--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2000
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--132.9%
MORTGAGE PASS-THROUGHS--0.8%
$ 273+ Federal National Mortgage Association,
6.50%, 7/01/29 ............................... $ 261,950
-----------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--22.0%
400+ Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
Series 1534, Class 1534-IG,
2/15/10 .................................... 348,624
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
584+ Trust 1992-43, Class 43-E,
4/25/22 .................................... 588,335
3,053+ Trust 1993-79, Class 79-PK,
4/25/22 .................................... 2,971,193
3,146+ Trust 1993-87, Class 87-J,
4/25/22 .................................... 2,880,163
1,850 Trust 1993-223, Class 223-PT,
10/25/23 ................................... 203,831
643+ Trust 1994-13, Class 13-SJ,
2/25/09 .................................... 661,871
-----------
7,654,017
-----------
ADJUSTABLE & INVERSE FLOATING RATE
MORTGAGES--24.4%
AAA 462 Citicorp Mortgage Securities, Inc.,
Series 1993-14, Class A-4,
11/25/23 ................................... 154,425
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
91 Series 1506, Class 1506-S,
5/15/08 .................................... 83,111
373+ Series 1580, Class 1580-SD,
9/15/08 .................................... 346,220
194 Series 1592, Class 1592-TB,
5/15/23 .................................... 122,020
287+ Series 1618, Class 1618-SA,
11/15/08 ................................... 284,843
1,025+ Series 1626, Class 1626-SA,
12/15/08 ................................... 712,795
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
43 Trust 1992-174, Class 174-S,
9/25/22 .................................... 86,290
858+ Trust 1992-190, Class 190-S,
11/25/07 ................................... 718,867
1,000+ Trust 1993-156, Class 156-SE,
10/25/19 ................................... 927,060
500 Trust 1993-167, Class 167-SL,
1/25/22 .................................... 432,187
605+ Trust 1993-173, Class 173-SA,
9/25/08 .................................... 471,767
600 Trust 1993-197, Class 197-SB,
10/25/08 ................................... 433,872
838 Trust 1993-209, Class 209-SG,
8/25/08 .................................... 767,970
498 Trust 1993-214, Class 214-SH,
12/25/08 ................................... 381,535
Aaa 600 PaineWebber Mortgage
Acceptance Corp.,
Series 1994-6, Class A-9,
4/25/09 .................................... 438,375
Residential Funding Mortgage
Securities, Inc.,
AAA 1,165 Series 1993-S23, Class A-12,
6/25/08 .................................... 1,053,314
AAA 1,204 Series 1993-S23, Class A-16,
6/25/08 .................................... 1,080,320
-----------
8,494,971
-----------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--26.0%
Aaa 25,000 Chase Mortgage Finance Corp.,
Series 1999-S4, Class A-14,
4/25/29 .................................... 212,325
Credit Suisse First Boston Mortgage
Securities Corp.,
AAA 13,765 Series 1997-C1, Class AX,
4/20/22 ** ................................. 1,069,834
Aaa 32,607 Series 1998-1, Class A7,
9/25/28 .................................... 86,611
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
11 Series 1114, Class 1114-J,
7/15/06 .................................... 191,207
13 Series 1285, Class 1285-M,
5/15/07 .................................... 186,970
2,750+ Series 1645, Class 1645-IB,
9/15/08 .................................... 340,395
1,107 Series 1747, Class 1747-I,
6/15/23 .................................... 165,869
18,834 Series 1995, Class 1995-SB,
10/15/27 ................................... 29,569
2,420+ Series 2039, Class 2039-PI,
2/15/12 .................................... 354,272
600+ Series 2049, Class 2049-LC,
10/15/23 ................................... 140,625
2,477 Series 2075, Class 2075-IB,
12/15/21 ................................... 407,144
2,426+ Series 2140, Class 2140-UK,
9/15/11 .................................... 348,731
See Notes to Financial Statements.
