-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RXE/Lg4PbAaA826SRs/VIrWTE98IfYrMk2ccUEPAxcMMxOgFkzTKjq+LTXAoNsr3 Wb8gRWxHxgot1Grx2W4lng== 0000930413-03-002626.txt : 20030828 0000930413-03-002626.hdr.sgml : 20030828 20030828172748 ACCESSION NUMBER: 0000930413-03-002626 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030828 EFFECTIVENESS DATE: 20030828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK PREFERRED OPPORTUNITY TRUST CENTRAL INDEX KEY: 0001213169 IRS NUMBER: 270046786 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21280 FILM NUMBER: 03871921 BUSINESS ADDRESS: STREET 1: 100 BELLEVUE PARKWAY STREET 2: MUTUAL FUND DEPARTMENT CITY: WILMINGTON STATE: DE ZIP: 19809 BUSINESS PHONE: 302-797-2449 MAIL ADDRESS: STREET 1: 100 BELLEVUE PARKWAY STREET 2: MUTUAL FUND DEPARTMENT CITY: WILMINGTON STATE: DE ZIP: 19809 FORMER COMPANY: FORMER CONFORMED NAME: BLACKROCK PREFERRED INCOME TRUST DATE OF NAME CHANGE: 20030107 N-CSRS 1 c29141_ncsrs.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05757 BlackRock Preferred Opportunity Trust - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 100 Bellevue Parkway, Wilmington, DE 19809 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Robert S. Kapito, President BlackRock Preferred Opportunity Trust 40 East 52nd Street, New York, NY 10022 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (302) 797-2449 Date of fiscal year end: 12/31/03 Date of reporting period: 6/30/03 ITEM 1. REPORTS TO STOCKHOLDERS. The Trust's semi-annual report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940 is as follows: - --------------------------------------------- BlackRock Closed-End Funds Semi-Annual Report JUNE 30, 2003 (UNAUDITED) - --------------------------------------------- BlackRock Advantage Term Trust (BAT) BlackRock Investment Quality Term Trust (BQT) BlackRock Preferred Opportunity Trust (BPP) NOT FDIC INSURED [LOGO] MAY LOSE VALUE NO BANK GUARANTEE TABLE OF CONTENTS Letter to Shareholders .................................................... 1 Trust Summaries ........................................................... 2 Portfolios of Investments ................................................. 5 Financial Statements Statements of Assets and Liabilities .................................. 16 Statements of Operations .............................................. 17 Statements of Cash Flows .............................................. 18 Statements of Changes in Net Assets ................................... 19 Financial Highlights ...................................................... 20 Notes to Financial Statements ............................................. 23 Dividend Reinvestment Plans ............................................... 29 Additional Information .................................................... 30 - -------------------------------------------------------------------------------- PRIVACY PRINCIPLES OF THE TRUSTS The Trusts are committed to maintaining the privacy of shareholders and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information the Trusts collect, how we protect that information and why, in certain cases, we may share information with select other parties. Generally, the Trusts do not receive any non-public personal information relating to their shareholders, although certain non-public personal information of shareholders may become available to the Trusts. The Trusts do not disclose any non-public personal information about their shareholders or former shareholders to anyone, except as permitted by law or as is necessary in order to service shareholder accounts (for example, to a transfer agent or third party administrator). The Trusts restrict access to non-public personal information about their shareholders to BlackRock employees with a legitimate business need for the information. The Trusts maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of their shareholders. - -------------------------------------------------------------------------------- LETTER TO SHAREHOLDERS July 31, 2003 Dear Shareholder: We are pleased to report that during the semi-annual period, the Trusts provided monthly income, as well as the opportunity to invest in various portfolios of fixed income securities. This report contains the Trusts' unaudited financial statements and a listing of the portfolios' holdings. The portfolio management team continuously monitors the fixed income markets and adjusts the portfolios in order to gain exposure to various issuers and security types. This strategy enables the Trusts to move among different sectors, credits and coupons to capitalize on changing market conditions. The following table shows the Trusts' yields, closing market prices per share and net asset values ("NAV") per share as of June 30, 2003.
- --------------------------------------------------------------------------------------------------------- CURRENT TRUST YIELD(1) MARKET PRICE NAV - --------------------------------------------------------------------------------------------------------- BlackRock Advantage Term Trust (BAT) 5.89% $11.89 $11.88 - --------------------------------------------------------------------------------------------------------- BlackRock Investment Quality Term Trust (BQT) 1.06 9.43 9.42 - --------------------------------------------------------------------------------------------------------- BlackRock Preferred Opportunity Trust (BPP) 7.99 25.02 26.04 - ---------------------------------------------------------------------------------------------------------
(1) Current yield is based on market price. BlackRock, Inc. ("BlackRock"), a world leader in asset management, has a proven commitment to fixed income. As of June 30, 2003, BlackRock managed $194 billion in bonds, including 16 open-end and 44 closed-end bond funds. BlackRock is recognized for its emphasis on risk management and proprietary analytics and for its reputation managing money for the world's largest institutional investors. BlackRock Advisors, Inc., which manages the Trusts, is a wholly owned subsidiary of BlackRock, Inc. On behalf of BlackRock, we thank you for your continued trust and assure you that we remain committed to excellence in managing your assets. Sincerely, /s/ Laurence D. Fink /s/ Ralph L. Schlosstein - -------------------- ------------------------ Laurence D. Fink Ralph L. Schlosstein Chief Executive Officer President BlackRock Advisors, Inc. BlackRock Advisors, Inc. 1 CONSOLIDATED TRUST SUMMARIES (UNAUDITED) JUNE 30, 2003 BLACKROCK ADVANTAGE TERM TRUST TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BAT - -------------------------------------------------------------------------------- Initial Offering Date: April 27, 1990 - -------------------------------------------------------------------------------- Termination Date (on or shortly before): December 31, 2005 - -------------------------------------------------------------------------------- Closing Market Price as of 6/30/03: $11.89 - -------------------------------------------------------------------------------- Net Asset Value as of 6/30/03: $11.88 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 6/30/03 ($11.89):(1) 5.89% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.058333 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 0.699996 - -------------------------------------------------------------------------------- (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: --------------------------------------------------------- 6/30/03 12/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- Market Price $11.89 $11.85 0.34% $12.03 $11.70 - -------------------------------------------------------------------------------- NAV $11.88 $12.01 (1.08)% $12.06 $11.87 - -------------------------------------------------------------------------------- The following charts compare the Trust's asset composition and credit quality allocations:
- ------------------------------------------------------------------------------------------- SECTOR BREAKDOWN(1) - ------------------------------------------------------------------------------------------- COMPOSITION JUNE 30, 2003 DECEMBER 31, 2002 - ------------------------------------------------------------------------------------------- Agency Zero Coupon Bonds 68% 66% - ------------------------------------------------------------------------------------------- Stripped Money Market Instrument 7 7 - ------------------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 5 1 - ------------------------------------------------------------------------------------------- Taxable Municipal Bonds 5 5 - ------------------------------------------------------------------------------------------- Corporate Bonds 4 7 - ------------------------------------------------------------------------------------------- Inverse Floating Rate Mortgages 4 6 - ------------------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 2 2 - ------------------------------------------------------------------------------------------- Principal Only Mortgage-Backed Securities 2 1 - ------------------------------------------------------------------------------------------- U.S. Government and Agency Securities 1 1 - ------------------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 1 3 - ------------------------------------------------------------------------------------------- Mortgage Pass-Throughs 1 1 - -------------------------------------------------------------------------------------------
- --------------- (1) Percentages based on long-term investments. 2 CONSOLIDATED TRUST SUMMARIES (UNAUDITED) JUNE 30, 2003 BLACKROCK INVESTMENT QUALITY TERM TRUST TRUST INFORMATION - ------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BQT - ------------------------------------------------------------------------------- Initial Offering Date: April 21, 1992 - ------------------------------------------------------------------------------- Termination Date (on or about): December 31, 2004 - -------------------------------------------------------------------------------- Closing Market Price as of 6/30/03: $9.43 - ------------------------------------------------------------------------------- Net Asset Value as of 6/30/03: $9.42 - ------------------------------------------------------------------------------- Yield on Closing Market Price as of 6/30/03 ($9.43):(1) 1.06% - ------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $0.008333 - ------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $0.099996 - ------------------------------------------------------------------------------- (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: ---------------------------------------------------------- 6/30/03 12/31/02 CHANGE HIGH LOW - -------------------------------------------------------------------------------- Market Price $9.43 $9.69 (2.68)% $9.82 $9.33 - -------------------------------------------------------------------------------- NAV $9.42 $9.44 (0.21)% $9.53 $9.39 - -------------------------------------------------------------------------------- The following charts compare the Trust's asset composition and credit quality allocations:
- -------------------------------------------------------------------------------------------- SECTOR BREAKDOWN(1) - -------------------------------------------------------------------------------------------- COMPOSITION JUNE 30, 2003 DECEMBER 31, 2002 - -------------------------------------------------------------------------------------------- Corporate Bonds 19% 27% - -------------------------------------------------------------------------------------------- Inverse Floating Rate Mortgages 18 2 - -------------------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 14 3 - -------------------------------------------------------------------------------------------- U.S. Government and Agency Securities 12 14 - -------------------------------------------------------------------------------------------- Stripped Money Market Instrument 9 11 - -------------------------------------------------------------------------------------------- Non-Agency Multiple Class Mortgage Pass-Throughs 6 14 - -------------------------------------------------------------------------------------------- Taxable Municipal Bonds 5 6 - -------------------------------------------------------------------------------------------- Principal-Only Mortgage-Backed Securities 5 1 - -------------------------------------------------------------------------------------------- Mortgage Pass-Throughs 4 8 - -------------------------------------------------------------------------------------------- Federal Housing Administration 3 5 - -------------------------------------------------------------------------------------------- Interest-Only Mortgage-Backed Securities 2 3 - -------------------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 1 2 - -------------------------------------------------------------------------------------------- Foreign Government Bonds 1 2 - -------------------------------------------------------------------------------------------- Asset-Backed Securities 1 1 - -------------------------------------------------------------------------------------------- Adjustable Rate Mortgages -- 1 - --------------------------------------------------------------------------------------------
