... 79,026
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
87(2) 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
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
See Notes to Financial Statements.
3
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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INVERSE FLOATING RATE MORTGAGES--(CONT'D)
$ 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
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Total Inverse Floating Rate Mortgages ................................................... 74,466,493
-----------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--2.5%
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
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
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Total Interest Only Mortgage-Backed Securities .......................................... 6,869,114
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PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--6.6%
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
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Total Principal Only Mortgage-Backed Securities ......................................... 17,957,122
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES--2.1%
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--1.6%
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--5.6%
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
1,000 U.S. Treasury Bond, 5.375%, 2/15/31 ..................................................... 1,126,055
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
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Total U.S. Government and Agency Securities ............................................. 15,401,894
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TAXABLE MUNICIPAL BONDS--8.0%
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, GO, 7.50%, 4/15/04 ....................................................... 5,221,700
See Notes to Financial Statements.
4
PRINCIPAL
AMOUNT
RATING(1) (000) DESCRIPTION VALUE
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TAXABLE MUNICIPAL BONDS--(CONT'D)
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
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Total Taxable Municipal Bonds ........................................................... 22,066,335
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CORPORATE BONDS--30.1%
AEROSPACE & DEFENSE--1.2%
BBB- 3,000 Northrop Grumman Corp., 8.625%, 10/15/04 ................................................ 3,256,740
-----------
BUILDING & DEVELOPMENT--2.0%
BBB+ 5,000 Pulte Corp., 8.375%, 8/15/04 ............................................................ 5,347,050
-----------
CONSUMER PRODUCTS--0.8%
BBB+ 2,000 General Mills, Inc., 8.75%, 9/15/04 ..................................................... 2,170,400
-----------
ENERGY--4.1%
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--11.7%
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--2.8%
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--7.4%
A3 18,320(2) Targeted Return Index Securities Trust, Ser. 5, 5.887%, 1/25/07(3) ...................... 20,357,184
-----------
Total Corporate Bonds ................................................................... 82,484,674
-----------
FOREIGN GOVERNMENT BONDS--2.0%
A+ 5,000(2) Quebec Province, 8.625%, 1/19/05 (Canada) ............................................... 5,537,300
-----------
STRIPPED MONEY MARKET INSTRUMENTS--14.3%
40,000 Vanguard Prime Money Market Portfolio, 12/31/04 ......................................... 39,112,000
-----------
Total Long-Term Investments--136.8%
(cost $355,433,812) ................................................................... 375,211,198
-----------
SHORT-TERM INVESTMENT--0.3%
DISCOUNT NOTE
700 Federal Home Loan Bank, 0.95%, 7/01/03 (cost $700,000) .................................. 700,000
-----------
Total investments before investment sold short--137.1%
(cost $356,133,812) ................................................................... 375,911,198
-----------
See Notes to Financial Statements.
5
PRINCIPAL
AMOUNT
(000) DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT SOLD SHORT--(0.4%)
$ 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--136.7% (cost $355,125,687) ............. 374,891,003
Other liabilities in excess of other assets--(36.7)% .................................... (100,569,615)
-------------
NET ASSETS--100% ........................................................................ $ 274,321,388
=============
- ------------------------------
(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 15.0% of its net assets, with a current market value of $41,051,805,
in securities restricted as to resale.
(4) Illiquid securities representing 0.13% of net assets.
(5) Security is fair valued.
See Notes to Financial Statements.
6
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 2003
- --------------------------------------------------------------------------------
BAT BQT
SUBSIDIARY, INC. SUBSIDIARY, INC.
