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 811-21286
Name of Fund: BlackRock Preferred Income Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Preferred Income Strategies Fund, Inc., 800 Scudders
Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 10/31/06
Date of reporting period: 11/01/05 - 10/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
Annual Reports BLACKROCK
OCTOBER 31, 2006
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
BlackRock Preferred Income Strategies Fund, Inc.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
BlackRock Preferred Income Strategies Fund, Inc.
The Benefits and Risks of Leveraging
The Funds utilize leveraging through the issuance of Preferred Stock. The
concept of leverage is based on the premise that the cost of assets to be
obtained from leverage will be based on short-term interest or dividend rates on
the Preferred Stock, which normally will be lower than the income earned by each
Fund on its longer-term portfolio investments. To the extent that the total
assets of each Fund (including the assets obtained from leverage) are invested
in higher-yielding portfolio investments, each Fund's Common Stock shareholders
will be the beneficiaries of the incremental yield.
Leverage creates risks for holders of Common Stock including the likelihood of
greater net asset value and market price volatility. In addition, there is the
risk that fluctuations in the dividend rates on any Preferred Stock may reduce
the Common Stock's yield and negatively impact its net asset value and market
price. If the income derived from securities purchased with assets received from
leverage exceeds the cost of leverage, each Fund's net income will be greater
than if leverage had not been used. Conversely, if the income from the
securities purchased is not sufficient to cover the cost of leverage, each
Fund's net income will be less than if leverage had not been used, and therefore
the amount available for distribution to Common Stock shareholders will be
reduced.
Portfolio Information as of October 31, 2006
--------------------------------------------------------------------------------
Percent of
BlackRock Preferred and Corporate Income Total
Strategies Fund, Inc.'s Asset Mix Investments
--------------------------------------------------------------------------------
Capital Trusts .............................................. 33.6%
Preferred Stocks ............................................ 21.5
Corporate Bonds ............................................. 18.2
Real Estate Investment Trusts ............................... 12.0
Trust Preferreds ............................................ 5.8
Government & Agency Obligations ............................. 2.8
Other* ...................................................... 6.1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Percent of
BlackRock Preferred Income Strategies Fund, Total
Inc.'s Asset Mix Investments
--------------------------------------------------------------------------------
Capital Trusts .............................................. 30.3%
Preferred Stocks ............................................ 27.1
Corporate Bonds ............................................. 19.7
Real Estate Investment Trusts ............................... 14.2
Trust Preferreds ............................................ 5.8
Government & Agency Obligations ............................. 1.4
Other* ...................................................... 1.5
--------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Fund Certifications
In September 2006, BlackRock Preferred and Corporate Income Strategies Fund,
Inc. and BlackRock Preferred Income Strategies Fund, Inc. filed their Chief
Executive Officer Certifications for the prior year with the New York Stock
Exchange pursuant to Section 303A.12(a) of the New York Stock Exchange Corporate
Governance Listing Standards.
The Funds' Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Funds' Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
2 ANNUAL REPORTS OCTOBER 31, 2006
A Letter to Shareholders
Dear Shareholder
Ten months into 2006, we are able to say it has been an interesting year for
investors. After a volatile start and far-reaching mid-year correction, the
financial markets regained some positive momentum through late summer and fall.
For the six- and 12-month periods ended October 31, 2006, most major market
indexes managed to post positive returns:
Total Returns as of October 31, 2006 6-month 12-month
==============================================================================================
U.S. equities (Standard & Poor's 500 Index) +6.11% +16.34%
----------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +0.90 +19.98
----------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +3.77 +27.52
----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +4.60 + 5.19
----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +4.12 + 5.75
----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) +4.66 +10.29
----------------------------------------------------------------------------------------------
The Federal Reserve Board (the Fed), after raising the target short-term
interest rate 17 times between June 2004 and June 2006, finally opted to pause
on August 8, 2006. This left the federal funds rate at 5.25%, where it remained
through the September and October Fed meetings. In interrupting its two-year
rate-hiking campaign, the Fed acknowledged that economic growth is slowing, led
by softness in the housing market. However, the central bankers continue to take
a cautionary position on inflation, despite a decline in energy prices in recent
months. At the time of this writing, the price of oil had settled into the
$60-per-barrel range after reaching nearly $78 per barrel earlier in the year.
Notwithstanding the mid-year correction, equity markets generally found support
in solid corporate earnings reports in the first three quarters of the year.
Overall corporate health, including strong company balance sheets, helped to
sustain robust dividend-distribution, share-buyback and merger-and-acquisition
activity. Many international equity markets fared equally well or better, thanks
in part to higher economic growth rates and low inflation.
In the U.S. bond market, prices declined for much of the year as investors
focused on decent economic activity and inflation concerns. Bond prices began to
improve in late June as the economy showed signs of weakening and inflation
pressures subsided. Notably, the Treasury curve has inverted periodically, a
phenomenon typically associated with periods of economic weakness. At the end of
October, the one-month Treasury bill offered the highest yield on the curve at
5.18%, while the 30-year Treasury bond had a yield of 4.72%.
Amid the uncertainty inherent in the financial markets, we encourage you to
review your goals periodically with your financial professional and to make
portfolio changes, as needed. For additional insight and timely "food for
thought" for investors, we also invite you to visit Shareholder magazine at
www.blackrock.com/shareholdermagazine. We are pleased to make our
investor-friendly magazine available to you online. We thank you for trusting
BlackRock with your investment assets, and we look forward to continuing to
serve your investment needs.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
ANNUAL REPORTS OCTOBER 31, 2006 3
A Discussion With Your Funds' Portfolio Managers
The Funds modestly outperformed their benchmark during the fiscal year,
benefiting from their overweight positions in longer-duration securities in a
strong credit market.
Describe the market and economic environment during the fiscal year.
The yield curve became slightly inverted during the past 12 months. (That is,
the yields on shorter-term securities were higher than those of securities with
longer maturities.) At the beginning of the fiscal year, the 10-year U.S.
Treasury note yield stood at 4.57%, 17 basis points (.17%) above the 4.40% yield
of the two-year Treasury note. At the end of the 12-month period on October 31,
2006, 10- and two-year Treasury issues yielded 4.61% and 4.71%, respectively.
Short-term interest rates were volatile during the period, rising rather
steadily between November 2005 and June 2006 before declining through most of
the remainder of the fiscal year. The yield on the two-year note peaked at 5.27%
in late June 2006, then dipped to a low of 4.60% in early October, while the
10-year Treasury yield reached a high of 5.42% late in the second quarter of
2006 before falling to a low of 4.56% in late September.
The Federal Reserve Board (the Fed) raised the target federal funds rate in six
increments of .25% during the year, bringing the target rate from 3.75% to
5.25%. However, the Fed held the rate steady at its meetings on August 8,
September 20 and October 25, 2006. The third quarter of 2006 was the first
without an increase in the federal funds target rate since the first quarter of
2004.
In the statement following its meeting of October 25, the Federal Open Market
Committee (FOMC) wrote: "Economic growth has slowed over the course of the year,
partly reflecting a cooling of the housing market. Going forward, the economy
seems likely to expand at a moderate pace." In a cautionary tone, however, the
FOMC indicated that "the Committee judges that some inflation risks remain. The
extent and timing of any additional firming that may be needed to address these
risks will depend on the evolution of the outlook for both inflation and
economic growth, as implied by incoming information."
How did the Funds perform during the fiscal year?
The Common Stock of BlackRock Preferred and Corporate Income Strategies Fund,
Inc. (formerly Preferred and Corporate Income Strategies Fund, Inc.) had net
annualized yields of 7.43% and 7.78% during the past 12 months, based on a
year-end per share net asset value of $22.25 and a per share market price of
$21.26, respectively, and $1.653 per share income dividends. For the same
period, the total investment return on the Fund's Common Stock was +7.97%, based
on a change in per share net asset value from $22.36 to $22.25, and assuming
reinvestment of all distributions.
For the 12-month period ended October 31, 2006, the Common Stock of BlackRock
Preferred Income Strategies Fund, Inc. (formerly Preferred Income Strategies
Fund, Inc.) had net annualized yields of 6.90% and 7.67%, based on a year-end
per share net asset value of $22.36 and a per share market price of $20.12,
respectively, and $1.544 per share income dividends. For the same period, the
total investment return on the Fund's Common Stock was +8.77%, based on a change
in per share net asset value from $22.26 to $22.36, and assuming reinvestment of
all distributions.
For the 12-month period, the Funds' benchmark, the Merrill Lynch Preferred Stock
Fixed Rate Index, returned +7.83%, while the broader-market Merrill Lynch U.S.
Corporate Master Index and the Merrill Lynch U.S. Treasury/Agency Master Index
returned +5.44% and +4.58%, respectively.
For the six-month period ended October 31, 2006, the total investment return on
BlackRock Preferred and Corporate Income Strategies Fund's Common Stock was
+5.74%, based on a change in per share net asset value from $21.87 to $22.25,
and assuming reinvestment of all distributions. The total investment return on
BlackRock Preferred Income Strategies Fund's Common Stock was +7.09%, based on a
change in per share net asset value from $21.67 to $22.36, and assuming
reinvestment of all distributions. For the same period, the Merrill Lynch
Preferred Stock Fixed Rate Index returned +6.92%, while the broader-market
Merrill Lynch U.S. Corporate Master Index and the Merrill Lynch U.S.
Treasury/Agency Master Index returned +5.40% and +4.43%, respectively.
For a description of the Funds' total investment returns based on a change in
the per share market value of the Funds' Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As closed-end funds, the Funds' shares may trade in the secondary
market at a premium or discount to their net asset values. As a result, total
investment returns
4 ANNUAL REPORTS OCTOBER 31, 2006
based on changes in the market value of the Funds' Common Stock can vary
significantly from total investment returns based on changes in the Funds' net
asset values.
What factors most influenced the Funds' performance?
The credit markets were strong during most of the fiscal period as yield spreads
tightened versus Treasuries. In addition, long-duration corporate bonds
outperformed their short-duration counterparts. Consequently, the Funds'
overweight positions in longer-duration credits enhanced their relative
performance. The Funds' long spread durations relative to their benchmark also
benefited performance. Spread duration is a measurement of the effect of a 100
basis point increase or reduction in the yield spread of a fixed income security
compared to U.S. Treasury issues of comparable maturities.
In addition, the Funds' performance for the period benefited modestly from our
use of net asset value hedges to shorten the portfolios' durations. The goal was
to reduce the risk of loss in value associated with rising interest rates.
The portfolios' underweight positions in qualified dividend income
(QDI)-eligible securities, which performed well during the period, detracted
somewhat from performance. Income from QDI-eligible securities is taxed at a
lower federal income tax rate, providing an attractive taxable-equivalent
return.
What changes were made to the portfolios during the period?
Overall, we continued our efforts to maintain portfolios that were well
diversified across sectors and security types. Early in the fiscal year, we
reduced the portfolios' durations--which already were shorter than that of their
benchmark--by approximately five years. However, we maintained the Funds'
relatively long spread durations during the period. Additionally, we reduced the
portfolios' positions in floating rate preferred securities and reinvested the
proceeds in fixed rate securities.
We continued to employ leveraging strategies throughout the year and, at October
31, 2006, BlackRock Preferred and Corporate Income Strategies Fund and BlackRock
Preferred Income Strategies Fund had leverage positions of approximately 33% and
36%, respectively. (For a more complete explanation of the benefits and risks of
leveraging, see page 2 of this report to shareholders.)
How would you characterize the Funds' positions at the close of the period?
The preferred stock market has significant exposure to securities issued by
financial companies. Therefore, we retained the Funds' sizeable allocations to
the financials sector, although the portfolios are underweight relative to the
benchmark in these securities. Our largest absolute weightings at the end of the
period were in the banking, insurance, real estate investment trust and
communications sectors, which collectively comprised 50.6% of the net assets of
BlackRock Preferred and Corporate Income Strategies Fund and 57.4% of the net
assets of BlackRock Preferred Income Strategies Fund. The portfolios are well
diversified among issuers, and we intend to maintain this diversification. At
period-end, each Fund carried an average credit rating of Baa1 from Moody's
Investors Service, unchanged from the rating at October 31, 2005.
John Burger
Portfolio Manager
Scott Amero
Portfolio Manager
Daniel Chen
Portfolio Manager
November 9, 2006
--------------------------------------------------------------------------------
We are pleased to announce that Scott Amero and Daniel Chen have joined John
Burger in the day-to-day management of the Funds' portfolios. Mr. Amero is a
Managing Director of BlackRock Inc., co-head of the firm's fixed income
portfolio management team and a member of the Management Committee and
Investment Strategy Group. Prior to joining BlackRock in 1990, Mr. Amero was a
Vice President in Fixed Income Research at The First Boston Corporation. Mr.
Chen is a Vice President and portfolio manager with BlackRock and a member of
the Investment Strategy Group. He began his career at BlackRock in 1999 and
joined the Portfolio Management Group in 2002.
