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: 811-21280
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BlackRock Preferred Opportunity Trust
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(Exact name of registrant as specified in charter)
100 Bellevue Parkway, Wilmington, DE 19809
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(Address of principal executive offices) (Zip code)
Robert S. Kapito, President
BlackRock Preferred Opportunity Trust
40 East 52nd Street, New York, NY 10022
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(Name and address of agent for service)
Registrant's telephone number, including area code: 302 797-2162
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Date of fiscal year end: December 31, 2003
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Date of reporting period: December 31, 2003
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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
BlackRock Advantage Term Trust (BAT)
BlackRock Investment Quality Term Trust (BQT)
BlackRock Preferred Opportunity Trust (BPP)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE [BLACKROCK LOGO]
TABLE OF CONTENTS
Letter to Shareholders ................................................... 1
Trust Summaries .......................................................... 2
Portfolios of Investments ................................................ 5
Financial Statements
Statements of Assets and Liabilities .................................. 15
Statements of Operations .............................................. 16
Statements of Cash Flows .............................................. 17
Statements of Changes in Net Assets ................................... 18
Financial Highlights ..................................................... 19
Notes to Financial Statements ............................................ 22
Independent Auditors' Reports ............................................ 28
Directors'/Trustees' Information ......................................... 30
Dividend Reinvestment Plans .............................................. 32
Additional Information ................................................... 32
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PRIVACY PRINCIPLES OF THE TRUSTS
The Trusts are committed to maintaining the privacy of shareholders and to
safeguarding their non-public personal information. The following information is
provided to help you understand what personal information the Trusts collect,
how we protect that information and why, in certain cases, we may share
information with select other parties.
Generally, the Trusts do not receive any non-public personal information
relating to their shareholders, although certain non-public personal information
of shareholders may become available to the Trusts. The Trusts do not disclose
any non-public personal information about their shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third party
administrator).
The Trusts restrict access to non-public personal information about their
shareholders to BlackRock employees with a legitimate business need for the
information. The Trusts maintain physical, electronic and procedural safeguards
designed to protect the non-public personal information of their shareholders.
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LETTER TO SHAREHOLDERS
December 31, 2003
Dear Shareholder:
We are pleased to report that during the annual period, the Trusts
provided monthly income, as well as the opportunity to invest in various
portfolios of fixed income securities. This report contains the Trusts' audited
financial statements and a listing of the portfolios' holdings.
The portfolio management team continuously monitors the fixed income
markets and adjusts the portfolios in order to gain exposure to various issuers
and security types. This strategy enables the Trusts to move among different
sectors, credits and coupons to capitalize on changing market conditions.
The following table shows the Trusts' yields, closing market prices per
share and net asset values ("NAV") per share as of December 31, 2003.
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CURRENT
TRUST YIELD MARKET PRICE NAV
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BlackRock Advantage Term Trust (BAT) 6.19% $11.30 $11.40
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BlackRock Investment Quality Term Trust (BAT) 0.26 9.62 9.65
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BlackRock Preferred Opportunity Trust (BAT) 8.05 24.83 25.58
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Yield is based on market price.
BlackRock, Inc. ("BlackRock"), a world leader in asset management, has a
proven commitment to fixed income. As of December 31, 2003, BlackRock managed
$212 billion in bonds, including 16 open-end and 47 closed-end bond funds.
BlackRock is recognized for its emphasis on risk management and proprietary
analytics and for its reputation managing money for the world's largest
institutional investors. BlackRock Advisors, Inc., which manages the Trusts, is
a wholly owned subsidiary of BlackRock, Inc.
On behalf of BlackRock, we thank you for your continued trust and assure
you that we remain committed to excellence in managing your assets.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chief Executive Officer President
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
1
CONSOLIDATED TRUST SUMMARIES
DECEMBER 31, 2003
BLACKROCK ADVANTAGE TERM TRUST (BAT)
TRUST INFORMATION
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Symbol on New York Stock Exchange: BAT
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Initial Offering Date: April 27, 1990
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Termination Date (on or shortly before): December 31, 2005
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Closing Market Price as of 12/31/03: $11.30
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Net Asset Value as of 12/31/03: $11.40
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Yield on Closing Market Price as of 12/31/03 ($11.30):(1) 6.19%
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Current Monthly Distribution per Share:(2) $ 0.058333
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Current Annualized Distribution per Share:(2) $ 0.699996
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(1) Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
(2) The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust's market price and NAV:
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12/31/03 12/31/02 CHANGE HIGH LOW
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Market Price $11.30 $11.85 (4.64)% $12.03 $11.22
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NAV $11.40 $12.01 (5.08)% $12.06 $11.40
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The following chart shows the asset composition of the Trust's long-term
investments:
SECTOR BREAKDOWN
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COMPOSITION DECEMBER 31, 2003 DECEMBER 31, 2002
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Agency Zero Coupon Bonds 72% 66%
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Stripped Money Market Instrument 7 7
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Taxable Municipal Bonds 5 5
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Corporate Bonds 4 7
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Agency Multiple Class Mortgage Pass-Throughs 4 1
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Principal Only Mortgage-Backed Securities 2 1
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Commercial Mortgage-Backed Securities 2 2
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U.S. Government and Agency Securities 1 1
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Inverse Floating Rate Mortgages 1 6
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Mortgage Pass-Throughs 1 1
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Interest Only Mortgage-Backed Securities 1 3
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2
CONSOLIDATED TRUST SUMMARIES
DECEMBER 31, 2003
BLACKROCK INVESTMENT QUALITY TERM TRUST (BQT)
TRUST INFORMATION
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Symbol on New York Stock Exchange: BQT
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Initial Offering Date: April 21, 1992
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Termination date (on or about): December 31, 2004
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Closing Market Price as of 12/31/03: $9.62
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Net Asset Value as of 12/31/03: $9.65
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Yield on Closing Market Price as of 12/31/03 ($9.62):(1) 0.26%
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Current Monthly Distribution per Share:(2) $0.002085
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Current Annualized Distribution per Share:(2) $0.025020
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(1) Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
(2) The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust's market price and NAV:
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12/31/03 12/31/02 CHANGE HIGH LOW
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Market Price $9.62 $9.69 (0.72)% $9.82 $9.19
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NAV $9.65 $9.44 2.22% $9.66 $9.39
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The following chart shows the asset composition of the Trust's long-term
investments:
SECTOR BREAKDOWN
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COMPOSITION DECEMBER 31, 2003 DECEMBER 31, 2002
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Agency Multiple Class Mortgage Pass-Throughs 34% 3%
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Corporate Bonds 16 27
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U.S. Government and Agency Securities 13 14
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Non-Agency Multiple Class Mortgage Pass-Throughs 11 14
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Stripped Money Market Instrument 10 11
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Taxable Municipal Bonds 6 6
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Mortgage Pass-Throughs 3 8
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Interest-Only Mortgage-Backed Securities 2 3
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Commercial Mortgage-Backed Securities 2 2
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Foreign Government Bonds 1 2
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Federal Housing Administration 1 5
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Inverse Floating Rate Mortgages 1 2
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Adjustable Rate Mortgages -- 1
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Asset-Backed Securities -- 1
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Principal-Only Mortgage-Backed Securities -- 1
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3
TRUST SUMMARIES
DECEMBER 31, 2003
BLACKROCK PREFERRED OPPORTUNITY TRUST (BPP)
TRUST INFORMATION
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Symbol on New York Stock Exchange: BPP
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Initial Offering Date: February 28, 2003
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Closing Market Price as of 12/31/03: $24.83
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Net Asset Value as of 12/31/03: $25.58
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Yield on Closing Market Price as of 12/31/03 ($24.83):(1) 8.05%
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Current Monthly Distribution per Share:(2) $ 0.166667
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Current Annualized Distribution per Share:(2) $ 2.000004
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(1) Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
(2) The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust's market price and NAV since
inception:
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12/31/03 HIGH LOW
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Market Price $24.83 $25.13 $22.76
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NAV $25.58 $26.08 $23.55
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The following charts show the asset composition and credit quality allocations
of the Trust's investments, excluding short-term investments:
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SECTOR BREAKDOWN
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COMPOSITION DECEMBER 31, 2003
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Finance & Banking 63%
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Energy 13
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Real Estate 9
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Consumer Products 2
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Telecommunication 2
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Media 2
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Other 9
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CREDIT BREAKDOWN(1)
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CREDIT RATING DECEMBER 31, 2003
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AAA/Aaa 1%
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AA/Aa 16
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A 32
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BBB/Baa 30
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BB/Ba 8
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B 12
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Not Rated 1
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(1) Using the higher of Standard & Poor's ("S&P"), Moody's Investors Service
("Moody's") or Fitch Ratings ("Fitch") rating.
4
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
BLACKROCK ADVANTAGE TERM TRUST (BAT)
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--121.7%
MORTGAGE PASS-THROUGHS--0.6%
Federal Home Loan Mortgage Corp.,
$ 184 6.50%, 8/01/25 - 10/01/25 ......................................................... $ 193,625
12 9.50%, 1/01/05 .................................................................... 12,593
1 Federal National Mortgage Assoc., 9.50%, 7/01/20 .................................... 1,571
452 Government National Mortgage Assoc., 8.00%, 1/15/26 - 7/15/27 ....................... 492,854
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Total Mortgage Pass-Throughs ........................................................ 700,643
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--4.7%
209 Federal National Mortgage Assoc., Ser. 043, Class E, 7.50%, 4/25/22 ................. 222,881
Federal Home Loan Mortgage Corp.,
132 Ser. 1608, Class H, 6.00%, 6/15/21 ................................................ 132,847
428 Ser. 2209, Class TB, 7.50%, 4/15/29 ............................................... 438,067
Federal National Mortgage Assoc.,
643 Ser. 10, Class V, 7.00%, 7/25/13 .................................................. 648,177
3,461 Ser. 57, Class PE, 5.50%, 9/25/15 ................................................. 3,648,240
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Total Agency Multiple Class Mortgage Pass-Throughs .................................. 5,090,212
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INVERSE FLOATING RATE MORTGAGES--1.6%
478(2) Federal Home Loan Mortgage Corp., Ser. 1621, Class SH, 12.14%, 11/15/22 ............. 494,817
Federal National Mortgage Assoc.,
546(2) Ser. 190, Class S, 22.572%, 11/25/07 .............................................. 661,894
153(2) Ser. 214, Class S, 14.147%, 12/25/08 .............................................. 155,794
159(2) Ser. 214, Class SL, 16.667%, 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 ............................................... 1,704,813
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INTEREST ONLY MORTGAGE-BACKED SECURITIES--0.6%
Federal Home Loan Mortgage Corp.,
200 Ser. 1543, Class VU, 11.414%, 4/15/23 ............................................. 22,399
414 Ser. 1588, Class PM, 6.50%, 9/15/22 ............................................... 26,658
4,865 Ser. 2542, Class IY, 5.50%, 5/15/16 ............................................... 52,102
6,400 Ser. 2543, Class IJ, 5.00%, 10/15/12 .............................................. 423,348
Federal National Mortgage Assoc.,
1,019(2) Ser. 061, Class S, 7.359%, 12/25/08 ............................................... 18,417
441 Ser. 084, Class PJ, 6.50%, 1/25/08 ................................................ 2,091
351 Ser. 188, Class VA, 6.50%, 3/25/13 ................................................ 17,560
881 Ser. 194, Class PV, 6.50%, 6/25/08 ................................................ 43,257
269 Ser. 223, Class PT, 6.50%, 10/25/23 ............................................... 23,412
1,417(2) Government National Mortgage Assoc., Ser. 25, Class SL, 7.13%, 7/20/29 .............. 7,513
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Total Interest Only Mortgage-Backed Securities ...................................... 636,757
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PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--2.1%
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--2.0%
AAA 2,000(3) New York City Mortgage Loan Trust, Multi-Family, Class A2, 6.75%, 6/25/11 ........... 2,202,995
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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.