1
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
$ 2 Trust G-21, Class 21-L,
7/25/21 .................................... $ 57,473
3,881 Trust 299, Class 2,
5/1/28 ..................................... 1,154,424
9 Trust 1991-72, Class 72-H,
7/25/06 .................................... 195,009
30 Trust 1993-49, Class 49-L,
4/25/13 .................................... 487,527
874 Trust 1994-39, Class 39-PE,
1/25/23 .................................... 90,533
19,927 Trust 1997-57, Class SG,
4/25/24 .................................... 292,685
17,791 Trust 1997-78, Class 78-SR,
10/18/27 ................................... 272,422
47,267 Trust 1997-81 Class 81-SD,
12/18/27 ................................... 92,714
1,223+ Trust 1998-30, Class 30-QG,
12/18/25 ................................... 343,958
1,829+ Trust 1998-43, Class 43-YI,
7/18/28 .................................... 254,930
AAA 22,475 GMAC Commercial Mortgage
Securities Inc.,
Series 1998-C2, Class X,
8/15/23 .................................... 829,300
Aaa 5,797 Merrill Lynch Mortgage
Investors, Inc.,
Series 1997-C2, Class IO,
12/10/29 ................................... 359,409
Aaa 3,174 Norwest Asset Securities Corp.,
Series 1998-5, Class A-5,
3/25/28 .................................... 384,899
AAA 1,427 PNC Mortgage Securities Corp.,
Series 1998-8, Class 4X,
10/25/13 ................................... 242,560
Residential Funding Mortgage
Securities, Inc.,
AAA 6,981 Series 1993-S44, Class A-4,
11/25/23 ................................... 305,422
AAA 13,589 Series 1998-S19, Class A8,
8/25/28 .................................... 118,902
NR 118 Salomon Brothers Mortgage
Securities Inc. VI,
Series 1987-3, Class B,
10/23/17 ................................... 29,001
-----------
9,044,720
-----------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--3.9%
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
306 Trust 1994-25, Class 25-C,
11/25/23 ................................... 254,223
489 Trust 1996-54, Class 54-A,
4/25/21 .................................... 426,836
683 Trust 1996-54, Class 54-G,
4/25/23 .................................... 441,440
AAA 175 PaineWebber Mortgage
Acceptance Corp. IV,
Series 1993-5, Class A-14,
6/25/08 .................................... 139,728
NR 118 Salomon Brothers Mortgage
Securities Inc. VI,
Series 1987-3, Class A,
10/23/17 ................................... 98,973
-----------
1,361,200
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--9.9%
AAA 173 Citicorp Mortgage Securities, Inc.,
Series 1998-3, Class A6,
6.75%, 5/25/28 ............................. 170,135
BBB 500 DLJ Mortgage Acceptance Corp.,
Series 1997-CF1, Class B1,
7.91%, 4/15/07** ........................... 468,304
Merrill Lynch Mortgage
Investors, Inc.,
A 500 Series 1995-C1, Class D,
7.90%, 5/25/15 ............................. 506,851
BBB 500 Series 1996-C1, Class D,
7.42%, 4/25/28 ............................. 486,795
AAA 750 New York City Mortgage
Loan Trust, Multifamily,
Series 1996, Class A-2,
6.75%, 6/25/11** ........................... 709,922
AAA 1,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A1-B,
6.506%, 7/15/08 ............................ 959,000
BBB 159 Resolution Trust Corp.,
Series 1994-C2, Class D,
8.00%, 4/25/25 ............................. 157,317
-----------
3,458,324
-----------
ASSET-BACKED SECURITIES--4.4%
AAA 1,230+ Chase Credit Card Master Trust,
Series 1997-5, Class A,
6.194%, 8/15/05 ............................ 1,218,458
NR 251 Global Rated Eligible Asset Trust,
Series 1998-A, Class A-1,
7.33%, 3/15/06 @/@@ ........................ 62,856
Structured Mortgage Asset
Residential Trust,
NR 608 Series 1997-2,
8.24%, 3/15/06 @/@@ ........................ 121,605
NR 674 Series 1997-3,
8.57%, 4/15/06 @/@@ ........................ 134,892
-----------
1,537,811
-----------
U.S GOVERNMENT AND AGENCY
SECURITIES--4.1%
526 Small Business Administration
Participation Certificate,
Series 1998-10, Class 10-A,
6.12%, 2/01/08 ............................. 495,304
See Notes to Financial Statements.