- --------------- (1) Percentages based on long-term investments. 3 TRUST SUMMARIES (UNAUDITED) JUNE 30, 2003 BLACKROCK PREFERRED OPPORTUNITY TRUST TRUST INFORMATION - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BPP - -------------------------------------------------------------------------------- Initial Offering Date: February 28, 2003 - -------------------------------------------------------------------------------- Closing Market Price as of 6/30/03: $25.02 - -------------------------------------------------------------------------------- Net Asset Value as of 6/30/03: $26.04 - -------------------------------------------------------------------------------- Yield on Closing Market Price as of 6/30/03 ($25.02):(1) 7.99% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share:(2) $ 0.166667 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share:(2) $ 2.000004 - -------------------------------------------------------------------------------- (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: ------------------------------------------------ 6/30/03 HIGH LOW - ------------------------------------------------------------------------------ Market Price $25.02 $25.06 $24.31 - ------------------------------------------------------------------------------ NAV $26.04 $26.06 $23.55 - ------------------------------------------------------------------------------ The following charts compare the Trust's asset composition and credit quality allocations: - -------------------------------------------------------------------------------- SECTOR BREAKDOWN(1) - -------------------------------------------------------------------------------- COMPOSITION JUNE 30, 2003 - -------------------------------------------------------------------------------- Finance & Banking 60% - -------------------------------------------------------------------------------- Energy 13 - -------------------------------------------------------------------------------- Real Estate 10 - -------------------------------------------------------------------------------- Consumer Products 2 - -------------------------------------------------------------------------------- Telecommunication 2 - -------------------------------------------------------------------------------- Media 2 - -------------------------------------------------------------------------------- Automotive 1 - -------------------------------------------------------------------------------- Transportation 1 - -------------------------------------------------------------------------------- Conglomerates 1 - -------------------------------------------------------------------------------- Hotels & Casinos 1 - -------------------------------------------------------------------------------- Containers & Glass 1 - -------------------------------------------------------------------------------- Industrial Equipment 1 - -------------------------------------------------------------------------------- Health Care 1 - -------------------------------------------------------------------------------- Electronics 1 - -------------------------------------------------------------------------------- Ecological Services & Equipment 1 - -------------------------------------------------------------------------------- Forest Products 1 - -------------------------------------------------------------------------------- Leisure 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CREDIT BREAKDOWN(2) - -------------------------------------------------------------------------------- CREDIT RATING JUNE 30, 2003 - -------------------------------------------------------------------------------- AA/Aa 13% - -------------------------------------------------------------------------------- A 33 - -------------------------------------------------------------------------------- BBB/Baa 31 - -------------------------------------------------------------------------------- BB/Ba 7 - -------------------------------------------------------------------------------- B 12 - -------------------------------------------------------------------------------- Not Rated 4 - -------------------------------------------------------------------------------- - ---------------- (1) Percentages based on long-term investments. (2) Using the higher of S&P, Moody's or Fitch rating. Percentage based on long-term investments. 4 CONSOLIDATED PORTFOLIO OF INVESTMENTS (UNAUDITED) JUNE 30, 2003 BLACKROCK ADVANTAGE TERM TRUST
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--123.0% MORTGAGE PASS-THROUGHS--0.9% Federal Home Loan Mortgage Corp., $ 285 6.50%, 8/01/25 - 10/01/25 ........................................................ $ 297,874 21 9.50%, 1/01/05 ................................................................... 23,512 2 Federal National Mortgage Assoc., 9.50%, 7/01/20 ................................... 2,442 674 Government National Mortgage Assoc., 8.00%, 1/15/26 - 7/15/27 ...................... 728,580 ----------- Total Mortgage Pass-Throughs ....................................................... 1,052,408 ----------- AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--6.4% 6 Federal Home Loan Mortgage Corp., Ser. 1518, Class E, 4/15/22 ...................... 5,737 Federal National Mortgage Assoc., 1,136 Ser. 10, Class V, 7/25/13 ........................................................ 1,160,363 318 Ser. 43, Class E, 4/25/22 ........................................................ 341,086 3,461 Ser. 57, Class PE, 9/25/15 ....................................................... 3,699,117 2,000 Ser. 58, Class ZD, 7/25/33 ....................................................... 1,998,125 ----------- Total Agency Multiple Class Mortgage Pass-Throughs ................................. 7,204,428 ----------- INVERSE FLOATING RATE MORTGAGES--5.1% Federal Home Loan Mortgage Corp., 470 Ser. 1601, Class SD, 10/15/08 .................................................... 474,786 727 Ser. 1621, Class SH, 11/15/22 .................................................... 772,567 5 Ser. 1635, Class P, 12/15/08 ..................................................... 4,790 18 Ser. 1655, Class SB, 12/15/08 .................................................... 18,337 Federal National Mortgage Assoc., 959 Ser. 32, Class SA, 5/25/32 ....................................................... 1,010,947 974 Ser. 48, Class SC, 6/25/33 ....................................................... 992,000 793 Ser. 190, Class S, 11/25/07 ...................................................... 1,016,147 328 Ser. 214, Class S, 12/25/08 ...................................................... 341,846 340 Ser. 214, Class SL, 12/25/08 ..................................................... 358,949 AAA 829 Sears Mortgage Securities Corp., Ser. 7, Class S3, 4/25/08 ......................... 828,897 ----------- Total Inverse Floating Rate Mortgages .............................................. 5,819,266 ----------- INTEREST ONLY MORTGAGE-BACKED SECURITIES--1.3% Federal Home Loan Mortgage Corp., 3 Ser. 1543, Class VU, 4/15/23 ..................................................... 39,741 526 Ser. 1588, Class PM, 9/15/22 ..................................................... 45,217 372 Ser. 2115, Class IA, 11/15/10 .................................................... 2,152 923 Ser. 2130, Class PF, 4/15/11 ..................................................... 8,225 7,423 Ser. 2542, Class IY, 5/15/16 ..................................................... 320,105 6,400 Ser. 2543, Class IJ, 10/15/12 .................................................... 527,000 Federal National Mortgage Assoc., 2,528 Ser. 9, Class PI, 7/25/09 ........................................................ 11,628 1,682 Ser. 14, Class PI, 4/25/12 ....................................................... 9,727 2,182 Ser. 61, Class S, 12/25/08 ....................................................... 76,707 1,856 Ser. 68, Class EC, 9/25/10 ....................................................... 28,772 2,817 Ser. 84, Class PJ, 1/25/08 ....................................................... 55,772 487 Ser. 188, Class VA, 3/25/13 ...................................................... 29,366 1,066 Ser. 194, Class PV, 6/25/08 ...................................................... 67,939 403 Ser. 223, Class PT, 10/25/23 ..................................................... 36,966 Government National Mortgage Assoc., 296 Ser. 17, Class PF, 10/16/25 ...................................................... 1,594 6,696 Ser. 25, Class SL, 7/20/29 ....................................................... 196,691 11,420 Residential Funding Mortgage Securities I, Inc., Ser. S14, Class I-A16, 7/25/29 .... 3,569 ----------- Total Interest Only Mortgage-Backed Securities ..................................... 1,461,171 -----------
See Notes to Financial Statements. 5
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--2.0% AAA $ 17 Collateralized Mortgage Obligation Trust, Ser. 29, Class A, 5/23/17 ................ $ 15,322 Federal National Mortgage Assoc., 1,444 Ser. 193, Class E, 9/25/23 ....................................................... 1,012,480 1,406 Ser. 225, Class ME, 11/25/23 ..................................................... 1,198,615 ----------- Total Principal Only Mortgage-Backed Securities .................................... 2,226,417 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES--2.0% AAA 2,000 New York City Mortgage Loan Trust, Multifamily, Ser. 1996, Class A-2, 6.75%, 6/25/11(2) ....................................................................... 2,303,437 ----------- ASSET-BACKED SECURITIES--0.0% NR 398 Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 9/15/07(2),(4),(5) ...... 17,930 NR 853 Structured Mortgage Asset Residential Trust, Ser. 3, 8.724%, 4/15/06(4),(5) ........ 25,597 ----------- Total Asset-Backed Securities ...................................................... 43,527 ----------- U.S. GOVERNMENT AND AGENCY SECURITIES--1.8% 420 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 ................... 450,884 1,450(3) U.S. Treasury Notes, 3.50%, 11/15/06 ............................................... 1,528,448 ----------- Total U.S. Government and Agency Securities ........................................ 1,979,332 ----------- AGENCY ZERO COUPON BONDS--83.4% 12,407 Aid to Israel, 2/15/05 - 8/15/05 ................................................... 11,797,266 11,026 Financing Corp. (FICO) Strips, 12/06/05 ............................................ 10,544,836 Government Trust Certificates, 5,220 Israel, Class 2-F, 5/15/05 ....................................................... 5,064,674 13,760 Turkey, Class T-1, 5/15/05 ....................................................... 13,350,557 22,926(3) Resolution Funding Corp., 7/15/05 .................................................. 22,287,970 6,216(3) Tennessee Valley Authority, 11/01/05 ............................................... 5,934,353 26,000(3) U.S. Treasury Note Strips, 8/15/05 - 11/15/05 ...................................... 25,238,424 ----------- Total Agency Zero Coupon Bonds ..................................................... 94,218,080 ----------- TAXABLE MUNICIPAL BONDS--6.2% AAA 1,000 Alameda County California Pension Oblig., Zero Coupon, 12/01/05 .................... 951,330 AAA 1,000 Alaska Energy Auth. Pwr. Rev., Zero Coupon, 7/01/05 ................................ 964,700 Aaa 1,167 Kern County California Pension Oblig., Zero Coupon, 8/15/03 - 8/15/05 .............. 1,116,049 Long Beach California Pension Oblig., AAA 1,170 Zero Coupon, 9/01/03 - 9/01/05 ..................................................... 1,118,122 AAA 500 7.09%, 9/01/09 ................................................................... 606,270 Los Angeles County California Pension Oblig., AAA 1,135 Zero Coupon, 12/31/03 - 6/30/05 .................................................. 1,088,195 AAA 1,000 Series A, 8.62%, 6/30/06 ......................................................... 1,182,020 ----------- Total Taxable Municipal Bonds ...................................................... 7,026,686 ----------- CORPORATE BONDS--5.2% ENERGY--0.9% BBB+ 1,000 Israel Electric Corp., Ltd., 7.25%, 12/15/06, (Israel)(2) .......................... 1,087,310 ----------- FINANCE & BANKING--1.9% AA+ 950(3) Citigroup, Inc., 5.75%, 5/10/06 .................................................... 1,046,681 NR 1,174 Equitable Life Assurance Society, Zero Coupon, 12/01/03 - 12/01/05(2) .............. 1,100,593 ----------- Total Finance & Banking ............................................................ 2,147,274 ----------- TELECOMMUNICATION--1.0% A 1,000 Alltel Corp., 7.50%, 3/01/06 ....................................................... 1,132,410 ----------- TRANSPORTATION--1.4% NR 1,613 Union Pacific Corp., Zero Coupon, 11/01/03 - 5/01/05 ............................... 1,551,933 ----------- Total Corporate Bonds .............................................................. 5,918,927 ----------- STRIPPED MONEY MARKET INSTRUMENT--8.7% 10,000 Vanguard Prime Money Market Portfolio, 12/31/04 .................................... 9,778,000 ----------- Total Long-Term Investments (cost $126,440,234) .................................... 139,031,679 -----------
See Notes to Financial Statements. 6
PRINCIPAL AMOUNT (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT--0.4% DISCOUNT NOTE--0.4% $ 500 Federal Home Loan Bank, 0.95%, 7/01/03 (cost $500,000) ............................. $ 500,000 ------------ Total investments--123.4% (cost $126,940,234) ...................................... 139,531,679 Liabilities in excess of other assets--(23.4)% ..................................... (26,498,270) ------------ NET ASSETS--100% ................................................................... $113,033,409 ============
- ---------------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2003, the Trust held 4.0% of its net assets, with a current market value of $4,509,270, in securities restricted as to resale. (3) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (4) Illiquid securities representing 0.04% of net assets. (5) Security is fair valued. See Notes to Financial Statements. 7 CONSOLIDATED PORTFOLIO OF INVESTMENTS (UNAUDITED) JUNE 30, 2003 BLACKROCK INVESTMENT QUALITY TERM TRUST