5
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
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U.S. GOVERNMENT AND
AGENCY ZERO COUPON BONDS--87.5%
$12,407 Aid to Israel, 2/15/05 - 8/15/05 .................................................... $ 12,133,149
11,026(6) Financing Corp. (FICO) Strips, 12/6/05 .............................................. 10,585,577
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
22,926(6) Resolution Funding Corp., 7/15/05 ................................................... 22,400,536
6,216(6) Tennessee Valley Authority, 11/1/05 ................................................. 5,979,543
U.S. Treasury Strips,
18,000(6) 8/15/05 ........................................................................... 17,540,622
8,000 11/15/05 .......................................................................... 7,744,680
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Total Agency Zero Coupon Bonds ...................................................... 94,895,529
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CORPORATE BONDS--5.4%
ENERGY--1.0%
BBB+ 1,000(3) Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel) .............................. 1,097,710
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FINANCE & BANKING--1.9%
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 ................... 1,077,517
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2,097,323
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TELECOMMUNICATION--1.0%
A 1,000 Alltel Corp., 7.50%, 3/01/06 ........................................................ 1,098,540
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TRANSPORTATION--1.4%
NR 1,560 Union Pacific Corp., zero coupon, 5/01/04 - 5/01/05 ................................. 1,515,912
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Total Corporate Bonds ............................................................... 5,809,485
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U.S. GOVERNMENT AND AGENCY SECURITIES--1.8%
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--6.4%
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 .................................................................... 587,275
Los Angeles County California Pension Oblig.,
AAA 1,102 zero coupon, 6/30/04 - 6/30/05 .................................................... 1,062,315
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--9.1%
NR 10,000 Vanguard Prime Money Market Portfolio, 12/31/04 ..................................... 9,848,000
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Total Long-Term Investments (cost $120,822,956) ..................................... 131,995,946
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SHORT-TERM DISCOUNT NOTE--6.8%
7,400(7) Federal Home Loan Bank, 0.75%, 1/02/04, (cost $7,399,846) ........................... 7,399,846
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Total investments (cost $128,222,802) ............................................... 139,395,792
Liabilities in excess of other assets--(28.5)% ...................................... (30,957,202)
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NET ASSETS--100% ................................................................. $108,438,590
============
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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 4.0% of its net assets, with a current market value
of $4,390,170, in securities restricted as to resale.
(4) Illiquid securities representing 0.02% of net assets.
(5) Security is fair valued.
(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.
6
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
BLACKROCK INVESTMENT QUALITY TERM TRUST (BQT)
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
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LONG-TERM INVESTMENTS--106.2%
MORTGAGE PASS-THROUGHS--3.0%
Federal Home Loan Mortgage Corp.,
$ 2,013 6.50%, 9/01/25 - 6/01/29 ........................................................ $ 2,111,071
1,157 7.00%, 12/01/28 ................................................................. 1,225,849
7,038 Federal National Mortgage Assoc., 6.50%, 8/01/28 - 6/01/29 ........................ 7,368,804
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Total Mortgage Pass-Throughs ...................................................... 10,705,724
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FEDERAL HOUSING ADMINISTRATION--1.2%
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--36.2%
Federal Home Loan Mortgage Corp.,
11,040 Ser. 2648, Class TZ, 5.00%, 7/15/33 ............................................. 11,064,317
5,049 Ser. 2648, Class Z, 5.00%, 7/15/33 .............................................. 5,058,825
3,112 Ser. 2670, Class ZB, 5.00%, 9/15/18 ............................................. 3,112,343
4,021 Ser. 2677, Class ZB, 5.50%, 10/15/31 ............................................ 3,991,111
12,490(2) Ser. 2677, CLASS ZD, 4.50%, 9/15/18 ............................................. 12,541,369
6,978 Ser. 2687, Class ZF, 5.50%, 8/15/32 ............................................. 6,987,074
10,655 Ser. 2707, Class ZJ, 5.00%, 11/15/23 ............................................ 10,759,965
7,021 Ser. 2707, Class ZT, 5.50%, 11/15/33 ............................................ 7,069,946
Federal National Mortgage Assoc.,
632 Ser. 008, Class JA, 5.00%, 2/25/18 .............................................. 633,229
885 Ser. 043, Class E, 7.50%, 4/25/22 ............................................... 941,670
964 Ser. 063, Class KZ, 4.00%, 7/25/33 .............................................. 962,984
823 Ser. 069, Class OC, 5.50%, 7/25/11 .............................................. 824,072
6,203 Ser. 081, Class ZC, 4.75%, 9/25/18 .............................................. 6,218,749
10,533(2) Ser. 081, Class ZG, 5.00%, 9/25/18 .............................................. 10,563,683
4,662 Ser. 081, Class ZH, 4.75%, 9/25/18 .............................................. 4,664,550
7,523 Ser. 086, Class ZG, 5.50%, 2/25/33 .............................................. 7,533,875
16,800(2) Ser. 122, Class ZC, 4.50%, 12/25/18 ............................................. 16,768,500
Federal Home Loan Mortgage Corp.,
1,787 Ser. 1530, Class H, 7.00%, 9/15/22 .............................................. 1,795,762
875 Ser. 2151, Class JE, 6.00%, 1/15/27 ............................................. 876,997
314 Ser. 2396, Class PX, 6.00%, 6/15/27 ............................................. 318,933
473 Ser. 2450, Class GA, 6.25%, 10/15/22 ............................................ 477,312
1,988 Ser. 2483, Class DB, 5.50%, 9/15/12 ............................................. 1,991,951
10,326 Ser. 2668, Class AC, 4.00%, 12/15/05 ............................................ 10,443,079
3,000 Government National Mortgage Assoc., Ser. 13, Class KB, 6.00%, 8/16/29 ............ 3,038,640
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Total Agency Multiple Class Mortgage Pass-Throughs ................................ 128,638,936
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NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--11.7%
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
------------
ADJUSTABLE RATE MORTGAGE SECURITIES--0.3%
AAA 940(3) Residential Funding Mortgage Securities I, Inc.,
Ser. S15, Class A16, 3.709%, 4/25/08 ............................................ 942,385
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See Notes to Financial Statements.
7
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
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INVERSE FLOATING RATE MORTGAGES--0.8%
$ 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, 13.836%, 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, 16.215%, 4/25/08 ............................................... 98,705
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Total Inverse Floating Rate Mortgages ................................................. 2,696,796
------------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--1.7%
AAA 3,748 Credit Suisse First Boston Mortgage Securities Corp., Ser. S15,
Class 2 AIO, 7.00%, 7/25/04 ......................................................... 125,328
Federal Home Loan Mortgage Corp.,
35 Ser. 1489, Class K, 6.50%, 10/15/07 ................................................. 339
701 Ser. 2417, Class PI, 6.00%, 4/15/25 ................................................. 4,508
5,087(3) Ser. 2455, Class SP, 7.04%, 3/15/28 ................................................. 19,077
20,100 Ser. 2644, Class IA, 5.00%, 9/15/10 ................................................. 983,895
22,912 Ser. 2645, Class MI, 5.00%, 5/15/18 ................................................. 1,640,054
Federal National Mortgage Assoc.,
2,180(3) Ser. 24, Class SE, 16.058%, 3/25/09 ................................................. 387,033
7,046(3) Ser. 37, Class SD, 5.844%, 10/25/22 ................................................. 195,690
376(3) Ser. 42, Class SO, 8.091%, 3/25/23 .................................................. 9,438
1,547(3) Ser. 81, Class S, 6.494%, 12/18/04 .................................................. 39,611
AAA 22,174 GMAC Mortgage Corp. Loan Trust, Ser. HE2, Class AIO, 7.50%, 6/25/27 ................... 1,065,904
AAA 20,000(3) Impac Secured Assets Corp., Ser. 1, Class AIO, 5.00%, 7/25/04 ......................... 374,602
AAA 28,972(3) Residential Asset Mortgage Products, Inc., Ser. RS2, Class AIIO, 5.00%, 9/25/04 ....... 370,262
16,250(3) Residential Funding Mortgage Securities II, Inc.,
Ser. HI2, Class AIO, 10.00%, 9/25/04 ................................................ 799,175
------------
Total Interest Only Mortgage-Backed Securities ........................................ 6,014,916
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES--1.5%
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 ............................................................. 74,518
------------
Total Asset-Backed Securities ......................................................... 218,213
------------
CORPORATE BONDS--17.5%
BUILDING & DEVELOPMENT--1.5%
BBB+ 5,000 Pulte Corp., 8.375%, 8/15/04 .......................................................... 5,183,000
------------
CONSUMER PRODUCTS--0.6%
BBB+ 2,000 General Mills, 8.75%, 9/15/04 ......................................................... 2,099,620
------------
ENERGY--1.4%
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
------------
5,102,559
------------
FINANCE & BANKING--7.7%
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
------------
27,418,905
------------
TELECOMMUNICATION--0.6%
A 2,000 Alltel Corp., 7.50%, 3/01/06 .......................................................... 2,197,080
------------
See Notes to Financial Statements.