--------------------------------------------------------------------------------
ANNUAL REPORTS OCTOBER 31, 2006 5
Schedule of Investments
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
(in U.S. dollars)
=========================================================================================
Preferred Securities
-----------------------------------------------------------------------------------------
Face
Amount Capital Trusts Value
=========================================================================================
Commercial Banks--6.3%
$ 2,000,000 Cullen/Frost Capital Trust I, 6.95%
due 3/01/2034 (b) $ 2,033,150
First Chicago NBD Institutional Capital I, 5.921%
due 2/01/2027 (b) 4,789,025
910,000 First Empire Capital Trust II, 8.277%
due 6/01/2027 957,634
450,000 First Security Capital I, 8.41% due 12/15/2026 469,859
1,400,000 Firstar Capital Trust I Series B, 8.32%
due 12/15/2026 1,462,175
3,000,000 Hubco Capital Trust I Series B, 8.98%
due 2/01/2027 3,153,273
1,500,000 Hubco Capital Trust II Series B, 7.65%
due 6/15/2028 1,560,000
--------------
14,425,116
=========================================================================================
Consumer Finance--2.1%
3,470,000 Capital One Capital III, 7.686% due 8/15/2036 3,826,501
910,000 MBNA Capital A, 8.278% due 12/01/2026 948,986
--------------
4,775,487
=========================================================================================
Diversified Financial Services--1.4%
3,000,000 Farm Credit Bank of Texas Series 1, 7.561% (b)(g) 3,222,870
=========================================================================================
Gas Utilities--4.1%
9,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 9,437,220
=========================================================================================
Insurance--24.6%
3,990,000 AON Corp., 8.205% due 1/01/2027 4,638,531
9,000,000 Axa, 8.60% due 12/15/2030 11,821,509
8,510,000 Ace Capital Trust II, 9.70% due 4/01/2030 11,619,273
9,110,000 Farmers Exchange Capital, 7.05%
due 7/15/2028 (f) 9,550,377
6,000,000 Mangrove Bay Pass-Through Trust, 6.102%
due 7/15/2033 (b)(f) 5,805,000
10,000,000 Markel Capital Trust I Series B, 8.71%
due 1/01/2046 10,461,640
915,000 Oil Casualty Insurance Ltd., 8% due 9/15/2034 (f) 919,960
1,400,000 Zurich Capital Trust I, 8.376% due 6/01/2037 (f) 1,471,091
--------------
56,287,381
=========================================================================================
Multi-Utilities--0.6%
1,200,000 Dominion Resources Capital Trust I, 7.83%
due 12/01/2027 1,249,854
=========================================================================================
Oil, Gas & Consumable Fuels--3.8%
6,000,000 Pemex Project Funding Master Trust, 7.375%
due 12/15/2014 6,585,000
2,000,000 Phillips 66 Capital Trust II, 8% due 1/15/2037 2,084,616
--------------
8,669,616
=========================================================================================
Thrifts & Mortgage Finance--8.2%
1,465,000 Dime Capital Trust I Series A, 9.33%
due 5/06/2027 1,558,473
6,735,000 GreenPoint Capital Trust I, 9.10% due 6/01/2027 7,138,622
760,000 ML Capital Trust I, 9.875% due 3/01/2027 802,359
5,900,000 Sovereign Capital Trust, 9% due 4/01/2027 6,173,854
3,000,000 Webster Capital Trust I, 9.36% due 1/29/2027 (f) 3,156,796
--------------
18,830,104
-----------------------------------------------------------------------------------------
Total Capital Trusts
(Cost--$113,348,369)--51.1% 116,897,648
=========================================================================================
Shares
Held Preferred Stocks
=========================================================================================
Capital Markets--4.1%
60,000 Deutsche Bank Capital Funding Trust VIII, 6.375% 1,515,000
24,000 Goldman Sachs Group, Inc. Series A, 3.91% (b) 622,080
280,000 Lehman Brothers Holdings, Inc., 6.50% 7,299,600
--------------
9,436,680
=========================================================================================
Commercial Banks--1.6%
1,000,000 Barclays Bank Plc, 6.278% (b) 974,935
1,176 First Tennessee Bank NA, 3.90% (b)(f) 1,210,913
42,000 Provident Financial Group, Inc., 7.75% 1,090,690
12,000 Sovereign Bancorp, Inc. Series C, 7.30% (a) 325,080
--------------
3,601,618
=========================================================================================
Consumer Finance--1.1%
93,020 Capital One Capital II, 7.50% 2,430,613
=========================================================================================
Diversified Financial Services--5.0%
Bank of America Corp.:
38,400 Series D, 6.20% 994,176
217,525 Series E, 5.72% 5,438,125
55,000 CIT Group, Inc. Series A, 6.35% 1,431,100
68,000 CoBank ACB, 7% (f) 3,552,252
--------------
11,415,653
=========================================================================================
Electric Utilities--2.9%
28,800 Entergy Arkansas, Inc., 6.45% 733,501
22,650 Entergy Louisiana LLC, 6.95% 2,310,300
36,000 PPL Electric Utilities Corp., 6.25% 921,377
109,400 PPL Energy Supply LLC, 7% 2,805,016
--------------
6,770,194
=========================================================================================
Gas Utilities--3.1%
270,000 Southern Union Co., 7.55% 7,052,400
=========================================================================================
Insurance--4.4%
120,000 ACE Ltd. Series C, 7.80% 3,158,400
Axis Capital Holdings Ltd.:
35,000 Series A, 7.25% 894,250
9,000 Series B, 7.50% (b) 926,719
35,200 Endurance Specialty Holdings Ltd. Series A, 7.75% 901,120
158,000 MetLife, Inc. Series B, 6.50% 4,108,000
--------------
9,988,489
=========================================================================================
Thrifts & Mortgage Finance--9.1%
Fannie Mae:
6,000 Series L, 5.125% 275,400
305,000 Series O, 7% (b) 16,489,063
160,000 Washington Mutual Capital Trust 2001 Series K,
6.09% (b) 4,064,000
--------------
20,828,463
=========================================================================================
Wireless Telecommunication Services--1.4%
2,720 Centaur Funding Corp., 9.08% (f) 3,196,000
-----------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost--$71,929,560)--32.7% 74,720,110
=========================================================================================
6 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
(in U.S. dollars)
=========================================================================================
Preferred Securities (concluded)
-----------------------------------------------------------------------------------------
Shares
Held Real Estate Investment Trusts Value
=========================================================================================
Real Estate--18.2%
63,800 Alexandria Real Estate Equities, Inc.
Series C, 8.375% $ 1,687,510
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,220,000
610 First Industrial Realty Trust, Inc., 6.236% (b) 612,859
HRPT Properties Trust:
425,000 Series B, 8.75% 10,858,750
125,000 Series C, 7.125% 3,237,500
192,000 Health Care Property Investors, Inc.
Series F, 7.10% 4,872,960
44,000 Health Care REIT, Inc. Series F, 7.625% 1,131,627
120,000 iStar Financial, Inc. Series I, 7.50% 3,048,000
PS Business Parks, Inc.:
18,400 Series K, 7.95% 482,264
16,000 Series M, 7.20% 405,600
110,000 Public Storage, Inc., 6.75% 2,770,625
40,000 Public Storage, Inc., Series I, 7.25% 1,041,252
14,800 Regency Centers Corp., 7.25% 382,950
36,800 Vornado Realty Trust Series E, 7% 948,752
-----------------------------------------------------------------------------------------
Total Real Estate Investment Trusts
(Cost--$41,514,750)--18.2% 41,700,649
=========================================================================================
Face
Amount Trust Preferreds
=========================================================================================
Gas Utilities--4.5%
$10,000,000 Southwest Gas Capital II, 7.70% due 9/15/2043 10,340,643
=========================================================================================
Insurance--1.9%
2,000,000 ABN AMRO North America Capital Funding
Trust II, 5.445% (b)(f)(g) 2,005,043
2,250,000 Lincoln National Capital VI Series F, 6.75%
due 9/11/2052 2,308,868
--------------
4,313,911
=========================================================================================
Thrifts & Mortgage Finance--2.4%
5,500,000 Countrywide Financial Corp., 1.50%
due 4/01/2033 5,430,500
-----------------------------------------------------------------------------------------
Total Trust Preferreds
(Cost--$19,620,540)--8.8% 20,085,054
-----------------------------------------------------------------------------------------
Total Preferred Securities
(Cost--$246,413,219)--110.8% 253,403,461
=========================================================================================
Corporate Bonds
=========================================================================================
Capital Markets--0.9%
1,900,000 Ameriprise Financial, Inc., 7.518%
due 6/01/2066 (b) 2,066,106
=========================================================================================
Commercial Banks--1.0%
1,200,000 Royal Bank of Scotland Group Plc, 9.118% (g) 1,336,395
1,050,000 SunTrust Preferred Capital I, 5.853% (b)(g) 1,058,455
--------------
2,394,850
=========================================================================================
Containers & Packaging--2.2%
5,000,000 Sealed Air Corp., 6.875% due 7/15/2033 (f) 5,032,900
=========================================================================================
Diversified Financial Services--2.2%
5,000,000 Sigma Finance Corp., 5.405% due 8/15/2011 (b)(e) 5,000,000
=========================================================================================
Diversified Telecommunication Services--2.3%
4,000,000 France Telecom SA, 8.50% due 3/01/2031 5,314,668
=========================================================================================
Electric Utilities--2.3%
5,000,000 Energy East Corp., 6.75% due 9/15/2033 5,275,745
=========================================================================================
Foreign Government Obligations--2.2%
5,032,000 Mexico Government International Bond,
5.875% due 1/15/2014 5,157,800
=========================================================================================
Insurance--2.2%
2,000,000 Great West Life & Annuity Insurance Co.,
7.153% due 5/16/2046 (b)(f) 2,105,026
1,000,000 Oil Insurance Ltd., 7.558% (b)(f)(g) 1,040,280
1,800,000 ZFS Finance (USA) Trust II, 6.45%
due 12/15/2065 (b)(f) 1,797,541
--------------
4,942,847
=========================================================================================
Media--4.9%
3,000,000 Comcast Corp., 7.05% due 3/15/2033 3,250,530
2,000,000 TCI Communications, Inc., 8.75%
due 8/01/2015 2,368,952
5,000,000 Time Warner, Inc., 7.625% due 4/15/2031 5,637,330
--------------
11,256,812
=========================================================================================
Multi-Utilities--1.0%
2,100,000 Dominion Resources, Inc., 7.50%
due 6/30/2066 (b) 2,231,905
=========================================================================================
Oil, Gas & Consumable Fuels--0.9%
1,825,000 Enterprise Products Operating LP, 8.375%
due 8/01/2066 (b) 1,961,353
=========================================================================================
Wireless Telecommunication Services--5.6%
5,000,000 AT&T Wireless Services, Inc., 8.75%
due 3/01/2031 6,551,735
5,000,000 Sprint Capital Corp., 8.75% due 3/15/2032 6,177,280
--------------
12,729,015
-----------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost--$60,405,477)--27.7% 63,364,001
=========================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 7
Schedule of Investments (concluded)
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
(in U.S. dollars)
Face
Amount Government & Agency Obligations Value
=========================================================================================
$ 6,400,000 U.S. Treasury Bonds, 4.50%
due 2/15/2036 $ 6,176,998
3,420,000 U.S. Treasury Notes, 4.875%
8/15/2016 3,491,071
-----------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost--$9,447,370)--4.2% 9,668,069
=========================================================================================
Beneficial
Interest Short-Term Securities
=========================================================================================
21,186,459 BlackRock Liquidity Series, LLC Cash Sweep
Series I, 5.22% (c)(d) 21,186,459
-----------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$21,186,459)--9.3% 21,186,459
=========================================================================================
Total Investments (Cost--$337,452,525*)--152.0% 347,621,990
Other Assets Less Liabilities--7.7% 17,688,980
Preferred Stock, at Redemption Value--(59.7%) (136,577,033)
--------------
Net Assets Applicable to Common Stock--100.0% $ 228,733,937
==============
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .......................................... $ 336,964,808
=============
Gross unrealized appreciation ........................... $ 13,642,194
Gross unrealized depreciation ........................... (2,985,012)
-------------
Net unrealized appreciation ............................. $ 10,657,182
=============
(a) Depositary receipts.
(b) Floating rate security.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series I $21,186,459 $ 207,398
--------------------------------------------------------------------------
(d) Represents the current yield as of October 31, 2006.
(e) Restricted securities as to resale, representing 2.2% of net assets, were
as follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Sigma Finance Corp., 5.405%
due 8/15/2011 2/13/2004 $5,000,000 $5,000,000
--------------------------------------------------------------------------
(f) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(g) The security is a perpetual bond and has no definite maturity date.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub- classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
o Financial futures contracts sold as of October 31, 2006 were as follows:
----------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
----------------------------------------------------------------------------------------------
10-Year
471 U.S. Treasury Notes December 2006 $50,359,383 $ (611,648)
30-Year
139 U.S. Treasury Bonds December 2006 $15,367,837 (291,382)
----------------------------------------------------------------------------------------------
Total Unrealized Depreciation $ (903,030)
============
o Swaps outstanding as of October 31, 2006 were as follows:
------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
------------------------------------------------------------------------------------------
Sold credit default protection on a basket of
preferred securities and receive 2.03%
Broker, Lehman Brothers Special Finance
Expires September 2007 $ 9,000,000 $ 134,289
Pay a fixed rate of 5.132% and receive a
floating rate based on 3-month LIBOR
Broker, JPMorgan Chase
Expires September 2016 $25,000,000 (12,845)
Pay a fixed rate of 5.117% and receive a
floating rate based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires March 2036 $18,000,000 378,628
Pay a fixed rate of 5.255% and receive a
floating rate based on 3-month LIBOR
Broker, UBS Warburg
Expires September 2036 $10,000,000 3,956
------------------------------------------------------------------------------------------
Total $ 504,028
============
See Notes to Financial Statements.