2
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
SECURITIES (CONT'D)
U.S. Treasury Notes,
$ 535+ 5.875%, 10/31/01 ............................. $ 532,742
385+ 6.625%, 5/15/07 .............................. 400,762
------------
1,428,808
------------
TAXABLE MUNICIPAL BONDS--8.8%
AAA 500 Fresno California Pension Obligation,
Series 1994, 7.80%, 6/01/14 .................. 493,355
AAA 500 Kern County California
Pension Obligation,
6.98%, 8/15/09 ............................... 493,520
Los Angeles County California
Pension Obligation,
AAA 1,000 Series A, 8.62%, 6/30/06 ..................... 1,076,800
AAA 500 Series D, 6.97%, 6/30/08 ..................... 496,055
AAA 500 Orleans Parish Louisiana School Board,
Series A, 6.60%, 2/01/08 ..................... 485,810
------------
3,045,540
------------
CORPORATE BONDS--28.6%
FINANCE & BANKING--10.4%
A3 500 AmSouth Bancorporation,
6.75%, 11/01/25 .............................. 479,055
A+ 600 Equitable Life Assured Society,
6.95%, 12/01/05** ............................ 589,398
A 400 Lehman Brothers Holding, Inc., Series A,
6.75%, 9/24/01 ............................... 397,240
A+ 500 Metropolitan Life Insurance Co.,
6.30%, 11/01/03** ............................ 489,370
AA- 1,000 Morgan Stanley Group, Inc.,
10.00%, 6/15/08 .............................. 1,144,790
BBB+ 500 PaineWebber Group, Inc.,
8.875%, 3/15/05 .............................. 532,578
------------
3,632,431
------------
INDUSTRIALS--9.5%
A2 100 American Airlines, Inc.,
Secured Equipment Trust,
Series 1990-M, 10.44%, 3/04/07 ............... 111,863
A1 1,000 Dow Capital BV,
9.20%, 6/01/10 ............................... 1,106,550
A- 500 Ralcorp Holdings, Inc.,
8.75%, 9/15/04 ............................... 531,120
A3 500 Ralston Purina Co.,
9.25%, 10/15/09 .............................. 544,082
BBB- 500 Seagram Joseph E. & Sons, Inc.,
7.00%, 4/15/08 ............................... 511,855
AA- 500 TCI Communications, Inc.,
8.25%, 1/15/03 ............................... 506,400
------------
3,311,870
------------
UTILITIES--2.9%
A 500 Alltel Corp.,
7.50%, 3/01/06 ............................... 499,485
Baa1 500 Ohio Edison Co.,
8.625%, 9/15/03 .............................. 518,235
------------
1,017,720
------------
YANKEE--5.8%
BBB- 500 Empresa Electric Guacolda SA,
7.95%, 4/30/03** ............................. 486,642
BBB+ 170 Empresa Electric Pehuenche,
7.30%, 5/01/03 ............................... 166,886
A- 500 Israel Electric Corp., Ltd.,
7.25%, 12/15/06** ............................ 467,870
Baa2 1,000 Petrozuata Finance Inc.,
Series A, 7.63%, 4/01/09** ................... 883,125
------------
2,004,523
------------
9,966,544
------------
Total long-term investments
(cost $47,267,449) ........................... 46,253,885
------------
SHORT-TERM INVESTMENT--0.9%
DISCOUNT NOTE
300 Federal Home Loan Bank,
Discount Note,
6.401%, 11/01/00
(cost $300,000) .............................. 300,000
------------
Total investments--133.8%
(cost $47,567,449) ........................... 46,553,885
Liabilities in excess of
other assets--(33.8)% ........................ (11,761,137)
------------
NET ASSETS--100% ............................... $ 34,792,748
============
--------------------------------------------------------------------------------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
+ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
@ Illiquid securities representing 0.92% of net assets.
@@ Security is restricted as to public resale. The securities were acquired in
1997 and have an aggregate current cost of $431,065.
--------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
REMIC--Real Estate Mortgage Investment Conduit.
--------------------------------------------------------------------------------
See Notes to Financial Statements.