8
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.1%
CCC $ 400 American Airlines, Inc., 10.44%, 3/04/07 ........................................... $ 325,000
------------
OTHER--5.6%
A3 18,320(2,3,4) Targeted Return Index Securities Trust, Ser. 5, 5.89%, 1/25/07 ..................... 19,705,542
------------
Total Corporate Bonds .............................................................. 62,031,706
------------
U.S. GOVERNMENT AND AGENCY SECURITIES--13.5%
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
2,645 Ser. 20K, 6.95%, 11/01/16 ........................................................ 2,927,886
668 Small Business Investment Companies, Ser. P10A, Class 1, 6.12%, 2/01/08 ............ 705,489
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
30,000 U.S. Treasury Notes Strip, zero coupon, 11/15/04 ................................... 29,680,860
------------
Total U.S. Government and Agency Securities ........................................ 48,019,331
------------
TAXABLE MUNICIPAL BONDS--6.1%
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--1.5%
AA- 5,000(2) Quebec Province, 8.625%, 1/19/05, (Canada) ......................................... 5,362,600
------------
STRIPPED MONEY MARKET INSTRUMENTS--11.1%
NR 40,000 Vanguard Prime Money Market Portfolio, 12/31/04 .................................... 39,392,000
------------
TOTAL LONG-TERM INVESTMENTS (COST $360,121,414) .................................... 377,061,263
------------
SHORT-TERM INVESTMENTS--15.6%
U.S. GOVERNMENT AND AGENCY SECURITIES--15.6%
54,400(7) Federal Home Loan Bank, 0.75%, 1/02/04 ............................................. 54,398,867
1,011(7) U.S. Treasury Notes, 0.85%, 1/02/04 ................................................ 1,011,250
------------
TOTAL SHORT-TERM INVESTMENTS (COST $55,410,117) .................................... 55,410,117
------------
Total investments before investment sold short (cost $415,531,531) ................. $432,471,380
------------
INVESTMENT SOLD SHORT--(0.3%)
(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-- 121.5% (COST $412,543,603) ....... 431,462,200
Liabilities in excess of other assets--(21.5)% ..................................... (76,310,975)
------------
NET ASSETS--100% ................................................................... $355,151,225
============
- ----------
(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 9.5% of its net assets, with a current market value
of $33,606,201, in securities restricted as to resale.
(5) Illiquid securities representing 0.06% of net assets.
(6) Security is fair valued.
(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.
9
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
BLACKROCK PREFERRED OPPORTUNITY TRUST (BPP)
RATING(1)
(UNAUDITED) SHARES DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES--60.3%
AUTOMOTIVE--0.2%
BBB+ 34,000 General Motors Corp. ................................................................. $ 888,250
----------
CHEMICAL--0.5%
BB- 98,300 Nova Chemicals Corp. (Canada) ........................................................ 2,472,802
----------
CONSUMER PRODUCTS--0.4%
BBB- 20,000(2) Dairy Farmers of America Inc. Ser. A ................................................. 2,056,250
----------
ENERGY--6.2%
BBB+ 210,000 Alabama Power Co., Class A ........................................................... 5,578,125
BBB 55,000 Apache Corp., Ser. B ................................................................. 5,512,891
BBB+ 900 Central Maine Power Co. .............................................................. 49,950
B- 60,000(2) Chesapeake Energy Corp. .............................................................. 4,465,860
BBB- 5,000 Devon Energy Corp., Ser. A ........................................................... 525,000
B- 115,000 Hanover Compress Capital Trust ....................................................... 5,520,000
BBB- 275,000 Nexen Inc., (Canada) ................................................................. 7,136,250
----------
28,788,076
----------
FINANCE & BANKING--38.8%
A2 5,000(2) ABN Amro NA Capital Funding Trust I .................................................. 5,540,625
ABN Amro NA Inc.,
A3 1,949(2) Ser. H ............................................................................. 2,127,211
A3 600(2) Ser. L ............................................................................. 641,719
BBB+ 253,100 AOL Time Warner Inc., Ser. A-1, (CABCO) .............................................. 6,707,150
A2 30,000(2) Banesto Hldgs. Limited, Ser. A, (Spain) .............................................. 900,000
Bear Stearns Cos. Inc., The,
A- 75,000 Ser. E ............................................................................. 3,963,750
A- 27,500 Ser. F ............................................................................. 1,409,375
A- 34,300 Ser. G ............................................................................. 1,706,425
A 3,015 BSCH Finance Limited, Ser. K, (United Kingdom) ....................................... 75,940
B+ 60,000 Chevy Chase Preferred Capital Corp., Ser. A .......................................... 3,525,000
A3 23,600 Citigroup Capital I, Ser. 9, (CABCO) ................................................. 614,780
AA 69,000 Citigroup Capital IX ................................................................. 1,753,035
AA 40,000 Citigroup Capital X .................................................................. 1,000,000
Citigroup Inc.,
AA 100,000 Ser. F ............................................................................. 5,484,380
AA 18,050 Ser. M ............................................................................. 957,733
BB 80,000 Colonial Capital IV .................................................................. 2,093,750
Credit Suisse First Boston,
Aa3 11,100 Class A, (SATURNS) ................................................................. 285,270
Aa3 12,300 Ser. 10, (SATURNS) ................................................................. 323,260
BBB+ 137,500 Everest Re Capital Trust (Barbados) .................................................. 3,785,554
AA- 35,000 Federal Home Loan Mortgage Corp. ..................................................... 1,820,000
AA- 145,000 Federal Home Loan Mortgage Corp. Ser. K .............................................. 7,380,500
AA 217,000 Federal National Mortgage Assoc., Ser. L ............................................. 10,133,900
AA 15,200 Financial Security Assurance Holdings Ltd. ........................................... 368,600
BBB- 120,000 First Republic Preferred Capital Corp. ............................................... 2,970,000
A2 85,000 Fleet Capital Trust VII .............................................................. 2,250,800
A2 26,100 Fleet Capital Trust VIII ............................................................. 694,912
A- 9,000(2) Fortis Funding Trust ................................................................. 10,260,000
AAA 190,750 General Electric Capital Corp. ....................................................... 4,963,786
Aa3 181,480 Goldman Sachs Group, Ser. 12 ......................................................... 4,556,963
A- 637,037 ING Groep NV, (Netherlands) .......................................................... 17,233,384
A 40,000 JP Morgan Chase & Co., Ser. A ........................................................ 3,690,625
A2 80,000 JP Morgan Chase Capital XII .......................................................... 2,054,400
A3 117,200 Keycorp Capital V .................................................................... 2,908,025
See Notes to Financial Statements.
10
RATING(1)
(UNAUDITED) SHARES DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING--(CONT'D)
Lehman Brothers Holdings Inc.,
A- 79,160 Ser. C ........................................................................... $ 4,037,160
A- 106,100 Ser. D ........................................................................... 5,421,052
A3 245,000 Ser. F ........................................................................... 6,592,044
A1 20,000 Merrill Lynch Preferred Capital Trust III .......................................... 535,000
A1 11,900 Merrill Lynch Preferred Capital Trust V ............................................ 325,019
A+ 337,000 Morgan Stanley Capital Trust III ................................................... 8,561,923
A 209,400 Partner Re Ltd., Ser. C, (Bermuda) ................................................. 5,440,212
BBB 79,385 Phoenix Cos Inc., The .............................................................. 2,042,576
BBB+ 18,400 PLC Capital Trust IV ............................................................... 490,544
BBB+ 271,725 Renaissance Re Holdings Ltd, Ser. B, (Bermuda) ..................................... 7,421,489
BBB- 20 Roslyn Bancorp, Ser. C ............................................................. 2,000,010
Baa2 35,300 Safeco Capital Trust I, (CORTS) .................................................... 942,580
Baa2 6,500 Safeco Capital Trust I, Ser. 4, (CORTS) ............................................ 179,400
Baa2 17,600 Safeco Capital Trust I, Ser. 5, (SATURNS) .......................................... 473,000
Baa2 6,000 Safeco Capital Trust I, Ser. 7, (SATURNS) .......................................... 174,750
Baa2 14,700 Safeco Capital Trust II, (CORTS) ................................................... 403,515
A- 5,000 SLM Corp., Ser. A .................................................................. 278,906
BBB+ 62,590 Stilwell Financial Inc. ............................................................ 1,680,153
A3 60(2) Union Planters Preferred Funding Corp. ............................................. 6,091,800
BBB 11,100 Valero Energy Corp., Class A, (PPLUS) .............................................. 293,040
A2 271,200 Wachovia Preferred Funding Corp., Ser. A ........................................... 7,652,939
Baa1 5,200 Washington Mutual Capital I, Ser. 22, (CORTS) ...................................... 137,963
A- 13,500 XL Capital Ltd., Ser. A, (Bermuda) ................................................. 378,000
Baa1 143,865 Zions Capital Trust, Ser. B ........................................................ 3,933,816
Baa2 2,000(2) Zurich Funding Trust II ............................................................ 1,940,250
------------
181,607,993
------------
MEDIA--1.7%
BBB- 110,000 Comcast Corp., 11/15/29 ............................................................ 3,879,370
B 40,000 CSC Holdings Inc., Ser. M .......................................................... 4,200,000
------------
8,079,370
------------
REAL ESTATE--10.4%
AMB Property Corp.,
BBB 80,000 Ser. L ........................................................................... 1,985,000
Baa2 170,000 Ser. M ........................................................................... 4,209,200
BBB- 120,000 Developers Diversified Realty Co., Class H ......................................... 3,123,756
BBB 90,000 Duke Realty Corp., Ser. J .......................................................... 2,306,700
BBB 100,000 Equity Residential, Ser. N ......................................................... 2,487,500
BBB+ 255,000 Kimco Realty Corp., Class F ........................................................ 6,614,062
BBB+ 255,200 NB Capital Corp. ................................................................... 7,158,360
BBB- 324,000 Regency Centers Corp. .............................................................. 8,748,000
Aa3 30(2) Sun Trust Real Estate Investment Corp. ............................................. 3,773,854
A- 320,000 Weingarten Realty Investors, Ser. D ................................................ 8,512,000
------------
48,918,432
------------
TELECOMMUNICATION--2.1%
BBB+ 8,000(2) Centaur Funding, (Cayman Islands) .................................................. 9,761,000
------------
Total Preferred Securities (cost $268,291,030) ..................................... 282,572,173
------------
---------
PRINCIPAL
AMOUNT
(000)
---------
TRUST PREFERRED SECURITIES--57.8%
ENERGY--5.3%
BBB $10,000 ComEd Financing III, 6.35%, 3/15/33 ................................................ 9,762,900
BB+ 3,000 HL&P Capital Trust II, Ser. B, 8.257%, 2/01/37 ..................................... 2,951,340
BBB- 8,080 K N Capital Trust III, 7.63%, 4/15/28 .............................................. 8,837,718
Ba1 3,000 Puget Sound Energy Capital Trust I, Ser. B, 8.231%, 6/01/27 ........................ 3,263,700
------------
24,815,658
------------
See Notes to Financial Statements.
