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: 302 797-2162
Date of fiscal year end: December 31, 2003
Date of reporting period: December 31, 2003
ITEM 1. REPORTS TO SHAREHOLDERS
The Trust's annual report transmitted to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 is as follows:
BlackRock
Closed-End Funds
Annual Report
DECEMBER 31, 2003
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BAT Subsidiary, Inc.
BQT Subsidiary, Inc.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE [BLACKROCK LOGO]
TABLE OF CONTENTS
Portfolios of Investments ................................................ 1
Financial Statements
Statements of Assets and Liabilities .................................. 6
Statements of Operations .............................................. 7
Statements of Cash Flows .............................................. 8
Statements of Changes in Net Assets ................................... 9
Financial Highlights ..................................................... 10
Notes to Financial Statements ............................................ 12
Independent Auditors' Report ............................................. 16
Directors'/Trustees' Information ......................................... 17
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
BAT SUBSIDIARY, INC.
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
==================================================================================================================================
LONG-TERM INVESTMENTS--110.7%
MORTGAGE PASS-THROUGHS--0.0%
$ 1 Federal National Mortgage Assoc., 9.50%, 7/01/20 ................................... $ 1,571
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--6.2%
209 Federal National Mortgage Assoc., Ser. 043, Class E, 4/25/22 ....................... 222,880
Federal Home Loan Mortgage Corp.,
132 Ser. 1608, Class H, 6/15/21 ...................................................... 132,847
428 Ser. 2209, Class TB, 4/15/29 ..................................................... 438,067
Federal National Mortgage Assoc.,
643 Ser. 10, Class V, 7/25/13 ........................................................ 648,177
3,461 Ser. 57, Class PE, 9/25/15 ....................................................... 3,648,240
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Total Agency Multiple Class Mortgage Pass-Throughs ................................. 5,090,211
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INVERSE FLOATING RATE MORTGAGES--1.3%
478(2) Federal Home Loan Mortgage Corp., Ser. 1621, Class SH, 12.14%, 11/15/22 ............ 494,817
Federal National Mortgage Assoc.,
153(2) Ser. 214, Class S, 14.391%, 12/25/08 ............................................. 155,794
159(2) Ser. 214, Class SL, 17.023%, 12/25/08 ............................................ 162,284
225(2) Ser. 32, Class SA, 15.982%, 5/25/32 .............................................. 230,024
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Total Inverse Floating Rate Mortgages .............................................. 1,042,919
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INTEREST ONLY MORTGAGE-BACKED SECURITIES--0.8%
1,417(2) Government National Mortgage Assoc., Ser. 25, Class SL, 7.13%, 7/20/29 ............. 7,512
Federal Home Loan Mortgage Corp.,
2 Ser. 1543, Class VU, 4/15/23 ..................................................... 22,399
414 Ser. 1588, Class PM, 9/15/22 ..................................................... 26,658
4,865 Ser. 2542, Class IY, 5/15/16 ..................................................... 52,102
6,400 Ser. 2543, Class IJ, 10/15/12 .................................................... 423,349
Federal National Mortgage Assoc.,
1,019(2) Ser. 061, Class S, 12/25/08 ...................................................... 18,417
441 Ser. 084, Class PJ, 1/25/08 ...................................................... 2,091
351 Ser. 188, Class VA, 3/25/13 ...................................................... 17,560
881 Ser. 194, Class PV, 6/25/08 ...................................................... 43,257
269 Ser. 223, Class PT, 10/25/23 ..................................................... 23,412
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Total Interest Only Mortgage-Backed Securities ..................................... 636,757
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PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--2.7%
AAA 14 Collateralized Mortgage Obligation Trust, Ser. 29, Class A, 5/23/17 ................ 12,668
Federal National Mortgage Assoc.,
1,444 Ser. 193, Class E, 9/25/23 ....................................................... 1,080,130
1,406 Ser. 225, Class ME, 11/25/23 ..................................................... 1,165,940
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Total Principal Only Mortgage-Backed Securities .................................... 2,258,738
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COMMERCIAL MORTGAGE-BACKED SECURITIES--2.7%
AAA 2,000(3) New York City Mortgage Loan Trust, Multi-Family, Class A2, 6.75%, 6/25/11 .......... 2,202,991
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ASSET-BACKED SECURITIES--0.0%
NR 398(2,3,4,5) Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 3/15/06 ................. 11,948
NR 852(2,4,5) Structured Mortgage Asset Residential Trust, Ser. 3, 8.724%, 4/15/06 ............... 14,907
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Total Asset-Backed Securities ...................................................... 26,855
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See Notes to Financial Statements.
1
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
================================================================================================================================
AGENCY ZERO COUPON BONDS--67.5%
$12,407 Aid to Israel, 2/15/05 - 8/15/05 ..................................................... $ 12,133,149
Government Trust Certificates,
5,220 Israel, Class 2-F, 5/15/05 ......................................................... 5,091,129
13,760 Turkey, Class T-1, 5/15/05 ......................................................... 13,420,293
U.S. Treasury Strips,
18,000 8/15/05 ............................................................................ 17,540,622
8,000 11/15/05 ........................................................................... 7,744,680
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Total Agency Zero Coupon Bonds ....................................................... 55,929,873
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CORPORATE BONDS--7.0%
ENERGY--1.3%
BBB+ 1,000(3) Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel) ............................... 1,097,710
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FINANCE & BANKING--2.6%
AA+ 950 Citigroup, Inc., 5.75%, 5/10/06 ...................................................... 1,019,806
NR 1,139(3) Equitable Life Assurance Society, zero coupon, 6/01/04 - 12/01/05 .................... 1,077,516
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Total Finance & Banking .............................................................. 2,097,322
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TELECOMMUNICATION--1.3%
A 1,000 Alltel Corp., 7.50%, 3/01/06 ......................................................... 1,098,540
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TRANSPORTATION--1.8%
NR 1,560 Union Pacific Corp., zero coupon, 5/01/04 - 5/01/05 .................................. 1,515,912
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Total Corporate Bonds ................................................................ 5,809,484
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U.S. GOVERNMENT AND AGENCY SECURITIES--2.3%
390 Small Business Investment Companies, Ser. P10A, Class 1, 6.12%, 2/01/08 .............. 412,006
1,450(6) U.S. Treasury Notes, 3.50%, 11/15/06 ................................................. 1,498,768
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Total U.S. Government and Agency Securities .......................................... 1,910,774
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TAXABLE MUNICIPAL BONDS--8.3%
AAA 1,000 Alameda County California Pension Oblig., zero coupon, 12/01/05 ...................... 956,160
AAA 1,000 Alaska Energy Auth. Pwr Rev., zero coupon, 7/01/05 ................................... 976,880
AAA 1,133 Kern County California Pension Oblig., zero coupon, 2/15/04 - 8/15/05 ................ 1,091,123
Long Beach California Pension Oblig.,
AAA 1,136 zero coupon, 3/01/04 - 9/01/05 ..................................................... 1,092,491
AAA 500 7.09%, 9/01/09 ..................................................................... 587,276
AAA 102 Los Angeles County California Pension Oblig., zero coupon, 6/30/04 - 6/30/05 ......... 99,485
AAA 1,000 6.77%, 6/30/05 ..................................................................... 962,830
AAA 1,000 Ser. A, 8.62%, 6/30/06 ............................................................. 1,144,900
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Total Taxable Municipal Bonds ........................................................ 6,911,145
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STRIPPED MONEY MARKET INSTRUMENT--11.9%
NR 10,000 Vanguard Prime Money Market Portfolio, 12/31/04 ...................................... 9,848,000
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Total Long-Term Investments (cost $84,059,476) ..................................... 91,669,318
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SHORT-TERM INVESTMENTS--0.1%
100(7) Federal Home Loan Bank, 0.751%, 1/02/04 (cost $99,998) ............................... 99,998
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Total investments (cost $84,159,474) ................................................. 91,769,316
Liabilities in excess of other assets--(10.8)% ....................................... (8,911,229)
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Net Assets--100% ..................................................................... $ 82,858,087
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(1) Using the higher of S&P's, Moody's or Fitch's rating.