8 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments
BlackRock Preferred Income Strategies Fund, Inc. (in U.S. dollars)
=========================================================================================
Preferred Securities
-----------------------------------------------------------------------------------------
Face
Amount Capital Trusts Value
=========================================================================================
Commercial Banks--12.7%
$12,035,000 ABN AMRO North America Holding Preferred
Capital Repackaging Trust I, 6.523% (a)(b)(c) $ 12,577,766
2,000,000 Bank One Capital III, 8.75% due 9/01/2030 2,633,316
1,000,000 Chase Capital I Series A, 7.67% due 12/01/2026 1,039,360
16,455,000 Chase Capital II Series B, 5.871%
due 2/01/2027 (b) 15,812,844
3,630,000 First Empire Capital Trust II, 8.277%
due 6/01/2027 3,820,012
1,820,000 First Security Capital I, 8.41% due 12/15/2026 1,900,317
5,600,000 Firstar Capital Trust I Series B, 8.32%
due 12/15/2026 5,848,702
2,000,000 HSBC America Capital Trust I, 7.808%
due 12/15/2026 (a) 2,081,492
15,835,000 HSBC Capital Funding LP/Jersey Channel Islands,
10.176% (a)(b)(c) 23,459,996
7,300,000 HSBC Finance Capital Trust IX, 5.911%
due 11/30/2035 (b) 7,341,844
12,275,000 Hubco Capital Trust II Series B, 7.65%
due 6/15/2028 12,766,000
998,000 JPM Capital Trust I, 7.54% due 1/15/2027 1,035,337
18,470,000 NationsBank Capital Trust III, 5.924%
due 1/15/2027 (b) 17,876,374
2,000,000 Republic New York Corp., 7.53%
due 12/04/2026 2,076,944
4,500,000 ST George Funding Co. LLC, 8.485% (a)(c) 4,739,265
--------------
115,009,569
=========================================================================================
Consumer Finance--2.2%
13,670,000 Capital One Capital III, 7.686% due 8/15/2036 15,074,428
4,630,000 MBNA Capital A, 8.278% due 12/01/2026 4,828,358
--------------
19,902,786
=========================================================================================
Diversified Financial Services--4.0%
15,000,000 AgFirst Farm Credit Bank, 8.393%
due 12/15/2016 (b) 16,457,640
10,000,000 CIT Capital Trust I, 7.70% due 2/15/2027 10,392,330
9,000,000 Farm Credit Bank of Texas Series 1, 7.561% (b)(c) 9,668,610
--------------
36,518,580
=========================================================================================
Electric Utilities--2.2%
14,950,000 HL&P Capital Trust II Series B, 8.257%
due 2/01/2037 15,099,500
5,000,000 SWEPCO Capital I, 5.25% due 10/01/2043 (b) 4,957,575
--------------
20,057,075
=========================================================================================
Gas Utilities--0.6%
5,000,000 AGL Capital Trust I Series B, 8.17% due 6/01/2037 5,242,900
=========================================================================================
Insurance--16.0%
12,175,000 AON Corp., 8.205% due 1/01/2027 14,153,912
21,300,000 Ace Capital Trust II, 9.70% due 4/01/2030 29,082,317
23,725,000 Axa, 8.60% due 12/15/2030 (Surplus Notes) 31,162,811
15,000,000 Farmers Exchange Capital, 7.05%
due 7/15/2028 (a) 15,725,100
10,000,000 GE Global Insurance Holding Corp., 7.75%
due 6/15/2030 12,065,670
1,000,000 GenAmerica Capital I, 8.525% due 6/30/2027 (a) 1,056,694
6,066,000 ING Capital Funding Trust III, 8.439% (b)(c) 6,744,203
1,000,000 Markel Capital Trust I Series B, 8.71%
due 1/01/2046 1,046,164
3,605,000 Oil Casualty Insurance Ltd., 8%
due 9/15/2034 (a) 3,624,543
6,325,000 Principal Life Insurance Co., 8% due 3/01/2044
(Surplus Notes) 6,932,453
6,225,000 Transamerica Capital III, 7.625% due 11/15/2037 7,181,988
15,600,000 Zurich Capital Trust I, 8.376% due 6/01/2037 (a) 16,392,152
--------------
145,168,007
=========================================================================================
Multi-Utilities--3.1%
10,000,000 Dominion Resources Capital Trust I, 7.83%
due 12/01/2027 10,415,450
15,000,000 Dominion Resources Capital Trust III, 8.40%
due 1/15/2031 17,887,980
--------------
28,303,430
=========================================================================================
Oil, Gas & Consumable Fuels--1.1%
9,850,000 Phillips 66 Capital Trust II, 8% due 1/15/2037 10,266,734
=========================================================================================
Thrifts & Mortgage Finance--4.4%
Astoria Capital Trust I:
1,000,000 9.75% due 11/01/2029 (a) 1,118,100
5,000,000 Series B, 9.75% due 11/01/2029 5,604,500
5,760,000 Dime Capital Trust I Series A, 9.33%
due 5/06/2027 6,127,511
12,765,000 GreenPoint Capital Trust I, 9.10% due 6/01/2027 13,529,994
3,005,000 ML Capital Trust I, 9.875% due 3/01/2027 3,172,487
9,775,000 Webster Capital Trust I, 9.36% due 1/29/2027 (a) 10,285,895
--------------
39,838,487
-----------------------------------------------------------------------------------------
Total Capital Trusts
(Cost--$408,413,724)--46.3% 420,307,568
=========================================================================================
Shares
Held Preferred Stocks
=========================================================================================
Capital Markets--2.6%
220,000 Deutsche Bank Capital Funding Trust VIII, 6.375% 5,555,000
96,000 Goldman Sachs Group, Inc. Series A, 3.91% (b) 2,488,320
600,000 Lehman Brothers Holdings, Inc., 6.50% 15,642,000
--------------
23,685,320
=========================================================================================
Commercial Banks--7.8%
435,200 Banco Santander Central Hispano SA
Series 1, 6.41% 11,106,304
4,000,000 Barclays Bank Plc, 6.278% (b) 3,899,740
137,579 First Republic Bank, 6.25% 3,478,176
4,650 First Tennessee Bank NA, 3.90% (a)(b) 4,788,047
166,800 Provident Financial Group, Inc., 7.75% 4,331,596
750,000 Royal Bank of Scotland Group Plc Series L, 5.75% 18,022,500
23,000 SG Preferred Capital II, 6.302% (b) 24,265,000
48,000 Sovereign Bancorp, Inc. Series C, 7.30% (d) 1,300,320
--------------
71,191,683
=========================================================================================
Consumer Finance--1.9%
668,080 Capital One Capital II, 7.50% 17,456,930
=========================================================================================
ANNUAL REPORTS OCTOBER 31, 2006 9
Schedule of Investments (continued)
BlackRock Preferred Income Strategies Fund, Inc. (in U.S. dollars)
=========================================================================================
Preferred Securities (continued)
-----------------------------------------------------------------------------------------
Shares
Held Preferred Stocks Value
=========================================================================================
Diversified Financial Services--6.3%
Bank of America Corp.:
152,400 Series D, 6.20% $ 3,945,636
864,075 Series E, 5.72% 21,601,875
655,000 CIT Group, Inc. Series A, 6.35% 17,043,100
272,000 CoBank ACB, 7% (a) 14,209,008
--------------
56,799,619
=========================================================================================
Electric Utilities--3.5%
14,000 Alabama Power Co., 5.83% 344,120
114,400 Entergy Arkansas, Inc., 6.45% 2,913,631
89,850 Entergy Louisiana LLC, 6.95% 9,164,700
80,000 Interstate Power & Light Co. Series B, 8.375% 2,580,000
204,000 PPL Electric Utilities Corp., 6.25% 5,221,135
433,400 PPL Energy Supply LLC, 7% 11,112,376
--------------
31,335,962
=========================================================================================
Gas Utilities--1.6%
556,000 Southern Union Co., 7.55% 14,522,720
=========================================================================================
Insurance--8.6%
880,000 ACE Ltd. Series C, 7.80% 23,161,600
Axis Capital Holdings Ltd.:
140,000 Series A, 7.25% 3,577,000
36,000 Series B, 7.50% (b) 3,706,877
139,200 Endurance Specialty Holdings Ltd.
Series A, 7.75% 3,563,520
1,160,000 MetLife, Inc. Series B, 6.50% 30,160,000
140,000 Prudential Plc, 6.50% 3,563,000
9,800 Zurich RegCaPS Funding Trust, 6.58% (a)(b) 10,305,313
--------------
78,037,310
=========================================================================================
Multi-Utilities--0.4%
140,000 Pacific Gas & Electric Co. Series A, 6% 3,507,000
=========================================================================================
Thrifts & Mortgage Finance--8.5%
Fannie Mae:
264,650 Series L, 5.125% 12,147,435
1,210,000 Series O, 7% (b) 65,415,625
--------------
77,563,060
=========================================================================================
Wireless Telecommunication Services--0.3%
2,423 Centaur Funding Corp., 9.08% (a) 2,847,025
-----------------------------------------------------------------------------------------
Total Preferred Stocks
(Cost--$365,825,459)--41.5% 376,946,629
=========================================================================================
Real Estate Investment Trusts
=========================================================================================
Real Estate--21.8%
251,400 Alexandria Real Estate Equities, Inc.
Series C, 8.375% 6,649,530
400,000 CBL & Associates Properties, Inc. Series C, 7.75% 10,220,000
680,000 Developers Diversified Realty Corp., 8% 17,632,400
80,000 Duke Realty Corp. Series K, 6.50% 2,002,400
2,390 First Industrial Realty Trust, Inc., 6.236% (b) 2,401,203
4,000 Firstar Realty LLC, 8.875% (a) 5,190,000
768,000 Health Care Property Investors, Inc.
Series F, 7.10% 19,491,840
172,800 Health Care REIT, Inc. Series F, 7.625% 4,444,209
684,700 Kimco Realty Corp. Series F, 6.65% 17,322,910
1,600,000 New Plan Excel Realty Trust Series E, 7.625% 41,568,000
PS Business Parks, Inc.:
72,000 Series K, 7.95% 1,887,120
64,000 Series M, 7.20% 1,622,400
445,000 Public Storage, Inc., 6.75% 11,208,438
160,000 Public Storage, Inc. Series I, 7.25% 4,165,008
320,000 Public Storage, Inc. Series X, 6.45% 7,910,400
58,000 Regency Centers Corp., 7.25% 1,500,750
607,550 Regency Centers Corp., 7.45% 15,705,168
11,857 Sovereign Real Estate Investment Corp., 12% (a) 16,599,800
145,000 Vornado Realty Trust Series E, 7% 3,738,289
130,000 Wachovia Preferred Funding Corp.
Series A, 7.25% 3,681,600
96,000 Weingarten Realty Investors Series D, 6.75% 2,481,600
-----------------------------------------------------------------------------------------
Total Real Estate Investment Trusts
(Cost--$192,890,535)--21.8% 197,423,065
=========================================================================================
Face
Amount Trust Preferreds
=========================================================================================
Capital Markets--0.1%
$ 875,000 Lehman Brothers Holdings Capital Trust III
Series K, 1.558% due 3/15/2052 867,494
=========================================================================================
Communications Equipment--0.2%
2,000,000 Corporate-Backed Trust Certificates, 8.375%
due 11/15/2028 2,091,971
=========================================================================================
Electric Utilities--1.5%
4,750,000 Georgia Power Co. Series O, 1.475%
due 4/15/2033 4,627,207
3,000,000 HECO Capital Trust III, 6.50% due 3/18/2034 2,989,297
5,000,000 National Rural Utilities Cooperative Finance Corp.,
6.75% due 2/15/2043 5,000,796
950,000 Virginia Power Capital Trust II, 1.844%
due 7/30/2042 949,002
--------------
13,566,302
=========================================================================================
Gas Utilities--0.7%
500,000 Dominion CNG Capital Trust I, 1.95%
due 10/31/2041 501,270
5,750,000 Southwest Gas Capital II, 7.70% due 9/15/2043 5,945,870
--------------
6,447,140
=========================================================================================
Insurance--2.7%
11,000,000 ABN AMRO North America Capital Funding
Trust II, 5.445% (a)(b)(c) 11,028,606
7,375,000 Berkley W R Capital Trust, 6.75% due 7/26/2045 7,140,533
1,000,000 Everest Re Capital Trust, 1.963% due 11/15/2032 1,019,547
5,000,000 Lincoln National Capital VI Series F, 6.75%
due 9/11/2052 5,130,818
--------------
24,319,504
=========================================================================================
10 ANNUAL REPORTS OCTOBER 31, 2006
Schedule of Investments (continued)
BlackRock Preferred Income Strategies Fund, Inc. (in U.S. dollars)
=========================================================================================
Preferred Securities (concluded)
-----------------------------------------------------------------------------------------
Face
Amount Trust Preferreds Value
=========================================================================================
Multi-Utilities--0.0%
$ 397,425 PSEG Funding Trust II, 8.75% due 12/31/2032 $ 414,242
-----------------------------------------------------------------------------------------
Thrifts & Mortgage Finance--3.6%
27,000,000 Countrywide Financial Corp., 1.50%
due 4/01/2033 26,658,817
6,000,000 Dime Community Capital I, 7% due 4/14/2034 5,760,000
--------------
32,418,817
-----------------------------------------------------------------------------------------
Total Trust Preferreds
(Cost--$80,183,852)--8.8% 80,125,470
-----------------------------------------------------------------------------------------
Total Preferred Securities
(Cost--$1,047,313,570)--118.4% 1,074,802,732
-----------------------------------------------------------------------------------------
Corporate Bonds
=========================================================================================
Automobiles--2.1%
16,000,000 DaimlerChrysler NA Holding Corp., 8.50%
due 1/18/2031 19,226,448
=========================================================================================
Capital Markets--0.9%
7,600,000 Ameriprise Financial, Inc., 7.518%
due 6/01/2066 (b) 8,264,422
=========================================================================================
Commercial Banks--4.1%
5,000,000 HBOS Plc, 5.92% (a)(b)(c) 4,896,225
2,000,000 Lloyds TSB Bank Plc, 6.90% (c) 2,010,000
20,000,000 Resona Preferred Global Securities Ltd.,
7.191% (a)(b)(c) 20,970,400
4,800,000 Royal Bank of Scotland Group Plc, 9.118% (c) 5,345,578
4,175,000 SunTrust Preferred Capital I, 5.853% (b)(c) 4,208,617
--------------
37,430,820
=========================================================================================
Diversified Financial Services--1.7%
15,000,000 Sigma Finance Corp., 5.405% due 8/15/2011 (b)(e) 15,000,000
=========================================================================================
Diversified Telecommunication Services--3.7%
25,500,000 France Telecom SA, 8.50% due 3/01/2031 33,881,008
=========================================================================================
Electric Utilities--1.2%
10,000,000 FirstEnergy Corp. Series B, 6.45% due 11/15/2011 10,462,520
=========================================================================================
Insurance--1.4%
7,500,000 Great West Life & Annuity Insurance Co.,
7.153% due 5/16/2046 (a)(b) 7,893,847
5,000,000 Oil Insurance Ltd., 7.558% (a)(b)(c) 5,201,400
--------------
13,095,247
=========================================================================================
Media--3.5%
5,000,000 Comcast Corp., 7.05% due 3/15/2033 5,417,550
Time Warner, Inc.:
5,000,000 7.625% due 4/15/2031 5,637,330
18,000,000 7.70% due 5/01/2032 20,500,056
--------------
31,554,936
=========================================================================================
Multi-Utilities--3.3%
8,400,000 Dominion Resources, Inc., 7.50%
due 6/30/2066 (b) 8,927,621
16,575,000 Duke Energy Field Services LLC, 8.125%
due 8/16/2030 20,708,258
--------------
29,635,879
=========================================================================================
Oil, Gas & Consumable Fuels--0.8%
7,225,000 Enterprise Products Operating LP, 8.375%
due 8/01/2066 (b) 7,764,809
=========================================================================================
Road & Rail--0.4%
3,750,000 BNSF Funding Trust I, 6.613%
due 12/15/2055 (b) 3,813,742
=========================================================================================
Thrifts & Mortgage Finance--0.9%
8,000,000 Roslyn Real Estate Asset Corp.
Series D, 9.02% (b)(c) 8,057,500
=========================================================================================
Wireless Telecommunication Services--6.1%
18,000,000 AT&T Wireless Services, Inc., 8.75%
due 3/01/2031 23,586,246
Sprint Capital Corp.:
2,000,000 6.90% due 5/01/2019 2,097,766
24,000,000 8.75% due 3/15/2032 29,650,944
--------------
55,334,956
-----------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost--$258,454,371)--30.1% 273,522,287
=========================================================================================
Government & Agency Obligations
=========================================================================================
9,700,000 U.S. Treasury Bonds, 4.50% due 2/15/2036 9,362,013
9,580,000 U.S. Treasury Notes, 4.875% due 8/15/2016 9,779,082
-----------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost--$18,754,522)--2.1% 19,141,095
=========================================================================================
Beneficial
Interest Short-Term Securities
=========================================================================================
$20,541,501 BlackRock Liquidity Series, LLC Cash Sweep
Series I, 5.22% (f)(g) 20,541,501
-----------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$20,541,501)--2.3% 20,541,501
=========================================================================================
Total Investments (Cost--$1,345,063,964*)--152.9% 1,388,007,615
Other Assets Less Liabilities--7.8% 70,452,943
Preferred Stock, at Redemption Value--(60.7%) (550,563,932)
--------------
Net Assets Applicable to Common Stock--100.0% $ 907,896,626
==============
ANNUAL REPORTS OCTOBER 31, 2006 11
Schedule of Investments (concluded)
BlackRock Preferred Income Strategies Fund, Inc. (in U.S. dollars)
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ........................................ $ 1,343,318,275
===============
Gross unrealized appreciation ......................... $ 57,674,872
Gross unrealized depreciation ......................... (12,985,532)
---------------
Net unrealized appreciation ........................... $ 44,689,340
===============
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Floating rate security.