11
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE & BANKING--49.3%
A $ 12,000(3,4) Abbey National Capital, 8.963%, 12/29/49 ........................................... $ 16,051,560
BBB+ 11,000 ACE Capital Trust II, 9.70%, 4/01/30 ............................................... 14,344,539
B2 3,000 AFC Capital Trust I, Ser. B, 8.207%, 2/03/27 ....................................... 2,707,500
NR 6,000(2) AgFirst Farm Credit Bank, Ser. 2, 7.30%, 10/14/49 .................................. 6,019,200
AA+ 13,000(2,4) American General Instl. Capital A, 7.57%, 12/01/45 ................................. 15,398,110
BBB 6,000 Aon Capital A, 8.205%, 1/01/27 ..................................................... 6,613,500
BBB 5,000 Astoria Capital Trust 1, Ser. B, 9.75%, 11/01/29 ................................... 5,925,000
A- 9,774 AXA SA, 7.10%, 5/29/49, (France) ................................................... 9,929,079
A1 4,600 Bank One Capital III, 8.75%, 9/01/30 ............................................... 6,007,922
Aa3 14,000(2,3) Barclays Bank PLC, 6.86%, 6/15/32, (United Kingdom) ................................ 15,182,734
AA- 3,557 BNP Paribas Capital Trust V, 7.20%, 12/31/49 ....................................... 3,672,602
A2 3,000(2) CBA Capital Trust I, 5.805%, 12/31/49 .............................................. 3,092,580
A 2,623 Chase Capital I, Ser. A, 7.67%, 12/01/26 ........................................... 2,888,372
BBB- 1,000 Colonial Capital II, Ser. A, 8.92%, 1/15/27 ........................................ 1,092,480
AA- 8,000 Credit Agricole Preferred Fund Trust II, 7.00%, 8/29/49, (Luxembourg) .............. 8,140,000
A+ 4,500(2,3) Deutsche Bank Capital Funding, 7.872%, 12/29/49 .................................... 5,118,795
A3 3,000(2) Dresdner Funding Trust I, 8.151%, 6/30/31 .......................................... 3,334,800
Baa2 500 FCB/NC Capital Trust I, 8.05%, 3/01/28 ............................................. 514,415
BBB 4,000(2) First Midwest Capital Trust I, 6.95%, 12/01/33 ..................................... 4,171,250
Baa2 5,000 Greenpoint Capital Trust I, 9.10%, 6/01/27 ......................................... 5,587,500
A1 5,000 HBOS Capital Funding LP, 6.85%, 3/29/49, (United Kingdom) .......................... 4,957,812
A2 11,000(2,3) HSBC Capital Funding LP, 10.176%, 12/29/49, (United Kingdom) ....................... 16,020,950
BBB 1,400 HUBCO Capital Trust I, Ser. B, 8.98%, 2/01/27 ...................................... 1,570,198
BBB 3,000 HUBCO Capital Trust II, Ser. B, 7.65%, 6/15/28 ..................................... 3,124,688
BBB+ 3,000(2) HVB Funding Trust, 8.741%, 6/30/31 ................................................. 3,434,640
A 769 JPM Capital Trust I, 7.54%, 1/15/27 ................................................ 841,180
A 1,000 JPM Capital Trust II, 7.95%, 2/01/27 ............................................... 1,128,821
BB+ 145 Markel Capital Trust I, Ser. B, 8.71%, 1/01/46 ..................................... 152,241
Aa3 1 Morgan Stanley, Class A, 7.05%, 4/01/32, (PPLUS) ................................... 34,531
A- 3,000 North Fork Capital Trust II, 8.00%, 12/15/27 ....................................... 3,330,075
BB+ 3,000 Provident Financing Trust I, 7.405%, 3/15/38 ....................................... 2,610,000
AA- 13,000 RBS Capital Trust, Ser. B, 6.80%, 12/31/49, (United Kingdom) ....................... 13,095,239
BBB+ 4,000 Safeco Capital Trust I, 8.072%, 7/15/37 ............................................ 4,493,560
A+ 7,500(2) Sun Life of Canada US Capital Trust I, 8.526%, 5/29/49 ............................. 8,541,225
Swedish Export Credit Corp., (Sweden)
AA- 1,237 5.40%, 6/27/33 ................................................................... 1,112,370
AA- 10,000(2) 6.375%, 10/03/49 ................................................................. 10,081,250
A+ 7,270 Transamerica Capital III, 7.625%, 11/15/37 ......................................... 7,619,869
BBB- 5,000(2) Webster Capital Trust I, 9.36%, 1/29/27 ............................................ 5,662,950
A- 6,000(2) Zurich Capital Trust I, 8.376%, 6/01/37 ............................................ 6,902,340
------------
230,505,877
------------
REAL ESTATE--1.9%
BB+ 6,000(2) SOVEREIGN REAL ESTATE INVESTOR TRUST, 12.00%, 8/29/49 .............................. 9,000,750
------------
TELECOMMUNICATION--1.3%
BBB- 5,000(4) TCI Communications Financing III, 9.65%, 3/31/27 ................................... 6,139,250
------------
Total Trust Preferred Securities (cost $258,392,110) ............................... 270,461,535
------------
CORPORATE BONDS--29.1%
AUTOMOTIVE--2.0%
B 2,750 Asbury Automotive Group, Inc., 9.00%, 6/15/12 ...................................... 2,921,875
B+ 3,000 Dura Operating Corp., Ser. B, 8.625%, 4/15/12 ...................................... 3,165,000
B- 2,850 Rexnord Corp., 10.125%, 12/15/12 ................................................... 3,135,000
------------
9,221,875
------------
BUILDING & DEVELOPMENT--0.5%
B 2,200 Collins & Aikman Floorcovering, Ser. B, 9.75%, 2/15/10 ............................. 2,354,000
------------
CHEMICAL--0.7%
BB- 3,000 Lyondell Chemical Co., 11.125%, 7/15/12 ............................................ 3,330,000
------------
CONGLOMERATES--1.8%
BBB- 8,000 Tyco Intl. Group SA, 5.80%, 8/01/06, (Luxembourg) .................................. 8,460,000
------------
See Notes to Financial Statements.
12
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER PRODUCTS--2.3%
BB+ $ 8,000 Delhaize America Inc., 8.125%, 4/15/11 .............................................. $ 9,137,360
BB+ 1,700 JC Penney Corp. Inc., 8.25%, 8/15/22 ................................................ 1,757,375
------------
10,894,735
------------
CONTAINERS & GLASS--0.7%
B+ 3,000 Crown European Holdings SA, 9.50%, 3/01/11, (France) ................................ 3,390,000
------------
ECOLOGICAL SERVICES & EQUIPMENT--0.7%
B+ 3,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ...................................... 3,240,000
------------
ELECTRONICS--0.8%
B 3,000 Stoneridge, Inc., 11.50%, 5/01/12 ................................................... 3,536,250
------------
ENERGY--8.0%
B 3,000 AES Corp., 8.875%, 2/15/11 .......................................................... 3,270,000
A- 1,830 Alberta Energy Co. Limited, 7.375%, 11/01/31, (Canada) .............................. 2,162,017
BBB+ 4,725 Anadarko Finance Co., Ser. B, 7.50%, 5/01/31, (Canada) .............................. 5,535,238
B 3,000 Dresser, Inc., 9.375%, 4/15/11 ...................................................... 3,262,500
B 3,000(2) Dynegy Holdings Inc., 10.125%, 7/15/13 .............................................. 3,457,500
Baa2 6,700 FirstEnergy Corp., Ser. C, 7.375%, 11/15/31 ......................................... 6,813,353
B2 2,950 Orion Power Holdings, Inc., 12.00%, 5/01/10 ......................................... 3,628,500
A- 780 PanCanadian Energy Corp., 7.20%, 11/01/31, (Canada) ................................. 899,691
BB+ 4,000 Pioneer Natural Resources Co., Ser. A, 7.20%, 1/15/28 ............................... 4,236,120
B+ 2,000(3) Williams Cos. Inc., 8.125%, 3/15/12 ................................................. 2,240,000
BB 2,000 XTO Energy Inc., 6.25%, 4/15/13 ..................................................... 2,110,000
------------
37,614,919
------------
FINANCE & BANKING--4.0%
BB 1,000(2) Crum & Forster Holdings Corp., 10.375%, 6/15/13 ..................................... 1,111,250
A3 5,000(3) Ford Motor Credit Co., 6.50%, 1/25/07 ............................................... 5,325,650
AA 7,399 Lloyds Bank Ltd., 6.90%, 11/22/49 ................................................... 7,663,302
BB 1,842 Midland Funding Corp. II, Ser. A, 11.75%, 7/23/05 ................................... 1,989,412
A3 2,500 Resparcs Funding LP, 8.00%, 12/30/49, (United Kingdom) .............................. 2,612,500
------------
18,702,114
------------
FOREST PRODUCTS--0.7%
B+ 3,000 Caraustar Industries, Inc., 9.875%, 4/01/11 ......................................... 3,240,000
------------
HEALTH CARE--0.7%
B- 3,000 Insight Health Services Corp., Ser. B, 9.875%, 11/01/11 ............................. 3,210,000
------------
HOTELS & CASINOS--0.7%
B 3,000 Extended Stay America Inc., 9.15%, 3/15/08 .......................................... 3,123,750
------------
INDUSTRIAL EQUIPMENT--0.7%
B+ 3,000 United Rentals, Inc., Ser. B, 9.25%, 1/15/09 ........................................ 3,150,000
------------
INDUSTRIALS--0.7%
BB- 3,000 Mail-Well I Corp., 9.625%, 3/15/12 .................................................. 3,330,000
------------
MEDIA--1.6%
B 3,000 Dex Media East LLC, Ser. B, 12.125%, 11/15/12 ....................................... 3,705,000
B 1,000 PEI Holdings Inc., 11.00%, 3/15/10 .................................................. 1,160,000
CCC+ 3,000 WRC Media Inc., 12.75%, 11/15/09 .................................................... 2,865,000
------------
7,730,000
------------
REAL ESTATE--0.7%
Ba3 3,000 HMH Properties, Inc., Ser. B, 7.875%, 8/01/08 ....................................... 3,116,250
------------
TRANSPORTATION--1.8%
B3 2,030 Dunlop Standard Aerospace Holdings PLC, 11.875%, 5/15/09, (United Kingdom) .......... 2,172,100
B+ 3,000 Hornbeck Leevac Marine Services Inc., 10.625%, 8/01/08 .............................. 3,300,000
B 2,500 RailAmerica Transportation Corp., 12.875%, 8/15/10 .................................. 2,900,000
------------
8,372,100
------------
Total Corporate Bonds (cost $125,331,112) ........................................... 136,015,993
------------
See Notes to Financial Statements.
13
PRINCIPAL
RATING(1) AMOUNT
(UNAUDITED) (000) DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.2%
$800(5) Federal Home Loan Bank, 0.75%, 1/02/04 .............................................. $ 799,983
400(5) Federal National Mortgage Assoc., 0.93%, 1/02/04 .................................... 399,990
------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,199,973) ...................................... 1,199,973
------------
TOTAL INVESTMENTS--147.4% (COST $653,214,225) ....................................... 690,249,674
Liabilities in excess of other assets--(0.2)% ....................................... (1,166,297)
Preferred shares at redemption value, including dividends payable--(47.2)% .......... (220,840,774)
------------
NET ASSETS--100% $468,242,603
============
- ----------
(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 December 31,
2003, the Trust held 35.0% of its net assets, with a current market value
of $164,088,893, in securities restricted as to resale.