3
<PAGE>
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS
Investments, at value
(cost $47,567,449) (Note 1) .............................. $ 46,553,885
Cash ...................................................... 144,465
Receivable for investment sold ............................. 4,843,750
Interest receivable ....................................... 648,912
Interest rate cap, at value
(amortized cost $71,419) (Notes 1 & 3) ................... 44,399
------------
52,235,411
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 12,154,213
Payable for investment purchased ........................... 4,831,250
Due to parent (Note 2) ..................................... 400,553
Interest payable ........................................... 55,772
Due to broker--variation margin (Notes 1 & 3) .............. 875
------------
17,442,663
------------
NET ASSETS ................................................. $ 34,792,748
============
Net assets were comprised of:
Common stock at par (Note 5) ............................. $ 2,957
Paid-in capital in excess of par ......................... 34,035,069
------------
34,038,026
Undistributed net investment income ........................ 1,843,868
Accumulated net realized loss .............................. (20,397)
Net unrealized depreciation ................................ (1,068,749)
------------
Net assets, October 31, 2000 ............................... $ 34,792,748
============
Net asset value per share:
($34,792,748 / 2,957,093 shares of
common stock issued and outstanding) ..................... $11.77
======
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 3, 1999* TO OCTOBER 31, 2000
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium
amortization of $1,475,694 and
interest expense of $627,011) ............................ $ 2,244,421
-----------
Operating expenses
Investment advisory ........................................ 167,881
Legal ...................................................... 51,500
Administration ............................................. 45,786
Independent accountants .................................... 37,500
Custodian .................................................. 29,000
Miscellaneous .............................................. 7,286
-----------
Total operating expenses ................................... 338,953
Net investment income before excise tax .................... 1,905,468
Excise tax ................................................. 61,600
-----------
Net investment income ...................................... 1,843,868
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on:
Investments ................................................ (20,397)
-----------
Net change in unrealized depreciation on:
Investments ................................................ (1,013,564)
Interest rate cap .......................................... (27,020)
Futures .................................................... (28,165)
-----------
(1,068,749)
-----------
Net loss on investments .................................... (1,089,146)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 754,722
===========
-----------
*Commencement of investment operations.
See Notes to Financial Statements.
4
<PAGE>
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD DECEMBER 3, 1999* TO OCTOBER 31, 2000
--------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net increase in net assets resulting from
operations ............................................... $ 754,722
------------
Increase in investments excluding
non-cash items ........................................... (4,296,770)
Increase in receivable for securities sold ................. (4,843,750)
Increase in payable for securities purchased ............... 4,831,250
Net realized loss .......................................... 20,397
Increase in unrealized depreciation ........................ 1,068,749
Decrease in interest rate cap .............................. 2,825
Increase in interest receivable ............................ (352,328)
Increase due to broker--variation margin ................... 875
Increase in interest payable ............................... 26,898
Increase in accrued expenses and other
liabilities .............................................. 400,553
------------
Total adjustments .......................................... (3,141,301)
------------
Net cash flows used for operating activities ............... $ (2,386,579)
============
INCREASE (DECREASE) IN CASH
Net cash flows used for operating activities ............... $ (2,386,579)
------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements .................. 2,531,044
Net cash flows provided by financing activities ............ 2,531,044
Net increase in cash ....................................... 144,465
Cash at beginning of period ................................ --
------------
Cash at end of period ...................................... $ 144,465
============
Supplemental Schedule of Non Cash Financing
Activities:
Transfer of assets and liabilities from
BlackRock Broad Investment
Grade 2009 Trust Inc. in exchange for
shares issued ......................................... $ 34,038,026
============
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
STATEMENT OF CHANGES IN
NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 3,
1999* TO
OCTOBER 31, 2000
----------------
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income .................................... $ 1,843,868
Net realized loss ........................................ (20,397)
Net change in unrealized
depreciation .......................................... (1,068,749)
------------
Net increase in net assets resulting
from operations ........................................ 754,722
------------
CAPITAL STOCK TRANSACTION:
Transfer of assets from
BlackRock Broad Investment Grade
2009 Term Trust Inc. in exchange
for shares issued ...................................... 34,038,026
------------
Total increase ............................................. 34,792,748
------------
NET ASSETS
Beginning of period ........................................ --
------------
End of period (including
undistributed net investment
income of $1,843,868) ..................... $ 34,792,748
============
*Commencement of investment operations.