---------------- ----------------
ASSETS
Investments at value (cost $90,363,029 and $356,133,812, respectively) ...................... $98,180,070 $375,911,198
Cash ........................................................................................ 145,669 212,203
Receivable from investments sold ............................................................ 26,313 144,506
Interest receivable ......................................................................... 305,208 3,925,478
Collateral deposited with brokers ........................................................... -- 1,022,500
Variation margin receivable ................................................................. 68,750 --
----------- ------------
98,726,010 381,215,885
----------- ------------
LIABILITIES
Reverse repurchase agreements ............................................................... 6,883,750 103,781,268
Investments sold short at value (proceeds $1,008,125) ....................................... -- 1,020,195
Due to parent ............................................................................... 1,595,131 2,068,593
Interest payable ............................................................................ 2,071 24,441
----------- ------------
8,480,952 106,894,497
----------- ------------
NET ASSETS .................................................................................. $90,245,058 $274,321,388
=========== ============
Composition of Net Assets:
Par value ................................................................................. $ 95,107 $368,106
Paid-in capital in excess of par .......................................................... 81,227,129 272,287,001
Undistributed net investment income ....................................................... 4,155,364 5,119,599
Accumulated net realized loss ............................................................. (2,767,152) (23,218,634)
Net unrealized appreciation ............................................................... 7,534,610 19,765,316
----------- ------------
Net assets, June 30, 2003 ................................................................... $90,245,058 $274,321,388
=========== ============
Net asset value per common share(1): ........................................................ $ 9.49 $ 7.45
====== ======
(1) Common shares issued and outstanding .................................................... 9,510,667 36,810,639
See Notes to Financial Statements.
7
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENED JUNE 30, 2003
- -------------------------------------------------------------------------------
BAT BQT
SUBSIDIARY, INC. SUBSIDIARY, INC.
--------------- ----------------
INVESTMENT INCOME
Interest income ........................................................................... $ 3,536,830 $ 6,324,352
----------- -----------
EXPENSES
Investment advisory ....................................................................... 245,007 821,004
Administration ............................................................................ 39,201 109,467
Custodian ................................................................................. 39,142 57,165
Reports to shareholders ................................................................... 5,000 5,000
Independent accountants ................................................................... 17,463 37,309
Legal ..................................................................................... 10,644 53,368
Miscellaneous ............................................................................. 13,955 20,537
----------- -----------
Total expenses excluding interest expense and excise tax ................................ 370,412 1,103,850
Interest expense ...................................................................... 4,685 326,406
Excise tax ............................................................................ 57,848 --
----------- -----------
Total expenses .......................................................................... 432,945 1,430,256
Less expenses paid indirectly ......................................................... (422) (611)
----------- -----------
Net expenses ............................................................................ 432,523 1,429,645
----------- -----------
Net investment income ....................................................................... 3,104,307 4,894,707
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments ............................................................................... (2,466,785) 14,952
Futures ................................................................................... -- (7,896,920)
Options written ........................................................................... -- 55,500
----------- -----------
(2,466,785) (7,826,468)
----------- -----------
Net change in unrealized appreciation/depreciation on:
Investments ............................................................................... 632,787 1,573,256
Futures ................................................................................... (282,431) 1,792,500
Short sales ............................................................................... -- 6,635
----------- -----------
350,356 3,372,391
----------- -----------
Net loss .................................................................................... (2,116,429) (4,454,077)
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................ $ 987,878 $ $440,630
=========== ===========
See Notes to Financial Statements.
8
STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2003
- -------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS BAT BQT
TO NET CASH FLOWS PROVIDED BY SUBSIDIARY, INC. SUBSIDIARY, INC.