(3) Security interest rate is as of December 31, 2003.
(4) Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
(5) 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.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
CABCO -- Corporate Asset Backed Corporation
CORTS -- Corporate Backed Trust Securities
PPLUS -- Preferred Plus
SATURNS -- Structured Asset Trust Unit Repackagings
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
14
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
- --------------------------------------------------------------------------------
BLACKROCK BLACKROCK
BLACKROCK INVESTMENT PREFERRED
ADVANTAGE TERM QUALITY OPPORTUNITY
TRUST(1) TERM TRUST(1) TRUST
ASSETS (BAT) (BQT) (BPP)
------------- ------------- -------------
Investments at value(2) ................................................... $ 139,395,792 $ 432,471,380 $ 690,249,674
Cash ...................................................................... 55,905 263,144 1,991,844
Receivable from investments sold .......................................... -- 1,619,803 6,084,833
Income receivable ......................................................... 192,222 3,170,261 6,831,431
Other assets .............................................................. 24,713 67,268 47,061
------------- ------------- -------------
139,668,632 437,591,856 705,204,843
------------- ------------- -------------
LIABILITIES
Reverse repurchase agreements ............................................. 30,077,825 80,959,175 3,486,000
Payable for investments purchased ......................................... -- -- 6,986,814
Variation margin payable .................................................. -- -- 62,500
Investments sold short at value(3) ........................................ -- 1,009,180 --
Interest payable .......................................................... 19,357 57,310 977,604
Unrealized depreciation on interest rate swaps ............................ -- -- 1,006,996
Dividends payable ......................................................... 554,749 -- 3,050,969
Investment advisory fee payable ........................................... 46,226 104,621 382,070
Administration fee payable ................................................ 14,873 30,259 --
Deferred Directors/Trustees fees .......................................... 20,587 57,497 13,020
Other accrued expenses .................................................... 496,425 222,589 155,493
------------- ------------- -------------
31,230,042 82,440,631 16,121,466
------------- ------------- -------------
PREFERRED SHARES AT REDEMPTION VALUE
$0.001 par value per share and $25,000 liquidation value per share,
including dividends payable(4) .......................................... $ -- $ -- $ 220,840,774
------------- ------------- -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS .............................. $ 108,438,590 $ 355,151,225 $ 468,242,603
============= ============= =============
Composition of Net Assets Applicable to Common Shareholders:
Par value ............................................................... $ 95,107 $ 368,106 $ 18,306
Paid-in capital in excess of par ........................................ 85,799,932 361,790,346 433,517,977
Undistributed (distributions in excess of) net investment income ........ 16,107,109 16,572,628 (683,854)
Accumulated net realized loss ........................................... (4,736,548) (40,518,649) (453,347)
Net unrealized appreciation ............................................. 11,172,990 16,938,794 35,843,521
------------- ------------- -------------
Net assets applicable to common shareholders, December 31, 2003 ........... $ 108,438,590 $ 355,151,225 $ 468,242,603
============= ============= =============
Net asset value per common share(5) ....................................... $ 11.40 $ 9.65 $ 25.58
============= ============= =============
(1) Consolidated Statement of Assets and Liabilities
(2) Investments at cost ................................................... $ 128,222,802 $ 415,531,531 $ 653,214,225
(3) Proceeds received ..................................................... -- 1,008,125 --
(4) Preferred shares outstanding .......................................... -- -- 8,832
(5) Common shares outstanding ............................................. 9,510,667 36,810,639 18,305,777
See Notes to Financial Statements.
15
STATEMENTS OF OPERATIONS
FOR THE PERIOD1 ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
BLACKROCK BLACKROCK
BLACKROCK INVESTMENT PREFERRED
ADVANTAGE TERM QUALITY OPPORTUNITY
TRUST(2) TERM TRUST(2) TRUST
(BAT) (BQT) (BPP)
--------------- ------------- -----------
INVESTMENT INCOME
Interest income ....................................................... $ 9,473,974 $ 21,723,734 $ 22,597,583
Dividend income ....................................................... -- -- 14,689,574
----------- ------------ ------------
Total investment income ............................................. 9,473,974 21,723,734 37,287,157
----------- ------------ ------------
EXPENSES
Investment advisory ................................................... 559,949 2,098,808 3,547,905
Administration ........................................................ 89,592 279,841 --
Transfer agent ........................................................ 17,500 23,050 14,309
Custodian ............................................................. 81,299 141,233 110,635
Reports to shareholders ............................................... 49,326 88,172 58,734
Directors/Trustees fees ............................................... 16,137 44,000 50,502
Registration .......................................................... 22,498 31,500 26,494
Independent accountants ............................................... 41,066 86,072 46,094
Legal ................................................................. 24,900 146,025 38,148
Insurance ............................................................. 7,935 19,391 28,546
Organization .......................................................... -- -- 15,000
Auction agent ......................................................... -- -- 406,195
Miscellaneous ......................................................... 26,607 46,084 42,602
----------- ------------ ------------
Total expenses excluding interest expense and excise tax ............ 936,809 3,004,176 4,385,164
Interest expense .................................................. 315,837 757,883 1,375,571
Excise tax ........................................................ 334,994 -- --
----------- ------------ ------------
Total expenses ...................................................... 1,587,640 3,762,059 5,760,735
Less fees paid indirectly ......................................... (726) (985) (13,363)
----------- ------------ ------------
Net expenses ........................................................ 1,586,914 3,761,074 5,747,372
----------- ------------ ------------
Net investment income ................................................... 7,887,060 17,962,660 31,539,785
----------- ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments ......................................................... (4,811,205) (4,868,350) (2,411,046)
Futures ............................................................. (1,038,028) (624,926) 2,036,492
Options written ..................................................... -- 55,500 --
----------- ------------ ------------
(5,849,233) (5,437,776) (374,554)
----------- ------------ ------------
Net change in unrealized appreciation/depreciation on:
Investments ......................................................... (1,198,427) (4,376,341) 37,035,449
Futures ............................................................. -- 1,792,500 (184,931)
Interest rate swaps ................................................. -- -- (1,006,997)
Short sales ......................................................... -- 17,650 --
----------- ------------ ------------
(1,198,427) (2,566,191) 35,843,521
----------- ------------ ------------
Net gain (loss) ......................................................... (7,047,660) (8,003,967) 35,468,967
----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO PREFERRED SHAREHOLDERS FROM:
Net investment income ................................................. -- -- (1,805,661)
Net realized gains .................................................... -- -- (4,742)
----------- ------------ ------------
Total dividends and distributions ..................................... -- -- (1,810,403)
----------- ------------ ------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
RESULTING FROM OPERATIONS ............................................. $ 839,400 $ 9,958,693 $ 65,198,349
=========== ============ ============
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. The other Trust's statements are for a full year.
(2) Consolidated Statement of Operations.
See Notes to Financial Statements.
16
STATEMENTS OF CASH FLOWS
FOR THE PERIOD(1) ENDED DECEMBER 31, 2003
- --------------------------------------------------------------------------------
BLACKROCK BLACKROCK
RECONCILIATION OF NET INCREASE BLACKROCK INVESTMENT PREFERRED
IN NET ASSETS RESULTING FROM OPERATIONS ADVANTAGE QUALITY OPPORTUNITY
TO NET CASH PROVIDED BY TERM TRUST(2) TERM TRUST(2) TRUST
(USED FOR) OPERATING ACTIVITIES (BAT) (BQT) (BPP)
------------- ------------- -----------
Net increase in net assets resulting from operations ............................... $ 839,400 $ 9,958,693 $ 65,198,349
----------- ------------ -------------
Decrease (increase) in investments ................................................. (3,940,265) 13,912,721 (654,780,707)
Net realized loss .................................................................. 5,849,233 5,437,776 374,554
Decrease (increase) in unrealized appreciation/depreciation ........................ 1,198,427 2,566,191 (35,843,521)
Increase in receivable for investments sold short .................................. -- (17,650) --
Decrease in interest rate swaps .................................................... -- -- 1,006,996
Increase in receivable for investments sold ........................................ -- (1,314,187) (6,084,833)
Decrease in variation margin receivable ............................................ -- 218,750 --
Decrease in collateral deposited with brokers ...................................... -- 1,026,250 --
Decrease (increase) in interest receivable ......................................... 639,095 1,018,117 (6,831,431)
Decrease (increase) in other assets ................................................ (6,503) 406,285 (47,061)
Increase (decrease) in payable for investments purchased ........................... -- (207,860) 6,986,814
Decrease in payable to broker ...................................................... (37,282) (1,855,606) --
Increase in variation margin payable ............................................... -- -- 62,500
Increase (decrease) in interest payable ............................................ 18,834 (42,399) 977,604
Increase (decrease) in investment advisory fee payable ............................. (2,243) (72,470) 382,070
Increase in administration fee payable ............................................. 7,118 744 --
Increase in deferred Directors/Trustees fees ....................................... 4,301 12,563 13,020
Increase (decrease) in other accrued expenses ...................................... (241,436) 26,468 155,493
----------- ------------ -------------
Total adjustments ................................................................ 3,489,279 21,115,693 (693,628,502)
----------- ------------ -------------
Net cash provided by (used for) operating activities ............................... $ 4,328,679 $ 31,074,386 $(628,430,153)
=========== ============ =============
INCREASE IN CASH
Net cash provided by (used for) operating activities ............................... $ 4,328,679 $ 31,074,386 $(628,430,153)
----------- ------------ -------------
Cash provided by (used for) financing activities:
Capital contributions ............................................................ -- -- 433,553,783
Increase (decrease) in reverse repurchase agreements ............................. 2,204,075 (27,355,825) 3,486,000
Increase in preferred shares at redemption value including dividends payable ..... -- -- 220,840,774
Cash dividends paid to common shareholders ....................................... (6,657,202) (3,681,152) (27,458,560)
----------- ------------ -------------
Net cash provided by (used for) financing activities ............................... (4,453,127) (31,036,977) 630,421,997
----------- ------------ -------------
Net increase (decrease) in cash .................................................. (124,448) 37,409 1,991,844
Cash at beginning of period ...................................................... 180,353 225,735 --
----------- ------------ -------------
Cash at end of period ............................................................ $ 55,905 $ 263,144 $ 1,991,844
=========== ============ =============
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. This information includes the initial investments by
BlackRock Funding, Inc. The other Trust's statements are for a full year.
(2) Consolidated Statement of Cash Flows.
See Notes to Financial Statements.