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--123.5% MORTGAGE PASS-THROUGHS--5.0% Federal Home Loan Mortgage Corp., $ 3,714 6.50%, 9/01/25 - 6/01/29 ......................................................... $ 3,870,734 1,840 7.00%, 12/01/28 .................................................................. 1,932,230 11,049 Federal National Mortgage Assoc., 6.50%, 8/01/28 - 6/01/29 ......................... 11,537,304 ----------- Total Mortgage Pass-Throughs ....................................................... 17,340,268 ----------- FEDERAL HOUSING ADMINISTRATION--4.2% 1,198 Colonial Project, Ser. 37, 7.40%, 12/01/22 ......................................... 1,309,902 4,127 GMAC Project, Ser. 51, 7.43%, 2/01/21 .............................................. 4,513,631 USGI Projects, 530 Ser. 99, 7.43%, 10/01/23 ......................................................... 579,864 7,366 Ser. 885, 7.43%, 3/01/22 ......................................................... 8,059,914 ----------- Total Federal Housing Administration ............................................... 14,463,311 ----------- AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--17.6% Federal Home Loan Mortgage Corp., 552 Ser. 1666, Class K, 1/15/24 ...................................................... 556,476 3,1972 Ser. 1680, Class Z, 2/15/24 ...................................................... 3,210,650 682 Ser. 2061, Class K, 4/20/25 ...................................................... 683,378 485(2) Ser. 2360, Class GM, 6/15/29 ..................................................... 487,420 5,000 Ser. 2424, Class OL, 2/15/25 ..................................................... 5,037,550 2,727 Ser. 2601, Class WS, 11/15/29 .................................................... 2,783,522 Federal National Mortgage Assoc., 1,344 Ser. 43, Class E, 4/25/22 ........................................................ 1,441,087 16,688(2) Ser. 44, Class ZB, 6/25/33 ....................................................... 16,678,541 10,067(2) Ser. 58, Class ZD, 7/25/33 ....................................................... 10,057,562 18,400(2) Ser. 58, Class ZG, 7/25/33 ....................................................... 18,388,500 644(2) Ser. 73, Class JC, 11/15/17 ...................................................... 646,517 1,000 Ser. 86, Class AK, 12/25/32 ...................................................... 1,000,960 ----------- Total Agency Multiple Class Mortgage Pass-Throughs ................................. 60,972,163 ----------- NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--7.2% AAA 2,152 Countrywide Home Loans, Inc., Ser. 21, Class A2, 5.75%, 11/25/17 ................... 2,187,101 GE Capital Mortgage Services, Inc., AAA 18,747 Ser. 10, Class A10, 6.50%, 3/25/24 ............................................... 18,776,245 AAA 1,093 Ser. 13, Class A11, 6.50%, 4/25/24 ............................................... 1,096,449 A 2,478 GSR Mortgage Loan Trust, Ser. 4, Class B2, 6.887%, 4/25/32 ......................... 2,534,249 AAA 300 Residential Asset Securitization Trust, Ser. A4, Class A3, 6.75%, 5/25/32 .......... 304,125 ----------- Total Non-Agency Multiple Class Mortgage Pass-Throughs ............................. 24,898,169 ----------- ADJUSTABLE RATE MORTGAGE SECURITIES--0.4% AAA 1,544 Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A16, 4/25/08 ...... 1,549,230 ----------- INVERSE FLOATING RATE MORTGAGES--21.5% Federal Home Loan Mortgage Corp., 79 Ser. 1565, Class OA, 8/15/08 ..................................................... 79,026 58 Ser. 1635, Class P, 12/15/08 ..................................................... 58,128 79 Ser. 1655, Class SB, 12/15/08 .................................................... 81,900 13,851(2) Ser. 2499, Class JS, 10/15/29 .................................................... 13,933,070 1,732 Ser. 2513, Class SI, 10/15/32 .................................................... 1,737,091 872 Ser. 2528, Class SE, 11/15/32 .................................................... 87,740 13,910(2) Ser. 2539, Class SC, 6/15/31 ..................................................... 14,144,869 6,150(2) Ser. 2543, Class CY, 12/15/32 .................................................... 6,272,796 1,569 Ser. 2550, Class TD, 2/15/28 ..................................................... 1,573,140 333 Ser. 2557, Class SA, 1/15/33 ..................................................... 334,222 2,264 Ser. 2565, Class SD, 1/15/33 ..................................................... 2,268,790 8,866(2) Ser. 2572, Class SW, 2/15/33 ..................................................... 8,999,044 2,286(2) Ser. 2575, Class QS, 9/15/31 ..................................................... 2,301,413
See Notes to Financial Statements. 8
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- INVERSE FLOATING RATE MORTGAGES (CONTINUED) Federal National Mortgage Assoc., $ 9,153(2) Ser. 11, Class SN, 2/25/33 ....................................................... $ 9,299,260 6 Ser. 17, Class SA, 1/25/09 ....................................................... 6,521 10,118(2) Ser. 18, Class SE, 3/25/33 ....................................................... 10,187,394 1,912 Ser. 93, Class SK, 1/25/33 ....................................................... 1,941,056 1,000 Ser. 143, Class SC, 8/25/23 ...................................................... 1,056,760 AAA 159 Residential Funding Mortgage Securities I, Inc., Ser. S15, Class A17, 4/25/08 ...... 162,401 ----------- Total Inverse Floating Rate Mortgages .............................................. 74,524,621 ----------- INTEREST ONLY MORTGAGE-BACKED SECURITIES--2.0% 24,647 Citicorp Mortgage Securities, Inc., Ser. 3, Class A3, 5/25/29 ...................... 23,415 7,496 Credit Suisse First Boston Mortgage Securities Corp., Ser. S15, Class 2AIO, 7/25/04 304,535 Federal Home Loan Mortgage Corp., 103 Ser. 1489, Class K, 10/15/07 ..................................................... 2,879 3,309 Ser. 1918, Class SC, 1/15/04 ..................................................... 36,191 1,000 Ser. 2134, Class PJ, 4/15/11 ..................................................... 10,469 6,986 Ser. 2417, Class PI, 4/15/25 ..................................................... 85,136 Federal National Mortgage Assoc., 3,086 Ser. 24, Class SE, 3/25/09 ....................................................... 512,487 12,734 Ser. 37, Class SD, 10/25/22 ...................................................... 449,660 1,146 Ser. 42, Class SO, 3/25/23 ....................................................... 62,633 6,244 Ser. 60, Class PI, 10/25/20 ...................................................... 28,721 11,672 Ser. 68, Class IK, 8/25/10 ....................................................... 164,140 4,091 Ser. 81, Class S, 12/18/04 ....................................................... 130,406 22,174 GMAC Mortgage Corp. Loan Trust, Ser. HE2, Class AIO, 6/25/27 ....................... 1,876,364 20,000 Impac Secured Assets Corp., Ser. 1, Class AIO, 7/25/04 ............................. 850,914 46 PNC Mortgage Securities Corp., Ser. 5, Class 1A-11, 7/25/29 ........................ 43 28,972 Residential Asset Mortgage Products, Inc., Ser. RS2, Class AIIO, 9/25/04 ........... 906,824 16,250 Residential Funding Mortgage Securities II, Inc., Ser. HI2, Class AIO, 9/25/04 ..... 1,588,437 ----------- Total Interest Only Mortgage-Backed Securities ..................................... 7,033,254 ----------- PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--5.5% Federal Home Loan Mortgage Corp., 2,332 Ser. 2412, Class CO, 2/15/32 ..................................................... 2,325,119 4,872(2) Ser. 2576, Class O, 2/15/33 ...................................................... 4,858,990 Federal National Mortgage Assoc., 1,384 Ser. 1, Class A, 2/25/24 ......................................................... 1,373,333 6,234(2) Ser. 18, Class OG, 3/25/33 ....................................................... 6,042,627 3,434 Ser. 64, Class CO, 10/25/32 ...................................................... 3,357,053 411 Ser. 100, Class J, 6/25/23 ....................................................... 409,575 164 Ser. 100, Class L, 6/25/23 ....................................................... 163,830 288 Ser. 100, Class M, 6/25/23 ....................................................... 286,703 329 Ser. 100, Class N, 6/25/23 ....................................................... 327,660 ----------- Total Principal Only Mortgage-Backed Securities .................................... 19,144,890 ----------- COMMERCIAL MORTGAGE-BACKED SECURITIES--1.7% AAA 5,000 New York City Mortgage Loan Trust, Multifamily, Ser. 1996, Class A2, 6.75%, 6/25/11(3) ....................................................................... 5,758,594 ----------- ASSET-BACKED SECURITIES--1.2% NR 2,550 Global Rated Eligible Asset Trust, Ser. A, Class 1, 7.33%, 9/15/07(3),(4),(5) ...... 114,729 Structured Mortgage Asset Residential Trust,(4),(5) NR 3,849 Ser. 2, 8.24%, 3/15/06 ........................................................... 115,460 NR 4,266 Ser. 3, 8.724%, 4/15/06 .......................................................... 127,988 Aa1 4,000 Student Loan Marketing Assoc., Ser. 1, Class CTFS, 1.83%, 10/25/09 ................. 4,000,000 ----------- Total Asset-Backed Securities ...................................................... 4,358,177 ----------- U.S. GOVERNMENT AND AGENCY SECURITIES--14.1% Small Business Administration, 1,165 Ser. 20F, 7.55%, 6/01/16 ......................................................... 1,336,676 1,034 Ser. 20G, 7.70%, 7/01/16 ......................................................... 1,192,762 2,977 Ser. 20K, 6.95%, 11/01/16 ........................................................ 3,356,762 719 Small Business Investment Companies, Ser. P10A-1, 6.12%, 2/01/08 ................... 772,061 1,000 U.S. Treasury Bond, 5.375%, 2/15/31 ................................................ 1,126,055 30,000 U.S. Treasury Bond Strip, Zero Coupon, 11/15/04 .................................... 29,527,590
See Notes to Financial Statements. 9
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY SECURITIES--(CONT'D) U.S. Treasury Notes, $ 5,400(2) 5.25%, 5/15/04 .................................................................... $ 5,597,861 870 5.875%, 11/15/04 .................................................................. 925,904 4,950(2) 6.00%, 8/15/04 .................................................................... 5,222,636 ------------ Total U.S. Government and Agency Securities ......................................... 49,058,307 ------------ TAXABLE MUNICIPAL BONDS--6.4% AAA 2,000 Fresno California Pension Oblig., 7.15%, 6/01/04 .................................... 2,108,240 AAA 4,000 Los Angeles County California Pension Oblig., 6.77%, 6/30/05 ........................ 4,401,280 AAA 7,000 New Jersey Econ. Dev. Auth., Zero Coupon, 2/15/04 ................................... 6,928,180 A 5,000 New York City, G.O., 7.50%, 4/15/04 ................................................. 5,221,700 AA- 1,000 New York State Envir. Facs. Corp., Service Contract Rev., 6.95%, 9/15/04 ............ 1,061,580 AAA 2,250 San Francisco City & Cnty. Arpt. Comn., Intl. Arpt. Rev., 6.55%, 5/01/04 ............ 2,345,355 ------------ Total Taxable Municipal Bonds ....................................................... 22,066,335 ------------ CORPORATE BONDS--23.8% AEROSPACE & DEFENSE--0.9% BBB- 3,000 Northrop Grumman Corp., 8.625%, 10/15/04 ............................................ 3,256,740 ------------ BUILDING & DEVELOPMENT--1.5% BBB+ 5,000 Pulte Corp., 8.375%, 8/15/04 ........................................................ 5,347,050 ------------ CONSUMER PRODUCTS--0.6% BBB+ 2,000 General Mills, Inc., 8.75%, 9/15/04 ................................................. 2,170,400 ------------ ENERGY--3.3% BBB 4,000 Amerada Hess Corp., 5.30%, 8/15/04 .................................................. 4,157,949 BBB+ 3,500 Israel Electric Corp., Ltd., 7.25%, 12/15/06 (Israel)(3) ............................ 3,805,585 Baa1 2,000 Ohio Edison Co., 8.625%, 9/15/03 .................................................... 2,029,290 BB+ 1,225 Pinnacle One Partners LP, 8.83%, 8/15/04(3) ......................................... 1,280,125 ------------ Total Energy ........................................................................ 11,272,949 ------------ FINANCE & BANKING--9.3% Aa2 2,500 Bank of America Corp., 7.875%, 5/16/05 .............................................. 2,790,550 AA+ 1,850 Citigroup, Inc., 5.75%, 5/10/06 ..................................................... 2,038,274 Aa3 3,000 Den Danske Bank, 7.25%, 6/15/05 (Denmark)3 .......................................... 3,309,148 A3 4,000 Ford Motor Credit Co., 6.70%, 7/16/04 ............................................... 4,160,000 A 4,000 John Deere Capital Corp., 5.52%, 4/30/04 ............................................ 4,129,400 Aa3 4,000 Merrill Lynch & Co., Inc., 6.00%, 11/15/04 .......................................... 4,246,880 A+ 1,000 MetLife, Inc., 6.30%, 11/01/033 ..................................................... 1,016,740 A+ 3,100 Reliaster Financial Corp., 6.625%, 9/15/03 .......................................... 3,132,829 UBS PaineWebber Group, Inc., AAA 500 6.90%, 2/09/04 .................................................................... 517,030 AAA 2,000 8.875%, 3/15/05 ................................................................... 2,222,640 Xtra, Inc., A- 2,000 6.50%, 1/15/04 .................................................................... 2,037,740 A- 2,500 7.22%, 7/31/04 .................................................................... 2,612,600 ------------ Total Finance & Banking ............................................................. 32,213,831 ------------ TELECOMMUNICATION--2.2% A 2,000 Alltel Corp., 7.50%, 3/01/06 ........................................................ 2,264,820 BBB+ 5,000 Telekom Malaysia Berhad, 7.125%, 8/01/05 (Malaysia)(3) .............................. 5,409,700 ------------ Total Telecommunication ............................................................. 7,674,520 ------------ TRANSPORTATION--0.1% Caa2 400 American Airlines, Inc., 10.44%, 3/04/07 ............................................ 192,000 ------------ OTHER--5.9% A3 18,320(2) Targeted Return Index Securities Trust, Ser. 5, Floating Coupon, 1/25/07(3) ......... 20,357,184 ------------ Total Corporate Bonds ............................................................... 82,484,674 ------------ FOREIGN GOVERNMENT BONDS--1.6% A+ 5,000(2) Quebec Province, 8.625%, 1/19/05 (Canada) ........................................... 5,537,300 ------------ STRIPPED MONEY MARKET INSTRUMENTS--11.3% 40,000 Vanguard Prime Money Market Portfolio, 12/31/04 ..................................... 39,112,000 ------------ Total Long-Term Investments--123.5% (cost $407,252,718) ............................. 428,301,293 ------------
See Notes to Financial Statements. 10
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENT--5.2% DISCOUNT NOTE $17,900 Federal Home Loan Bank, 0.95%, 7/01/03 (cost $17,900,000) ........................... $ 17,900,000 ------------ Total investments before investment sold short--128.7% (cost $425,152,718) .......... 446,201,293 ------------ INVESTMENT SOLD SHORT--(0.3%) 1,000 U.S. Treasury Note, 3.25%, 5/31/04 (proceeds $1,008,125) ............................ (1,020,195) ------------ Total investments, net of investment sold short--128.4% (cost $424,144,593) ......... 445,181,098 Liabilities in excess of other assets--(28.4)% ...................................... (98,517,696) ------------ NET ASSETS--100% .................................................................... $346,663,402 ============
- ----------------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. (3) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2003, the Trust held 11.8% of its net assets, with a current market value of $41,051,805, in securities restricted as to resale. (4) Illiquid securities representing 0.10% of net assets. (5) Security is fair valued. See Notes to Financial Statements. 11 PORTFOLIO OF INVESTMENTS (UNAUDITED) JUNE 30, 2003 BLACKROCK PREFERRED OPPORTUNITY TRUST