(USED FOR) OPERATING ACTIVITIES ---------------- ----------------
Net increase in net assets resulting from operations ........................................ $ 987,878 $ 440,630
------------ -------------
Decrease (increase) in investments .......................................................... 795,158 (107,502,604)
Net realized loss ........................................................................... 2,466,785 7,826,468
Increase in unrealized appreciation ......................................................... (350,356) (3,372,391)
Decrease (increase) in receivable for investments sold ...................................... (26,313) 68,399
Decrease (increase) in variation margin receivable .......................................... (68,750) 218,750
Decrease in collateral deposited with brokers ............................................... -- 3,750
Decrease (increase) in interest receivable .................................................. 450,383 (876,640)
Decrease in other assets .................................................................... -- 429,343
Decrease in payable for investments purchased ............................................... -- (112,369)
Increase in interest payable ................................................................ 1,548 21,584
Decrease in due to broker ................................................................... -- (1,855,606)
Decrease in investments sold short .......................................................... -- (6,635)
Increase in due to parent ................................................................... 427,837 1,103,194
------------ -------------
Total adjustments ......................................................................... 3,696,292 (104,054,757)
------------ -------------
Net cash flows provided by (used for) operating activities .................................. $ 4,684,170 $(103,614,127)
============ =============
INCREASE IN CASH
Net cash flows provided by (used for) operating activities .................................. $ 4,684,170 $(103,614,127)
------------ -------------
Cash flows provided by (used for) financing activities:
Increase in reverse repurchase agreements ................................................. 5,855,000 103,781,268
Cash dividends paid ....................................................................... (10,530,801) --
------------ -------------
Net cash flows provided by (used for) financing activities .................................. (4,675,801) 103,781,268
------------ -------------
Net increase in cash ...................................................................... 8,369 167,141
Cash at beginning of period ............................................................... 137,300 45,062
------------ -------------
Cash at end of period ..................................................................... $ 145,669 $ 212,203
============ =============
See Notes to Financial Statements.
9
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 (UNAUDITED), AND FOR THE YEAR ENDED
DECEMBER 31, 2002
- -------------------------------------------------------------------------------
BAT SUBSIDIARY, INC. BQT SUBSIDIARY, INC.
------------------------------- -------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ............................ $ 3,104,307 $ 9,267,214 $ 4,894,707 $ 16,864,501
Net realized gain (loss) ......................... (2,466,785) 938,372 (7,826,468) (1,438,672)
Net change in unrealized appreciation/depreciation 350,356 (3,666,493) 3,372,391 (6,279,276)
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations 987,878 6,539,093 440,630 9,146,553
Dividends from net investment income ............... (10,530,801) (5,436,642) -- (24,000,000)
------------- ------------- ------------- -------------
Total increase (decrease) .......................... (9,542,923) 1,102,451 440,630 (14,853,447)
NET ASSETS
Beginning of period ................................ 99,787,981 98,685,530 273,880,758 288,734,205
------------- ------------- ------------- -------------
End of period ...................................... $ 90,245,058 $ 99,787,981 $ 274,321,388 $ 273,880,758
============= ============= ============= =============
End of period undistributed net investment income .. $ 4,155,364 $ 11,581,858 $ 5,119,599 $ 224,892
See Notes to Financial Statements.
10
FINANCIAL HIGHLIGHTS
BAT SUBSIDIARY, INC.
- -------------------------------------------------------------------------------
FOR THE PERIOD
OCTOBER 31, 1998(1)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, THROUGH
JUNE 30, 2003 ----------------------------------------------- DECEMBER 31,
(UNAUDITED) 2002 2001 2000 1999 1998
--------------- ------- ------- ------- ------- ------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period 10.49 $ 10.38 $ 9.74 $ 9.17 $ 9.69 $ 8.65
------- -------- -------- -------- -------- --------
Investment operations:
Net investment income 0.33 0.97 0.88 0.54 0.51 0.06
Net realized and unrealized gain (loss) (0.22) (0.29) 0.23 0.62 (0.65) 0.98
------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations 0.11 0.68 1.11 1.16 (0.14) 1.04
------- -------- -------- -------- -------- --------
Dividends and distributions:
From net investment income .................... (1.11) (0.57) (0.47) (0.59) (0.21) --
From net capital gains ........................ -- -- -- -- (0.17) --
------- -------- -------- -------- -------- --------
Total dividends and distributions ................ (1.11) (0.57) (0.47) (0.59) (0.38) --
------- -------- -------- -------- -------- --------
Net asset value, end of period ................... 9.49 $ 10.49 $ 10.38 $ 9.74 $ 9.17 9.69
------- -------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN(2)........................ 1.02% 6.55% 11.50% 12.66% (1.44)% 12.02%
------- -------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................................... 0.88%(3) 1.29% 1.61% 2.06% 1.89% 1.75%(3)
Net expenses ..................................... 0.88%(3) 1.29% 1.61% 2.06% 1.89% 1.75%(3)
Net expenses excluding interest expense
and excise tax ................................ 0.75%(3) 0.76% 0.78% 0.75% 0.81% 0.89%(3)
Net investment income ............................ 6.34%(3) 9.27% 8.45% 5.72% 5.28% 3.50%(3)
SUPPLEMENTAL DATA:
Average net assets (000) ......................... $98,815 $99,920 $99,342 $90,035 $91,165 $90,986
Portfolio turnover ............................... 10% 6% 23% 27% 11% 3%
Net assets, end of period (000) .................. $90,245 $99,788 $98,686 $92,670 $87,247 $92,133
Reverse repurchase agreements outstanding,
end of period (000) ........................... $ 6,884 $ 1,029 $ 6,009 $18,536 $16,684 $17,190
Asset coverage(4) ................................ $14,110 $97,999 $17,424 $ 5,999 $ 6,229 $ 6,369
- --------------------
(1) Commencement of investment operations.