17
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD(1) ENDED DECEMBER 31, 2003 AND FOR THE YEAR ENDED
DECEMBER 31, 2002
- --------------------------------------------------------------------------------
BLACKROCK
BLACKROCK BLACKROCK PREFERRED
ADVANTAGE INVESTMENT QUALITY OPPORTUNITY
TERM TRUST(2) TERM TRUST(2) TRUST
(BAT) (BQT) (BPP)
------------------------------ ------------------------------ -------------
2003 2002 2003 2002 2003
------------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN NET ASSETS
APPLICABLE TO COMMON SHAREHOLDERS
OPERATIONS:
Net investment income ....................... $ 7,887,060 $ 11,342,172 $ 17,962,660 $ 22,878,195 $ 31,539,785
Net realized gain (loss) .................... (5,849,233) 945,967 (5,437,776) (1,426,523) (374,554)
Net change in unrealized appreciation/
depreciation .............................. (1,198,427) (2,615,557) (2,566,191) (4,784,710) 35,843,521
Dividends to preferred shareholders from:
Net investment income ..................... -- -- -- -- (1,805,661)
Net realized gains ........................ -- -- -- -- (4,742)
------------- ------------- ------------- ------------- -------------
Net increase in net assets applicable to common
shareholders resulting from operations ...... 839,400 9,672,582 9,958,693 16,666,962 65,198,349
------------- ------------- ------------- ------------- -------------
DIVIDENDS AND DISTRIBUTIONS TO
COMMON SHAREHOLDERS FROM:
Net investment income ....................... (6,657,165) (6,100,825) (2,454,143) (14,723,808) (30,435,478)
Net realized gains .......................... -- -- -- -- (74,051)
------------- ------------- ------------- ------------- -------------
Total dividends and distributions ............. (6,657,165) (6,100,825) (2,454,143) (14,723,808) (30,509,529)
------------- ------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from the issuance of common
shares .................................... -- -- -- -- 388,477,506
Net proceeds from the underwriters'
overallotment option exercised ............ -- -- -- -- 47,650,000
Offering costs relating to the issuance
of preferred shares ....................... -- -- -- -- (2,597,000)
Reinvestment of common dividends ............ -- -- -- -- 23,277
------------- ------------- ------------- ------------- -------------
Net proceeds from capital share transactions .. -- -- -- -- 433,553,783
------------- ------------- ------------- ------------- -------------
Total increase (decrease) ..................... (5,817,765) 3,571,757 7,504,550 1,943,154 468,242,603
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS
Beginning of period ........................... 114,256,355 110,684,598 347,646,675 345,703,521 --
------------- ------------- ------------- ------------- -------------
End of period ................................. $ 108,438,590 $ 114,256,355 $ 355,151,225 $ 347,646,675 $ 468,242,603
============= ============= ============= ============= =============
End of period undistributed (distribution in
excess of) net investment income ............ $ 16,107,109 $ 14,553,874 $ 16,572,628 $ 1,064,111 $ (683,854)
(1) Commencement of investment operations for Preferred Opportunity was
February 28, 2003. This information includes the initial investment by
BlackRock Funding, Inc. The other Trust's statements are for a full year.
(2) Consolidated Statement of Changes in Net Assets.
See Notes to Financial Statements
18
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK ADVANTAGE TERM TRUST (BAT)
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ...................... $ 12.01 $ 11.64 $ 10.83 $ 10.04 $ 11.07
-------- -------- -------- -------- --------
Investment operations:
Net investment income ................................. 0.83 1.19 1.00 0.59 0.59
Net realized and unrealized gain (loss) ............... (0.74) (0.18) 0.41 0.80 (1.02)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ...... 0.09 1.01 1.41 1.39 (0.43)
-------- -------- -------- -------- --------
Dividends from net investment income .................... (0.70) (0.64) (0.60) (0.60) (0.60)
======== ======== ======== ======== ========
Net asset value, end of year ............................ $ 11.40 $ 12.01 $ 11.64 $ 10.83 $ 10.04
======== ======== ======== ======== ========
Market price, end of year ............................... $ 11.30 $ 11.85 $ 11.15 $ 9.88 $ 9.06
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(1) .............................. 1.25% 12.26% 19.44% 16.28% (1.58)%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Total expenses .......................................... 1.42% 1.82% 2.87% 4.06% 3.60%
Net expenses ............................................ 1.42% 1.82% 2.87% 4.06% 3.60%
Net expenses excluding interest expense and excise tax .. 0.84% 0.86% 0.92% 0.88% 0.91%
Net investment income ................................... 7.04% 9.98% 8.78% 5.72% 5.58%
SUPPLEMENTAL DATA:
Average net assets (000) ................................ $111,990 $113,632 $108,142 $ 98,368 $100,534
Portfolio turnover ...................................... 8% 4% 17% 17% 9%
Net assets, end of year (000) ........................... $108,439 $114,256 $110,685 $103,010 $ 95,443
Reverse repurchase agreements
outstanding, end of year (000) ........................ $ 30,078 $ 27,874 $ 34,500 $ 48,262 $ 47,039
Asset coverage(2) ....................................... $ 4,605 $ 5,099 $ 4,208 $ 3,134 $ 3,029
- ----------
(1) Total investment return is calculated assuming a purchase of a share at
the current market price on the first day and a sale at the current market
price on the last day of each year reported. Dividends and distributions,
if any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Trust's dividend reinvestment plan. Total
investment returns do not reflect brokerage commissions. 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 year indicated. This information has been determined
based upon financial information provided in the financial statements and market
price data for the Trust's shares.
See Notes to Financial Statements
19
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK INVESTMENT QUALITY TERM TRUST (BQT)
Year Ended December 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ...................... $ 9.44 $ 9.39 $ 9.21 $ 8.79 $ 9.56
-------- -------- -------- -------- --------
Investment operations:
Net investment income ................................... 0.49 0.62 0.55 0.51 0.52
Net realized and unrealized gain (loss) ................. (0.21) (0.17) 0.03 0.36 (0.79)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ...... 0.28 0.45 0.58 0.87 (0.27)
-------- -------- -------- -------- --------
Dividends from net investment income .................... (0.07) (0.40) (0.40) (0.45) (0.50)
======== ======== ======== ======== ========
Net asset value, end of year ............................ $ 9.65 $ 9.44 $ 9.39 $ 9.21 $ 8.79
======== ======== ======== ======== ========
Market price, end of year ............................... $ 9.62 $ 9.69 $ 9.26 $ 8.75 $ 7.88
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(1) .............................. 0.32% 9.14% 10.62% 17.43% (4.99)%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Total expenses .......................................... 1.08% 1.15% 2.34% 3.53% 3.70%
Net expenses ............................................ 1.08% 1.15% 2.34% 3.53% 3.70%
Net expenses excluding interest expense
and excise tax ........................................ 0.86% 0.88% 0.88% 0.91% 0.86%
Net investment income ................................... 5.14% 6.56% 5.87% 5.79% 5.65%
SUPPLEMENTAL DATA:
Average net assets (000) ................................ $349,801 $348,589 $346,413 $324,712 $334,553
Portfolio turnover ...................................... 188% 17% 32% 25% 81%
Net assets, end of year (000) ........................... $355,151 $347,647 $345,704 $338,843 $323,431
Reverse repurchase agreements
outstanding, end of year (000) ........................ $ 80,959 $108,315 $ 13,498 $135,044 $126,627
Asset coverage(2) ....................................... $ 5,387 $ 4,210 $ 26,611 $ 3,509 $ 3,554
- ----------
(1) Total investment return is calculated assuming a purchase of a share at
the current market price on the first day and a sale at the current market
price on the last day of each year reported. Dividends and distributions,
if any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Trust's dividend reinvestment plan. Total
investment returns do not reflect brokerage commissions. 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 year indicated. This information has been determined
based upon financial information provided in the financial statements and market
price data for the Trust's shares.
See Notes to Financial Statements
20
FINANCIAL HIGHLIGHTS
BLACKROCK PREFERRED OPPORTUNITY TRUST (BPP)
FOR THE PERIOD
FEBRUARY 28, 2003(1)
THROUGH
DECEMBER 31, 2003
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period(2) ........................... $ 23.88
--------
Investment operations:
Net investment income ........................................... 1.72
Net realized and unrealized gain ................................ 1.93
Dividends to preferred shareholders from net investment income .. (0.10)
--------
Net increase from investment operations ........................... 3.55
--------
Dividends to common shareholders from net investment income ....... (1.66)
--------
Capital charges with respect to issuance of:
Common shares ................................................... (0.05)
Preferred shares ................................................ (0.14)
--------
Total capital shares .............................................. (0.19)
--------
Net asset value, end of period .................................... $ 25.58
========
Market price, end of period ....................................... $ 24.83
========
TOTAL INVESTMENT RETURN(3) ........................................ 6.28%
========
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:(4)
Total expenses .................................................... 1.52%
Net expenses ...................................................... 1.52%
Net expenses excluding interest expense ........................... 1.16%
Net investment income before preferred share dividends ............ 8.35%
Preferred share dividends ......................................... 0.48%
Net investment income available to common shareholders ............ 7.87%
SUPPLEMENTAL DATA:
Average net assets (000) .......................................... $449,345
Portfolio turnover ................................................ 98%
Net assets, end of period (000) ................................... $468,243
Preferred shares outstanding ...................................... $220,841
Reverse repurchase agreements outstanding, end of year (000) ...... $ 3,486
Asset coverage per preferred share, end of period ................. $ 78,021
- ----------
(1) Commencement of investment operations. This information includes the
initial investment by BlackRock Funding, Inc.
(2) Net asset value, beginning of period, reflects a deduction of $1.12 per
share sales charge from the initial offering price of $25.00 per share.
(3) Total investment return is calculated assuming a purchase of a share at
the current market price on the first day and a sale at the current market
price on the last day of the period reported. Dividends and distributions,
if any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Trust's dividend reinvestment plan. Total
investment returns do not reflect brokerage commissions. Total investment
returns for less than a full year are not annualized. Past performance is
not a guarantee of future results.
(4) Annualized.
The information above represents the audited operating performance for a share
outstanding, total investment return, ratios to average net assets and other
supplemental data for the period indicated. This information has been determined
based upon financial information provided in the financial statements and market
price data for the Trust's shares.
See Notes to Financial Statements
21
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
The BlackRock Advantage Term Trust Inc. ("Advantage") and The BlackRock
Investment Quality Term Trust Inc. ("Investment Quality"), each a Maryland
corporation, are registered as diversified, closed-end management investment
companies under the Investment Company Act of 1940, as amended. BlackRock
Preferred Opportunity Trust ("Preferred Opportunity"), a Delaware statutory
trust, (collectively with Advantage and Investment Quality the, "Trusts") is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940, as amended.
Advantage and Investment Quality each transferred, on October 31, 1998,
and July 31, 2001, respectively, a substantial portion of their total assets to
100% owned regulated investment company subsidiaries called BAT Subsidiary, Inc.
and BQT Subsidiary, Inc., respectively. The financial statements and these notes
to the financial statements for Advantage and Investment Quality are
consolidated and include the operations of both Advantage and Investment Quality
and their respective wholly owned subsidiary after elimination of all
intercompany transactions and balances.