(2) Security interest rate is as of December 31, 2003.
(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 December 31,
2003, the Trust held 5.3% of its net assets, with a current market value
of $ 4,390,165, in securities restricted as to resale.
(4) Security is fair valued.
(5) Illiquid securities representing 0.03% of net assets.
(6) Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
(7) For purposes of amortized cost valuation, the maturity date of this
instrument is considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
See Notes to Financial Statements.
2
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
BQT SUBSIDIARY, INC.
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
================================================================================================================================
LONG-TERM INVESTMENTS--125.4%
FEDERAL HOUSING ADMINISTRATION--1.6%
$ 1,007 Colonial Project, Ser. 37, 7.40%, 12/01/22 .......................................... $ 1,070,870
2,510 GMAC Project, Ser. 51, 7.43%, 2/01/21 ............................................... 2,673,442
423 USGI Projects, Ser. 99, 7.43%, 10/01/23 ............................................. 450,480
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Total Federal Housing Administration ................................................ 4,194,792
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--48.4%
Federal Home Loan Mortgage Corp.,
11,040 Ser. 2648, Class TZ, 7/15/33 ...................................................... 11,064,317
5,049 Ser. 2648, Class Z, 7/15/33 ....................................................... 5,058,825
3,112 Ser. 2670, Class ZB, 9/15/18 ...................................................... 3,112,343
4,021 Ser. 2677, Class ZB, 10/15/31 ..................................................... 3,991,111
12,490(2) Ser. 2677, Class ZD, 9/15/18 ...................................................... 12,541,369
6,978 Ser. 2687, Class ZF, 8/15/32 ...................................................... 6,987,074
10,655 Ser. 2707, Class ZJ, 11/15/23 ..................................................... 10,759,965
7,021 Ser. 2707, Class ZT, 11/15/33 ..................................................... 7,069,946
Federal National Mortgage Assoc.,
632 Ser. 008, Class JA, 2/25/18 ....................................................... 633,229
885 Ser. 043, Class E, 4/25/22 ........................................................ 941,670
964 Ser. 063, Class KZ, 7/25/33 ....................................................... 962,984
823 Ser. 069, Class OC, 7/25/11 ....................................................... 824,072
6,203 Ser. 081, Class ZC, 9/25/18 ....................................................... 6,218,749
10,533(2) Ser. 081, Class ZG, 9/25/18 ....................................................... 10,563,683
4,662 Ser. 081, Class ZH, 9/25/18 ....................................................... 4,664,550
7,523 Ser. 086, Class ZG, 2/25/33 ....................................................... 7,533,875
16,800(2) Ser. 122, Class ZC, 12/25/18 ...................................................... 16,768,500
Federal Home Loan Mortgage Corp.,
1,787 Ser. 1530, Class H, 9/15/22 ....................................................... 1,795,762
875 Ser. 2151, Class JE, 1/15/27 ...................................................... 876,997
314 Ser. 2396, Class PX, 6/15/27 ...................................................... 318,933
473 Ser. 2450, Class GA, 10/15/22 ..................................................... 477,312
1,988 Ser. 2483, Class DB, 9/15/12 ...................................................... 1,991,951
10,326 Ser. 2668, Class AC, 12/15/05 ..................................................... 10,443,079
3,000 Government National Mortgage Assoc., Ser. 13, Class KB, 8/16/29 ..................... 3,038,640
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Total Agency Multiple Class Mortgage Pass-Throughs (cost $128,219,978) .............. 128,638,936
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NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--15.7%
AAA 3,000 Cendant Mortgage Corp., Ser. 3, Class A5, 6.50%, 5/25/16 ............................ 3,019,470
Countrywide Home Loans, Inc.,
AAA 955 Ser. 21, Class A2, 5.75%, 11/25/17 ................................................ 966,497
AAA 17,863(2) Ser. 25, Class A3, 6.125%, 1/25/32 ................................................ 18,142,180
First Horizon Asset Securities Inc.,
AAA 574 Ser. 2, Class 2A2, 6.50%, 5/25/32 ................................................. 574,863
AAA 2,389 Ser. 7, Class 2A1, 5.25%, 12/25/17 ................................................ 2,391,533
Aa2 1,668(3) GSR Mortgage Loan Trust, Ser. 4, Class B2, 6.989%, 4/25/32 .......................... 1,684,448
AAA 6,979 MASTR Alternative Loans Trust, Ser. 3, Class A3, 4.361%, 12/25/32 ................... 7,031,085
AAA 7,744(2) Residential Funding Mortgage Securities I, Inc., Ser. S29, Class A10, 6.00%, 12/26/31 7,802,067
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Total Non-Agency Multiple Class Mortgage Pass-Throughs .............................. 41,612,143
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ADJUSTABLE RATE MORTGAGE SECURITIES--0.4%
AAA 940(3) Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A16, 3.621%, 4/25/08 942,385
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See Notes to Financial Statements.