(2) This entity is not publicly traded. The total investment return is
calculated assuming a purchase of a share at the current net asset value on
the first day and a sale at the current net asset value on the last day of
each period reported. 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 net asset value data for the Trust's shares.
See Notes to Financial Statements.
11
FINANCIAL HIGHLIGHTS
BQT SUBSIDIARY, INC.
- ------------------------------------------------------------------------------
FOR THE PERIOD
JULY 31, 2001(1)
SIX MONTHS ENDED THROUGH
JUNE 30, 2003 YEAR ENDED DECEMBER 31,
(UNAUDITED) DECEMBER 31, 2002 2001
----------- ----------------- ---------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................................ $ 7.44 $ 7.84 $ $7.97
-------- -------- --------
Investment operations:
Net investment income ............................................... 0.13 0.46 0.19
Net realized and unrealized loss .................................... (0.12) (0.21) (0.32)
-------- -------- --------
Net increase (decrease) from investment operations .................. 0.01 0.25 (0.13)
-------- -------- --------
Dividends from net investment income ................................ -- (0.65) --
-------- -------- --------
Net asset value, end of period ...................................... $ 7.45 $ 7.44 $ $7.84
======== ======== ========
TOTAL INVESTMENT RETURN(2)........................................... 0.13% 3.19% (1.63)%
======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Total expenses ...................................................... 1.05%(3) 0.82% 1.06%(3)
Net expenses ........................................................ 1.04%(3) 0.82% 1.06%(3)
3et expenses excluding interest expense and excise tax .............. 0.81%(3) 0.82% 0.81%(3)
Net investment income ............................................... 3.58%(3) 5.71% 5.75%(3)
SUPPLEMENTALDATA:
Average net assets (000) ............................................ $275,936 $295,366 $293,522
Portfolio turnover .................................................. 62% 24% 2%
Net assets, end of period (000) ..................................... $274,321 $273,881 $288,734
Reverse repurchase agreements outstanding, end of period (000) ...... $103,781 $ -- $ --
Asset coverage(4) ................................................... $ 3,643 $ -- $ --
- --------------------
(1) Commencement of investment operations.
(2) This entity is not publicly traded. The total investment return is
calculated assuming a purchase of a share at the current net asset value on
the first day and a sale at the current net asset value on the last day of
each period reported. 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 net asset value data for the Trust's shares.
See Notes to Financial Statements.
12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
BAT Subsidiary, Inc. ("BATS") and BQT Subsidiary, Inc. ("BQTS"), Maryland
corporations, are diversified closed-end management investment companies. BATS
and BQTS were incorporated solely for the purpose of receiving a substantial
portion of the assets of The BlackRock Advantage Term Trust Inc. ("BAT") and The
BlackRock Investment Quality Term Trust Inc. ("BQT"), respectively, and as such,
are a wholly owned subsidiary of BAT and BQT, respectively.
The following is a summary of significant accounting policies followed by the
Trusts.