RATING(1) SHARES DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--143.0% PREFERRED SECURITIES--67.0% ENERGY--8.8% BBB+ 330,000 Alabama Power Co., Class A, 5.20% ................................................... $ 8,563,500 BBB- 21,800 Anadarko Petroleum Corp., Ser. B, 5.46% ............................................. 2,267,200 BBB 105,000 Apache Corp., Ser. B, 5.68% ......................................................... 11,130,000 BBB+ 900 Central Maine Power Co., 3.50% ...................................................... 51,300 B- 60,000 Chesapeake Energy Corp., 6.00%(2) ................................................... 3,645,000 BBB- 8,000 EOG Resources Inc., Ser. B, 7.20% ................................................... 8,868,960 B- 115,000 Hanover Compressor Capital Trust, 7.25% ............................................. 5,405,000 BBB+ 24,000 Peco Energy Company, Ser. D, 4.68% .................................................. 2,142,000 ------------ 42,072,960 ------------ FINANCE & BANKING--42.2% A2 5,000 ABN Amro N.A. Capital Funding Right, 6.97%(2) ....................................... 5,837,050 Baa2 210,000 ACE Ltd., Ser. C, 7.80% (Cayman Islands) ............................................ 5,453,438 AMBAC Financial Group Inc., AA 65,000 5.88% ............................................................................. 1,667,250 AA 111,443 5.95% ............................................................................. 2,841,797 BBB+ 253,100 AOL Time Warner Inc., Ser. A-1, 7.63% (CABCO) ....................................... 6,473,823 A3 30,000 Banesto Hldgs. Ltd., Ser. A, 10.50% (Guernsey)(2) ................................... 870,000 Bear Stearns Cos. Inc., The, A- 75,000 Ser. E, 6.15% ..................................................................... 4,007,813 A- 25,000 Ser. F, 5.72% ..................................................................... 1,297,000 A- 75,000 Ser. G, 5.49% ..................................................................... 3,903,750 B 60,000 Chevy Chase Preferred Capital Corp., Ser. A, 10.38% ................................. 3,319,800 AA 10,050 Citigroup Inc., Ser. M, 5.86% ....................................................... 536,168 Aa3 7,200 Credit Suisse First Boston, Ser. 10, 7.00% (SATURNS) ................................ 190,800 BBB+ 137,500 Everest Re Capital Trust, 7.85% ..................................................... 3,778,500 Federal National Mortgage Assoc., AA 200,000 4.75% ............................................................................. 9,700,000 AA 500,000 5.13% ............................................................................. 25,900,000 BBB- 120,000 First Republic Preferred Capital Corp., 7.25% ....................................... 3,000,000 A2 85,000 Fleet Capital Trust VII, 7.20% ...................................................... 2,306,953 A2 26,100 Fleet Capital Trust VIII, 7.20% ..................................................... 716,119 A- 16,000 Fortis Funding Trust, 7.68%(2) ...................................................... 18,489,370 ING Groep NV, (Netherlands) A- 76,700 7.05% ............................................................................. 2,062,463 A- 560,337 7.20% ............................................................................. 15,207,896 JP Morgan Chase & Co., A 40,000 Ser. A, 5.00% ..................................................................... 3,884,400 A 20,000 Ser. L, 4.50% ..................................................................... 1,997,200 A3 90,000 Lehman Brothers Holdings Capital Trust III, Ser. K, 6.38% ........................... 2,367,900 BBB+ 79,160 Lehman Brothers Holdings Inc., Ser. C, 5.94% ........................................ 4,185,981 A1 20,000 Merrill Lynch Preferred Capital Trust III, 7.00% .................................... 546,400 A1 11,900 Merrill Lynch Preferred Capital Trust V, 7.28% ...................................... 330,701 Aa3 1,300 Morgan Stanley, Class A, 7.05% (PPLUS) .............................................. 35,295 A1 537,000 Morgan Stanley Capital Trust III, 6.25% ............................................. 13,911,656 A1 200,000 Morgan Stanley Capital Trust IV, 6.25% .............................................. 5,162,000 BBB+ 175,200 NB Capital Corp., 8.35% ............................................................. 4,949,400 A 160,000 Partner Re Ltd., Ser. C, 6.75% (Bermuda) ............................................ 4,152,000 BBB+ 18,400 PLC Capital Trust IV, 7.25% ......................................................... 493,120 BBB 271,725 Renaissance Re Holdings Ltd., Ser. B, 7.30% (Bermuda) ............................... 7,092,023 A1 200,000 Royal Bank of Scotland Group PLC, 5.75% (United Kingdom) ............................ 4,900,000 Safeco Capital Trust, Baa2 17,600 Ser. 5, 8.25% (SATURNS) ........................................................... 464,464 Baa2 6,000 Ser. 7, 8.25% (SATURNS) .......................................................... 161,100
See Notes to Financial Statements. 12
RATING(1) SHARES DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- FINANCE & BANKING--(CONT'D) Safeco Capital Trust I, Baa2 4,100 8.072% (CORTS) .................................................................... $ 109,470 Baa2 2,000 8.375% (CORTS) .................................................................... 54,400 Baa2 29,200 8.75% (CORTS) ..................................................................... 831,324 Baa2 6,500 Ser. 4, Class A-1, 8.75% (CORTS) .................................................. 176,995 Baa2 14,700 Safeco Capital Trust II, 8.70% (CORTS) .............................................. 399,840 A 10,000 SG Preferred Capital II LLC, 6.302%2 ................................................ 11,084,500 A3 60 Union Planters Preferred Funding Corp., 7.75%(2) .................................... 5,619,998 BBB 11,100 Valero Energy Corp., Class A, 7.25% (PPLUS) ......................................... 297,966 Baa1 5,200 Washington Mutual Capital I, Ser. 22, Class A-1, 7.65% (CORTS) ...................... 140,920 Aa3 105,500 Wells Fargo Capital VII, 5.85% ...................................................... 2,700,800 XL Capital Ltd., (Cayman Islands) A- 13,500 Ser. A, 8.00% ..................................................................... 375,975 A 53,090 Ser. B, 7.625% .................................................................... 1,464,753 Baa1 143,865 Zions Capital Trust, Ser. B, 8.00% .................................................. 4,010,953 Baa2 2,000 Zurich Regcaps Funding Trust II, 6.58%(2) ........................................... 1,899,920 ------------ 201,361,444 ------------ MEDIA--1.4% BBB- 110,000 Comcast Corp., 2.00%, 11/15/29 ...................................................... 3,630,000 B 30,000 CSC Holdings Inc., Ser. M, 11.13% ................................................... 3,090,000 ------------ 6,720,000 ------------ REAL ESTATE--12.6% BBB 170,000 AMB Property Corp., Ser. L, 6.50% ................................................... 4,250,000 BBB 33,000 Avalonbay Cmnts. Inc., Ser. H, 8.70% ................................................ 953,771 BBB- 120,000 Developers Diversified Reality, 7.38% ............................................... 3,000,000 BBB 77,400 Equity Office Properties Trust, Ser. G, 7.75% ....................................... 2,145,528 BBB 300,000 Equity Residential, Ser. N, 6.48% ................................................... 7,504,688 A2 5,000 Firstar Realty LLC, 8.875%(2) ....................................................... 6,966,000 BBB+ 255,000 Kimco Realty Corp., Class F, 6.65% .................................................. 6,579,000 BBB- 324,000 Regency Ctrs. Corp., 7.45% .......................................................... 8,453,160 A 30 Sun Trust Real Estate Investment Corp., 9.00%(2) .................................... 4,286,952 A2 271,200 Wachovia Preferred Funding Corp., Ser. A, 7.25% ..................................... 7,509,528 A- 320,000 Weingarten Reality Investors, Ser. D, 6.75% ......................................... 8,400,000 ------------ 60,048,627 ------------ TELECOMMUNICATION--1.9% BBB+ 8,000 Centaur Funding, 9.08% (Cayman Islands)(2) .......................................... 9,041,600 ------------ Total Preferred Securities .......................................................... 319,244,631 ------------ ----------- PRINCIPAL AMOUNT (000) ----------- BANK TRUST PREFERRED SECURITIES--51.9% ENERGY--7.4% BBB $10,000 ComEd Financing III, 6.35%, 3/15/33 ................................................. 10,320,417 Baa2 10,180 Dominion Resources Capital Trust III, 8.40%, 1/15/31 ................................ 12,622,561 BBB- 8,000 KN Capital Trust III, 7.63%, 4/15/28 ................................................ 8,982,826 Ba1 3,000 Puget Sound Energy Capital Trust I, Ser. B, 8.231%, 6/01/27 ......................... 3,236,700 ------------ 35,162,504 ------------ FINANCE & BANKING--41.5% A 12,000 Abbey National Capital, 8.963%, 12/29/49 ............................................ 17,218,800 A- 5,0003 ABN Amro N.A. Holding, 6.523%, 12/29/49(2) .......................................... 5,700,000 BBB+ 5,000 ACE Capital Trust II, 9.70%, 4/01/30 ................................................ 6,685,200 AA 11,000 American General Institutional Capital B, 8.125%, 3/15/46(2) ........................ 14,988,110 BBB 6,000 Aon Capital A, 8.205%, 1/01/27 ...................................................... 7,050,190 A 7,000 AXA SA, 8.60%, 12/15/30 (France) .................................................... 8,963,836 Aa3 14,000 Barclays Bank PLC, 6.86%, 9/29/49 (United Kingdom)(2) ............................... 16,156,420 NR 5,500 BNP Paribas Capital Trust, 7.20% .................................................... 5,830,000 NR 9,000 California Preferred Funding Trust, 7.00%, 12/31/49 ................................. 9,427,500 A 2,623 Chase Capital I, Ser. A, 7.67%, 12/01/26 ............................................ 2,900,118
See Notes to Financial Statements. 13
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- FINANCE & BANKING--(CONT'D) NR $ 80 Chase Capital XI, 5.875%, 6/15/33 ................................................... $ 1,996,000 BBB- 1,000 Colonial Capital II, Ser. A, 8.92%, 1/15/27 ......................................... 1,111,600 A2 3,000 Dresdner Funding Trust I, 8.151%, 6/30/31(2) ........................................ 3,315,869 Baa2 500 FCB/NC Capital Trust I, 8.05%, 3/23/28 .............................................. 491,299 Baa2 5,000 Greenpoint Capital Trust I, 9.10%, 6/01/27 .......................................... 5,904,150 NR 6,000 HBOS Capital Funding LP, 6.85%, 3/01/49 ............................................. 6,360,000 A2 11,000 HSBC Capital Funding LP, 10.176%, 12/29/49 (Jersey)2 ................................ 17,164,400 BBB 1,400 Hubco Capital Trust I, Ser. B, 8.98%, 2/01/27 ....................................... 1,574,174 BBB 3,000 Hubco Capital Trust II, Ser. B, 7.65%, 6/15/28 ...................................... 3,180,000 BBB+ 3,000 HVB Funding Trust, 8.741%, 6/30/31 (Germany)(2) ..................................... 3,053,910 A 769 JPM Capital Trust I, 7.54%, 1/15/27 ................................................. 853,360 A 1,000 JPM Capital Trust II, 7.95%, 2/01/27 ................................................ 1,132,294 NR 4,500 Lloyds TSB Bank, 6.90%, 10/10/49 .................................................... 4,597,031 BB+ 145 Markel Capital Trust I, Ser. B, 8.71%, 1/01/46 ...................................... 145,000 A- 3,000 North Fork Capital Trust II, 8.00%, 12/15/27 ........................................ 2,835,000 AA- 13,000 Royal Bank of Scotland Group PLC, 7.648%, 8/31/49 (United Kingdom) .................. 16,334,240 Baa2 4,000 Safeco Capital Trust I, 8.072%, 7/15/37 ............................................. 4,692,964 A+ 7,500 Sun Life Canada U.S. Capital Trust I, 8.526%, 5/29/49(2) ............................ 8,837,272 A+ 7,270 Transamerica Capital III, 7.625%, 11/15/37 .......................................... 7,995,927 BBB- 5,000 Webster Capital Trust I, 9.36%, 1/29/27(2) .......................................... 5,648,450 A- 6,000 Zurich Capital Trust, 8.376%, 6/01/37(2) ............................................ 5,509,200 ------------ 197,652,314 ------------ REAL ESTATE--1.8% BB+ 6,000 Sovereign Real Estate Investor Trust, 12.00%, 8/29/49(2) ............................ 8,692,200 ------------ TELECOMMUNICATION--1.2% BBB- 5,000 TCI Communications Financing III, 9.65%, 3/31/27 .................................... 5,834,050 ------------ Total Bank Trust Preferred Securities ............................................... 247,341,068 ------------ CORPORATE BONDS--24.1% AUTOMOTIVE--1.9% B 2,750 Asbury Automotive Group, Inc., 9.00%, 6/15/12 ....................................... 2,695,000 B+ 3,000 Dura Operating Corp., Ser. B, 8.625%, 4/15/12 ....................................... 3,075,000 B- 2,850 Rexnord Corp., 10.125%, 12/15/12(2) ................................................. 3,149,250 ------------ 8,919,250 ------------ BASIC MATERIAL--0.5% BB- 3,000 Alaska Steel Corp., 7.75%, 6/15/12 .................................................. 2,505,000 ------------ BUILDING & DEVELOPMENT--0.5% B 2,200 Collins & Aikman Floorcovering, Ser. B, 9.75%, 2/15/10 .............................. 2,299,000 ------------ CHEMICAL--0.6% BB 3,000 Lyondell Chemical Co., 11.125%, 7/15/12 ............................................. 3,030,000 ------------ CONGLOMERATES--1.7% BBB- 8,000 Tyco Intl. Group SA, 5.80%, 8/01/06 (Luxembourg) .................................... 8,230,000 ------------ CONSUMER PRODUCTS--3.4% B- 3,000 Buffets Inc., 11.25%, 7/15/10 ....................................................... 2,955,000 BB+ 8,000 Delhaize America Inc., 8.125%, 4/15/11 .............................................. 8,720,000 BB+ 2,000 JC Penney Inc., 8.25%, 8/15/22 ...................................................... 1,980,000 BB- 3,000 Levi Strauss & Co., 12.25%, 12/15/12(2) ............................................. 2,400,000 ------------ 16,055,000 ------------ CONTAINERS & GLASS--1.3% B+ 3,000 Crown European Holdings SA, 9.50%, 3/01/11 (France)(2) .............................. 3,255,000 B 3,000 Radnor Holdings Inc., 11.00%, 3/15/10(2) ............................................ 3,120,000 ------------ 6,375,000 ------------ ECOLOGICAL SERVICES & EQUIPMENT--0.7% B+ 3,000 Allied Waste NA, Inc., Ser. B, 10.00%, 8/01/09 ...................................... 3,195,000 ------------ ELECTRONICS--0.7% B 3,000 Stoneridge, Inc., 11.50%, 5/01/12 ................................................... 3,390,000 ------------ ENERGY--2.6% B 3,000 AES Corp., 8.875%, 2/15/11 .......................................................... 2,925,000 B 3,000 Dresser, Inc., 9.375%, 4/15/11 ...................................................... 3,090,000