(c) The security is a perpetual bond and has no definite maturity date.
(d) Depositary receipts.
(e) Restricted security as to resale, representing 1.7% of net assets, were as
follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Sigma Finance Corp., 5.405%
due 8/15/2011 2/13/2004 $15,000,000 $15,000,000
--------------------------------------------------------------------------
(f) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series I $20,541,501 $ 1,056,519
--------------------------------------------------------------------------
(g) Represents the current yield as of October 31, 2006.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub- classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
o Financial futures contracts sold as of October 31, 2006 were as follows:
---------------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
---------------------------------------------------------------------------------------------------
1,539 10-Year U.S.
Treasury Notes December 2006 $164,550,090 $ (1,998,566)
557 30-Year U.S.
Treasury Bonds December 2006 $ 61,581,909 (1,167,622)
---------------------------------------------------------------------------------------------------
Total Unrealized Depreciation $ (3,166,188)
============
o Swaps outstanding as of October 31, 2006 were as follows:
-----------------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
-----------------------------------------------------------------------------------
Sold credit default protection on a basket of
preferred securities and receive 2.03%
Broker, Lehman Brothers Special Finance
Expires September 2007 $ 36,000,000 $ 537,156
Pay a fixed rate of 5.132% and receive a
floating rate based on 3-month LIBOR
Broker, JPMorgan Chase
Expires September 2016 $125,000,000 12,027
Pay a fixed rate of 5.117% and receive a
floating rate based on 3-month LIBOR
Broker, Lehman Brothers Special Finance
Expires March 2036 $ 72,000,000 1,514,512
Pay a fixed rate of 5.255% and receive a
floating rate based on 3-month LIBOR
Broker, UBS Warburg
Expires September 2036 $ 50,000,000 19,777
-----------------------------------------------------------------------------------
Total $ 2,083,472
============
See Notes to Financial Statements.
12 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Net Assets
BlackRock BlackRock
Preferred and Preferred
Corporate Income Income
Strategies Strategies
As of October 31, 2006 Fund, Inc. Fund, Inc.
===================================================================================================================================
Assets
-----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value* ............................... $ 326,435,531 $1,367,466,114
Investments in affiliated securities, at value** ................................ 21,186,459 20,541,501
Cash on deposit for financial futures contracts ................................. 738,750 1,681,250
Unrealized appreciation on swaps ................................................ 516,873 2,083,472
Receivable for securities sold .................................................. 20,442,212 82,196,705
Interest receivable ............................................................. 3,869,600 15,032,631
Dividends receivable ............................................................ 323,414 904,615
Receivable for swaps ............................................................ 31,019 132,323
Prepaid expenses ................................................................ 26,386 63,356
----------------------------------
Total assets .................................................................... 373,570,244 1,490,101,967
----------------------------------
===================================================================================================================================
Liabilities
-----------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swaps ................................................ 12,845 --
Payable for securities purchased ................................................ 6,275,000 24,925,000
Dividends payable to Common Stock shareholders .................................. 1,370,555 4,652,778
Payable for variation margin .................................................... 325,031 1,139,156
Payable to investment adviser ................................................... 179,200 715,365
Payable for other affiliates .................................................... 2,348 9,320
Accrued expenses and other liabilities .......................................... 94,295 199,790
----------------------------------
Total liabilities ............................................................... 8,259,274 31,641,409
----------------------------------
===================================================================================================================================
Preferred Stock
-----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock, at redemption value, par value $.10 per share+ of AMPS@ at
$25,000 per share liquidation preference ....................................... 136,577,033 550,563,932
----------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock ........................................... $ 228,733,937 $ 907,896,626
==================================
ANNUAL REPORTS OCTOBER 31, 2006 13
Statements of Net Assets (concluded)
BlackRock BlackRock
Preferred and Preferred
Corporate Income Income
Strategies Strategies
As of October 31, 2006 Fund, Inc. Fund, Inc.
===================================================================================================================================
Analysis of Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Accumulated distributions in excess of investment income--net ................... $ (71,035) $ (561,947)
Accumulated realized capital losses--net ........................................ (24,443,639) (92,725,497)
Unrealized appreciation--net .................................................... 9,770,463 41,860,935
----------------------------------
Total accumulated losses--net ................................................... (14,744,211) (51,426,509)
----------------------------------
Common Stock, par value $.10 per share++ ........................................ 1,027,919 4,060,654
Paid-in capital in excess of par ................................................ 242,450,229 955,262,481
----------------------------------
Net Assets ...................................................................... $ 228,733,937 $ 907,896,626
==================================
Net asset value per share of Common Stock ....................................... $ 22.25 $ 22.36
----------------------------------
Market price .................................................................... $ 21.26 $ 20.12
----------------------------------
* Identified cost of unaffiliated securities ................................. $ 316,266,066 $1,324,522,463
==================================
** Identified cost of affiliated securities ................................... $ 21,186,459 $ 20,541,501
==================================
+ Preferred Stock authorized, issued and outstanding:
Series M7 Shares ......................................................... 2,730 2,800
----------------------------------
Series T7 Shares ......................................................... 2,730 2,800
----------------------------------
Series W7 Shares ......................................................... -- 2,800
----------------------------------
Series TH7 Shares ........................................................ -- 2,800
----------------------------------
Series F7 Shares ......................................................... -- 2,800
----------------------------------
Series W28 Shares ........................................................ -- 4,000
----------------------------------
Series TH28 Shares ....................................................... -- 4,000
----------------------------------
++ Common Stock issued and outstanding ........................................ 10,279,189 40,606,540
==================================
@ Auction Market Preferred Stock.
See Notes to Financial Statements.
14 ANNUAL REPORTS OCTOBER 31, 2006
Statements of Operations
BlackRock BlackRock
Preferred and Preferred
Corporate Income Income
Strategies Strategies
For the Year Ended October 31, 2006 Fund, Inc. Fund, Inc.
===================================================================================================================================
Investment Income
-----------------------------------------------------------------------------------------------------------------------------------
Interest* ....................................................................... $ 17,713,992 $ 61,814,603
Dividends ....................................................................... 7,187,484 31,751,238
----------------------------------
Total income .................................................................... 24,901,476 93,565,841
----------------------------------
===================================================================================================================================
Expenses
-----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................ 2,179,342 8,648,396
Commission fees ................................................................. 349,686 1,396,736
Accounting services ............................................................. 131,675 362,043
Transfer agent fees ............................................................. 58,359 154,998
Professional fees ............................................................... 66,978 95,819
Trustees' fees and expenses ..................................................... 34,892 112,092
Printing and shareholder reports ................................................ 14,964 59,052
Custodian fees .................................................................. 18,398 51,607
Listing fees .................................................................... 16,572 25,080
Pricing fees .................................................................... 7,340 9,327
Other ........................................................................... 41,326 68,252
----------------------------------
Total expenses .................................................................. 2,919,532 10,983,402
----------------------------------
Investment income--net .......................................................... 21,981,944 82,582,439
----------------------------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
-----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ............................................................. (1,041,629) 9,790,973
Financial futures contracts and swaps--net ................................... (6,393,459) (19,149,213)
----------------------------------
Total realized loss--net ........................................................ (7,435,088) (9,358,240)
----------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................................. 1,603,973 2,272,582
Financial futures contracts and swaps--net ................................... 6,504,273 19,717,562
----------------------------------
Total change in unrealized appreciation/depreciation--net ....................... 8,108,246 21,990,144
----------------------------------
Total realized and unrealized gain--net ......................................... 673,158 12,631,904
----------------------------------
===================================================================================================================================
Dividends to Preferred Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... (6,435,477) (26,423,012)
----------------------------------
Net Increase in Net Assets Resulting from Operations ............................ $ 16,219,625 $ 68,791,331
==================================
* Interest from affiliates ..................................................... $ 207,398 $ 1,056,519
==================================
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 15
Statements of Changes in Net Assets
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
For the Year Ended
October 31,
----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... $ 21,981,944 $ 22,229,255
Realized loss--net .............................................................. (7,435,088) (4,799,532)
Change in unrealized appreciation/depreciation--net ............................. 8,108,246 (6,400,859)
Dividends to Preferred Stock shareholders ....................................... (6,435,477) (4,112,800)
----------------------------------
Net increase in net assets resulting from operations ............................ 16,219,625 6,916,064
----------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... (17,335,379) (20,558,419)
----------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (17,335,379) (20,558,419)
----------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets applicable to Common Stock ......................... (1,115,754) (13,642,355)
Beginning of year ............................................................... 229,849,691 243,492,046
----------------------------------
End of year* .................................................................... $ 228,733,937 $ 229,849,691
==================================
* Undistributed (accumulated distributions in excess of) investment
income--net ............................................................... $ (71,035) $ 1,474,705
==================================
See Notes to Financial Statements.
BlackRock Preferred Income Strategies Fund, Inc.
For the Year Ended
October 31,
----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... $ 82,582,439 $ 84,655,484
Realized loss--net .............................................................. (9,358,240) (17,048,362)
Change in unrealized appreciation/depreciation--net ............................. 21,990,144 (19,461,483)
Dividends to Preferred Stock shareholders ....................................... (26,423,012) (16,331,142)
----------------------------------
Net increase in net assets resulting from operations ............................ 68,791,331 31,814,497
----------------------------------
===================================================================================================================================
Dividends to Common Stock Shareholders
-----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... (61,249,442) (81,186,307)
Tax return of capital ........................................................... (3,547,483) --
----------------------------------
Net decrease in net assets resulting from dividends to Common Stock shareholders (64,796,925) (81,186,307)
----------------------------------
===================================================================================================================================
Common Stock Transactions
-----------------------------------------------------------------------------------------------------------------------------------
Value of shares issued to Common Stock shareholders in reinvestment of dividends 301,458 --
----------------------------------
Net increase in net assets derived from Common Stock transactions ............... 301,458 --
----------------------------------
===================================================================================================================================
Net Assets Applicable to Common Stock
-----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets applicable to Common Stock .............. 4,295,864 (49,371,810)
Beginning of year ............................................................... 903,600,762 952,972,572
----------------------------------
End of year* .................................................................... $ 907,896,626 $ 903,600,762
==================================
* Undistributed (accumulated distributions in excess of) investment
income--net ............................................................... $ (561,947) $ 3,724,607
==================================
See Notes to Financial Statements.
16 ANNUAL REPORTS OCTOBER 31, 2006
Financial Highlights
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
For the Year Ended For the Period
October 31, August 1,
The following per share data and ratios have been derived ------------------------------------ 2003+ to
from information provided in the financial statements. 2006 2005 2004 Oct. 31, 2003
====================================================================================================================================
Per Share Operating Performance
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .............................. $ 22.36 $ 23.69 $ 24.38 $ 23.88
----------------------------------------------------
Investment income--net ............................................ 2.14@@ 2.16 2.19 .39
Realized and unrealized gain (loss)--net .......................... .07 (1.09) (.70) .67
Dividends to Preferred Stock shareholders from investment
income--net (.63) (.40) (.18) (.03)
----------------------------------------------------
Total from investment operations .................................. 1.58 .67 1.31 1.03
----------------------------------------------------
Less dividends to Common Stock shareholders from investment
income--net (1.69) (2.00) (2.00) (.33)
----------------------------------------------------
Offering costs resulting from the issuance of Common Stock ........ -- -- -- (.04)
----------------------------------------------------
Offering and underwriting costs resulting from the issuance of
Preferred Stock ................................................. -- -- -- (.16)
----------------------------------------------------
Net asset value, end of period .................................... $ 22.25 $ 22.36 $ 23.69 $ 24.38
====================================================
Market price per share, end of period ............................. $ 21.26 $ 21.03 $ 22.84 $ 23.60
====================================================
====================================================================================================================================
Total Investment Return**
------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................................ 7.97% 3.25% 5.86% 3.53%@
====================================================
Based on market price per share ................................... 9.69% .73% 5.44% (4.33%)@
====================================================
====================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver*** .................................. 1.29% 1.26% 1.26% .49%*
====================================================
Total expenses*** ................................................. 1.29% 1.26% 1.27% 1.11%*
====================================================
Total investment income--net*** ................................... 9.70% 9.23% 9.04% 6.79%*
====================================================
Amount of dividends to Preferred Stock shareholders ............... 2.84% 1.71% .76% .50%*
====================================================
Investment income to Common Stock shareholders--net ............... 6.86% 7.52% 8.28% 6.29%*
====================================================
====================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
------------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ......................... 4.71% 3.01% 1.39% 1.11%*
====================================================
====================================================================================================================================
Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of period (in thousands) $228,734 $229,850 $243,492 $250,631
====================================================
Preferred Stock outstanding, end of period (in thousands) ......... $136,500 $136,500 $136,500 $136,500
====================================================
Portfolio turnover ................................................ 19.23% 25.44% 27.11% 11.51%
====================================================
====================================================================================================================================
Leverage
------------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ......................................... $ 2,676 $ 2,684 $ 2,784 $ 2,836
====================================================
====================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding++
------------------------------------------------------------------------------------------------------------------------------------
Series M7--Investment income--net ................................. $ 1,180 $ 747 $ 347 $ 55
====================================================
Series T7--Investment income--net ................................. $ 1,178 $ 759 $ 346 $ 50
====================================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
dif ferent returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on August 26, 2003.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
ANNUAL REPORTS OCTOBER 31, 2006 17
Financial Highlights (concluded)
BlackRock Preferred Income Strategies Fund, Inc.