See Notes to Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR THE PERIOD
DECEMBER 3, 1999*
THROUGH
OCTOBER 31, 2000
-----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................... $ 11.51
-------
Net investment income (net of interest expense of $0.21) ...... .62
Net realized and unrealized loss on investments ............... (.36)
-------
Net increase from investment operations ....................... .26
-------
Net asset value, end of period ................................ $ 11.77
=======
TOTAL INVESTMENT RETURN+ ...................................... 2.26%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ............................................ 1.12%+++
Operating expenses and interest expense ....................... 3.20%+++
Operating expenses, interest expense, and excise taxes ........ 3.40%+++
Net investment income ......................................... 6.11%+++
SUPPLEMENTAL DATA:
Average net assets (in thousands) ............................. $33,067
Portfolio turnover ............................................ 36%
Net assets, end of period (in thousands) ...................... $34,793
Reverse repurchase agreements outstanding,
end of period (in thousands) ................................ $12,154
Asset coverage++ .............................................. $ 3,863
-------------
* Commencement of investment operations.
+ This entity is not publicly traded and therefore total investment return is
calculated assuming a purchase of common stock at the current net asset
value on the first day and a sale at the current net asset value on the
last day of the period reported. Total investment return for year of less
than one full year is not annualized.
++ Per $1,000 of reverse repurchase agreements outstanding. +++ Annualized.
The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the period indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
6
<PAGE>
--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION BCT Subsidiary, inc., (the "Trust") was incorporated
& ACCOUNTING under the laws of the State of Maryland on November 12,
POLICIES 1999, and is a diversified closed-end management
investment company. The Trust was incorporated solely
for the purpose of receiving all or a substantial portion of the assets of the
BlackRock Broad Investment Grade 2009 Term Trust Inc. ("BCT"), incorporated
under the laws of the State of Maryland and as such, is a wholly-owned
subsidiary of BCT. The Trust's investment objective is to manage a portfolio of
fixed income securities while providing cash flow definitions to BCT. No
assurance can be given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed and asset-backed
securities, interest rate swaps, caps, floors and non-exchange traded options
and other debt securities on the basis of current market quotations provided by
dealers or pricing services approved by the Trust's Board of Directors. In
determining the value of a particular security, pricing services may use certain
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
observed in the market between securities, and calculated yield measures based
on valuation technology commonly employed in the market for such securities.
Exchange-traded options are valued at their last sales price as of the close of
options trading on the applicable exchanges. In the absence of a last sale,
options are valued at the average of the quoted bid and asked prices as of the
close of business. A futures contract is valued at the last sale price as of the
close of the commodities exchange on which it trades. Short-term securities are
valued at amortized cost. Any 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 the Trust's Board of Directors.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions, or collections of positions, so that changes in interest rates do not
change the duration of the portfolio unexpectedly. In general, the Trust uses
options to hedge a long or short position or an overall portfolio that is longer
or shorter than the benchmark security. 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 options can be purchased to effectively hedge a position or a
portfolio against price declines if a portfolio is long. In the same sense, call
options can be purchased to hedge a portfolio that is shorter than its benchmark
against price changes. The Trust can also sell (or write) covered call options
and put options to hedge portfolio positions.
7
<PAGE>
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate
of interest on a notional principal amount and receives a fixed rate of interest
on the same notional principal amount for a specified period of time.
Alternatively, an investor may pay a fixed rate and receive a floating rate.
Interest rate swaps are efficient as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by "marking-to-market" to reflect the market value
of the swap. When the swap is terminated, the Trust will record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the swap. However, the Trust closely monitors swaps and does 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 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 commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.
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, the 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 Trust, 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 Trust can effectively "hedge"
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.
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SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the 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 Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its 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 Trust 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 Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
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 Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust 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 Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front payment
which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust 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.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes discount or amortizes premium on securities
purchased using the interest method.
FEDERAL INCOME TAXES: It is the Trust's intention to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute sufficient amounts of its taxable income to
shareholders. Therefore, no Federal income tax provision is required. As part of
a tax planning strategy, the Trust intends to retain a portion of its taxable
income and pay an excise tax on the undistributed amounts.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
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NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with
BlackRock Advisors, Inc. (the "Advisor"), which is a
wholly-owned subsidiary of BlackRock, Inc., which in turn is an indirect
majority-owned subsidiary of PNC Financial Services Group, Inc. The Trust has an
Administration Agreement with Princeton Administrators, L.P. (the
"Administrator"), an indirect wholly-owned affiliate of Merrill Lynch & Co.,
Inc.