3
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
==================================================================================================================================
INVERSE FLOATING RATE MORTGAGES--1.0%
$ 840(3) Federal Home Loan Mortgage Corp., Ser. 1563, Class SA, 14.58%, 8/15/08 .............. $ 868,509
Federal National Mortgage Assoc.,
1,046(3) Ser. 11, Class SN, 13.833%, 2/25/33 ............................................... 1,042,530
678(3) Ser. 143, Class SC, 6.55%, 8/25/23 ................................................ 687,052
AAA 97(3) Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A17, 16.461%, 4/25/08 98,705
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Total Inverse Floating Rate Mortgages ............................................... 2,696,796
------------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--2.3%
AAA 3,748 Credit Suisse First Boston Mortgage Securities Corp., Ser. S15, Class 2 AIO, 7/25/04 125,328
Federal Home Loan Mortgage Corp.,
35 Ser. 1489, Class K, 10/15/07 ...................................................... 339
701 Ser. 2417, Class PI, 4/15/25 ...................................................... 4,508
5,087(3) Ser. 2455, Class SP, 3/15/28 ...................................................... 19,077
20,100 Ser. 2644, Class IA, 9/15/10 ...................................................... 983,895
22,912 Ser. 2645, Class MI, 5/15/18 ...................................................... 1,640,054
Federal National Mortgage Assoc.,
2,180(3) Ser. 24, Class SE, 3/25/09 ........................................................ 387,033
7,046(3) Ser. 37, Class SD, 10/25/22 ....................................................... 195,690
376(3) Ser. 42, Class SO, 3/25/23 ........................................................ 9,438
1,547(3) Ser. 81, Class S, 12/18/04 ........................................................ 39,611
AAA 22,174 GMAC Mortgage Corp. Loan Trust, Ser. HE2, Class AIO, 6/25/27 ........................ 1,065,904
AAA 20,000(3) Impac Secured Assets Corp., Ser. 1, Class AIO, 7/25/04 .............................. 374,602
AAA 28,972(3) Residential Asset Mortgage Products, Inc., Ser. RS2, Class AIIO, 9/25/04 ............ 370,262
16,250(3) Residential Funding Mortgage Securities II, Inc., Ser. HI2, Class AIO, 9/25/04 ...... 799,175
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Total Interest Only Mortgage-Backed Securities ...................................... 6,014,916
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES--2.1%
AAA 5,000(4) New York City Mortgage Loan Trust, Multi-Family, Class A2, 6.75%, 6/25/11 ........... 5,507,478
------------
ASSET-BACKED SECURITIES--0.1%
NR 2,549(3,4,5,6) Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 3/15/06 .................. 76,455
Structured Mortgage Asset Residential Trust,
NR 3,842(3,5,6) Ser. 2, 8.24%, 3/15/06 ............................................................ 67,240
NR 4,259(3,5,6) Ser. 3, 8.724%, 4/15/06 ........................................................... 74,534
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Total Asset-Backed Securities ....................................................... 218,229
------------
CORPORATE BONDS--23.3%
BUILDING & DEVELOPMENT--2.0%
BBB+ 5,000 Pulte Corp., 8.375%, 8/15/04 ........................................................ 5,183,000
------------
CONSUMER PRODUCTS--0.8%
BBB+ 2,000 General Mills, 8.75%, 9/15/04 ....................................................... 2,099,620
------------
ENERGY--1.9%
BBB+ 3,500(4) ISRAEL ELECTRIC CORP., LTD., 7.25%, 12/15/06, (ISRAEL) .............................. 3,841,985
BB+ 1,225(4) Pinnacle One Partners LP, 8.83%, 8/15/04 ............................................ 1,260,574
------------
Total Energy ........................................................................ 5,102,559
------------
FINANCE & BANKING--10.3%
AAA 2,500 Bank of America Corp., 7.875%, 5/16/05 .............................................. 2,709,425
AA+ 1,850 Citigroup, Inc., 5.75%, 5/10/06 ..................................................... 1,985,938
Aa3 3,000(4) Den Danske Bank, 7.25%, 6/15/05, (Denmark) .......................................... 3,214,167
A3 4,000 Ford Motor Credit Co., 6.70%, 7/16/04 ............................................... 4,100,320
A 4,000 John Deere Capital Corp., 5.52%, 4/30/04 ............................................ 4,052,120
AA- 4,000 Merrill Lynch & Co., Inc., 6.00%, 11/15/04 .......................................... 4,152,320
UBS PaineWebber Group, Inc.,
AA 500 6.90%, 2/09/04 .................................................................... 502,565
AA+ 2,000 8.875%, 3/15/05 ................................................................... 2,143,140
Xtra, Inc.,
A- 2,000 6.50%, 1/15/04 .................................................................... 2,001,760
A- 2,500 7.22%, 7/31/04 .................................................................... 2,557,150
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Total Finance & Banking ............................................................. 27,418,905
------------
See Notes to Financial Statements.
4
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
================================================================================================================================
TELECOMMUNICATION--0.8%
A $ 2,000 Alltel Corp., 7.50%, 3/01/06 ........................................................ $ 2,197,080
------------
TRANSPORTATION--0.1%
CCC 400 American Airlines, Inc., 10.44%, 3/04/07 ............................................ 325,000
------------
OTHER--7.4%
A3 18,320(2,3,4) Targeted Return Index Securities Trust, Ser. 5, 5.887%, 1/25/07 ..................... 19,705,542
------------
Total Corporate Bonds ............................................................... 62,031,706
------------
U.S. GOVERNMENT AND AGENCY SECURITIES--5.5%
Small Business Administration,
1,021 Ser. 20F, 7.55%, 6/01/16 .......................................................... 1,150,509
903 Ser. 20G, 7.70%, 7/01/16 .......................................................... 1,023,044
1,000 U.S. Treasury Bonds, 5.375%, 2/15/31 ................................................ 1,042,852
U.S. Treasury Notes,
5,400(2) 5.25%, 5/15/04 .................................................................... 5,484,165
870(2) 5.875%, 11/15/04 .................................................................. 904,868
4,950(2) 6.00%, 8/15/04 .................................................................... 5,099,658
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Total U.S. Government and Agency Securities ......................................... 14,705,096
------------
TAXABLE MUNICIPAL BONDS--8.2%
AAA 2,000 Fresno California Pension Oblig., 7.15%, 6/01/04 .................................... 2,049,360
AAA 4,000 Los Angeles County California Pension Oblig., 6.77%, 6/30/05 ........................ 4,279,320
AAA 7,000 New Jersey Economic Dev. Auth., zero coupon, 2/15/04 ................................ 6,988,240
A+ 5,000 New York City, GO, 7.50%, 4/15/04 ................................................... 5,080,800
AA- 1,000 New York St. Envir. Facs. Corp., Svc. Contract Rev., 6.95%, 9/15/04 ................. 1,038,250
AAA 2,250 San Francisco City & Cnty. Arpt. Comn., Intl. Arpt. Rev., 6.55%, 5/01/04 ............ 2,288,273
------------
Total Taxable Municipal Bonds ....................................................... 21,724,243
------------
FOREIGN GOVERNMENT BONDS--2.0%
AA- 5,000(2) Quebec Province, 8.625%, 1/19/05, (Canada) .......................................... 5,362,600
------------
STRIPPED MONEY MARKET INSTRUMENTS--14.8%
NR 40,000 Vanguard Prime Money Market Portfolio, 12/31/04 ..................................... 39,392,000
------------
Total Long-Term Investments--(cost $317,392,573) .................................... 333,041,320
------------
SHORT-TERM INVESTMENTS--4.9%
U.S. GOVERNMENT AND AGENCY SECURITIES--4.9%
12,000(7) Federal Home Loan Bank, 0.75%, 1/02/04 .............................................. 11,999,750
1,011(7) U.S. Treasury Notes, 0.85%, 1/02/04 ................................................. 1,011,250
------------
Total U.S. Government and Agency Securities (cost $13,011,000) ...................... 13,011,000
------------
Total investments before investment sold short--130.3%, (cost $330,403,573) ......... 346,052,320
------------
INVESTMENT SOLD SHORT--(0.4%)
(1,000) U.S. Treasury Notes, 3.25%, 5/31/04 (proceeds $1,008,125) ........................... (1,009,180)
------------
TOTAL INVESTMENTS, NET OF INVESTMENT SOLD SHORT--129.9% (COST $329,395,448) ......... 345,043,140
Liabilities in excess of other assets--(29.9)% ...................................... (79,354,961)
------------
Net Assets--100% .................................................................... $265,688,179
============
- ----------
(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 interest rate is as of December 31, 2003.