For the Year Ended For the Period
October 31, March 28,
The following per share data and ratios have been derived ------------------------------------ 2003+ to
from information provided in the financial statements. 2006 2005 2004 Oct. 31, 2003
====================================================================================================================================
Per Share Operating Performance
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .............................. $ 22.26 $ 23.48 $ 24.53 $ 23.88
----------------------------------------------------
Investment income--net ............................................ 2.03@@ 2.09@@ 2.14@@ 1.14
Realized and unrealized gain (loss)--net .......................... .32 (.91) (.78) .61
Dividends and distributions to Preferred Stock shareholders:
Investment income--net ........................................ (.65) (.40) (.18) (.07)
Realized gain--net ............................................ -- -- (.01) --
----------------------------------------------------
Total from investment operations .................................. 1.70 .78 1.17 1.68
----------------------------------------------------
Less dividends and distributions to Common Stock shareholders:
Investment income--net ........................................ (1.51) (2.00) (2.13) (.87)
Realized gain--net ............................................ -- -- (.09) --
Tax return of capital ......................................... (.09) -- -- --
----------------------------------------------------
Total dividends and distributions to Common Stock shareholders .... (1.60) (2.00) (2.22) (.87)
----------------------------------------------------
Offering costs resulting from the issuance of Common Stock ........ -- -- -- (.01)
----------------------------------------------------
Offering and underwriting costs resulting from the issuance of
Preferred Stock ................................................. -- -- -- (.15)
----------------------------------------------------
Net asset value, end of period .................................... $ 22.36 $ 22.26 $ 23.48 $ 24.53
====================================================
Market price per share, end of period ............................. $ 20.12 $ 21.20 $ 22.87 $ 23.69
====================================================
====================================================================================================================================
Total Investment Return**
------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ................................ 8.77% 3.73% 5.22% 6.47%@
====================================================
Based on market price per share ................................... 2.77% 1.43% 6.12% (1.80%)@
====================================================
====================================================================================================================================
Ratios Based on Average Net Assets of Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Total expenses, net of waiver*** .................................. 1.23% 1.20% 1.19% .79%*
====================================================
Total expenses*** ................................................. 1.23% 1.20% 1.19% 1.05%*
====================================================
Total investment income--net*** ................................... 9.26% 8.96% 8.93% 8.31%*
====================================================
Amount of dividends to Preferred Stock shareholders ............... 2.96% 1.73% .74% .49%*
====================================================
Investment income to Common Stock shareholders--net ............... 6.30% 7.23% 8.19% 7.82%*
====================================================
====================================================================================================================================
Ratios Based on Average Net Assets of Preferred Stock
------------------------------------------------------------------------------------------------------------------------------------
Dividends to Preferred Stock shareholders ......................... 4.80% 2.97% 1.32% 1.05%*
====================================================
====================================================================================================================================
Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common Stock, end of period (in thousands) $907,897 $903,601 $952,973 $995,722
====================================================
Preferred Stock outstanding, end of period (in thousands) ......... $550,000 $550,000 $550,000 $550,000
====================================================
Portfolio turnover ................................................ 17.73% 27.96% 22.56% 27.31%
====================================================
====================================================================================================================================
Leverage
------------------------------------------------------------------------------------------------------------------------------------
Asset coverage per $1,000 ......................................... $ 2,651 $ 2,643 $ 2,733 $ 2,810
====================================================
====================================================================================================================================
Dividends Per Share on Preferred Stock Outstanding++
------------------------------------------------------------------------------------------------------------------------------------
Series M7--Investment income--net ................................. $ 1,180 $ 744 $ 330 $ 127
====================================================
Series T7--Investment income--net ................................. $ 1,175 $ 757 $ 329 $ 122
====================================================
Series W7--Investment income--net ................................. $ 1,183 $ 734 $ 327 $ 122
====================================================
Series TH7--Investment income--net ................................ $ 1,179 $ 737 $ 320 $ 184
====================================================
Series F7--Investment income--net ................................. $ 1,178 $ 740 $ 326 $ 125
====================================================
Series W28--Investment income--net ................................ $ 1,221 $ 751 $ 338 $ 105
====================================================
Series TH28--Investment income--net ............................... $ 1,258 $ 733 $ 324 $ 95
====================================================
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
dif ferent returns. Total investment returns exclude the effects of sales
charges.
*** Do not reflect the effect of dividends to Preferred Stock shareholders.
+ Commencement of operations.
++ The Fund's Preferred Stock was issued on May 16, 2003.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
18 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Preferred and Corporate Income Strategies Fund, Inc. and
Preferred Income Strategies Fund, Inc. were renamed BlackRock Preferred and
Corporate Income Strategies Fund, Inc. and BlackRock Preferred Income Strategies
Fund, Inc. (the "Funds" or individually as the "Fund"), respectively. The Funds
are registered under the Investment Company Act of 1940, as amended, as
diversified, closed-end management investment companies. The Funds' financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Funds' Common Stock shares
are listed on the New York Stock Exchange ("NYSE") under the symbol PSW for
BlackRock Preferred and Corporate Income Strategies Fund, Inc. and PSY for
BlackRock Preferred Income Strategies Fund, Inc. The following is a summary of
significant accounting policies followed by the Funds.
(a) Valuation of investments--Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer- supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of each of the Funds under the general
direction of the respective Board of Directors. Such valuations and procedures
will be reviewed periodically by the Board of Directors of the respective Funds.
Financial futures contracts and options thereon, which are traded on exchanges,
are valued at their closing prices as of the close of such exchanges. Options
written or purchased are valued at the last sales price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by each
Fund from a pricing service or counterparty. Short-term investments with a
remaining maturity of 60 days or less are valued at amortized cost, which
approximates market value, under which method the investment is valued at cost
and any premium or discount is amortized on a straight line basis to maturity.
Valuation of other short-term investment vehicles is generally based on the net
asset value of the underlying investment vehicle or amortized cost. Repurchase
agreements are valued at cost plus accrued interest. Investments in open-end
investment companies are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of each Fund's Board of Directors.
Equity securities held by the Funds that are traded on stock exchanges or the
Nasdaq National Market are valued at the last sale price or official close price
on the exchange, as of the close of business on the day the securities are being
valued or, lacking any sales, at the last available bid price for long
positions, and at the last available asked price for short positions. In cases
where equity securities are traded on more than one exchange, the securities are
valued on the exchange designated as the primary market by or under the
authority of the Board of Directors of each Fund. Long positions traded in the
OTC markets, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price obtained from one or more dealers or pricing services approved by the
Board of Directors of each Fund. Short positions traded in the OTC markets are
valued at the last available asked price. Portfolio securities that are traded
both in the OTC markets and on a stock exchange are valued according to the
broadest and most representative market.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the NYSE. The values of such securities
used in computing the net asset value of the Funds' shares are determined as of
such times. Foreign currency exchange rates will be determined as of the close
of business on the NYSE. Occasionally, events affecting the values of such
securities and such exchange rates may occur between the times at which they are
determined and the close of business on the NYSE that may not be reflected in
the computation in each of the Funds' net asset value. If events (for example, a
company announcement, market volatility or a natural disaster) occur during such
periods that are expected to materially affect the value of such securities,
those securities may be valued at their fair value as determined in good faith
by each Fund's Board of Directors or by the Manager using a pricing service
and/or procedures approved by each Fund's Board of Directors.
(b) Derivative financial instruments--Each Fund may engage in various portfolio
investment strategies both to increase the return of each Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if the
counterparty does not perform under the contract.
o Options--Each Fund may write and purchase call and put options. When the
Fund writes an option, an amount
ANNUAL REPORTS OCTOBER 31, 2006 19
Notes to Financial Statements (continued)
equal to the premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current market value of the option
written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted
from) the basis of the security acquired or deducted from (or added to)
the proceeds of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss on
the option to the extent of the premiums received or paid (or gain or loss
to the extent the cost of the closing transaction exceeds the premium paid
or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts--Each Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
o Swaps--Each Fund may enter into swap agreements, which are OTC contracts
in which the Fund and a counterparty agree to make periodic net payments
on a specified notional amount. The net payments can be made for a set
period of time or may be triggered by a predetermined credit event. The
net periodic payments may be based on a fixed or variable interest rate;
the change in market value of a specified security, basket of securities,
or index; or the return generated by a security. These periodic payments
received or made by the Fund are recorded in the accompanying Statements
of Operations as realized gains or losses, respectively. Gains or losses
are also realized upon termination of the swap agreements. Swaps are
marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). Risks include changes in the returns of the
underlying instruments, failure of the counterparties to perform under the
contracts' terms and the possible lack of liquidity with respect to the
swap agreements.
(c) Income taxes--It is each Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis. The Funds amortize all
premiums and discounts on debt securities.
(e) Dividends and distributions--Dividends from net investment income are
declared and paid monthly. Distributions of capital gains are recorded on the
ex-dividend dates. A portion of the dividends paid by BlackRock Preferred Income
Strategies Fund, Inc. during the year ended October 31, 2006 are characterized
as a tax return of capital.
(f) Securities lending--Each Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower
20 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements (continued)
default or in the event of losses on investments made with cash collateral.
(g) Recent accounting pronouncements--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006. The impact on the Funds'
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implication of
FAS 157. At this time its impact on the Funds' financial statements has not been
determined.
(h) Reclassifications--BlackRock Preferred and Corporate Income Strategies Fund,
Inc.
U.S. generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial and
tax reporting. Accordingly, during the current year, $243,172 has been
reclassified between accumulated net realized capital losses and accumulated
distributions in excess of net investment income as a result of permanent
differences attributable to the classification of investments and swap
agreements. This reclassification has no effect on net assets or net asset
values per share.
BlackRock Preferred Income Strategies Fund, Inc.
U.S. generally accepted accounting principles require that certain components of
net assets be adjusted to reflect permanent differences between financial and
tax reporting. Accordingly, during the current year, $3,547,483 has been
reclassified between paid in capital in excess of par and accumulated
distributions in excess of net investment income and $803,461 has been
reclassified between accumulated net realized capital losses and accumulated
distributions in excess of net investment income as a result of permanent
differences attributable to swap agreements. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM") and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. ("PNC"), has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of each Fund approved new Investment Advisory
Agreements with BlackRock Advisors, Inc. (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently
reorganized into a limited liability company and renamed BlackRock Advisors,
LLC. The new Investment Advisory Agreement between each Fund and the Manager
became effective on September 29, 2006. Prior to September 29, 2006, FAM was the
Investment Adviser. The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is the
limited partner.
The Manager is responsible for the management of each Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of each Fund. For such services, each Fund
pays a monthly fee at an annual rate of .60% of each Fund's average daily net
assets (including proceeds from the issuance of Preferred Stock) plus the
proceeds of any outstanding borrowings used for leverage. In addition, the
Manager has entered into a sub-advisory agreement with BlackRock Financial
Management, Inc., an affiliate of the Manager, under which the Manager pays the
sub-adviser for services it provides a fee equal to 59% of the management fee
paid by each Fund to the Manager.
The Funds have received an exemptive order from the Securities and Exchange
Commission permitting them to lend portfolio securities to Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), an affiliate of the Manager, or
its affiliates. Pursuant to that order, each Fund also has retained
ANNUAL REPORTS OCTOBER 31, 2006 21
Notes to Financial Statements (continued)
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, as
the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. Prior to September 29, 2006, BIM was organized as
Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and
MLIM, LLC was the security lending agent. BIM, may, on behalf of the Funds,
invest cash collateral received by the Funds for such loans, among other things,
in a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates.
The Funds reimbursed FAM and/or the Manager for certain accounting services. The
reimbursements were as follows:
--------------------------------------------------------------------------------
For the Period
For the Period September 30,
November 1, 2005 2006 to
to September 29, October 31,
2006 2006
Reimbursement Reimbursement
to FAM to the Manager
--------------------------------------------------------------------------------
BlackRock Preferred and Corporate
Income Strategies Fund, Inc. ...... $ 7,390 $ 587
BlackRock Preferred Income
Strategies Fund, Inc. ............. $ 30,255 $ 2,330
--------------------------------------------------------------------------------
Prior to September 29, 2006, certain officers and/or directors of the Funds were
officers and/or directors of FAM, PSI, Merrill Lynch, MLIM, and/or MLIM, LLC.
Commencing September 29, 2006, certain officers and/or directors of the Funds
are officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2006 were as follows:
--------------------------------------------------------------------------------
BlackRock BlackRock
Preferred and Preferred
Corporate Income Income
Strategies Strategies
Fund, Inc. Fund, Inc.
--------------------------------------------------------------------------------
Total Purchases ..................... $ 67,629,005 $250,960,505
Total Sales ......................... $107,025,376 $322,891,653
--------------------------------------------------------------------------------
4. Stock Transactions:
Each Fund is authorized to issue 200,000,000 shares of stock, including
Preferred Stock, par value $.10 per share, all of which were initially
classified as Common Stock. Each Fund's Board of Directors is authorized,
however, to reclassify any unissued shares of stock without approval of holders
of Common Stock.
BlackRock Preferred & Corporate Income Strategies Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 remained constant.
BlackRock Preferred Income Strategies Fund, Inc.
Shares issued and outstanding during the years ended October 31, 2006 and
October 31, 2005 increased by 13,470 as a result of dividend reinvestment and
remained constant, respectively.
Preferred Stock
Auction Market Preferred Stock are redeemable shares of Preferred Stock of the
Funds, with a par value of $.10 per share and liquidation preference of $25,000
per share, plus accrued and unpaid dividends, that entitle their holders to
receive cash dividends at an annual rate that may vary for the successive
dividend periods. The yields in effect at October 31, 2006 were as follows:
--------------------------------------------------------------------------------
BlackRock BlackRock
Preferred and Preferred
Corporate Income Income
Strategies Strategies
Fund, Inc. Fund, Inc.
--------------------------------------------------------------------------------
Series M7 .............................. 5.15% 5.10%
Series T7 .............................. 5.08% 5.10%
Series W7 .............................. -- 5.10%
Series TH7 ............................. -- 5.10%
Series F7 .............................. -- 4.90%
Series W28 ............................. -- 5.29%
Series TH28 ............................ -- 5.25%
--------------------------------------------------------------------------------
Each Fund pays commissions to certain broker-dealers at the end of each auction
at an annual rate ranging from .25% to .375%, calculated on the proceeds of each
auction. For the year ended October 31, 2006, MLPF&S earned commissions as
follows:
--------------------------------------------------------------------------------
Commissions
--------------------------------------------------------------------------------
BlackRock Preferred and Corporate Income
Strategies Fund, Inc. ....................................... $269,877
BlackRock Preferred Income Strategies Fund, Inc. .............. $594,588
--------------------------------------------------------------------------------
5. Distributions to Shareholders:
Each Fund paid an ordinary income dividend to holders of Common Stock on
November 30, 2006 to shareholders of record on November 14, 2006. The amount of
the ordinary income dividend per share was as follows:
--------------------------------------------------------------------------------
Per Share
Amount
--------------------------------------------------------------------------------
BlackRock Preferred and Corporate Income
Strategies Fund, Inc. ....................................... $ .133333
BlackRock Preferred Income Strategies Fund, Inc. .............. $ .133333
--------------------------------------------------------------------------------
22 ANNUAL REPORTS OCTOBER 31, 2006
Notes to Financial Statements (concluded)
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
The tax character of distributions paid during the fiscal years ended October
31, 2006 and October 31, 2005 was as follows:
--------------------------------------------------------------------------------
10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $23,770,856 $24,671,219
------------------------------
Total taxable distributions .............. $23,770,856 $24,671,219
==============================
As of October 31, 2006, the components of accumulated losses on a tax basis were
as follows:
-----------------------------------------------------------------------------
Undistributed ordinary income ........................... --
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... --
Capital loss carryforward ............................... $(25,060,290)*
Unrealized gains--net ................................... 10,316,079**
------------
Total accumulated losses--net ........................... $(14,744,211)
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$25,060,290, of which $1,276,621 expires in 2011, $10,243,141 expires in
2012, $5,058,900 expires in 2013 and $8,481,628 expires in 2014. This
amount will be available to offset like amounts of any future taxable
gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the realization for tax purposes of unrealized
gains (losses) on certain futures contracts, the realization for tax
purposes of unrealized gains on investments in passive foreign investment
companies and other book/tax temporary differences.