See Notes to Financial Statements. 14
PRINCIPAL AMOUNT RATING(1) (000) DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------------------------- ENERGY--(CON'T) BB- $ 3,000 Midwest Generation LLC, Ser. A, 8.30%, 7/02/09 ...................................... $ 2,970,000 B2 2,950 Orion Power Holdings, Inc., 12.00%, 5/01/10 3,407,250 ------------- 12,392,250 ------------- FINANCE & BANKING--1.8% BB 1,000 Crum & Forster Holdings Corp., 10.375%, 6/15/13(2) .................................. 1,012,500 A3 5,000 Ford Motor Credit Co., 6.50%, 1/25/07 ............................................... 5,260,000 BB 2,010 Midland Funding Corp. II, Ser. A, 11.75%, 7/23/05 ................................... 2,170,800 ------------- 8,443,300 ------------- FOREST PRODUCTS--0.7% Ba2 3,000 Caraustar Industries, Inc., 9.875%, 4/01/11 ......................................... 3,180,000 ------------- HEALTH CARE--1.1% B- 3,000 Insight Health Services Corp., Ser. B, 9.875%, 11/01/11 ............................. 3,150,000 B- 2,000 MedQuest Inc., Ser. B, 11.875%, 8/15/12 ............................................. 2,110,000 ------------- 5,260,000 ------------- HOTELS & CASINOS--1.3% Ba3 3,000 HMH Properties, Inc., Ser. B, 7.875%, 8/01/08 ....................................... 3,045,000 B- 3,000 Venetian Casino Resort, LLC, 11.00%, 6/15/10 ........................................ 3,390,000 ------------- 6,435,000 ------------- INDUSTRIAL EQUIPMENT--1.3% BB- 3,000 Mail-Well I Corp., 9.625%, 3/15/12 .................................................. 3,180,000 B+ 3,000 United Rentals, Inc., Ser. B, 9.25%, 1/15/09 ........................................ 2,910,000 ------------- 6,090,000 ------------- LEISURE--0.7% B 3,000 Extended Stay America Inc., 9.15%, 3/15/08 .......................................... 3,120,000 ------------- MEDIA--1.6% B 3,000 Dex Media East LLC, Ser. B, 12.125%, 11/15/12 ....................................... 3,570,000 B 1,000 PEI Holdings Inc., 11.00%, 3/15/10(2) ............................................... 1,105,000 B- 3,000 WRC Media Inc., 12.75%, 11/15/09 .................................................... 3,120,000 ------------- 7,795,000 ------------- TRANSPORTATION--1.7% B3 2,030 Dunlop Standard Aerospace Holdings PLC, 11.875%, 5/15/09 (United Kingdom) ........... 2,192,400 B+ 3,000 Hornbeck Leevac Marine Services Inc., 10.625%, 8/01/08 .............................. 3,300,000 B 2,500 RailAmerica Transp. Corp., 12.875%, 8/15/10 ......................................... 2,775,000 ------------- 8,267,400 ------------- Total Corporate Bonds ............................................................... 114,981,200 ------------- Total Long-Term Investments--143.0% (cost $649,446,565) ............................. 681,566,899 ------------- SHORT-TERM INVESTMENTS--1.9% DISCOUNT NOTES--1.9% A-1+ 9,200 Federal Home Loan Bank, Zero Coupon, 7/01/03 (cost $9,200,000) ...................... 9,200,000 ------------- TOTAL INVESTMENTS--144.9% (cost $658,646,565) ....................................... 690,766,899 Other assets in excess of liabilities--1.4% ......................................... 6,814,879 Preferred shares at redemption value, including dividends payable--(46.3)% .......... (220,832,550) ------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS--100% .................................. $ 476,749,228 =============
- ---------------- (1) Using the higher of S&P's, Moody's or Fitch's rating. (2) Security is not registered under the Securities Act of 1933. These securities may be resold in transactions in accordance with Rule 144A under that Act, to qualified institutional buyers. As of June 30, 2003, the Trust held 31.7% of its net assets, with a current market value of $150,926,199, in securities restricted as to resale. (3) Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. - ---------------------------------------------------------------------------------------------------- KEY TO ABBREVIATIONS CABCO -- Corporate Asset Backed Corporation PPLUS -- Preferred Plus CORTS -- Corporate Backed Trust Securities SATURNS -- Structured Asset Trust Unit Repackagings - ----------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 15 STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) JUNE 30, 2003 - --------------------------------------------------------------------------------
BLACKROCK BLACKROCK BLACKROCK INVESTMENT PREFERRED ADVANTAGE TERM QUALITY OPPORTUNITY ASSETS TRUST(1) TERM TRUST(1) TRUST -------------- ------------- ----------- Investments at value(2) ........................................... $ 139,531,679 $ 446,201,293 690,766,899 Cash .............................................................. 226,977 365,225 9,694,367 Receivable from investments sold .................................. 26,313 144,506 3,619,000 Variation margin receivable ....................................... 68,750 -- -- Collateral deposited with brokers ................................. -- 1,022,500 -- Income receivable ................................................. 326,320 4,115,621 6,083,633 Unrealized appreciation on interest rate swaps .................... -- -- 1,843,157 Other assets ...................................................... 29,385 79,557 66,299 ------------- ------------- ------------- 140,209,424 451,928,702 712,073,355 ------------- ------------- ------------- LIABILITIES Reverse repurchase agreements ..................................... 26,814,570 103,781,268 -- Payable for investments purchased ................................. -- -- 13,951,766 Investments sold short at value(3) ................................ -- 1,020,195 -- Interest payable .................................................. 4,951 24,441 87,656 Investment advisory fee payable ................................... 46,789 170,835 372,118 Administration fee payable ........................................ 7,486 22,778 -- Deferred Directors/Trustees fees .................................. 18,295 50,714 2,137 Other accrued expenses ............................................ 283,924 195,069 77,900 ------------- ------------- ------------- 27,176,015 105,265,300 14,491,577 ------------- ------------- ------------- PREFERRED SHARES AT REDEMPTION VALUE $0.001 par value per share and $25,000 liquidation value per share, including dividends payable4 ................................... -- -- 220,832,550 ------------- ------------- ------------- NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS ...................... $ 113,033,409 $ 346,663,402 $ 476,749,228 ============= ============= ============= Composition of Net Assets: Par value ...................................................... $ 95,107 $ 368,106 $ 18,306 Paid-in capital in excess of par ............................... 86,123,272 366,785,094 433,535,477 Undistributed net investment income ............................ 15,943,813 5,852,050 2,002,262 Accumulated net realized gain (loss) ........................... (1,437,797) (47,378,353) 7,229,692 Net unrealized appreciation .................................... 12,309,014 21,036,505 33,963,491 ------------- ------------- ------------- Net assets applicable to common shareholders, June 30, 2003 ....... $ 113,033,409 $ 346,663,402 $ 476,749,228 ============= ============= ============= Net asset value per common share(5) ............................... $11.88 $9.42 $26.04 ====== ===== ====== (1) Consolidated Statement of Assets and Liabilities (2) Investments at cost ........................................... $ 126,940,234 $ 425,152,718 $ 658,646,565 (3) Proceeds received ............................................. -- 1,008,125 -- (4) Preferred shares outstanding .................................. -- -- 8,832 (5) Common shares issued and outstanding .......................... 9,510,667 36,810,639 18,305,777
See Notes to Financial Statements. 16 STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE PERIOD(1) ENDED JUNE 30, 2003 - --------------------------------------------------------------------------------
BLACKROCK BLACKROCK BLACKROCK INVESTMENT PREFERRED ADVANTAGE TERM QUALITY OPPORTUNITY INVESTMENT INCOME TRUST(2) TERM TRUST(2) TRUST -------------- ------------- ------------ Interest income ............................................. $ 4,947,556 $ 8,265,960 $ 7,869,627 Dividend income ............................................. -- -- 5,736,575 ------------ ------------ ------------ Total investment income ................................... 4,947,556 8,265,960 13,606,202 ------------ ------------ ------------ EXPENSES Investment advisory ......................................... 282,394 1,036,648 1,314,011 Administration .............................................. 45,183 138,220 -- Transfer agent .............................................. 9,668 12,397 6,066 Custodian ................................................... 45,115 72,179 44,051 Reports to shareholders ..................................... 30,578 47,109 25,274 Directors/Trustees fees ..................................... 7,531 21,818 22,166 Registration ................................................ 11,267 15,620 10,615 Independent accountants ..................................... 20,128 47,109 16,176 Legal ....................................................... 12,268 67,386 13,963 Organization ................................................ -- -- 15,000 Auction agent ............................................... -- -- 113,739 Miscellaneous ............................................... 15,282 25,920 18,544 ------------ ------------ ------------ Total expenses excluding interest expense and excise tax .. 479,414 1,484,406 1,599,605 Interest expense ........................................ 180,932 460,716 330,878 Excise tax .............................................. 123,973 -- -- ------------ ------------ ------------ Total expenses ............................................ 784,319 1,945,122 1,930,483 Less fees paid indirectly ............................... (486) (771) (6,098) ------------ ------------ ------------ Net expenses .............................................. 783,833 1,944,351 1,924,385 ------------ ------------ ------------ Net investment income .......................................... 4,163,723 6,321,609 11,681,817 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments ............................................... (2,550,482) 538,688 6,288,457 Futures ................................................... -- (7,896,920) 941,235 Options written ........................................... -- 55,500 -- ------------ ------------ ------------ (2,550,482) (7,302,732) 7,229,692 ------------ ------------ ------------ Net change in unrealized appreciation/depreciation on: Investments ............................................... 220,028 (267,615) 32,120,334 Interest rate swaps ....................................... -- -- 1,843,157 Futures ................................................... (282,431) 1,792,500 -- Short sales ............................................... -- 6,635 -- ------------ ------------ ------------ (62,403) 1,531,520 33,963,491 ------------ ------------ ------------ Net gain (loss) ................................................ (2,612,885) (5,771,212) 41,193,183 ------------ ------------ ------------ DIVIDENDS TO PREFERRED SHAREHOLDERS FROM NET INVESTMENT INCOME ...................................................... -- -- (526,808) ------------ ------------ ------------ NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS RESULTING FROM OPERATIONS ................................... $ 1,550,838 $ 550,397 $ 52,348,192 ============ ============ ============
(1) Commencement of investment operations for Preferred Opportunity was February 28, 2003. The other Trusts' statements are for six months. (2) Consolidated Statement of Operations. See Notes to Financial Statements. 17 STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE PERIOD(1) ENDED JUNE 30, 2003 - --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE BLACKROCK BLACKROCK IN NET ASSET RESULTING FROM OPERATIONS BLACKROCK INVESTMENT PREFERRED TO NET CASH FLOWS PROVIDED BY ADVANTAGE QUALITY OPPORTUNITY (USED FOR) OPERATING ACTIVITIES TERM TRUST(2) TERM TRUST(2) TRUST ------------- ------------- ------------- Net increase in net assets resulting from operations ............................ $ 1,550,838 $ 550,397 $ 52,348,192 ------------- ------------- ------------- Decrease (increase) in investments .............................................. 358,623 2,415,563 (649,573,716) Net realized loss (gain) ........................................................ 2,550,482 7,302,732 (7,229,692) Decrease (increase) in unrealized appreciation .................................. 62,403 (1,531,520) (33,963,491) Decrease (increase) in receivable for investments sold .......................... (26,313) 161,110 (3,619,000) Decrease (increase) in variation margin receivable .............................. (68,750) 218,750 -- Decrease in collateral deposited with brokers ................................... -- 3,750 -- Decrease (increase) in income receivable ........................................ 504,997 72,757 (6,083,633) Increase in unrealized appreciation on interest rate swaps ...................... -- -- (1,843,157) Decrease (increase) in other assets ............................................. (11,175) 393,996 (66,299) Increase (decrease) in payable for investments purchased ........................ -- (207,860) 13,951,766 Decrease in payable to broker ................................................... (37,282) (1,855,606) -- Increase (decrease) in interest payable ......................................... 4,428 (75,267) 87,656 Decrease in investments sold short .............................................. -- (6,635) -- Increase (decrease) in investment advisory fee payable .......................... (1,680) (6,256) 372,118 Decrease in administration fee payable .......................................... (269) (6,737) -- Increase in deferred Directors/Trustees fees .................................... 2,009 5,780 2,137 Increase (decrease) in other accrued expenses ................................... (453,937) (1,053) 77,900 ------------- ------------- ------------- Total adjustments ............................................................ 2,883,536 6,883,504 (687,887,411) ------------- ------------- ------------- Net cash flows provided by (used for) operating activities ...................... $ 4,434,374 $ 7,433,901 $(635,539,219) ============= ============= ============= INCREASE IN CASH Net cash flows provided by (used for) operating activities ...................... $ 4,434,374 $ 7,433,901 $(635,539,219) ------------- ------------- ------------- Cash flows provided by (used for) financing activities: Capital contributions ........................................................ -- -- 433,553,783 Decrease in reverse repurchase agreements .................................... (1,059,180) (4,533,732) -- Increase in preferred shares at redemption value including dividends payable . -- -- 220,832,550 Cash dividends paid to common shareholders ................................... (3,328,570) (2,760,679) (9,152,747) ------------- ------------- ------------- Net cash flows provided by (used for) financing activities ...................... (4,387,750) (7,294,411) 645,233,586 ------------- ------------- ------------- Net increase in cash ......................................................... 46,624 139,490 9,694,367 Cash at beginning of period .................................................. 180,353 225,735 -- ------------- ------------- ------------- Cash at end of period ........................................................ $ 226,977 $ 365,225 $ 9,694,367 ============= ============= =============