SECURITIES VALUATION: The Trusts value most of its 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 (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 the 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 the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes discount or amortizes premium 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 the 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 the Trust has realized a
gain or a loss on investment transactions. The 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 Trust, 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 Trust 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 the 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 the 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 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, the 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, BlackRock Advisors, Inc. closely monitors
swaps and does not anticipate non-performance by any counterparty.
13
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 the 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 its exposure to changes in short-term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short-term interest rates, which the Trusts experiences
primarily in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trusts does 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 portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the 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 Trust receives.
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 securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which a Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
SECURITIES 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 its 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 account of the Trust. The Trusts did not enter into any
security lending transactions during the six months ended June 30, 2003.
14
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 intention to continue to be treated as
a regulated investment company under the Internal Revenue Code and to distribute
sufficient amounts of its taxable income to shareholders. Therefore, no Federal
income tax provisions are required. As part of a tax planning strategy, each
Trust intends to retain a portion of its taxable income and pay an excise tax on
the undistributed amounts.
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 those
estimates.
NOTE 2. AGREEMENTS
Each Trust has an Investment Management Agreement with BlackRock Advisors, Inc.
(the "Advisor"), a wholly owned subsidiary of BlackRock, Inc., which in turn is
an indirect, majority owned subsidiary of The PNC Financial Services Group, Inc.
Each Trust has an Administration Agreement with Prudential Investments LLC
("Prudential"), an indirect, wholly owned subsidiary of Prudential Financial,
Inc.
On May 22, 2003, the Boards of BATS and BQTS approved the change of each
Trust's current administrator to the Advisor. The new administration agreements
become effective September 1, 2003.
Each Trust reimburses its respective parent for its pro rata share of
applicable expenses, including investment advisory and administrative fees, in
an amount equal to the proportionate amount of average net assets which are held
by each Trust relative to the average net assets of its respective parent.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
dollar rolls and U.S. government securities, for the six months ended June 30,
2003, aggregated as follows:
TRUST PURCHASES SALES
- --------------- ------------------- -------------
BATS $ 9,465,051 $ 9,609,833
BQTS 368,242,456 189,889,484
There were no transactions in U.S. government securities by any Trust for the
six months 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 PNCMortgage 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 PNCMortgage Securitites 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
- -------------- ---------------- ----------------- ---------------- --------------
BATS $ 90,420,392 $11,453,954 $3,694,276 $ 7,759,678
BQTS 356,140,284 23,234,088 3,463,174 19,770,914
For Federal income tax purposes, the Trusts had capital loss carryforwards as
follows:
CAPITAL LOSS CAPITAL LOSS
CARRYFORWARD CARRYFORWARD
AMOUNT AT AMOUNT AT
TRUST SEPTEMBER 30, 2002 EXPIRES TRUST JULY 31, 2002 EXPIRES
- -------------- -------------------- --------- --------- ----------------- ---------
BATS $175,000 2008 BQTS $7,677,700 2010
128,000 2009 ----------
21,000 2010
--------
$324,000
========
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. In addition, for Federal Income tax
purposes, BQTS elected to treat losses of approximately $3,619,600 incurred in
the period November 1, 2001 through July 31, 2002 as having been incurred in the
following tax year.
15
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:
BATS 100 30 Yr. U.S. T-Bond Sep. '03 $12,016,806 $11,734,375 $(282,431)
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 -- $ --
==== ========
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
--------- --------------- ------------------
BATS $ 784,620 1.20%
BQTS 49,249,311 1.34%
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. The Trusts did not enter into any dollar roll
transactions during the six months ended June 30, 2003.
NOTE 5. CAPITAL
There are 200 million shares of $0.01 par value common shares authorized for
each Trust. BAT and BQT owned all of the shares outstanding at June 30, 2003,
for their respective subsidiary.
16
BAT Subsidiary, Inc. and BQT Subsidiary, Inc.
Directors
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
Administrator(1)
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(800) 699-1BFM
Independent Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Legal Counsel - Independent Directors
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.
- --------------
(1) Effective September 1, 2003, BlackRock Advisors, Inc. will provide the
administrative services for all Trusts.
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 [LOGO]
this report are as dated and are subject to
change.
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) BAT Subsidiary, Inc.
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