BlackRock Preferred Income Strategies Fund, Inc.
The tax character of distributions paid during the fiscal years ended October
31, 2006 and October 31, 2005 was as follows:
--------------------------------------------------------------------------------
10/31/2006 10/31/2005
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $87,672,454 $97,517,449
Tax return of capital .................. 3,547,483 --
------------------------------
Total taxable distributions .............. $91,219,937 $97,517,449
==============================
As of October 31, 2006, the components of accumulated losses on a tax basis were
as follows:
-----------------------------------------------------------------------------
Undistributed ordinary income ........................... --
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... --
Capital loss carryforward ............................... $(92,790,096)*
Unrealized gains--net ................................... 41,363,587**
------------
Total accumulated losses--net ........................... $(51,426,509)
============
* At October 31, 2006, the Fund had a net capital loss carryforward of
$92,790,096, of which $62,733,648 expires in 2012, $17,911,331 expires in
2013 and $12,145,117 expires in 2014. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains on investments in passive
foreign investment companies, the realization for tax purposes of
unrealized gains (losses) on certain futures contracts and other book/tax
temporary differences.
ANNUAL REPORTS OCTOBER 31, 2006 23
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of BlackRock Preferred and Corporate
Income Strategies Fund, Inc. and of BlackRock Preferred Income Strategies Fund,
Inc.:
We have audited the accompanying statements of net assets, including the
schedules of investments, of BlackRock Preferred and Corporate Income Strategies
Fund, Inc. and of BlackRock Preferred Income Strategies Fund, Inc. (the "Funds")
(formerly Preferred and Corporate Income Strategies Fund, Inc. and Preferred
Income Strategies Fund, Inc., respectively) as of October 31, 2006, and the
related statements of operations, the statements of changes in net assets, and
the financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The respective financial statements of
each of the Funds for the year ended October 31, 2005 and the financial
highlights for each of the Funds for each of the two years in the period ended
October 31, 2005 and for the period August 1, 2003 through October 31, 2003,
were audited by other auditors whose report, dated December 9, 2005, expressed
an unqualified opinion on those financial statements and financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The Funds
are not required to have, nor were we engaged to perform, an audit of their
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Funds' internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of October 31, 2006, by correspondence with the
custodians and brokers; where replies were not received from brokers, we
performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the respective financial
positions of BlackRock Preferred and Corporate Income Strategies Fund, Inc. and
of BlackRock Preferred Income Strategies Fund, Inc. as of October 31, 2006, the
results of their operations, the changes in their net assets, and their
financial highlights for the year then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 21, 2006
Change in Funds' Independent Registered Public Accounting Firm (unaudited)
On August 28, 2006, Ernst & Young llp ("E&Y") resigned as the Independent
Registered Public Accounting Firm of BlackRock Preferred and Corporate Income
Strategies Fund, Inc. and BlackRock Preferred Income Strategies Fund, Inc. (the
"Funds").
E&Y's reports on the financial statements of each Fund for the past two fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years and through
August 28, 2006 (1) there were no disagreements with E&Y on any matter of
accounting principle or practice, financial statement disclosure or auditing
scope or procedure, whereby such disagreements, if not resolved to the
satisfaction of E&Y, would have caused them to make reference to the subject
matter of the disagreements in connection with their report on the financial
statements for such years; and (2) there have been no reportable events (as
defined in item 304(a)(1)(v) of Regulation S-K).
The Audit Committee of the Funds' Board of Directors approved the engagement of
Deloitte & Touche llp as the Funds' Independent Registered Public Accounting
Firm for the fiscal year ended October 31, 2006.
24 ANNUAL REPORTS OCTOBER 31, 2006
Important Tax Information
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
The following information is provided with respect to the ordinary income
distributions paid by the BlackRock Preferred and Corporate Income Strategies
Fund, Inc. during the fiscal year ended October 31, 2006:
Common Stock Shareholders:
---------------------------------------------------------------------------------------------------------------------------
Qualified Dividend Dividends Received Interest-Related
Income for Deductions for Dividends for Non-
Payable Date Individuals* Corporations* U.S. Residents**
---------------------------------------------------------------------------------------------------------------------------
November 1, 2005 .............................. 17.61% 11.09% 0.00%
November 30, 2005 ............................. 21.50% 16.87% 31.31%
December 21, 2005 - January 10, 2006 .......... 22.04% 17.66% 35.60%
February 28, 2006 - September 29, 2006 ........ 22.74% 14.72% 58.57%
---------------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders:
---------------------------------------------------------------------------------------------------------------------------
Qualified Dividend Dividends Received Interest-Related
Income for Deductions for Dividends for
Individuals* Corporations* Non-U.S. Residents**
--------------------------------- --------------------------------- ---------------------------------
November 2005 - January 2006 - November 2005 - January 2006 - November 2005 - January 2006 -
Payable Date December 2005 October 2006 December 2005 October 2006 December 2005 October 2006
---------------------------------------------------------------------------------------------------------------------------
Series M-7 .. 22.04% 22.64% 17.66% 15.14% 35.60% 55.32%
Series T-7 .. 22.04% 22.63% 17.66% 15.81% 35.60% 54.97%
---------------------------------------------------------------------------------------------------------------------------
* The Fund hereby designates the percentage indicated above or the maximum
amount allowable by law.
** Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
BlackRock Preferred Income Strategies Fund, Inc.
The following information is provided with respect to the ordinary income
distributions paid by the BlackRock Preferred Income Strategies Fund, Inc.
during the fiscal year ended October 31, 2006:
Common Stock Shareholders:
---------------------------------------------------------------------------------------------------------------------------
Qualified Dividend Dividends Received Interest-Related
Income for Deductions for Dividends for Non-
Payable Date Individuals* Corporations* U.S. Residents**
---------------------------------------------------------------------------------------------------------------------------
November 1, 2005 .............................. 24.34% 15.69% 15.44%
November 30, 2005 - January 10, 2006 .......... 23.49% 16.49% 24.16%
February 28, 2006 - September 29, 2006 ........ 30.84% 22.83% 53.27%
---------------------------------------------------------------------------------------------------------------------------
Preferred Stock Shareholders:
---------------------------------------------------------------------------------------------------------------------------
Qualified Dividend Dividends Received Interest-Related
Income for Deductions for Dividends for
Individuals* Corporations* Non-U.S. Residents**
--------------------------------- --------------------------------- ---------------------------------
November 2005 - January 2006 - November 2005 - January 2006 - November 2005 - January 2006 -
Payable Date December 2005 October 2006 December 2005 October 2006 December 2005 October 2006
---------------------------------------------------------------------------------------------------------------------------
Series M-7 .. 23.49% 28.97% 16.49% 21.21% 24.16% 45.85%
Series T-7 .. 23.49% 28.87% 16.49% 21.13% 24.16% 45.48%
Series W-7 .. 23.49% 28.87% 16.49% 21.14% 24.16% 45.48%
Series TH-7 . 23.49% 28.87% 16.49% 21.13% 24.16% 45.45%
Series F-7 .. 23.49% 28.90% 16.49% 21.16% 24.16% 45.58%
Series W-28 . 23.49% 28.77% 16.49% 20.04% 24.16% 45.07%
Series TH-28 23.49% 28.75% 16.49% 20.03% 24.16% 44.99%
---------------------------------------------------------------------------------------------------------------------------
* The Fund hereby designates the percentage indicated above or the maximum
amount allowable by law.
** Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
ANNUAL REPORTS OCTOBER 31, 2006 25
Proxy Results BlackRock Preferred and Corporate Income Strategies Fund, Inc.
During the six-month period ended October 31, 2006, BlackRock Preferred and
Corporate Income Strategies Fund, Inc.'s Common Stock shareholders voted on the
following proposal, which was approved at an annual shareholders' meeting on
August 15, 2006. A description of the proposal and number of shares voted were
as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's Directors: David O. Beim 6,878,661 242,789
James T. Flynn 6,878,411 243,039
Karen P. Robards 6,877,330 244,120
--------------------------------------------------------------------------------
During the six-month period ended October 31, 2006, BlackRock Preferred and
Corporate Income Strategies Fund, Inc.'s Preferred Stock (Series M7 & T7)
shareholders voted on the following proposal, which was approved at an annual
shareholders' meeting on August 15, 2006. A description of the proposal and
number of shares voted were as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's Board of Directors:
Robert C. Doll, Jr. and W. Carl Kester 1,727 105
--------------------------------------------------------------------------------
During the six-month period ended October 31, 2006, BlackRock Preferred and
Corporate Income Strategies Fund, Inc.'s Common Stock and Preferred Stock
shareholders voted on the following proposals, which were approved at an annual
shareholders' meeting on August 15, 2006. A description of the proposals and
number of shares voted were as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
--------------------------------------------------------------------------------
To approve a new investment advisory
agreement with BlackRock Advisors, Inc. 5,200,619 125,855 194,579
--------------------------------------------------------------------------------
To approve a contingent subadvisory
agreement with BlackRock Advisors, Inc. 5,200,343 126,670 194,040
--------------------------------------------------------------------------------
26 ANNUAL REPORTS OCTOBER 31, 2006
Proxy Results BlackRock Preferred Income Strategies Fund, Inc.
During the six-month period ended October 31, 2006, BlackRock Preferred Income
Strategies Fund, Inc.'s Common Stock shareholders voted on the following
proposal, which was approved at a shareholders' meeting on August 15, 2006. A
description of the proposal and number of shares voted were as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's Directors: David O. Beim 25,322,508 1,042,585
James T. Flynn 25,316,746 1,048,347
Karen P. Robards 25,321,104 1,043,989
--------------------------------------------------------------------------------
During the six-month period ended October 31, 2006, BlackRock Preferred Income
Strategies Fund, Inc.'s Preferred Stock (Series M7, T7, W7, TH7, F7, W28 & TH28)
shareholders voted on the following proposal, which was approved at a
shareholders' meeting on August 15, 2006. A description of the proposal and
number of shares voted were as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
--------------------------------------------------------------------------------
To elect the Fund's Board of Directors:
Robert C. Doll, Jr. and W. Carl Kester 12,582 188
--------------------------------------------------------------------------------
During the six-month period ended October 31, 2006, BlackRock Preferred Income
Strategies Fund, Inc.'s Common Stock and Preferred Stock shareholders voted on
the following proposals, which were approved at a shareholders' meeting on
August 15, 2006. A description of the proposals and number of shares voted were
as follows:
--------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
--------------------------------------------------------------------------------
To approve a new investment advisory
agreement with BlackRock Advisors, Inc. 20,450,508 547,131 677,726
--------------------------------------------------------------------------------
To approve a contingent subadvisory
agreement with BlackRock Advisors, Inc. 20,416,022 553,798 705,545
--------------------------------------------------------------------------------
ANNUAL REPORTS OCTOBER 31, 2006 27
Automatic Dividend Reinvestment Plan
How the Plan Works--The Funds offer a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by each Fund are
automatically reinvested in additional shares of Common Stock of each Fund. The
Plan is administered on behalf of the shareholders by Computershare Trust
Company, N.A. (the "Plan Agent"). Under the Plan, whenever the Funds declare a
dividend, participants in the Plan will receive the equivalent in shares of
Common Stock of each Fund. The Plan Agent will acquire the shares for the
participant's account either (i) through receipt of additional unissued but
authorized shares of each Fund ("newly issued shares") or (ii) by purchase of
outstanding shares of Common Stock on the open market on the New York Stock
Exchange or elsewhere. If, on the dividend payment date, each Fund's net asset
value per share is equal to or less than the market price per share plus
estimated brokerage commissions (a condition often referred to as a "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares. If the Funds' net asset value per share is greater than the market price
per share (a condition often referred to as a "market discount"), the Plan Agent
will invest the dividend amount by purchasing on the open market additional
shares. If the Plan Agent is unable to invest the full dividend amount in open
market purchases, or if the market discount shifts to a market premium during
the purchase period, the Plan Agent will invest any uninvested portion in newly
issued shares. The shares acquired are credited to each shareholder's account.
The amount credited is determined by dividing the dollar amount of the dividend
by either (i) when the shares are newly issued, the net asset value per share on
the date the shares are issued or (ii) when shares are purchased in the open
market, the average purchase price per share.
Participation in the Plan--Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Funds unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan, must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan--The Plan provides an easy, convenient way for shareholders
to make additional, regular investments in the Funds. The Plan promotes a
long-term strategy of investing at a lower cost. All shares acquired pursuant to
the Plan receive voting rights. In addition, if the market price plus
commissions of each Fund's shares is above the net asset value, participants in
the Plan will receive shares of the Funds for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since each Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees--There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Funds. However, brokerage commissions may be
incurred when the Funds purchase shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications--The automatic reinvestment of dividends and distributions will
not relieve participants of any federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash.
Contact Information--All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at Computershare
Trust Company, N.A., P.O. Box 43010, Providence, RI 02940-3010, Telephone:
800-426-5523.
28 ANNUAL REPORTS OCTOBER 31, 2006
Disclosure of Investment Advisory Agreement
Disclosure of FAM Investment Advisory Agreement
The Board of Directors of each Fund met in May 2006 to consider approval of the
Fund's investment advisory agreement with Fund Asset Management, L.P. ("FAM"),
each Fund's investment adviser at that time.
Activities and Composition of the Boards
All but one member of each Fund's Board is an independent director whose only
affiliation with FAM or other Merrill Lynch affiliates was as a director of each
Fund and as a director or trustee of certain other funds advised by FAM or its
affiliates. The Chairman of each Board is an independent director. New director
nominees are chosen by a Nominating Committee comprised entirely of independent
directors. All independent directors also are members of each Board's Audit
Committee, and the independent directors meet in executive session at each
in-person Board meeting. Each Board and each Board's Audit Committee meet
in-person for at least two days each quarter and conduct other in-person and
telephone meetings throughout the year, some of which are formal Board meetings
and some of which are informational meetings. Independent counsel to the
independent directors attends all in-person Board and Audit Committee meetings
and other meetings at the independent directors' request.
FAM Investment Advisory Agreements--Matters Considered by the Boards
Every year, each Fund's Board considers approval of the Fund's investment
advisory agreement. Each Board assesses the nature, scope and quality of the
services provided to the Fund by the personnel of the investment adviser and its
affiliates, including administrative services, shareholder services, oversight
of fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. Each Board also receives and assesses information
regarding the services provided to the Fund by certain unaffiliated service
providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the investment adviser and its
affiliates by the Fund; (b) Fund operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to each Fund's
investment objective, policies and restrictions, and the Fund's compliance with
its Code of Ethics and compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services provided by the
investment adviser and its affiliates.