- --------------------------- (1) Commencement of investment operations for Preferred Opportunity was February 28, 2003. This information includes the initial investments by BlackRock Funding, Inc. The other Trusts' statements are for six months. (2) Consolidated Statement of Cash Flows. See Notes to Financial Statements. 18 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD(1) ENDED JUNE 30, 2003 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2002 - --------------------------------------------------------------------------------
PREFERRED ADVANTAGE INVESTMENT QUALITY OPPORTUNITY TERM TRUST(2) TERM TRUST(2) TRUST ---------------------------- ------------------------------ -------------- 2003 2002 2003 2002 2003 ---------------------------- ------------------------------ -------------- INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS OPERATIONS: Net investment income ........................ $ 4,163,723 $ 11,342,172 $ 6,321,609 $ 22,878,195 $ 11,681,817 Net realized gain (loss) ..................... (2,550,482) 945,967 (7,302,732) (1,426,523) 7,229,692 Net change in unrealized appreciation/ depreciation ............................... (62,403) (2,615,557) 1,531,520 (4,784,710) 33,963,491 Dividends to preferred shareholders from net investment income .......................... -- -- -- -- (526,808) ------------ ------------ ------------ ------------ ------------ Net increase in net assets applicable to common shareholders resulting from operations ....... 1,550,838 9,672,582 550,397 16,666,962 52,348,192 ------------ ------------ ------------ ------------ ------------ DIVIDENDS TO COMMON SHAREHOLDERS FROM NET INVESTMENT INCOME ................... (2,773,784) (6,100,825) (1,533,670) (14,723,808) (9,152,747) ------------ ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS: Net proceeds from the issuance of common shares ..................................... -- -- -- -- 388,477,506 Net proceeds from the underwriters' overallotment option exercised ............. -- -- -- -- 47,650,000 Offering costs relating to the issuance of preferred shares ........................ -- -- -- -- (2,597,000) Reinvestment of common dividends ............. -- -- -- -- 23,277 ------------ ------------ ------------ ------------ ------------ Net proceeds from capital share transactions -- -- -- -- 433,553,783 ------------ ------------ ------------ ------------ ------------ Total increase (decrease) ....................... (1,222,946) 3,571,757 (983,273) 1,943,154 476,749,228 NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS Beginning of period ............................. 114,256,355 110,684,598 347,646,675 345,703,521 -- ------------ ------------ ------------ ------------ ------------ End of period ................................... $113,033,409 $114,256,355 $346,663,402 $347,646,675 $476,749,228 ============ ============ ============ ============ ============ End of period undistributed net investment income ............................ $ 15,943,813 $ 14,553,874 $ 5,852,050 $ 1,064,111 $ 2,002,262
- ------------------- (1) Commencement of investment operations for Preferred Opportunity was February 28, 2003. This information includes the initial investment by BlackRock Funding, Inc. The other Trusts' statements are for six months. (2) Consolidated Statement of Changes in Net Assets. See Notes to Financial Statements 19 CONSOLIDATED FINANCIAL HIGHLIGHTS BLACKROCK ADVANTAGE TERM TRUST
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ----------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ----------------- -------- -------- -------- -------- --------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(1) ....... $ 12.01 $ 11.64 $ 10.83 $ 10.04 $ 11.07 $ 10.60 ------- ------- ------- ------- ------- ------- Investment operations: Net investment income ...................... 0.44 1.19 1.00 0.59 0.59 0.68 Net realized and unrealized gain (loss) ....... (0.28) (0.18) 0.41 0.80 (1.02) 0.41 ------- ------- ------- ------- ------- ------- Net increase (decrease) from investment operations ...................... 0.16 1.01 1.41 1.39 (0.43) 1.09 ------- ------- ------- ------- ------- ------- Dividends from net investment income .......... (0.29) (0.64) (0.60) (0.60) (0.60) (0.62) ------- ------- ------- ------- ------- ------- Net asset value, end of period(1) ............. $ 11.88 $ 12.01 $ 11.64 $ 10.83 $ 10.04 $ 11.07 ======= ======= ======= ======= ======= ======= Market price, end of period(1) ................ $ 11.89 $ 11.85 $ 11.15 $ 9.88 $ 9.06 $ 9.81 ======= ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN(2) .................... 2.82% 12.26% 19.44% 16.28% (1.58)% 11.03% ======= ======= ======= ====== ======= ======= RATIOS TO AVERAGE NET ASSETS: Total expenses ................................ 1.39%(3) 1.82% 2.87% 4.06% 3.60% 3.71% Net expenses .................................. 1.39%(3) 1.82% 2.87% 4.06% 3.60% 3.71% Net expenses excluding interest expense and excise tax ............................. 0.85%(3) 0.86% 0.92% 0.88% 0.91% 0.91% Net investment income ......................... 7.37%(3) 9.98% 8.78% 5.72% 5.58% 6.23% SUPPLEMENTALDATA: Average net assets (000) ...................... $113,894 $113,632 $108,142 $ 98,368 $100,534 $103,812 Portfolio turnover ............................ 7% 4% 17% 17% 9% 11% Net assets, end of period (000) ............... $113,033 $114,256 $110,685 $103,010 $ 95,443 $105,238 Reverse repurchase agreements outstanding, end of period (000) ........... $ 26,815 $ 27,874 $ 34,500 $ 48,262 $ 47,039 $ 50,051 Asset coverage(4) ............................. $ 5,215 $ 5,099 $ 4,208 $ 3,134 $ 3,029 $ 3,103
- --------------- (1) Net asset value and market price are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (2) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (3) Annualized. (4) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust's shares. See Notes to Financial Statements 20 CONSOLIDATED FINANCIAL HIGHLIGHTS BLACKROCK INVESTMENT QUALITY TERM TRUST
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 2003 ----------------------------------------------------------------- (UNAUDITED) 2002 2001 2000 1999 1998 ----------------- -------- -------- -------- -------- --------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period1 ......... $ 9.44 $ 9.39 $ 9.21 $ 8.79 $ 9.56 $ 9.43 -------- -------- -------- -------- -------- -------- Investment operations: Net investment income ...................... 0.17 0.62 0.55 0.51 0.52 0.66 Net realized and unrealized gain (loss) ....... (0.15) (0.17) 0.03 0.36 (0.79) 0.02 -------- -------- -------- -------- -------- -------- Net increase (decrease) from investment operations ...................... 0.02 0.45 0.58 0.87 (0.27) 0.68 -------- -------- -------- -------- -------- -------- Dividends from net investment income .......... (0.04) (0.40) (0.40) (0.45) (0.50) (0.55) -------- -------- -------- -------- -------- -------- Net asset value, end of period(1) ............. $ 9.42 $ 9.44 $ 9.39 $ 9.21 $ 8.79 $ 9.56 ======== ======== ======== ======== ======== ======== Market price, end of period(1) ................ $ 9.43 $ 9.69 $ 9.26 $ 8.75 $ 7.88 $ 8.81 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN(2) .................... (2.26)% 9.14% 10.62% 17.43% (4.99)% 11.50% ======== ======== ======== ======== ======== ======== RATIOS TO AVERAGE NET ASSETS: Total expenses ................................ 1.13%(3) 1.15% 2.34% 3.53% 3.70% 3.01% Net expenses .................................. 1.13%(3) 1.15% 2.34% 3.53% 3.70% 3.01% Net expenses excluding interest expense and excise tax ............................. 0.86%(3) 0.88% 0.88% 0.91% 0.86% 0.85% Net investment income ......................... 3.66%(3) 6.56% 5.87% 5.79% 5.65% 6.89% SUPPLEMENTALDATA: Average net assets (000) ...................... $348,413 $348,589 $346,413 $324,712 $334,553 $353,745 Portfolio turnover ............................ 73% 17% 32% 25% 81% 106% Net assets, end of period (000) ............... $346,663 $347,647 $345,704 $338,843 $323,431 $351,971 Reverse repurchase agreements outstanding, end of period (000) ........... $103,781 $108,315 $ 13,498 $135,044 $126,627 $105,869 Asset coverage(4) ............................. $ 4,340 $ 4,210 $ 26,611 $ 3,509 $ 3,554 $ 4,325
- ------------------ (1) Net asset value and market price are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (2) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (3) Annualized. (4) Per $1,000 of reverse repurchase agreements outstanding. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust's shares. See Notes to Financial Statements 21 CONSOLIDATED FINANCIAL HIGHLIGHTS BLACKROCK PREFERRED OPPORTUNITY TRUST
FOR THE PERIOD FEBRUARY 28, 2003(1) THROUGH JUNE 30, 2003 (UNAUDITED) ------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period(2) ............................... $ 23.88 -------- Investment operations: Net investment income .............................................. 0.64 Net realized and unrealized gain (loss) ............................ 2.24 Dividends to preferred shareholders from net investment income ..... (0.03) -------- Net increase (decrease) from investment operations .................... 2.85 -------- Dividends to common shareholders from net investment income ........... (0.50) -------- Capital charges with respect to issuance of: Common shares ...................................................... (0.05) Preferred shares ................................................... (0.14) -------- Total capital charges ................................................. (0.19) ======== Net asset value, end of period(2) ..................................... $ 26.04 ======== Market price, end of period(2) ........................................ $ 25.02 ======== TOTAL INVESTMENT RETURN(3) ............................................ 2.12% ======== RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS: Total expenses ........................................................ 1.31%(4) Net expenses .......................................................... 1.31%(4) Net expenses excluding interest expense ............................... 1.09%(4) Net investment income before preferred share dividends ................ 7.95%(4) Preferred share dividends ............................................. 0.36% Net investment income available to common shareholders ................ 7.59% SUPPLEMENTAL DATA: Average net assets (000) .............................................. $435,777 Portfolio turnover .................................................... 59% Net assets, end of period (000) ....................................... $476,749 Preferred shares outstanding (000) .................................... $220,800 Asset coverage per preferred share, end of period ..................... $ 78,983
- ------------------- (1) Commencement of investment operations. This information includes the initial investment by BlackRock Funding, Inc. Net asset value immediately after the closing of the public offering was $23.83. (2) Net asset value and market price are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. (3) Total investment return is calculated assuming a purchase of a share at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment returns do not reflect brokerage commissions. Total investment returns for less than a full year are not annualized. Past performance is not a guarantee of future results. (4) Annualized. The information above represents the unaudited operating performance for a share outstanding, total investment returns, ratios to average net assets and other supplemental data for each period indicated. This information has been determined based upon financial information provided in the financial statements and market price data for the Trust's shares. See Notes to Financial Statements 22 NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1. ORGANIZATION The BlackRock Advantage Term Trust Inc. ("Advantage") & ACCOUNTING POLICIES and The BlackRock Investment Quality Term Trust Inc. ("Investment Quality"), Maryland corporations, are registered as diversified, closed-end management investment companies under the Investment Company Act of 1940, as amended. BlackRock Preferred Opportunity Trust ("Preferred Opportunity"), a Delaware statutory trust, is registered as a non-diversified, closed-end investment company under the Investment Company Act of 1940, as amended. Advantage and Investment Quality each transferred, on October 31, 1998, and July 31, 2001, respectively, a substantial portion of their total assets to 100% owned regulated investment company subsidiaries called BAT Subsidiary, Inc. and BQT Subsidiary, Inc., respectively. The financial statements and these notes to the financial statements for Advantage and Investment Quality are consolidated and include the operations of both Advantage and Investment Quality and their respective wholly owned subsidiary after elimination of all intercompany transactions and balances. The following is a summary of significant accounting policies followed by the Trusts. SECURITIES VALUATION: The Trusts value most of their securities on the basis of current market quotations provided by dealers or pricing services selected under the supervision of each Trust's Board of Directors/Trustees (the "Board"). In determining the value of a particular security, pricing services may use certain information with respect to transactions in such securities, quotations from dealers, market transactions in comparable securities, various relationships observed in the market between securities, and calculated yield measures based on valuation technology commonly employed in the market for such securities. Exchange traded options are valued at their last sales price as of the close of options trading on applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. A futures contract is valued at the last sale price as of the close of the commodities exchange on which it trades. Short-term securities may be valued at amortized cost. Securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by, and under the general supervision and responsibility of each Trust's Board. SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are recorded on trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Each Trust also records interest income on an accrual basis and amortizes premium and/or accretes discount on securities purchased using the interest method. REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements, a Trust's custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by a Trust may be delayed or limited. OPTION SELLING/PURCHASING: When a Trust sells or purchases an option, an amount equal to the premium received or paid by the Trust is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether a Trust has realized a gain or a loss on investment transactions. A Trust, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Options, when used by the Trusts, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of "one" means that a portfolio's or a security's price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates. Option selling and purchasing may be used by the Trusts as an attempt to manage the duration of positions, or collections of positions, so that changes in interest rates do not adversely affect the targeted duration of the portfolio unexpectedly. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put or call options can be purchased or sold to effectively help manage the targeted duration of the portfolio. The main risk that is associated with purchasing options is that the option expires without being exercised. In this case, the option expires worthless and the premium paid for the option is considered the loss. The risk associated with writing call options is that a Trust may forgo the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The risk in writing put options is that a Trust may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, as with futures contracts, the Trust risks not being able to enter into a closing transaction for the written option as the result of an illiquid market. INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive 23 a floating rate. Interest rate swaps are efficient as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by "marking-to-market" to reflect the market value of the swap. When the swap is terminated, a Trust will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract, if any. The Trusts are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Trusts closely monitor swaps and do not anticipate non-performance by any counterparty. SWAP OPTIONS: Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by a Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether a Trust has realized a gain or loss on investment transactions. The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option. Swap options may be used by the Trusts to manage the duration of the Trusts' portfolios in a manner similar to more generic options described above. INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate over a specified fixed or floating rate. Interest rate caps are intended to both manage the duration of the Trusts' portfolios and their exposure to changes in short-term interest rates. Owning interest rate caps reduces a portfolio's duration, making them less sensitive to changes in interest rates from a market value perspective. The effect on income involves protection from rising short-term interest rates, which the Trusts experience primarily in the form of leverage. The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate cap. However, the Trusts do not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate cap. The asset or liability is subsequently adjusted to the current market value of the interest rate cap purchased or sold. Changes in the value of the interest rate cap are recognized as unrealized gains and losses. INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the deficiency, if any, of a floating rate under a specified fixed or floating rate. Interest rate floors are used by the Trusts to both manage the duration of the portfolios and their exposure to changes in short-term interest rates. Selling interest rate floors reduces a portfolio's duration, making it less sensitive to changes in interest rates from a market value perspective. The Trusts' leverage provides extra income in a period of falling rates. Selling floors reduces some of that advantage by partially monetizing it as an up front payment which the Trusts receive. The Trusts are exposed to credit loss in the event of non-performance by the other party to the interest rate floor. However, the Trusts do not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trusts are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate floor. The asset or liability is subsequently adjusted to the current market value of the interest rate floor purchased or sold. Changes in the value of the interest rate floor are recognized as unrealized gains and losses. FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two parties to buy and sell a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses are incurred. When the contract is closed, a Trust records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract. Financial futures contracts, when used by the Trusts, help in maintaining a targeted duration. Futures contracts can be sold to effectively shorten an otherwise longer duration portfolio. In the same sense, futures contracts can be purchased to lengthen a portfolio that is shorter than its duration target. Thus, by buying or selling futures contracts, the Trusts may attempt to manage the duration of positions so that changes in interest rates do not change the duration of the portfolio unexpectedly. SHORT SALES: The Trusts may make short sales of securities as a method of managing potential price declines in similar securities owned. When a Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trusts may have to pay a fee to borrow the particular securi- 24 ties and may be obligated to pay over any payments received on such borrowed securities. A gain, limited to the price at which a Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received. SECURITY LENDING: The Trusts may lend their portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trusts may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trusts receive compensation for lending their securities in the form of interest on the loan. The Trusts also continue to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the accounts of the Trusts. The Trusts did not enter into any security lending transactions during the six months ended June 30, 2003. SEGREGATION: In cases in which the Investment Company Act of 1940, as amended, and the interpretive positions of the Securities and Exchange Commission ("SEC") require that each Trust segregate assets in connection with certain investments (e.g., when issued securities, reverse repurchase agreements or futures contracts), each Trust will, consistent with certain interpretive letters issued by the SEC, designate on its books and records cash or other liquid debt securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. FEDERAL INCOME TAXES: It is each Trust's (excluding Preferred Opportunity) intention to continue, and Preferred Opportunity intends to elect, to be treated as a regulated investment company under the Internal Revenue Code and to distribute sufficient amounts of their taxable income to shareholders. Therefore, no Federal income tax provisions are required. DIVIDENDS AND DISTRIBUTIONS: Each Trust declares and pays dividends and distributions to common shareholders monthly from net investment income, net realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards may be distributed annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from accounting principles generally accepted in the United States of America. ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. DEFERRED COMPENSATION AND BLACKROCK CLOSED-END SHARE EQUIVALENT INVESTMENT PLAN: Under the revised deferred compensation plan approved by each Trust's Board, non-interested Directors/Trustees may elect to defer receipt of all or a portion of their annual compensation. As of January 1, 2003, the Board elected to require its members to defer a portion of their annual complex compensation pursuant to the plan. Deferred amounts earn an approximate return as though equivalent dollar amounts had been invested in common shares of other BlackRock closed-end funds selected by the Directors/Trustees. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Trust. Each Trust may, however, elect to invest in common shares of those Trusts selected by the Directors/Trustees in order to match its deferred compensation obligations. NOTE 2. AGREEMENTS Each Trust has an Investment Management Agreement with BlackRock Advisors, Inc. (the "Advisor"), a wholly owned subsidiary of BlackRock, Inc. BlackRock Financial Management, Inc., a wholly owned subsidiary of BlackRock, Inc., serves as sub-advisor to Preferred Opportunity. BlackRock, Inc. is an indirect, majority owned subsidiary of The PNC Financial Services Group, Inc. The investment management agreement on Preferred Opportunity covers both investment advisory and administration services. Advantage and Investment Quality have an Administration Agreement with Prudential Investments LLC ("Prudential"), an indirect, wholly owned subsidiary of Prudential Financial, Inc. Each Trust's investment advisory fee paid to the Advisor is computed weekly and payable monthly based on an annual rate, 0.50% for Advantage and 0.60% for Investment Quality, of each Trust's average weekly net assets and 0.65% for Preferred Opportunity of the Trust's average weekly managed assets. "Managed assets" means the total assets of Preferred Opportunity (including any assets attributable to any preferred shares that may be outstanding) minus the sum of accrued liabilities (other than debt representing financial leverage). The administration fee paid to Prudential is computed weekly and payable monthly based on an annual rate of 0.08% for Advantage and Investment Quality based on each Trust's average weekly net assets. On May 22, 2003, the Boards of Advantage and Investment Quality approved the change of each Trust's current administrator to the Advisor. The new administration agreements become effective September 1, 2003. Each Trust's fee structure, as described above, will remain unchanged under the new administration agreements. Pursuant to the agreements, the Advisor provides continuous supervision of the investment portfolio and pays the compensation of officers of each Trust who are affiliated persons of the Advisor. The Advisor pays occupancy and certain clerical and accounting costs for Preferred Opportunity. Each Trust's respective administrator pays occupancy and certain clerical and accounting costs of their respective Trust(s). Each Trust bears all other costs and expenses, which include reimbursements to the Advisor for certain operational support services provided to each Trust. Pursuant to the terms of their custody agreements, Advantage, Investment Quality and Preferred Opportunity received earnings credits from its custodian for positive cash balances maintained, which are used to offset custody fees during the period ended June 30, 2003, the amounts earned were $486, $771 and $6,098, respectively. 25 NOTE 3. PORTFOLIO Purchases and sales of investment securities, other SECURITIES than short-term investments, dollar rolls and U.S. government securities, for the period ended June 30, 2003, aggregated as follows: TRUST PURCHASES SALES - ----- --------- ----- Advantage $ 9,465,051 $ 10,101,760 Investment Quality 375,727,751 282,235,555 Preferred Opportunity 910,789,608 324,051,247 There were no transactions in U.S. government securities by any Trust for the period ended June 30, 2003. A Trust may from time to time purchase in the secondary market certain mortgage pass-through securities packaged or master serviced by affiliates or mortgage related securities containing loans or mortgages originated by PNCBank or its affiliates, including Midland Loan Services, Inc. It is possible under certain circumstances, that PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc., could have interests that are in conflict with the holders of these mortgage backed securities, and such holders could have rights against PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc. At June 30, 2003, the total cost of securities for Federal income tax purposes and the aggregate gross/net unrealized appreciation/depreciation for securities held by each Trust were as follows:
TRUST COST APPRECIATION DEPRECIATION NET - ----- ---- ------------ ------------ --- Advantage $127,000,074 $16,248,956 $3,717,351 $12,531,605 Investment Quality 425,159,190 25,177,056 4,134,953 21,042,103 Preferred Opportunity 658,646,565 34,427,962 2,307,628 32,120,334
For Federal income tax purposes, the following Trusts had capital loss carryforwards at December 31, 2002:
CAPITAL LOSS CAPITAL LOSS TRUST CARRYFORWARD AMOUNTS EXPIRES TRUST CARRYFORWARD AMOUNTS EXPIRES - -------- -------------------- ------- ----- -------------------- ------- Advantage $ 98,294 2005 Investment Quality $ 3,844,468 2003 81,418 2008 1,498,011 2005 253,874 2010 9,901,383 2007 -------- 6,843,565 2008 $ 433,586 3,059,351 2009 ======= 1,548,342 2010 ----------- $26,695,120 ===========
Accordingly, no capital gain distributions are expected to be paid to shareholders of a Trust until that Trust has net realized capital gains in excess of its carryforward amounts. Details of open financial futures contracts at June 30, 2003, were as follows:
NUMBER OF EXPIRATION VALUE AT VALUE AT UNREALIZED TRUST CONTRACTS TYPE DATE TRADE DATE JUNE 30, 2003 DEPRECIATION - -------- ----------- ---------- -------------- ---------------- ---------------- -------------- LONG POSITION: Advantage 100 30 Yr. U.S. T-Bond Sep. '03 $ 12,016,806 $ 11,734,375 $ (282,431)