(4) Security is not registered under the Securities Act of 1933. These
securities may be resold in transactions in accordance with Rule 144A
under that Act, to qualified institutional buyers. As of December 31,
2003, the Trust held 12.6% of its net assets, with a current market value
of $33,606,201, in securities restricted as to resale.
(5) Security is fair valued.
(6) Illiquid securities representing 0.08% of net assets.
(7) For purposes of amortized cost valuation, the maturity date of this
instrument is considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
See Notes to Financial Statements.
5
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
BAT SUBSIDIARY BQT SUBSIDIARY
(BATS) (BQTS)
-------------- --------------
ASSETS
Investments at value (cost $84,159,474 and $330,403,573, respectively) $ 91,769,316 $ 346,052,320
Cash ................................................................. 30,996 175,965
Receivable from investments sold ..................................... -- 1,619,803
Interest receivable .................................................. 177,837 3,077,015
------------- -------------
91,978,149 350,925,103
------------- -------------
LIABILITIES
Reverse repurchase agreement ......................................... 7,248,125 80,959,175
Investments sold short at value (proceeds $1,008,125) ................ -- 1,009,180
Interest payable ..................................................... 587 57,310
Due to parent ........................................................ 1,871,350 3,211,259
------------- -------------
9,120,062 85,236,924
------------- -------------
NET ASSETS ........................................................... $ 82,858,087 $ 265,688,179
============= =============
Composition of Net Assets Applicable to Common Shareholders:
Par value .......................................................... $ 9,511 $ 368,106
Paid-in capital in excess of par ................................... 81,312,725 272,287,001
Distributions in excess of net investment income ................... (8,058) (1,921,198)
Accumulated net realized gain (loss) ............................... (6,065,933) (20,693,422)
Net unrealized appreciation ........................................ 7,609,842 15,647,692
------------- -------------
Net assets, December 31, 2003 ........................................ $ 82,858,087 $ 265,688,179
============= =============
Net asset value per common share(1) .................................. $ 8.71 $ 7.22
============= =============
(1)Common shares outstanding ......................................... 9,510,667 36,810,640
See Notes to Financial Statements.
6
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
BAT SUBSIDIARY BQT SUBSIDIARY
(BATS) (BQTS)
------------- -------------
NET INVESTMENT INCOME
Interest Income ..................................... $ 6,670,413 $ 18,724,515
------------ ------------
EXPENSES
Investment advisory ................................. 470,797 1,668,312
Administration ...................................... 75,328 222,442
Custodian ........................................... 67,744 111,481
Reports to shareholders ............................. 7,112 11,593
Independent accountants ............................. 34,525 68,417
Legal ............................................... 20,936 116,073
Miscellaneous ....................................... 27,614 48,715
------------ ------------
Total expenses including excluding interest expense 704,056 2,247,033
Interest Expense ................................ 25,472 623,572
------------ ------------
Total expenses .................................... 729,528 2,870,605
------------ ------------
Net investment income ................................. 5,940,885 15,853,910
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on:
Investments ......................................... (4,727,538) (4,731,830)
Futures ............................................. (1,038,028) (624,926)
Options written ..................................... -- 55,500
------------ ------------
Total Realized Gain Loss .............................. (5,765,566) (5,301,256)
------------ ------------
Net change in unrealized depreciation on:
Investments ......................................... 425,588 (2,555,383)
Futures ............................................. -- 1,792,500
Short sales ......................................... -- 17,650
------------ ------------
425,588 (745,233)
------------ ------------
Net loss .............................................. (5,339,978) (6,046,489)
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .. $ 600,907 $ 9,807,421
============ ============
See Notes to Financial Statements.
7
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE
IN NET ASSETS RESULTING FROM OPERATIONS BAT SUBSIDIARY BQT SUBSIDIARY
TO NET CASH PROVIDED BY (USED FOR) (BATS) (BQTS)
OPERATING ACTIVITIES -------------- --------------
Net increase in net assets resulting from operations .. $ 600,907 $ 9,807,421
------------ ------------
Decrease (increase) in investments .................... 3,982,363 (79,236,138)
Net realized loss ..................................... 5,765,566 5,301,256
Increase in unrealized appreciation/depreciation ...... (425,588) 745,233
Increase in investments sold short .................... -- (17,650)
Increase in receivable for investments sold ........... -- (1,406,898)
Decrease in variation margin receivable ............... -- 218,750
Decrease in collateral deposited with brokers ......... -- 1,026,250
Decrease (increase) in interest receivable ............ 577,754 (28,177)
Decrease in other assets .............................. -- 429,343
Decrease in payable for investments purchased ......... -- (112,369)
Decrease in payable to broker ......................... -- (1,855,606)
Increase in interest payable .......................... 64 54,453
Increase in due to parent ............................. 704,056 2,245,860
------------ ------------
Total adjustments .................................... 10,604,215 (72,635,693)
------------ ------------
Net cash provided by (used for) operating activities .. $ 11,205,122 $(62,828,272)
============ ============
INCREASE IN CASH
Net cash provided by (used for) operating activities .. $ 11,205,122 $(62,828,272)
------------ ------------
Cash flows provided by (used for) financing activities:
Increase in reverse repurchase agreements ........... 6,219,375 80,959,175
Cash dividends paid ................................. (17,530,801) (18,000,000)
------------ ------------
Net cash provided by (used for) financing activities .. (11,311,426) 62,959,175
------------ ------------
Net increase (decrease) in cash ..................... (106,304) 130,903
Cash at beginning of period ......................... 137,300 45,062
------------ ------------
Cash at end of period ............................... $ 30,996 $ 175,965
============ ============
See Notes to Financial Statements.