Each Board noted its view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. Each Board also noted its view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest financial
firms. Each Board works closely with the investment adviser in overseeing the
investment adviser's efforts to achieve good performance. As part of this
effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the investment adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Boards
In the period prior to the Board meeting to consider renewal of the investment
advisory agreement, each Board requests and receives materials specifically
relating to the investment advisory agreement. These materials are prepared
separately for each Fund and include (a) information compiled by Lipper Inc.
("Lipper") on the fees and expenses, investment performance and leverage of the
Fund as compared to a comparable group of funds as classified by Lipper; (b)
information comparing each Fund's market price with its net asset value per
share; (c) a discussion by the Fund's portfolio management team regarding
investment strategies used by the Fund during its most recent fiscal year; (d)
information on the profitability to the investment adviser and its affiliates of
the investment advisory agreement and other relationships with the Fund; and (e)
information provided by the investment adviser concerning investment advisory
fees charged to other clients under a similar investment mandate. Each Board
also considers other matters it deems important to the approval process, such as
payments made to the investment adviser or its affiliates in connection with
services related to the valuation and pricing of Fund portfolio holdings, the
Fund's portfolio turnover statistics, allocation of Fund brokerage fees and
direct and indirect benefits to the investment adviser and its affiliates from
their relationship with the Fund. Neither Board identified any particular
information as controlling, and each member of the Boards attributed different
weights to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of each Fund's investment advisory
agreement with FAM (the "FAM Invest-
ANNUAL REPORTS OCTOBER 31, 2006 29
Disclosure of Investment Advisory Agreement (concluded)
ment Advisory Agreement") in May 2006, the independent directors' and the
Board's review included the following:
Services Provided by the Investment Adviser--Each Board reviewed the nature,
extent and quality of services provided by FAM, including the investment
advisory services and the resulting performance of each Fund. Each Board focused
primarily on FAM's investment advisory services and the Fund's investment
performance. Each Board compared Fund performance--both including and excluding
the effects of the Fund's fees and expenses--to the performance of a comparable
group of funds and the performance of a relevant index or combination of
indexes. While each Board reviews performance data at least quarterly,
consistent with the investment adviser's investment goals, each Board attaches
more importance to performance over relatively long periods of time, typically
three to five years, or a shorter period in the case of a fund that has been in
existence less than five years. According to Lipper's ranking of all closed-end
leveraged income and preferred stock funds, for the period ended February 28,
2006, the performance of BlackRock Preferred Income Strategies Fund, Inc. after
fees and expenses ranked in the fifth quintile for each of the one-year period
and the period since inception on March 28, 2003. According to Lipper's ranking
of all closed-end income and preferred stock funds, for the period ended
February 28, 2006, the performance of BlackRock Preferred and Corporate Income
Strategies Fund after fees and expenses ranked in the fifth quintile for each of
the one-year period and the period since inception on August 1, 2003. Each Board
concluded that the nature and quality of the services supported the continuation
of the Fund's FAM Investment Advisory Agreement.
FAM's Personnel and Investment Process--Each Board reviews at least annually the
Fund's investment objectives and strategies. Each Board discussed with FAM's
senior management responsible for investment operations and the senior
management of FAM's taxable fixed-income investing group the strategies being
used to achieve the stated objectives. Among other things, each Board considered
the size, education and experience of FAM's investment staff, its use of
technology, and FAM's approach to training and retaining portfolio managers and
other research, advisory and management personnel. Each Board also reviewed
FAM's compensation policies and practices with respect to the Fund's portfolio
managers. Each Board also considered the experience of Mr. Burger and Mr.
Musmanno, each Fund's portfolio managers at that time. The Boards considered the
extensive experience of FAM and its investment staff in analyzing and managing
the types of investments used by the Funds. The Boards concluded that the Funds
benefit from that experience.
Management Fees and Other Expenses--Each Board reviews the Fund's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels--the actual rate includes advisory and
administrative service fees and the effects of any fee waivers--compared to the
other funds considered comparable by Lipper. Each Board also compares the Fund's
total expenses to those of other comparable funds. The Boards noted that FAM had
advised the Boards that it had no other comparable accounts with similar
investment mandates. With respect to BlackRock Preferred Income Strategies Fund,
Inc., the Fund's Board noted that the contractual management fee rate was lower
than the median and the actual management fee rate including leverage was at the
median of such fees charged by comparable funds, as determined by Lipper, while
the Fund's total expenses were slightly higher than the median of total expenses
for such comparable funds. With respect to BlackRock Preferred and Corporate
Income Strategies Fund, Inc., the Fund's Board noted that the contractual
management fee rate and the actual management fee rate including leverage were
lower than the medians of such fees charged by comparable funds, as determined
by Lipper, and the Fund's total expenses were also lower than the median of
total expenses for such comparable funds. Each Fund's Board concluded that the
Fund's management fee rate and overall expense ratio were reasonable compared to
those of other comparable funds.
Profitability--Each Board considers the cost of the services provided to the
Fund by the investment adviser and the investment adviser's and its affiliates'
profits relating to the management and distribution of the Fund and the funds
advised by the investment manager and its affiliates. As part of its analysis,
each Fund's Board reviewed FAM's methodology in allocating its costs to the
management of the Fund and concluded that there was a reasonable basis for the
allocation. Each Board concluded that the profits of FAM and its affiliates were
acceptable in relation to the nature and quality of services provided and given
the level of fees and expenses overall.
Economies of Scale--Each Board considered the extent to which economies of scale
might be realized as the assets of the Fund increase and whether there should be
changes in the management fee rate or structure in order to enable the Fund to
participate in these economies of scale. Because each Fund is a closed-end fund,
each Fund's Board concluded
30 ANNUAL REPORTS OCTOBER 31, 2006
that the assets of the Fund are unlikely to increase significantly and that the
current advisory fee appropriately reflects any economies of scale. Each Board
determined that the management fee structure was reasonable and that no changes
were currently necessary.
Conclusion
After the independent directors of each Board deliberated in executive session,
the entire Board of each Fund, including all of the independent directors,
approved the renewal of the pertinent existing Investment Advisory Agreement,
concluding that the advisory fee was reasonable in relation to the services
provided and that a contract renewal was in the best interests of the
shareholders.
Disclosure of New Investment Advisory Agreements
New BlackRock Investment Advisory Agreements--Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), each Fund's Board of
Directors considered and approved a new investment advisory agreement (each, a
"BlackRock Investment Advisory Agreement") between the Fund and BlackRock
Advisors, LLC ("BlackRock Advisors"). Each Fund's shareholders subsequently
approved the Fund's BlackRock Investment Advisory Agreement and it became
effective on September 29, 2006, replacing the Fund's investment advisory
agreement with the Previous Investment Adviser (each, a "Previous Investment
Advisory Agreement").
Each Board discussed the Fund's BlackRock Investment Advisory Agreement at
telephonic and in-person meetings held during April and May 2006. Each Fund's
Board, including the independent directors, approved the Fund's BlackRock
Investment Advisory Agreement at an in-person meeting held on May 10, 2006.
To assist each Fund's Board in its consideration of the Fund's BlackRock
Investment Advisory Agreement, BlackRock provided materials and information
about BlackRock, including its financial condition and asset management
capabilities and organization, and Merrill Lynch provided materials and
information about the Transaction. Each Fund's independent directors, through
their independent legal counsel, also requested and received additional
information from Merrill Lynch and BlackRock in connection with their
consideration of the Fund's BlackRock Investment Advisory Agreement. The
additional information was provided in advance of the May 10, 2006 meetings. In
addition, each Fund's independent directors consulted with their counsel and
Fund counsel on numerous occasions, discussing, among other things, the legal
standards and certain other considerations relevant to the directors'
deliberations.
At each Fund's Board meetings, the directors discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund. At
these Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Boards. The directors also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent directors also conferred separately and with their counsel about
the Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, each
Fund's independent directors met in executive sessions with their counsel to
consider the Fund's BlackRock Investment Advisory Agreement.
In connection with the directors' review of each Fund's BlackRock Investment
Advisory Agreement, Merrill Lynch and/or BlackRock advised the directors about a
variety of matters. The advice included the following, among other matters:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to either of the Funds or its shareholders
by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that each Fund was expected to benefit from having access to BlackRock's
state of the art technology and risk
ANNUAL REPORTS OCTOBER 31, 2006 31
Disclosure of New Investment Advisory Agreements (continued)
management analytic tools, including investment tools, provided under the
BlackRock Solutions(R) brand name;
o that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek Board approval
before making any changes;
o that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Fund
shareholders.
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to each Fund's shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of each Fund's BlackRock Investment Advisory
Agreement, including the fact that neither Fund's schedule of total
advisory fees would increase under the pertinent BlackRock Investment
Advisory Agreement, but would remain the same;
o that in May 2005, each Fund's Board had performed a full annual review of
the pertinent Previous Investment Advisory Agreement, as required by the
1940 Act, and had determined that the Previous Investment Adviser had the
capabilities, resources and personnel necessary to provide the advisory
and administrative services that were then being provided to the Fund; and
that the advisory and/or management fees paid by the Fund, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the directors had
considered relevant in the exercise of their reasonable judgment; and
o that Merrill Lynch had agreed to pay all expenses of each Fund in
connection with the consideration by the Board of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Fund would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the Fund's BlackRock Investment Advisory Agreement, each Fund's
Board assessed the nature, quality and scope of the services to be provided to
the Fund by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting and
assistance in meeting legal and regulatory requirements. In its review of the
BlackRock Investment Advisory Agreement, each Fund's Board also considered a
range of information in connection with its oversight of the services to be
provided by BlackRock Advisors and its affiliates. Among the matters considered
for each Fund were: (a) fees (in addition to management fees) to be paid to
BlackRock Advisors and its affiliates by the Fund; (b) Fund operating expenses
paid to third parties; (c) the resources devoted to and compliance reports
relating to the Fund's investment objective, policies and restrictions, and its
compliance with its Code of Ethics and BlackRock Advisors' compliance policies
and procedures; and (d) the nature, cost and character of non- investment
management services to be provided by BlackRock Advisors and its affiliates.
In the period prior to each Fund's Board meeting to consider renewal of the
Fund's Previous Investment Advisory Agreement, the Board had requested and
received materials specifically relating to the Previous Investment Advisory
Agreement. For each Fund, these materials included (a) information
32 ANNUAL REPORTS OCTOBER 31, 2006
compiled by Lipper on the fees and expenses and the investment performance of
the Fund as compared to a comparable group of funds as classified by Lipper; (b)
information comparing the Fund's market price with its net asset value per
share; (c) a discussion by the Fund's portfolio management team on investment
strategies used by the Fund during its most recent fiscal year; (d) information
on the profitability to the Previous Investment Adviser of the Fund's Previous
Investment Advisory Agreement and other payments received by the Previous
Investment Adviser and its affiliates from the Fund; and (e) information
provided by the Previous Investment Adviser concerning services related to the
valuation and pricing of Fund portfolio holdings, allocation of Fund brokerage
fees, the Fund's portfolio turnover statistics, and direct and indirect benefits
to the Previous Investment Adviser and its affiliates from their relationship
with the Fund.
In their deliberations, each Fund's directors considered information received in
connection with their most recent approval of the continuance of the Fund's
Previous Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the Fund's BlackRock Investment Advisory Agreement. None
of the directors identified any particular information that was all-important or
controlling, and each director attributed different weights to the various
factors. Each Fund's directors, including a majority of the independent
directors, concluded that the terms of the Fund's BlackRock Investment Advisory
Agreement are appropriate, that the fees to be paid are reasonable in light of
the services to be provided to the Fund, and that the Fund's BlackRock
Investment Advisory Agreement should be approved and recommended to Fund
shareholders.
Nature, Quality and Extent of Services Provided--Each Fund's Board reviewed the
nature, quality and scope of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Fund, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. Each Fund's Board focused
primarily on the Previous Investment Adviser's investment advisory services and
the Fund's investment performance, but also considered certain areas in which
both the Previous Investment Adviser and the Fund received services as part of
the Merrill Lynch complex. Each Fund's Board compared the Fund's
performance--both including and excluding the effects of fees and expenses--to
the performance of a comparable group of funds, and the performance of a
relevant index or combination of indexes. While each Board reviews performance
data at least quarterly, consistent with the Previous Investment Adviser's
investment goals, the Board attaches more importance to performance over
relatively long periods of time, typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under each Fund's BlackRock Investment Advisory Agreement,
the directors considered, among other things, the expected impact of the
Transaction on the operations, facilities, organization and personnel of
BlackRock Advisors and how it would affect the Fund; the ability of BlackRock
Advisors to perform its duties after the Transaction; and any anticipated
changes to the investment and other practices of the Fund.
Each Fund's directors were given information with respect to the potential
benefits to the Fund and its shareholders from having access to BlackRock's
state of the art technology and risk management analytic tools, including the
investment tools provided under the BlackRock Solutions brand name.
Each Fund's directors were advised that, as a result of Merrill Lynch's equity
interest in BlackRock after the Transaction, the Fund would continue to be
subject to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Fund's directors
were advised that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
were advised of the possibility of the receipt of such revised regulatory
relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, each Fund's
directors determined that the nature and quality of services to be provided to
the Fund under the BlackRock Investment Advisory Agreement were expected to be
as good as or better than that provided under the Fund's Previous Investment
Advisory Agreement. It was noted, however, that changes in personnel were
expected to follow the Transaction and the combination of the operations of the
Previous Investment Adviser and its affiliates with those of BlackRock. Each
Fund's directors noted that if current portfolio managers or other personnel
were to cease to be available prior to the closing of the Transaction, the Board
would consider all available options, including seeking the investment advisory
or other services of BlackRock affiliates. Accordingly, each Fund's directors
concluded that, overall, they were satisfied at the present time with assurances
from BlackRock and BlackRock Advisors as
ANNUAL REPORTS OCTOBER 31, 2006 33
Disclosure of New Investment Advisory Agreements (concluded)
to the expected nature, quality and extent of the services to be provided to the
Fund under the Fund's BlackRock Investment Advisory Agreement.
Costs of Services Provided and Profitability--It was noted that, in conjunction
with their most recent review of the Fund's Previous Investment Advisory
Agreement, each Fund's directors had received, among other things, a report from
Lipper comparing the Fund's fees and expenses to those of a peer group selected
by Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. Each Fund's Board reviewed the Fund's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels--the actual rate includes advisory fees
and the effects of any fee waivers--compared to the other funds in its Lipper
category. Each Fund's Board also compared the Fund's total expenses to those of
other comparable funds. The information showed that each Fund had fees and
expenses within the range of fees and expenses of comparable funds. Each Fund's
Board concluded that the Fund's management fee and fee rate and overall expense
ratio are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, each Fund's directors
considered, among other things, whether advisory fees or other expenses would
change as a result of the Transaction. Based on their review of the materials
provided and the fact that the Fund's BlackRock Investment Advisory Agreement is
substantially similar to the Fund's Previous Investment Advisory Agreement in
all material respects, including the rate of compensation, each Fund's directors
determined that the Transaction should not increase the total fees payable,
including any fee waivers and expense reimbursements, for advisory and
administrative services. Each Fund's directors noted that it was not possible to
predict with certainty New BlackRock's future profitability from its
relationship with the Fund.