The Trust reimburses BCT for its pro-rata share of applicable expenses,
including investment advisory and administrative fees, in an amount equal to the
proportionate amount of average net assets which are held by the Trust relative
to the average net assets of BCT.
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term investments and dollar rolls, for the period
ended October 31, 2000 aggregated $20,721,486 and
$15,764,303, respectively.
The Trust may invest in securities which are not readily marketable,including
those which are restricted as to disposition under securities law ("restricted
securities"). At October 31, 2000, the Trust held 15.76% of its net assets in
securities restricted as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank 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.
The federal income tax basis of the Trust's investments at October 31, 2000
was $47,596,367, and accordingly, net unrealized depreciation for federal income
tax purposes was $1,042,482 (gross unrealized appreciation--$901,220, gross
unrealized depreciation--$1,943,702).
Details of open financial futures contracts at October 31, 2000 are as
follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE OCTOBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 2000 DEPRECIATION
-------- ---------- ----- ------------ ------------ ------------
SHORT POSITION:
(10,000) Eurodollar June $(2,311,210) $(2,339,375) $(28,165)
2001 ========
The Trust holds an interest rate cap. Under this agreement, the Trust
receives the excess, if any, of a floating rate over a fixed rate. The Trust
paid a transaction fee for the agreement. Details of the cap at October 31, 2000
are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE RATE DATE COST 2000 DEPRECIATION
------ ----- -------- ----------- -------- ---------- ------------
$5,000 6.00% 3 month 2/19/02 $71,419 $44,399 $(27,020)
LIBOR ========
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust may enter into
reverse repurchase agreements with qualified, third
party broker-dealers as determined by and under the direction of the Trust's
Board of Directors. 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 the Trust enters into a reverse repurchase agreement, it
will establish and maintain a segregated account with the lender, the value of
which at least equals the principal amount of the reverse repurchase
transactions including accrued interest.
The average daily balance of reverse repurchase agreements outstanding for
the period ended October 31, 2000 was approximately $10,740,892 at a weighted
average interest rate of approximately 5.84%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the period was
$12,234,625 as of June 30, 2000 which was 27% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the 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 Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The Trust did not enter into any dollar roll transactions during the period
ended October 31, 2000.
NOTE 5. CAPITAL On December 3, 1999, The BlackRock Broad Investment
Grade 2009 Term Trust Inc. transferred to BCT
Subsidiary, Inc. assets of $34,038,026 in exchange for 2,957,093 common shares
issued.
There are 200 million shares of $.01 par value common stock authorized. BCT
owned all of the 2,957,093 shares outstanding at October 31, 2000.
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--------------------------------------------------------------------------------
BCT SUBSIDIARY, INC.
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Shareholder and Board of Directors of
BCT Subsidiary, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of BCT Subsidiary, Inc. (the "Trust") as of
October 31, 2000 and the related statement of operations and of cash flows, and
the statement of changes in net assets and financial highlights for the period
December 3, 1999 (commencement of investment operations) through October 31,
2000. These financial statements and the financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000 by correspondence with the custodian and
brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of BCT Subsidiary, Inc.
at October 31, 2000 and the results of its operations, its cash flows, the
changes in its net assets and the financial highlights for the respective stated
period in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
-------------------------
New York, New York
December 8, 2000
11
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BLACKROCK
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Anne Ackerley, SECRETARY
INVESTMENT ADVISOR
BlackRock Advisors, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
ADMINISTRATOR
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 543-6217
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10022
LEGAL COUNSEL - INDEPENDENT DIRECTORS
Debevoise & Plimpton
875 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 any securities.
BCT SUBSIDIARY, INC.
c/o Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 543-6217
[Logo] Printed on recycled paper 092472-10-6
BCT SUBSIDIARY, INC.
----------------------------------
ANNUAL REPORT
OCTOBER 31, 2000
[GRAPHIC OMITTED]