8
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2003, AND 2002
- --------------------------------------------------------------------------------
BAT SUBSIDIARY BQT SUBSIDIARY
(BATS) (BQTS)
------------------------------- -------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS APPILICABLE
TO COMMON SHAREHOLDERS
OPERATIONS:
Net investment income .............................. $ 5,940,885 $ 9,267,214 $ 15,853,910 $ 16,864,501
Net realized gain (loss) ........................... (5,765,566) 938,372 (5,301,256) (1,438,672)
Net change in unrealized appreciation/depreciation . 425,588 (3,666,493) (745,233) (6,279,276)
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations . 600,907 6,539,093 9,807,421 9,146,553
Dividends from net investment income ................. (17,530,801) (5,436,642) (18,000,000) (24,000,000)
------------- ------------- ------------- -------------
Total increase (decrease) ............................ (16,929,894) 1,102,451 (8,192,579) (14,853,447)
NET ASSETS
Beginning of year .................................... 99,787,981 98,685,530 273,880,758 288,734,205
------------- ------------- ------------- -------------
End of year .......................................... $ 82,858,087 $ 99,787,981 $ 265,688,179 $ 273,880,758
============= ============= ============= =============
End of year undistributed (distributions in excess of)
net investment income .............................. $ (8,058) $ 11,581,858 $ (1,921,198) $ 224,892
See Notes to Financial Statements.
9
FINANCIAL HIGHLIGHTS
BAT SUBSIDIARY, INC.
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............. $ 10.49 $ 10.38 $ 9.74 $ 9.17 $ 9.69
-------- -------- -------- -------- --------
Investment operations:
Net investment income ......................... 0.62 0.97 0.88 0.54 0.51
Net realized and unrealized gain (loss) ....... (0.56) (0.29) 0.23 0.62 (0.65)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations 0.06 0.68 1.11 1.16 (0.14)
-------- -------- -------- -------- --------
Dividends and distributions:
From net investment income .................... (1.84) (0.57) (0.47) (0.59) (0.21)
From net capital gains ........................ -- -- -- -- (0.17)
-------- -------- -------- -------- --------
Total dividends and distributions ................ (1.84) (0.57) (0.47) (0.59) (0.38)
-------- -------- -------- -------- --------
Net asset value, end of period ................... $ 8.71 $ 10.49 $ 10.38 $ 9.74 $ 9.17
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(1) ....................... 0.57% 6.55% 11.50% 12.66% (1.44)%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Total expenses ................................... 0.77% 1.29% 1.61% 2.06%1.89%
Net expenses ..................................... 0.77% 1.29% 1.61% 2.06% 1.89%
Net expenses excluding interest expense
and excise tax ................................ 0.75% 0.76% 0.78% 0.75% 0.81%
Net investment income ............................ 6.31% 9.27% 8.45% 5.72% 5.28%
SUPPLEMENTAL DATA:
Average net assets (000) ......................... $ 94,159 $ 99,920 $ 99,342 $ 90,035 $ 91,165
Portfolio turnover ............................... 11% 6% 23% 27% 11%
Net assets, end of period (000) .................. $ 82,858 $ 99,788 $ 98,686 $ 92,670 $ 87,247
Reverse repurchase agreements outstanding,
end of period (000) ........................... $ 7,248 $ 1,029 $ 6,009 $ 18,536 $ 16,684
Asset coverage(2) ................................ $ 12,432 $ 97,999 $ 17,424 $ 5,999 $ 6,229
- ----------
(1) BAT Subsidiary, Inc. 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. Past performance is not a guarantee of
future results.
(2) Per $1,000 of reverse repurchase agreements outstanding.
The information above represents the audited 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 entity's shares.
See Notes to Financial Statements.
10
FINANCIAL HIGHLIGHTS
BQT SUBSIDIARY, INC.
================================================================================
FOR THE PERIOD
JULY 31, 2001(1)
YEAR ENDED DECEMBER 31, THROUGH
-------------------------------- DECEMBER 31,
2003 2002 2001
----------- ----------- ----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ......................... $ 7.44 $ 7.84 $ 7.97
----------- ----------- -----------
Investment operations:
Net investment income ..................................... 0.43 0.46 0.19
Net realized and unrealized loss .......................... (0.16) (0.21) (0.32)
----------- ----------- -----------
Net increase (decrease) from investment operations ........... (0.27) 0.25 (0.13)
----------- ----------- -----------
Dividends from net investment income ......................... (0.49) (0.65) --
----------- ----------- -----------
Net asset value, end of period ............................... $ 7.22 $ 7.44 $ 7.84
=========== =========== ===========
TOTAL INVESTMENT RETURN(2) ................................... 3.63% 3.19% (1.63)%
=========== =========== ===========
RATIOS TO AVERAGE NET ASSETS:
Total expenses ............................................... 1.03% 0.82% 1.06%(3)
Total expenses excluding interest expense and excise tax ..... 0.81% 0.82% 0.81%(3)
Net investment income ........................................ 5.70% 5.71% 5.75%(3)
SUPPLEMENTAL DATA:
Average net assets (000) ..................................... $ 278,052 $ 295,366 $ 293,522
Portfolio turnover ........................................... 176% 24% 2%
Net assets, end of period (000) .............................. $ 265,688 $ 273,881 $ 288,734
Reverse repurchase agreements outstanding, end of period (000) $ 80,959 $ -- $ --
Asset coverage(4) ............................................ $ 4,282 $ -- $ --
- ----------
(1) Commencement of investment operations.
(2) BQT Subsidiary, Inc. 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 audited 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 entity's shares.
See Notes to Financial Statements.
11
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
BAT Subsidiary, Inc. ("BATS") and BQT Subsidiary, Inc. ("BQTS") (collectively,
the "Trusts"), each a Maryland corporation, 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. Accordingly, BATS and BQTS are not publicly traded.
The Boards of Directors of BATS and BQTS each adopted a Plan of Liquidation and
Dissolution (the "Plan") effective December 18, 2003 and December 19, 2002,
respectively. Pursuant to the terms of the Plan, the Boards of Directors shall
oversee the complete liquidation and winding up of BATS and BQTS in an orderly
fashion prior to December 31, 2005 and December 31, 2004, respectively.