The Boards of Directors of Advantage and Investment Quality each adopted a
Plan of Liquidation and Dissolution (the "Plan") effective January 2, 2004 and
January 2, 2003, respectively. Pursuant to the terms of the Plan, the Boards of
Directors shall oversee the complete liquidation and winding up of Advantage and
Investment Quality 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 (the "Board") of Directors/Trustees
("Trustees"). 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 records interest income on an accrual
basis and amortizes premium and/or accretes discount on securities purchased
using the interest method. Dividend income is recorded on the ex-dividend date,
except certain dividends from foreign securities where the ex-dividend date may
have passed. These dividends are recorded as soon as the Trust is informed of
the ex-dividend date. Dividend income on foreign securities is recorded net of
any withholding tax.
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 the 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.
22
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, 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 the 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.
Transaction fees paid or received by the Trusts are recognized as assets
or liabilities and amortized or accreted into interest expense or income over
the life of the interest rate cap. The asset or liability is subsequently
adjusted to the current market value of the interest rate cap purchased or sold.
Changes in the value of the interest rate cap are recognized as unrealized gains
and losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trusts to both manage the duration of
the portfolios and their exposure to changes in short-term interest rates.
Selling interest rate floors reduces a portfolio's duration, making it less
sensitive to changes in interest rates from a market value perspective. The
Trusts' leverage provides extra income in a period of falling rates. Selling
floors reduces some of that extra income by partially monetizing it as an up
front payment which the Trusts receive.
The Trusts are exposed to credit loss in the event of non-performance by
the other party to the interest rate floor. However, the Trusts do not
anticipate non-performance by any counterparty.
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.
23
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.
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 (excluding Preferred Opportunity)
intention to continue, and Preferred Opportunity intends to elect, to be treated
as a regulated investment company under the Internal Revenue Code and to
distribute sufficient amounts of their taxable income to shareholders.
Therefore, no Federal income tax provisions are required.
DIVIDENDS AND DISTRIBUTIONS: Each Trust declares and pays dividends and
distributions to common shareholders monthly from net investment income, net
realized short-term capital gains and other sources, if necessary. Net long-term
capital gains, if any, in excess of loss carryforwards may be distributed
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from accounting principles
generally accepted in the United States of America.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
DEFERRED COMPENSATION AND BLACKROCK CLOSED-END SHARE EQUIVALENT INVESTMENT PLAN:
Under the revised deferred compensation plan approved by each Trust's Board,
non-interested Trustees may elect to defer receipt of all or a portion of their
annual compensation. As of January 1, 2003, the Board elected to require its
non-interested members to defer a portion of their annual complex compensation
pursuant to the plan. Deferred amounts earn an approximate return as though
equivalent dollar amounts had been invested in common shares of other BlackRock
closed-end funds selected by the Trustees. This has the same economic effect for
the Trustees as if the Trustees had invested the deferred amounts in such
Trusts.
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Trust. Each
Trust may, however, elect to invest in common shares of those Trusts selected by
the Trustees/Directors in order to match its deferred compensation obligations.
RECLASSIFICATION OF CAPITAL ACCOUNTS: In order to present undistributed
(distribution in excess of) net investment income ("UNII"), accumulated net
realized gain ("Accumulated Gain") and paid-in capital ("PIC") more closely to
its tax character the following accounts, for each Trust, were increased
(decreased):
TRUST UNII ACCUMULATED GAIN PIC
- ----- ----- ----------------- ----
Advantage $323,340 $ -- $ (323,340)
Investment quality -- 4,994,748 (4,994,748)
Preferred Opportunity 17,500 -- (17,500)
NOTE 2. AGREEMENTS
Each Trust has an Investment Management Agreement with BlackRock Advisors,
Inc. (the "Advisor"), a wholly owned subsidiary of BlackRock, Inc. BlackRock
Financial Management, Inc., a wholly owned subsidiary of BlackRock, Inc., serves
as sub-advisor to Preferred Opportunity. BlackRock, Inc. is an indirect,
majority owned subsidiary of The PNC Financial Services Group, Inc. The
investment management agreement for Preferred Opportunity covers both investment
advisory and administration services. Prior to September 1, 2003, Advantage and
Investment Quality had an Administration Agreement with Prudential Investments
LLC ("Prudential"), an indirect, wholly owned subsidiary of Prudential
Financial, Inc.
Each Trust's investment advisory fee paid to the Advisor is computed
weekly and payable monthly based on an annual rate, 0.50% for Advantage and
0.60% for Investment Quality, of each Trust's average weekly net assets and
0.65% for Preferred Opportunity of the Trust's average weekly managed assets.
The administration fee paid to Trusts' administrator is computed weekly
and payable monthly based on an annual rate of 0.08% for Advantage and
Investment Quality based on each Trust's average weekly net assets.
On May 22, 2003, the Boards of Advantage and Investment Quality approved
the change of each such Trust's current administrator to the Advisor. The new
administration agreements became effective September 1, 2003. Each such Trust's
fee structure, as described above, remain unchanged under the new administration
agreements.
24
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of each Trust who
are affiliated persons of the Advisor. The Advisor pays occupancy and certain
clerical and accounting costs for Preferred Opportunity. Each Trust's respective
administrator pays occupancy and certain clerical and accounting costs of their
respective Trust(s). Each Trust bears all other costs and expenses, which
include reimbursements to the Advisor for certain operational support services
provided to each Trust.
Pursuant to the terms of their custody agreements, each Trust received
earnings credits from its custodian for positive cash balances maintained, which
are used to offset custody fees.
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
- ----- ---------- -----
Advantage $ 10,700,997 $ 17,644,512
Investment Quality 668,705,483 611,877,629
Preferred Opportunity 1,260,056,589 596,403,410
Purchases and sales of U.S. government securities for the year ended
December 31, 2003, aggregated as follows:
TRUST PURCHASES SALES
- ----- ---------- -----
Investment Quality $34,219,785 $34,242,703
Preferred Opportunity 8,846,542 8,874,603
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
- ----- ----- ------------- ------------- ----
Advantage $128,282,642 $ 13,002,280 $ 1,889,130 $11,113,150
Investment Quality 415,538,003 22,611,657 5,678,280 16,933,377
Preferred Opportunity 653,214,225 689,049,699 652,014,250 37,035,449
For Federal income tax purposes, the following Trusts had capital loss
carryforwards at December 31, 2003:
CAPITAL LOSS CAPITAL LOSS
TRUST CARRYFORWARD AMOUNT EXPIRES TRUST CARRYFORWARD AMOUNTS EXPIRES
- ----- ------------------- ------- ----- -------------------- -------
Advantage $ 98,294 2005 Investment Quality $ 1,498,011 2005
81,418 2008 9,901,383 2007
253,874 2010 6,843,565 2008
83,677 2011 3,059,351 2009
-------- 1,548,342 2010
$517,253 -----------
======== $22,850,652
===========
Accordingly, no capital gain distributions are expected to be paid to
shareholders of a Trust until that Trust has net realized capital gains in
excess of its carryforward amounts.
Details of open financial futures contracts at December 31, 2003 were as
follows:
VALUE AT
NUMBER OF EXPIRATION VALUE AT DECEMBER 31, UNREALIZED
TRUST CONTRACTS TYPE DATE TRADE DATE 2003 DEPRECIATION
- ----- --------- ---- ---- ---------- ---- ------------
SHORT POSITION:
Preferred Opportunity 500 5 Yr. U.S. T-Note Mar. '04 $55,629,269 $55,814,200 $184,931
Details of open interest rate swaps at December 31, 2003, were as follows:
NOTIONAL FIXED FLOATING TERMINATION UNREALIZED
TRUST AMOUNT (000) RATE RATE DATE DEPRECIATION
- ----- ------------ ---- ---- ---- ------------
Preferred Opportunity $85,000 4.74% 3-month LIBOR 11/17/13 $ 611,320
$40,000 5.39 3-month LIBOR 10/10/23 395,677
----------
$1,006,997
==========
Preferred Opportunity pays a fixed interest rate and receives a floating
rate.
25
Transactions in options written during the year ended December 31, 2003,
were as follows:
PREMIUM
TRUST CONTRACTS RECEIVED
- ----- --------- --------
INVESTMENT QUALITY
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 period ended December 31, 2003, were as
follows:
AVERAGE DAILY WEIGHTED AVERAGE
TRUST BALANCE INTEREST RATE
- ----- -------------- -----------------
Advantage $26,298,072 1.20%
Investment Quality 57,208,248 1.27
Preferred Opportunity 19,822,062 1.44
DOLLAR ROLLS: The Trusts may enter into dollar rolls in which a Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trusts forgo principal and
interest paid on the securities. The Trusts will be compensated by the interest
earned on the cash proceeds of the initial sale and/or by the lower repurchase
price at the future date.
NOTE 5. CAPITAL
There are 200 million of $0.01 par value common shares authorized for Advantage
and Investment Quality. There are an unlimited number of $0.001 par value common
shares authorized for Preferred Opportunity. At December 31, 2003, the common
shares outstanding and the shares owned by affiliates of the Advisor of each
Trust were as follows:
COMMON SHARES COMMON SHARES
TRUST OUTSTANDING OWNED
- ----- ----------- -----
Advantage 9,510,667 8,378
Investment Quality 36,810,639 --
Preferred Opportunity 18,305,777 4,817
Transactions in common shares of beneficial interest from February 28,
2003 (commencement of investment operations) through December 31, 2003, for
Preferred Opportunity, were as follows:
SHARES FROM
------------------------------------------------------------------
INITIAL UNDERWRITERS' EXERCISING REINVESTMENT NET INCREASE IN
TRUST PUBLIC OFFERING THE OVER-ALLOTMENT OPTION OF DIVIDENDS SHARES OUTSTANDING
- ----- --------------- ------------------------- ------------ ------------------
Preferred Opportunity 16,304,817 2,000,000 960 18,305,777
Offering costs of $900,000 ($0.05 per common share) incurred in connection
with Preferred Opportunity's offering of common shares have been charged to
paid-in capital in excess of par of the common shares.
On April 8, 2003, Preferred Opportunity reclassified common shares of
beneficial interest and issued several series of Auction Market Preferred Shares
("preferred shares") listed in the table below. The preferred shares have a
liquidation value of $25,000 per share plus any accumulated unpaid dividends.
TRUST AND SERIES SHARES
- ---------------- -------
Preferred Opportunity
T7 2,944
W7 2,944
R7 2,944
Underwriting discounts of $2,208,000 ($0.12 per common share) and offering
costs of $389,000 ($0.02 per common share) incurred in connection with the
preferred share offering have been charged to paid-in capital in excess of par
of the common shares.
26
Dividends on seven-day preferred shares are cumulative at a rate which is
reset every seven days based on the results of an auction. The dividend range on
the preferred shares for Preferred Opportunity for the year ended December 31,
2003, was 1.05% to 1.59%.
Preferred Opportunity may not declare dividends or make other
distributions on common shares or purchase any such shares if, at the time of
the declaration, distribution or purchase, asset coverage with respect to the
outstanding preferred shares and any other borrowings would be less than 200%.