Details of open interest rate swap at June 30, 2003, were as follows:
NOTIONAL FIXED FLOATING TERMINATION UNREALIZED TRUST AMOUNT (000) RATE RATE DATE APPRECIATION - -------- ---------------- ---------- ---------------- --------------- ---------------- Preferred Opportunity $60,000 3.51% 3-month LIBOR 6/16/13 $1,843,157
Preferred Opportunity pays fixed interest rate and receives floating rate. Transactions in options written during the period ended June 30, 2003, were as follows:
PREMIUM TRUST CONTRACTS RECEIVED - --------- ----------- ----------- INVESTMENT QUALITY Options outstanding at December 31, 2002 -- $ -- Options written 200 55,500 Options terminated in closing purchase transactions (200) (55,500) --------- ---------- Options outstanding at June 30, 2003 -- $ -- ========= ==========
26 NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trusts may enter into reverse repurchase agreements with qualified, third-party broker-dealers as determined by and under the direction of each Trust's Board. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time a Trust enters into a reverse repurchase agreement, it will maintain with the lender, liquid investment grade securities having a value not less than the repurchase price, including accrued interest of the reverse repurchase agreement. The average daily balance and weighted average interest rate of reverse repurchase agreements during the period ended June 30, 2003, were as follows: AVERAGE DAILY WEIGHTED AVERAGE TRUST BALANCE INTEREST RATE - ----- ------------- ---------------- Advantage $27,740,093 1.32% Investment Quality 68,846,949 1.35 Preferred Opportunity 45,573,984 1.47 DOLLAR ROLLS: The Trusts may enter into dollar rolls in which a Trust sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Trusts forgo principal and interest paid on the securities. The Trusts will be compensated by the interest earned on the cash proceeds of the initial sale and/or by the lower repurchase price at the future date. NOTE 5. CAPITAL There are 200 million of $0.01 par value common shares authorized for Advantage and Investment Quality. There are an unlimited number of $0.001 par value common shares authorized for Preferred Opportunity. At June 30, 2003, the common shares outstanding and the shares owned by affiliates of the Advisor of each Trust were as follows: COMMON SHARES COMMON SHARES TRUST OUTSTANDING OWNED - ----- ---------------- ---------------- Advantage 9,510,667 8,378 Investment Quality 36,810,639 -- Preferred Opportunity 18,305,777 4,817 Transactions in common shares of beneficial interest from February 28, 2003 (commencement of investment operations) through June 30, 2003, for Preferred Opportunity, were as follows:
SHARES FROM ------------------------------------------------------------------- INITIAL UNDERWRITERS' EXERCISING REINVESTMENT NET INCREASE IN TRUST PUBLIC OFFERING THE OVER-ALLOTMENT OPTION OF DIVIDENDS SHARES OUTSTANDING - ----- --------------- ------------------------- ------------ ------------------ Preferred Opportunity 16,304,817 2,000,000 960 18,305,777
Offering costs of $900,000 incurred in connection with Preferred Opportunity's offering of common shares have been charged to paid-in capital in excess of par of the common shares. On April 8, 2003, Preferred Opportuntiy reclassified common shares of beneficial interest and issued several series of Auction Market Preferred Shares ("preferred shares") listed in the table below. The preferred shares have a liquidation value of $25,000 per share plus any accumulated unpaid dividends. TRUST AND SERIES SHARES - ---------------- ------ Preferred Opportunity T7 2,944 W7 2,944 R7 2,944 Underwriting discounts of $2,208,000 and offering costs of $389,000 incurred in connection with the preferred share offering have been charged to paid-in capital in excess of par of the common shares. Dividends on seven-day preferred shares are cumulative at a rate which is reset every seven days based on the results of an auction. The dividend range on the preferred shares for Preferred Opportunity for the period ended June 30, 2003, was 0.96% to 1.35%. Preferred Opportunity may not declare dividends or make other distributions on common shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred shares would be less than 200%. The preferred shares are redeemable at the option of Preferred Opportunity, in whole or in part, on any dividend payment date at $25,000 per share plus any accumulated or unpaid dividends whether or not declared. The preferred shares are also subject to mandatory redemption at $25,000 per share plus any accumulated or unpaid dividends, whether or not declared, if certain requirements relating to the composition of the assets and liabilities of Preferred Opportunity, as set forth in Preferred Opportunity's Declaration of Trust, are not satisfied. The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares, voting as a separate class, are also entitled to elect two Trustees for Preferred Opportunity. In addition, the Investment Company Act of 1940, as amended, requires that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class would be required 27 to (a) adopt any plan of reorganization that would adversely affect the preferred shares, (b) change a Trust's sub-classification as a closed-end investment company or change its fundamental investment restrictions and (c) change the nature of its business so as to cease to be an investment company. During the period ended June 30, 2003, Preferred Opportunity issued 960 shares, under the terms of its Dividend Reinvestment Plan. NOTE 6. DIVIDENDS Subsequent to June 30, 2003, the Board of each of the Trusts declared dividends from undistributed earnings per common share payable July 31, 2003, to shareholders of record on July 15, 2003. The per share common dividends declared were as follows: COMMON DIVIDEND TRUST PER SHARE - ----- ------------------- Advantage $0.058333 Investment Quality 0.008333 Preferred Opportunity 0.166667 The dividends declared on preferred shares for the period July 1, 2003 to July 31, 2003, for Preferred Opportunity were as follows: DIVIDENDS TRUST AND SERIES DECLARED - ---------------- ----------- Preferred Opportunity T7 $77,604 W7 74,193 R7 53,875 28 DIVIDEND REINVESTMENT PLANS - -------------------------------------------------------------------------------- Pursuant to each Trust's respective Dividend Reinvestment Plan (the "Plan"), shareholders of Advantage and Investment Quality may elect, while shareholders of Preferred Opportunity are automatically enrolled, to have all distributions of dividends and capital gains reinvested by EquiServe Trust Company, N.A. (the "Plan Agent") in the respective Trust's shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check and mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Plan Agent, which serves as agent for the shareholders in administering the Plan. After Advantage and/or Investment Quality declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants' account, by the purchase of outstanding shares on the open market, on the Trust's primary exchange or elsewhere ("open market purchases"). The Trust will not issue any new shares under the Plan. After Preferred Opportunity declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants' account, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Trust ("newly issued shares") or (ii) by open market purchases. If, on the dividend payment date, the NAV is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the Plan Agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant's account will be determined by dividing the dollar amount of the dividend by the NAV on the date the shares are issued. However, if the NAV is less than 95% of the market price on the payment date, the dollar amount of the dividend will be divided by 95% of the market price on the payment date. If, on the dividend payment date, the NAV is greater than the market value per share plus estimated brokerage commissions (such condition being referred to herein as "market discount"), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by each Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any Federal income tax that may be payable on such dividends or distributions. Each Trust reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, each Trust reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at 150 Royall Street, Canton, MA 02021, or by calling (800) 699-1BFM. 29 ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- The Joint Annual Meeting of Shareholders was held on May 22, 2003, to elect a certain number of Directors for each of the following Trusts to three-year terms, unless otherwise indicated, expiring in 2006: ADVANTAGE Elected the Class III Directors and in accordance with Maryland law elected Walter F. Mondale, for the remainder of his term, as follows: DIRECTOR VOTES FOR VOTES WITHHELD -------- ------------- ---------------- Andrew F. Brimmer 8,755,790 247,273 Kent Dixon 8,807,518 195,545 Robert S. Kapito 8,807,831 195,232 Walter F. Mondale(1) 8,729,171 273,892 INVESTMENT QUALITY Elected the Class II Directors and in accordance with Maryland law elected Robert S. Kapito, for the remainder of his term, as follows: DIRECTOR VOTES FOR VOTES WITHHELD -------- ------------- ---------------- Frank J. Fabozzi 34,307,423 665,060 Robert S. Kapito(2) 34,605,319 367,164 Walter F. Mondale 34,169,784 802,699 Ralph L. Schlosstein 34,604,688 367,795 - ----------------- (1) Walter F. Mondale's term will expire in 2005. (2) Robert S. Kapito's term will expire in 2004. 30 [THIS PAGE INTENTIONALLY LEFT BLANK] BLACKROCK CLOSED-END FUNDS Directors/Trustees Ralph L. Schlosstein, CHAIRMAN Andrew F. Brimmer Richard E. Cavanagh Kent Dixon Frank J. Fabozzi Robert S. Kapito James Clayburn La Force, Jr. Walter F. Mondale Officers Robert S. Kapito, PRESIDENT Henry Gabbay, TREASURER Anne Ackerley, VICE PRESIDENT Richard M. Shea, VICE PRESIDENT/TAX James Kong, ASSISTANT TREASURER Vincent B. Tritto, SECRETARY Brian P. Kindelan, ASSISTANT SECRETARY Investment Advisor BlackRock Advisors, Inc. 100 Bellevue Parkway Wilmington, DE 19809 (800) 227-7BFM Sub-Advisor(1) BlackRock Financial Management, Inc. 40 East 52nd Street New York, NY 10022 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 (800) 699-1BFM Auction Agent(1) Bank of New York 100 Church Street, 8th Floor New York, NY 10286 Independent Accountants Deloitte & Touche LLP 200 Berkeley Street Boston, MA 02116 Legal Counsel Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 Legal Counsel - Independent Directors/Trustees Debevoise & Plimpton 919 Third Avenue New York, NY 10022 This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Trust shares. Statements and other information contained in this report are as dated and are subject to change. - -------------------------------------------------------------------------------- BlackRockAdvisors, Inc.(2) Prudential Investments LLC 100 Bellevue Parkway Gateway Center Three Wilmington, DE 19809 100 Mulberry Street (800) 227-7BFM Newark, NJ 07102-4077 BlackRock Preferred Opportunity Trust (800) 227-7BFM BlackRock Advantage Term Trust BlackRock Investment Quality Term Trust - -------------- (1) For Preferred Opportunity only. (2) Provides administrative services for Preferred Opportunity only. Effective September 1, 2003, BlackRock Advisors, Inc. will provide the administrative services for all the Trusts. The Trusts will mail only one copy of shareholder documents, including annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called "householding" and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Trusts at (800) 227-7BFM. This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of Trust shares. Statements and other information [LOGO] contained in this report are as dated and are subject to change. CLF-SEMI-5 ITEM 2. CODE OF ETHICS. Not applicable for semi-annual reports. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable for semi-annual reports. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable for semi-annual reports. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable for semi-annual reports. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable for semi-annual reports. ITEM 8. [RESERVED.] ITEM 9. CONTROLS AND PROCEDURES. (a) The Trust's principal executive officer and principal financial officer have evaluated the Trust's disclosure controls and procedures within 90 days of this filing and have concluded that the Trust's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The Trust's principal executive officer and principal financial officer are aware of no changes in the Trust's internal control over financial reporting that occurred during the Trust's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting. ITEM 10. EXHIBITS. (a)(1) Code of Ethics - Not applicable for semi-annual reports. (a)(2) Certifications of principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (b) Certification of principal executive officer and principal financial officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) BlackRock Preferred Opportunity Trust By: /s/ Henry Gabbay --------------------------- Name: Henry Gabbay Title: Treasurer Date: 6/27/03 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Robert S. Kapito --------------------------- Name: Robert S. Kapito Title: Principal Executive Officer Date: 6/27/03 By: /s/ Henry Gabbay --------------------------- Name: Henry Gabbay Title: Principal Financial Officer Date: 6/27/03 EX-99.CERT 3 c29141_ex99cert.txt Exhibit 99.Cert I, Robert Kapito, certify that: 1. I have reviewed this report on Form N-CSR of BlackRock Preferred Opportunity Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 6/27/03 -------- /s/ Robert Kapito -------------------------- Robert Kapito Principal Executive Officer Exhibit 99.Cert I, Henry Gabbay, certify that: 1. I have reviewed this report on Form N-CSR of BlackRock Preferred Opportunity Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 6/27/03 -------- /s/ Henry Gabbay -------------------------- Henry Gabbay Principal Financial Officer EX-99.906CERT 4 c29141_ex99-906cert.txt Exhibit 99.906Cert SECTION 906 CERTIFICATION Pursuant to 18 U.S.C. ss. 1350, the undersigned officers of BlackRock Preferred Opportunity Trust (the "Company"), hereby certifies, to the best of their knowledge, that the Company's Report on Form N-CSR for the period ended June 30, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: 6/27/03 -------------------------------------- /s/ Robert Kapito - ---------------------------------- Name: Robert Kapito Title: Principal Executive Officer /s/ Henry Gabbay - ---------------------------------- Name: Henry Gabbay Title: Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----