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 (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 WRITING/PURCHASING: When a Trust writes 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 cost of the purchase
or proceeds from the sale 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 writing and purchasing may be used by the Trusts as an attempt to
manage the duration of positions, or collections of positions, so that changes
in interest rates do not adversely affect the targeted duration of the portfolio
unexpectedly. A call option gives the purchaser of the option the right (but not
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
price at any time or at a specified time during the option period. Put or call
options can be purchased or sold to 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, 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.
12
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 cost of the purchase or
proceeds from the sale 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 it less sensitive to
changes in interest rates from a market value perspective. The effect on income
involves protection from rising short-term interest rates, which the Trusts
experience primarily in the form of leverage.
The Trusts are exposed to credit loss in the event of non-performance by
the other party to the interest rate cap. However, the Trusts do not anticipate
non-performance by any counterparty.
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 extra income by partially monetizing it as an up
front payment which the Trusts receive.
The Trusts are exposed to credit loss in the event of non-performance by
the other party to the interest rate floor. However, the Trusts do not
anticipate non-performance by any counterparty.
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 the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
13
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 period ended December 31, 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 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 it's parent. 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.
Prior to September 1, 2003, each Trust had an Administration Agreement with
Prudential Investments LLC, 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
became 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 year ended December 31,
2003, aggregated as follows:
TRUST PURCHASES SALES
----- ------------ ------------
BATS $ 10,700,997 $ 16,888,273
BQTS 659,222,398 515,074,532
Purchases and sales of U.S. government securities by BATs and BQTs were
$31,385,683 and $31,406,977, respectively, for the year ended December 31, 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 Midland Loan Services, Inc., or its affiliates, could have
interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against Midland Loan Services,
Inc. or its affiliates.
At December 31, 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 $ 84,216,837 $ 9,414,965 $1,862,486 $ 7,552,479
BQTS 330,410,045 21,320,555 5,678,280 15,642,275
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, 2003 EXPIRES TRUST JULY 31, 2003 EXPIRES
----- ------------------ ------- ----- ------------- -------
BATS $ 80,454 2008 BQTS $ 7,677,667 2010
127,941 2009 8,412,381 2011
-----------
20,771 2010 $16,090,048
----------- ===========
$229,166.00
===========
14
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
tax year end. The tax year ends for BATS and BQTS are September 30th and July
31st, respectively.
Transactions in options written during the year ended December 31, 2003,
were as follows:
PREMIUM
TRUST CONTRACTS RECEIVED
----- --------- --------
BQTS
Put Options outstanding at December 31, 2002 -- $ --
Put Options written 200 55,500
Put Options terminated in closing purchase transactions (200) (55,500)
----- --------
Put Options outstanding at December 31, 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 year ended December 31, 2003, were as follows:
AVERAGE DAILY WEIGHTED AVERAGE
TRUST BALANCE INTEREST RATE
----- ------------- ----------------
BATS $ 2,384,922 1.07%
BQTS 47,489,967 1.24%
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 year ended December 31, 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 December 31,
2003, for their respective subsidiary.
15
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of:
BAT Subsidiary, Inc.
BQT Subsidiary, Inc.
We have audited the accompanying statements of assets and liabilities of BAT
Subsidiary, Inc. and BQT Subsidiary, Inc. (collectively, the "Trusts"),
including the portfolios of investments, as of December 31, 2003, and the
related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Trusts' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 2003, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Trusts as of December 31, 2003, the results of their operations and cash
flows for the year then ended, the changes in their net assets for each of the
two years in the period then ended, and the financial highlights for each of the
periods presented, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 18, 2004
16
DIRECTORS/TRUSTEES INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS/TRUSTEES
- ----------------------------------------------------------------------------------------------------------------------------------
Name, address, age Andrew F. Brimmer Richard E. Cavanagh Kent Dixon
P.O. Box 4546 P.O. Box 4546 P.O. Box 4546
New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10163-4546
Age: 77 Age: 57 Age: 66
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Current positions held with Lead Director/Trustee Director/Trustee Director/Trustee
the Trusts Audit Committee Chairman(2) Audit Committee Member Audit Committee Member(2)
- ----------------------------------------------------------------------------------------------------------------------------------
Term of office and length of 3 years(4) / since inception 3 years(4) / since inception 3 years(4) / since inception
time served
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Principal occupations during President of Brimmer & President and Chief Executive Consultant/Investor. Former
the past five years Company, Inc., a Washington, Officer of The Conference President and Chief Executive
D.C.-based economic and Board, Inc., a leading global Officer of Empire Federal
financial consulting firm, business membership Savings Bank of America and
also Wilmer D. Barrett organization, from Banc PLUS Savings Association,
Professor of Economics, 1995-present. Former Executive former Chairman of the Board,
University of Massachusetts - Dean of the John F. Kennedy President and Chief Executive
Amherst. Formerly member of School of Government at Officer of Northeast Savings.
the Board of Governors of the Harvard University from
Federal Reserve System. Former 1988-1995. Acting Director,
Chairman, District of Columbia Harvard Center for Business
Financial Control Board. and Government (1991-1993).
Formerly Partner (principal)
of McKinsey & Company, Inc.
(1980- 1988). Former Executive
Director of Federal Cash
Management, White House Office
of Management and Budget
(1977-1979). Co-author, THE
WINNING PERFORMANCE (best
selling management book
published in 13 national
editions).
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Number of portfolios overseen 49 49 49
within the fund complex
- ----------------------------------------------------------------------------------------------------------------------------------
Other Directorships held Director of CarrAmerica Realty Trustee: Airplanes Group, Former Director of ISFA (the
outside of the fund complex Corporation and Borg-Warner Aircraft Finance Trust (AFT) owner of INVEST, a national
Automotive. Formerly Director and Educational Testing securities brokerage service
of Airborne Express, Service (ETS). Director, Arch designed for banks and thrift
BankAmerica Corporation (Bank Chemicals, Fremont Group and institutions).
of America), Bell South The Guardian Life Insurance
Corporation, College Company of America.
Retirement Equities Fund
(Trustee), Commodity Exchange,
Inc. (Public Governor),
Connecticut Mutual Life
Insurance Company, E.I. du
Pont de Nemours & Company,
Equitable Life Assurance
Society of the United States,
Gannett Company, Mercedes-Benz
of North America, MNC
Financial Corporation
(American Security Bank), NCM
Capital Management, Navistar
International Corporation, PHH
Corp. and UAL Corporation
(United Airlines).
- ----------------------------------------------------------------------------------------------------------------------------------
For "Interested Director/
Trustee" Relationships, events
or transactions by reason of
which the Trustee is an
interested person as defined
in Section 2(a)(19)(1940 Act)
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Interested Director/Trustee as defined by Section 2(a)(19) of the
Investment Company Act of 1940.
(2) The Board of each Trust has determined that each Trust has two Audit
Committee financial experts serving on its Audit Committee, Dr. Brimmer
and Mr. Dixon, both of whom are independent for the purpose of the
definition of Audit Committee financial expert as applicable to the
Trusts.