The preferred shares are redeemable at the option of Preferred Opportunity, in
whole or in part, on any dividend payment date at $25,000 per share plus any
accumulated or unpaid dividends whether or not declared. The preferred shares
are also subject to mandatory redemption at $25,000 per share plus any
accumulated or unpaid dividends, whether or not declared, if certain
requirements relating to the composition of the assets and liabilities of
Preferred Opportunity, as set forth in Preferred Opportunity's Declaration of
Trust, are not satisfied. The holders of preferred shares have voting rights
equal to the holders of common shares (one vote per share) and will vote
together with holders of common shares as a single class. However, holders of
preferred shares, voting as a separate class, are also entitled to elect two
Trustees for Preferred Opportunity. In addition, the Investment Company Act of
1940, as amended, requires that along with approval by shareholders that might
otherwise be required, the approval of the holders of a majority of any
outstanding preferred shares, voting separately as a class would be required to
(a) adopt any plan of reorganization that would adversely affect the preferred
shares, (b) change a Trust's sub-classification as a closed-end investment
company or change its fundamental investment restrictions and (c) change the
nature of its business so as to cease to be an investment company.
During the period from February 28, 2003 to December 31, 2003, Preferred
Opportunity issued 960 common shares, under the terms of its Dividend
Reinvestment Plan.
NOTE 6. DIVIDENDS
Subsequent to December 31, 2003, the Board of each of the Trusts declared
dividends from undistributed earnings per common share payable January 30, 2004,
to shareholders of record on January 13, 2004. The per share common dividends
declared were as follows:
COMMON DIVIDEND
TRUST PER SHARE
- ----- ---------------
Advantage $0.058333
Investment Quality 0.002085
Preferred Opportunity 0.166667
The dividends declared on preferred shares for the period January 1, 2004
to January 31, 2004, for Preferred Opportunity were as follows:
DIVIDENDS
TRUST AND SERIES DECLARED
- ---------------- ---------
Preferred Opportunity
T7 $62,089
W7 76,868
R7 80,636
27
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of:
BlackRock Advantage Term Trust Inc.
BlackRock Investment Quality Term Trust Inc.
We have audited the accompanying consolidated statements of assets and
liabilities of the each of the above mentioned Trusts (collectively, the
"Trusts"), including the consolidated portfolios of investments, as of December
31, 2003, and the related consolidated statements of operations and cash flows
for the year then ended, and the consolidated statements of changes in net
assets for each of the two years in the period then ended, and the consolidated
financial highlights for each of the five years in the period then ended. 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 consolidated financial statements. Our procedures included
confirmation of securities owned as of December 31, 2003, by correspondence with
the custodian. 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 consolidated 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 five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 18, 2004
28
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of:
BlackRock Preferred Opportunity Trust
We have audited the accompanying statement of assets and liabilities of the
above mentioned Trust (the "Trust"), including the portfolio of investments, as
of December 31, 2003, and the related statements of operations, cash flows,
changes in net assets, and the financial highlights for the period from February
28, 2003 (commencement of investment operations) to December 31, 2003. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit 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 audit provides 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 the
Trust as of December 31, 2003, and the results of its operations, cash flows,
the changes in net assets, and the financial highlights for the period from
February 28, 2003 (commencement of investment operations) to December 31, 2003,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 18, 2004
29
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
- ------------------------------------------------------------------------------------------------------------------------------------
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(5) 3 years(4) / since inception
time served
- ------------------------------------------------------------------------------------------------------------------------------------
Principal occupations President of Brimmer & President and Chief Executive Consultant/Investor. Former
during 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).
- ------------------------------------------------------------------------------------------------------------------------------------
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) Director/Trustee since inception; appointed Chairman of the Board on
08/22/02.
(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) For Advantage and Investment Quality appointed Director on 08/11/94.
(6) For Advantage and Investment Quality appointed Director on 06/19/92.
(7) Except during the periods 08/12/93 through 04/15/97 and 10/31/02 through
11/11/02.
30
- ---------------------------------------------------------------------------------------------------
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(6) 3 years(4) / since inception(7)
- ---------------------------------------------------------------------------------------------------
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 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 Director and Vice Chairman
the Advisor. of the Advisor.
- ------------------------------------------------------------------
31
DIVIDEND REINVESTMENT PLANS
- --------------------------------------------------------------------------------
Pursuant to each Trust's respective Dividend Reinvestment Plan (the
"Plan"), shareholders of Advantage and Investment Quality may elect, while
shareholders of Preferred Opportunity are automatically enrolled, to have all
distributions of dividends and capital gains reinvested by EquiServe Trust
Company, N.A. (the "Plan Agent") in the respective Trust's shares pursuant to
the Plan. Shareholders who do not participate in the Plan will receive all
distributions in cash paid by check and mailed directly to the shareholders of
record (or if the shares are held in street or other nominee name, then to the
nominee) by the Plan Agent, which serves as agent for the shareholders in
administering the Plan.
After Advantage and/or Investment Quality declares a dividend or
determines to make a capital gain distribution, the Plan Agent will acquire
shares for the participants' account, by the purchase of outstanding shares on
the open market, on the Trust's primary exchange or elsewhere ("open market
purchases"). The Trust will not issue any new shares under the Plan.
After Preferred Opportunity declares a dividend or determines to make a
capital gain distribution, the Plan Agent will acquire shares for the
participants' account, depending upon the circumstances described below, either
(i) through receipt of unissued but authorized shares from the Trust ("newly
issued shares") or (ii) by open market purchases. If, on the dividend payment
date, the NAV is equal to or less than the market price per share plus estimated
brokerage commissions (such condition being referred to herein as "market
premium"), the Plan Agent will invest the dividend amount in newly issued shares
on behalf of the participants. The number of newly issued shares to be credited
to each participant's account will be determined by dividing the dollar amount
of the dividend by the NAV on the date the shares are issued. However, if the
NAV is less than 95% of the market price on the payment date, the dollar amount
of the dividend will be divided by 95% of the market price on the payment date.
If, on the dividend payment date, the NAV is greater than the market value per
share plus estimated brokerage commissions (such condition being referred to
herein as "market discount"), the Plan Agent will invest the dividend amount in
shares acquired on behalf of the participants in open-market purchases.
Participation in the Plan is completely voluntary and may be terminated or
resumed at any time without penalty by notice if received and processed by the
Plan Administrator prior to the dividend record date; otherwise such termination
or resumption will be effective with respect to any subsequently declared
dividend or other distribution.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by each Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any Federal income tax that may be payable on
such dividends or distributions.
Each Trust reserves the right to amend or terminate the Plan. There is no
direct service charge to participants in the Plan; however, each Trust reserves
the right to amend the Plan to include a service charge payable by the
participants. Participants that request a sale of shares through the Plan Agent
are subject to a $2.50 sales fee and a $0.15 per share sold brokerage commisson.
All correspondence concerning the Plan should be directed to the Plan Agent at
150 Royall Street, Canton, MA 02021 or (800) 699-1BFM.
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
There have been no material changes in the Trusts' investment objectives
or policies that have not been approved by the shareholders or to their charters
or by-laws or in the principal risk factors associated with investment in the
Trusts. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trusts' portfolios.
We are required by the Internal Revenue Code to advise you within 60 days
of a Trust's tax year-end as to the Federal tax status of dividends and
distributions paid by the Trusts during such tax year. Accordingly, during the
tax year-ended December 31, 2003, the Trusts paid dividends and distributions
per common share as follows:
ORDINARY LONG-TERM LIQUIDATING
TRUST INCOME CAPITAL GAIN DISTRIBUTION TOTAL
- ----- ------ ------------ ------------ -----
Advantage $0.699996 $ -- $ -- $0.699996
Investment Quality -- -- 0.066671 0.066671
Preferred Opportunity
Common Shares 1.662670 0.004000 -- 1.666670
Preferred Shares:
T7 0.032734 0.000086 -- 0.032820
W7 0.033087 0.000087 -- 0.033173
R7 0.032818 0.000086 -- 0.032904
Quarterly performance and other information regarding the Trusts may be
found on BlackRock's website, which can be accessed at
http://www.blackrock.com/funds/cefunds/index.html. This reference to BlackRock's
website is intended to allow investors public access to information regarding
the Trusts and does not, and is not intended to incorporate BlackRock's website
into this report.
Certain of the officers of the Trusts listed on the inside back cover of
this Report to Shareholders are also officers of the Advisor. They serve in the
following capacities for the Advisor: Robert S. Kapito--Director and Vice
Chairman, Henry Gabbay and Anne Ackerley--Managing Directors of the Advisor.
32
BLACKROCK CLOSED-END FUNDS
Directors/Trustees
Ralph L. Schlosstein, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Robert S. Kapito
James Clayburn La Force, Jr.
Walter F. Mondale
Officers
Robert S. Kapito, PRESIDENT
Henry Gabbay, TREASURER
Anne Ackerley, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
James Kong, ASSISTANT TREASURER
Vincent B. Tritto, SECRETARY
Brian P. Kindelan, ASSISTANT SECRETARY
Investment Advisor
Blackrock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
Sub-Advisor(1)
BlackRock Financial Management, Inc.
40 East 52nd Street
New York, NY 10022
Custodian
State Street Bank and Trust Company
225 Franklin St.
Boston, MA 02110
Transfer Agent
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(800) 699-1BFM
Auction Agent(1)
Bank of New York
100 Church Street, 8th Floor
New York, NY 10286
Independent Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Legal Counsel - Independent Directors/Trustees
Debevoise & Plimpton 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.
- --------------------------------------------------------------------------------
BlackRockAdvisors, Inc.(2)
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
BlackRock Preferred Opportunity Trust
Prudential Investments LLC(2)
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
BlackRock Advantage Term Trust
BlackRock Investment Quality Term Trust
- ----------
(1) For Preferred Opportunity only.
(2) Provided administrative services for the Trust(s) listed directly below
its name.
The Trusts will mail only one copy of shareholder documents, including annual
and semi-annual reports and proxy statements, to shareholders with multiple
accounts at the same address. This practice is commonly called "householding"
and is intended to reduce expenses and eliminate duplicate mailings of
shareholder documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Trusts at (800) 227-7BFM.
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.
CLF-ANN-5 [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 $32,800 for the fiscal year ending
December 31, 2003 and $0 for the fiscal year ended December 31, 2002.
(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) were $3,000 for the fiscal year ended December 31,
2003 and $0 for the fiscal year ended December 31, 2002.
The nature of these services was attest services not required by statute or
regulation, overhead and out-of-pocket expenses.
(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 $25,000 for the fiscal year ended December 31,
2003 and $0 for the fiscal year ended December 31, 2002.
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 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) The 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 for each of the last two fiscal years were $28,000 for the
fiscal year ended December 31, 2003 and $0 for the fiscal year ended December
31, 2002.
(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) BlackRock Preferred Opportunity Trust
-------------------------------------------------------------------
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