(3) Trustee since inception; appointed Chairman of the Board on August 22,
2002.
(4) The Board is classified into three classes of which one class is elected
annually. Each Director/Trustee serves a three year term concurrent with
the class from which he is elected.
(5) Except during the period 10/31/02 through 11/11/02.
17
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INDEPENDENT DIRECTORS/TRUSTEES (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------
Frank J. Fabozzi James Clayburn La Force, Jr. Walter F. Mondale
P.O. Box 4546 P.O. Box 4546 P.O. Box 4546
New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10163-4546
Age: 55 Age: 75 Age: 76
- --------------------------------------------------------------------------------------------------------------------
Director/Trustee Director/Trustee Director/Trustee
- --------------------------------------------------------------------------------------------------------------------
3 years(4) / since inception 3 years(4) / since inception 3 years(4) / since inception(5)
- --------------------------------------------------------------------------------------------------------------------
Consultant. Editor of THE Dean Emeritus of the John E. Senior Counsel, Dorsey &
JOURNAL OF PORTFOLIO Anderson Graduate School of Whitney, LLP., a law firm
MANAGEMENT and Frederick Frank Management, University of (January 2004-present);
Adjunct Professor of Finance California since July 1, 1993. Partner, Dorsey & Whitney,
at the School of Management at Acting Dean of the School of LLP., (December 1996-December
Yale University. Author and Business, Hong Kong University 2003, September 1987-August
editor of several books on of Science and Technology 1993). Formerly U.S.
fixed income portfolio 1990-1993. From 1978 to Ambassador to Japan
management. Visiting Professor September 1993, Dean of the (1993-1996). Formerly Vice
of Finance and Accounting at John E. Anderson Graduate President of the United
the Sloan School of School of Management, States, U.S. Senator and
Management, Massachusetts University of California. Attorney General of the State
Institute of Technology from of Minnesota. 1984 Democratic
1986 to August 1992. Nominee for President of the
United States.
- --------------------------------------------------------------------------------------------------------------------
49 49 49
- --------------------------------------------------------------------------------------------------------------------
Director, Guardian Mutual Payden & Rygel Investment Director of United Health
Funds Group (18 portfolios). Trust, Metzler-Payden Foundation and the Japan
Investment Trust, Advisors Society. Member of the Hubert
Series Trust, Arena H. Humphrey Institute of
Pharmaceuticals, Inc. and Public Affairs Advisory Board,
CancerVax Corporation. The Mike and Maureen Mansfield
Foundation, Dean's Board of
Visitors of the Medical School
at the University of
Minnesota, and the Mayo
Foundation Advisory Council to
the President.
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
INTERESTED DIRECTORS/TRUSTEES(1)
- ------------------------------------------------------------------------------------------
Ralph L. Schlosstein Robert S. Kapito
BlackRock,Inc. BlackRock,Inc.
40 East 52nd Street 40 East 52nd Street
New York, NY 10022 New York, NY 10022
Age: 52 Age: 46
- ------------------------------------------------------------------------------------------
Chairman of the Board(3) President and Director/Trustee
- ------------------------------------------------------------------------------------------
3 years(4) / since inception 3 years(4) / since August 22, 2002
- ------------------------------------------------------------------------------------------
Director since 1999 and Vice Chairman of BlackRock,
President of BlackRock, Inc. Inc. Head of the Portfolio
since its formation in 1998 Management Group. Also a
and of BlackRock, Inc.'s member of the Management
predecessor entities since Committee, the Investment
1988. Member of the Management Strategy Group, the Fixed
Committee and Investment Income and Global Operating
Strategy Group of BlackRock, Committees and the Equity
Inc. Formerly, Managing Investment Strategy Group.
Director of Lehman Brothers, Responsible for the portfolio
Inc. and Co-head of its management of the Fixed
Mortgage and Savings Income, Domestic Equity and
Institutions Group. Currently, International Equity,
Chairman and a Trustee of each Liquidity, and Alternative
of the closed-end Trusts in Investment Groups of
which BlackRock Advisors, Inc. BlackRock. Currently President
acts as investment advisor. and a Director/Trustee of each
of the closed-end Trusts in
which BlackRock Advisors, Inc.
acts as investment advisor.
- ------------------------------------------------------------------------------------------
49 49
- ------------------------------------------------------------------------------------------
Chairman and President of the Chairman of the Hope and
BlackRock Liquidity Funds (10 Heroes Children's Cancer Fund.
portfolios), Director of President of the Board of
Anthracite Capital, Inc. and Directors of the Periwinkle
Director of several of National Theatre for Young
BlackRock's alternative Audiences. Director of
investment vehicles. icruise.com, Corp.
Currently, a Member of the
Visiting Board of Overseers of
the John F. Kennedy School of
Government at Harvard
University, the Financial
Institutions Center Board of
the Wharton School of the
University of Pennsylvania, a
Trustee of the American Museum
of Natural History, a Trustee
of Trinity School in New York
City and a Trustee of New
Visions for Public Education
in New York City. Formerly, a
Director of Pulte Corporation
and a Member of Fannie Mae's
Advisory Council.
- ------------------------------------------------------------------------------------------
Director and President of the Director and Vice Chairman of
Advisor the Advisor
- ------------------------------------------------------------------------------------------
18
[This page intentionally left blank.]
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
225 Franklin Street
Boston, MA 02110
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 LLP
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. provided the
administrative services for all Trusts.
The Trusts have delegated to the Advisor the voting of proxies relating to their
voting securities pursuant to the Advisor's proxy voting policies and
procedures. You may obtain a copy of these proxy voting procedures, without
charge, by calling (800) 699-1236. These policies and procedures are also
available on the website of the Securities and Exchange Commission at
http://www.sec.gov.
This report is for shareholder information. This
is not a prospectus intended for use in the
purchase or sale of Trust shares. Statements and
other information contained in this report are as
dated and are subject to change. [BLACKROCK LOGO]
ITEM 2. CODE OF ETHICS
(a) The Registrant has adopted a code of ethics (the "Code of Ethics") that
applies to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions.
(b) Not applicable.
(c) The Registrant has not amended its Code of Ethics during the period covered
by the shareholder report presented in Item 1 hereto.
(d) The Registrant has not granted a waiver or an implicit waiver from a
provision of its Code of Ethics during the period covered by the shareholder
report presented in Item 1 hereto.
(e) Not applicable.
(f) The Registrant 's Code of Ethics is attached as an Exhibit hereto.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant 's Board of Trustees has determined that it has two audit
committee financial experts serving on its audit committee, each of whom is an
"independent" Trustees: Dr. Andrew F. Brimmer and Mr. Kent Dixon. Under
applicable securities laws, a person who is determined to be an audit committee
financial expert will not be deemed an "expert" for any purpose, including
without limitation for the purposes of Section 11 of the Securities Act of 1933,
as a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for each of the last two fiscal years
for professional services rendered by the principal accountant for the audit of
the Trust's annual financial statements or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $8,700 for the fiscal year ended
December 31, 2003 and $7,000 for the fiscal year ended December 31, 2002.
AUDIT FEES
(b) AUDIT-RELATED FEES. There were no fees billed in each of the last two fiscal
years for assurance and related services by the principal accountant that are
reasonably related
to the performance of the audit of the Trust's financial statements and are not
reported above in Item 4(a).
AUDIT-RELATED FEES
(c) TAX FEES. The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were $12,100 for the fiscal year ended December 31,
2003 and $15,700 for the fiscal year ended December 31, 2002.
TAX FEES
The nature of these services was federal, state and local income and excise tax
return preparation and related advice and planning, determination of taxable
income for CMO's and miscellaneous tax advice.
(d) ALL OTHER FEES. The were no fees billed in each of the last two fiscal years
for products and services provided by the principal accountant, other than the
services reported above in Items 4(a) through (c).
(e) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES.
(i) The Trust has polices and procedures (the "Policy") for the
pre-approval by the Trust's Audit Committee of Audit, Audit-Related, Tax and
Other Services (as each is defined in the Policy) provided by the Trust's
independent auditor (the "Independent Auditor") to the Trust and other "Covered
Entities" (as defined below). The term of any such pre-approval is 12 months
from the date of pre-approval, unless the Audit Committee specifically provides
for a different period. The amount of any such pre-approval is set forth in the
appendices to the Policy (the "Service Pre-Approval Documents"). At its first
meeting of each calendar year, the Audit Committee will review and re-approve
the Policy and approve or re-approve the Service Pre-Approval Documents for that
year, together with any changes deemed necessary or desirable by the Audit
Committee. The Audit Committee may, from time to time, modify the nature of the
services pre-approved, the aggregate level of fees pre-approved or both.
For the purposes of the Policy, "Covered Services" means (A) all
engagements for audit and non-audit services to be provided by the Independent
Auditor to the Trust and (B) all engagements for non-audit services related
directly to the operations and financial reporting or the Trust to be provided
by the Independent Auditor to any Covered Entity, "Covered Entities" means (1)
the Advisor or (2) any entity controlling, controlled by or under common control
with the Advisor that provides ongoing services to the Trust.
In the intervals between the scheduled meetings of the Audit Committee,
the Audit Committee delegates pre-approval authority under this Policy to the
Chairman of the Audit Committee (the "Chairman"). The Chairman shall report any
pre-approval decisions under this Policy to the Audit Committee at its next
scheduled meeting. At each scheduled meeting, the Audit Committee will review
with the Independent Auditor the Covered Services pre-approved by the Chairman
pursuant to delegated authority, if any, and the fees related thereto. Based on
these reviews, the Audit Committee can modify, at its discretion, the
pre-approval originally granted by the Chairman pursuant to delegated authority.
This modification can be to the nature of services pre-approved, the aggregate
2
level of fees approved, or both. Pre-approval of Covered Services by the
Chairman pursuant to delegated authority is expected to be the exception rather
than the rule and the Audit Committee may modify or withdraw this delegated
authority at any time the Audit Committee determines that it is appropriate to
do so.
Fee levels for all Covered Services to be provided by the Independent
Auditor and pre-approved under this Policy will be established annually by the
Audit Committee and set forth in the Service Pre-Approval Documents. Any
increase in pre-approved fee levels will require specific pre-approval by the
Audit Committee (or the Chairman pursuant to delegated authority).
The terms and fees of the annual Audit services engagement for the
Trust are subject to the specific pre-approval of the Audit Committee. The Audit
Committee (or the Chairman pursuant to delegated authority) will approve, if
necessary, any changes in terms, conditions or fees resulting from changes in
audit scope, Trust structure or other matters.
In addition to the annual Audit services engagement specifically
approved by the Audit Committee, any other Audit services for the Trust not
listed in the Service Pre-Approval Document for the respective period must be
specifically pre-approved by the Audit Committee (or the Chairman pursuant to
delegated authority.)
Requests or applications to provide Covered Services that require
approval by the Audit Committee (or the Chairman pursuant to delegated
authority) must be submitted to the Audit Committee or the Chairman, as the case
may be, by both the Independent Auditor and the Chief Financial Officer of the
respective Covered Entity, and must include a joint statement as to whether, in
their view, (a) the request or application is consistent with the rules of the
Securities and Exchange Commission ("SEC") on auditor independence and (b) the
requested service is or is not a non-audit service prohibited by the SEC. A
request or application submitted to the Chairman between scheduled meetings of
the Audit Committee should include a discussion as to why approval is being
sought prior to the next regularly scheduled meeting of the Audit Committee.
(ii) All of the services rendered after May 22, 2003 described in each
of Items 4(b) through (d) were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) There were no non-audit fees billed by the Trust's accountant for services
rendered to the Trust, the Advisor or any entity controlling, controlled by, or
under common control with the Advisor that provides ongoing services to the
registrant (except for any sub-advisor whose role is primarily portfolio
management and is subcontracted with or overseen by another investment advisor)
that directly impacted the Trust.
AGGREGATE NON-AUDIT FEES
(h) Not applicable
3
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Trust has a separately designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
audit committee of the Trust is comprised of: Dr. Andrew F. Brimmer; Richard E.
Cavanagh; and Kent Dixon.
ITEM 6. [RESERVED.]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant has delegated the voting of proxies relating to its voting
securities to its investment advisor, BlackRock Advisors, Inc. (the "Advisor")
and its sub-advisor, BlackRock Financial Management, Inc. (the "Sub-Advisor").
The Proxy Voting Policies and Procedures of the Advisor and Sub-Advisor (the
"Proxy Voting Policies") are included as an Exhibit 99.PROXYPOL hereto.
ITEM 8. [RESERVED.]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Registrant's principal executive officer and principal financial officer
have evaluated the Registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the Registrant's disclosure controls
and procedures are effective, as of a date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The Registrant's principal executive officer and principal financial officer
are aware of no changes in the Registrant's internal control over financial
reporting that occurred during the Registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics.
(a)(2) Section 302 Certification of Principal Executive Officer and
Principal Financial Officer.
(b) Section 906 Certification of Principal Executive Officer and
Principal Financial Officer.
4
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: March 8, 2004
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: March 8, 2004
By: /s/ Henry Gabbay
- --------------------------------------
Name: Henry Gabbay
Title: Principal Financial Officer
Date: March 8, 2004
5