Each Fund's directors discussed with BlackRock Advisors its general methodology
to be used in determining New BlackRock's profitability with respect to its
relationship with the Fund. Each Fund's directors noted that they expect to
receive profitability information from New BlackRock on at least an annual basis
and thus be in a position to evaluate whether any adjustments in Fund fees
and/or fee breakpoints would be appropriate.
Fees and Economies of Scale--Each Fund's Board considered the extent to which
economies of scale might be realized as the assets of the Fund increase and
whether there should be changes in the management fee rate or structure in order
to enable the Fund to participate in these economies of scale. Each Board
determined that changes were not currently necessary and that the Fund
appropriately participated in these economies of scale.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that each Fund's BlackRock Investment Advisory
Agreement is substantially similar to the Fund's Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
Fund's directors determined that as a result of the Transaction, the Fund's
total advisory fees would be no higher than the fees under the Fund's Previous
Investment Advisory Agreement. Each Fund's directors noted that in conjunction
with their most recent deliberations concerning the Fund's Previous Investment
Advisory Agreement, they had determined that the total fees for advisory and
administrative services for the Fund were reasonable in light of the services
provided. It was noted that in conjunction with the most recent review of each
Fund's Previous Investment Advisory Agreement, the Fund's directors had
received, among other things, a report from Lipper comparing the Fund's fees,
expenses and performance to those of a peer group selected by Lipper, and
information as to the fees charged by the Previous Investment Adviser to other
registered investment company clients for investment management services. Each
Fund's directors concluded that because the rates for advisory fees for the Fund
would be no higher than the fee rates in effect at the time, the proposed
management fee structure, including any fee waivers, was reasonable and that no
additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the Fund's BlackRock Investment Advisory Agreement,
each Fund's directors considered whether BlackRock Advisors would experience
such benefits to the same extent that the Previous Investment Adviser was
experiencing such benefits under the Fund's Previous Investment Advisory
Agreement. Based on their review of the materials provided, including materials
received in connection with their most recent approval of the continuance of the
Fund's Previous Investment Advisory Agreement, and their discussions with
management of the Previous Investment Adviser and BlackRock, each Fund's
directors determined that BlackRock Advisors' fall-out benefits could
34 ANNUAL REPORTS OCTOBER 31, 2006
include increased ability for BlackRock to distribute shares of its funds and
other investment products. The directors noted that any fall-out benefits were
difficult to quantify with certainty at this time, and indicated that they would
continue to evaluate them going forward.
Investment Performance--Each Fund's Board considered investment performance for
the Fund. Each Fund's directors compared the Fund's performance--both including
and excluding the effects of fees and expenses--to the performance of a
comparable group of funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper showed
each Fund's performance at various levels within the range of performance of
comparable funds over different time periods. While each Board reviews
performance data at least quarterly, consistent with the Previous Investment
Adviser's investment goals, each Board attaches more importance over relatively
long periods of time, typically three to five years. Each Fund's directors
believed the Fund's performance was satisfactory. Also, each Board took into
account the investment performance of funds advised by BlackRock Advisors. Each
Board considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. Each Fund's Board
noted BlackRock's considerable investment management experience and
capabilities, but was unable to predict what effect, if any, consummation of the
Transaction would have on the future performance of the Fund.
Conclusion--After the independent directors of each Fund deliberated in
executive session, each Fund's entire Board, including the independent
directors, approved the Fund's BlackRock Investment Advisory Agreement,
concluding that the advisory fee rate was reasonable in relation to the services
provided and that the BlackRock Investment Advisory Agreement was in the best
interests of the shareholders. In approving the Fund's BlackRock Investment
Advisory Agreement, each Fund's Board noted that it anticipated reviewing the
continuance of the agreement in advance of the expiration of the initial
two-year period.
New BlackRock Sub-Advisory Agreements--Matters Considered by the Boards
At an in-person meeting held on August 24-25, 2006, each Fund's Board of
Directors, including the independent directors, discussed and approved the
Fund's sub-advisory agreement (each, a "BlackRock Sub-Advisory Agreement")
between BlackRock Advisors and its affiliate, BlackRock Financial Management,
Inc. (the "Sub-Adviser"). Each Fund's BlackRock Sub-Advisory Agreement became
effective on September 29, 2006, at the same time the Fund's BlackRock
Investment Advisory Agreement became effective.
Pursuant to each Fund's BlackRock Sub-Advisory Agreement, the Sub-Adviser
receives a monthly fee from BlackRock Advisors equal to 59% of the advisory fee
received by BlackRock Advisors from the Fund. BlackRock Advisors pays the
Sub-Adviser out of its own resources, and there is no increase in the expenses
of either of the Funds as a result of the Fund's BlackRock Sub-Advisory
Agreement.
In approving the Fund's BlackRock Sub-Advisory Agreement at the August in-person
meeting, each Fund's Board reviewed its considerations in connection with its
approval of the BlackRock Investment Advisory Agreement in May 2006. Each Fund's
Board relied on the same information and considered the same factors as those
discussed above in connection with the approval of the Fund's BlackRock
Investment Advisory Agreement. In reviewing the sub-advisory fee rate provided
in each Fund's BlackRock Sub-Advisory Agreement, the Fund's Board noted the fact
that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock Advisors
remains responsible for oversight of each Fund's operations and administration,
and the Sub-Adviser provides advisory services to each Fund and is responsible
for the day-to-day management of each Fund's portfolio under the Fund's
BlackRock Sub-Advisory Agreement. Each Fund's Board also took into account the
fact that there is no increase in total advisory fees paid by the Fund as a
result of the Fund's BlackRock Sub-Advisory Agreement. Under all of the
circumstances, each Fund's Board concluded that it was a reasonable allocation
of fees for the Sub-Adviser to receive 59% of the advisory fee paid by the Fund
to BlackRock Advisors.
After each Fund's independent directors deliberated in executive session, each
Fund's entire Board, including the independent directors, approved the Fund's
BlackRock Sub-Advisory Agreement, concluding that the sub-advisory fee was
reasonable in relation to the services provided and that the BlackRock
Sub-Advisory Agreement was in the best interests of shareholders.
ANNUAL REPORTS OCTOBER 31, 2006 35
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held Time Overseen by Held by
Name Address & Age with Funds Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., and 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Director Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the Funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") since 2001;
President of Princeton Administrators, L.P.
("Princeton Administrators") from 2001 to 2006;
Chief Investment Officer of OppenheimerFunds, Inc.
in 1999 and Executive Vice President thereof from
1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which
BlackRock acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company
Act, of the Fund based on his current and former positions with BlackRock, Inc. and its affiliates. Directors
serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund
President, Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
------------------------------------------------------------------------------------------------------------------------------------
David O. P.O. Box 9095 Director 2003 to Professor of Finance and Economics at the Columbia 17 Funds None
Beim** Princeton, NJ present University Graduate School of Business since 1991; 24 Portfolios
08543-9095 Chairman of Outward Bound U.S.A. from 1997 to
Age: 66 2001; Chairman of Wave Hill, Inc. since 1990;
Trustee of Phillips Exeter Academy from 2002 to
present.
------------------------------------------------------------------------------------------------------------------------------------
James T. P.O. Box 9095 Director 2003 to Chief Financial Officer of JPMorgan & Co., Inc. from 17 Funds None
Flynn Princeton, NJ present 1990 to 1995 and an employee of JPMorgan in 24 Portfolios
08543-9095 various capacities from 1967 to 1995.
Age: 67
------------------------------------------------------------------------------------------------------------------------------------
W. Carl P.O. Box 9095 Director 2003 to Deputy Dean for Academic Affairs, Harvard Business 17 Funds None
Kester Princeton, NJ present School since 2006; Mizuho Financial Group Professor 24 Portfolios
08543-9095 of Finance, Harvard Business School, Unit Head,
Age: 54 Finance from 2005 to 2006; Senior Associate Dean and
Chairman of the MBA Program of Harvard Business
School from 1999 to 2005, Member of the faculty of
Harvard Business School since 1981; Independent
Consultant since 1978.
------------------------------------------------------------------------------------------------------------------------------------
Karen P. P.O. Box 9095 Director 2003 to President of Robards & Company, a financial advisory 17 Funds AtriCure,
Robards*** Princeton, NJ present firm since 1987; formerly an investment banker with 24 Portfolios Inc. (medical
08543-9095 Morgan Stanley for more than ten years; Director devices)
Age: 56 of Enable Medical Corp. from 1996 to 2005;
Director of AtriCure, Inc. since 2000; Director of
the Cooke Center for Learning and Development,
a not-for-profit organization, since 1987.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Chairman of the Audit Committee.
*** Chair of the Board of Directors.
36 ANNUAL REPORTS OCTOBER 31, 2006
Officers and Directors (concluded)
Position(s) Length of
Held Time
Name Address & Age with Funds Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2003 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM in
Burke Princeton, NJ President present 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof
08543-9011 and from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
Age: 46 Treasurer
------------------------------------------------------------------------------------------------------------------------------------
John D. P.O. Box 9011 Vice 2003 to Managing Director of BlackRock since 2006; Managing Director (Global Fixed Income)
Burger Princeton, NJ President present of MLIM from 2004 to 2006; Director of MLIM from 1998 to 2004 and Vice President
08543-9011 thereof from 1993 to 1998.
Age: 44
------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006; Chief
Hiller Princeton, NJ Compliance present Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
08543-9011 Officer Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief Compliance
Age: 55 Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002
Pellegrino Princeton, NJ present to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM
08543-9011 from 1997 to 2006; Secretary of MLIM, FAM, FAM Distributors, Inc. and Princeton
Age: 46 Services from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agents
Common Stock:
Computershare Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Preferred Stock:
The Bank of New York
101 Barclay Street--7 West
New York, NY 10286
ANNUAL REPORTS OCTOBER 31, 2006 37
Investment Objectives
NYSE Symbol BlackRock Preferred and Corporate Income Strategies Fund, Inc.
PSW seeks to provide shareholders with high current income.
The secondary objective of the Fund is to seek to provide
shareholders with capital appreciation. The Fund seeks to achieve
its objectives by investing primarily in a portfolio of preferred
securities and debt securities, including convertible securities
that may be converted into common stock or other securities of the
same or a different issuer.
NYSE Symbol BlackRock Preferred Income Strategies Fund, Inc. seeks to provide
PSY shareholders with high current income. The secondary objective of
the Fund is to seek to provide shareholders with capital
appreciation. The Fund seeks to achieve its objectives by
investing primarily in a portfolio of preferred securities,
including convertible preferred securities that may be converted
into common stock or other securities of the same or a different
issuer.
38 ANNUAL REPORTS OCTOBER 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Quarterly Schedules of Investments
The Funds file their complete schedules of portfolio holdings with the
Securities and Exchange Commission ("SEC") for the first and third quarters of
each fiscal year on Form N-Q. The Funds' Forms N-Q are available on the SEC's
Web site at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Funds' Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Funds' electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
ANNUAL REPORTS OCTOBER 31, 2006 39
These reports, including the financial information herein, are transmitted to
shareholders of BlackRock Preferred and Corporate Income Strategies Fund, Inc.
and BlackRock Preferred Income Strategies Fund, Inc. for their information. This
is not a prospectus. The Funds leverage their Common Stock to provide Common
Stock shareholders with potentially higher rates of return. Leverage creates
risk for Common Stock shareholders, including the likelihood of greater
volatility of net asset value and market price of Common Stock shares, and the
risk that fluctuations in short-term interest rates may reduce the Common
Stock's yield. Past performance results shown in these reports should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web site
at http://www.sec.gov. Information about how the Funds voted proxies relating to
securities held in the Funds' portfolios during the most recent 12-month period
ended June 30 is available (1) at www.blackrock.com and (2) on the Securities
and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Preferred and Corporate Income Strategies Fund, Inc.
BlackRock Preferred Income Strategies Fund, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#PCPIS-10/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge at
www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) David O.
Beim, (2) W. Carl Kester, (3) James T. Flynn and (4) Karen P. Robards.
The registrant's board of directors has determined that David O. Beim,
W. Carl Kester and Karen P. Robards qualify as financial experts
pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted accounting
principles, financial statements and internal control over financial
reporting as well as audit committee functions. For 25 years, Mr. Beim
was an investment banker actively engaged in financial analysis for
securities transactions and mergers. These transactions presented a
breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by the Registrant's financial statements. Mr.
Beim has also been a professor of finance and economics at the Columbia
University Graduate School of Business for the past 12 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Prof. Kester
has been involved in providing valuation and other financial consulting
services to corporate clients since 1978. Prof. Kester's financial
consulting services present a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control over
financial reporting as well as audit committee functions. Ms. Robards
has been President of Robards & Company, a financial advisory firm,
since 1987. Ms. Robards was formerly an investment banker for more than
10 years where she was responsible for evaluating and assessing the
performance of companies based on their financial results. Ms. Robards
has over 30 years of experience analyzing financial statements. She
also is the member of the Audit Committees of two privately held
companies and a non-profit organization.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending October 31, 2006 - $41,000
Fiscal Year Ending October 31, 2005 - $41,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2006 - $3,500
Fiscal Year Ending October 31, 2005 - $3,000
The nature of the services include agreed upon compliance procedures
associated with the Fund's AMPS; and assurance and related services
reasonably related to the performance of the audit of financial
statements not included in Audit Fees.
(c) Tax Fees - Fiscal Year Ending October 31, 2006 - $6,000
Fiscal Year Ending October 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2006 - $0
Fiscal Year Ending October 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending October 31, 2006 - $3,204,783
Fiscal Year Ending October 31, 2005 - $9,200
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500 , 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
David O. Beim
James T. Flynn
W. Carl Kester
Karen P. Robards
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors has delegated to the Manager authority
to vote all proxies relating to the Fund's portfolio securities. The
Manager has adopted policies and procedures (the "Proxy Voting
Procedures") with respect to the voting of proxies related to the
portfolio securities held in the account of one or more of its clients,
including a Fund. Pursuant to these Proxy Voting Procedures, the
Manager's primary objective when voting proxies is to make proxy voting
decisions solely in the best interests of each Fund and its
shareholders, and to act in a manner that the Manager believes is most
likely to enhance the economic value of the securities held by the
Fund. The Proxy Voting Procedures are designed to ensure that the
Manager considers the interests of its clients, including each Fund,
and not the interests of the Manager, when voting proxies and that real
(or perceived) material conflicts that may arise between the Manager's
interest and those of the Manager's clients are properly addressed and
resolved.
In order to implement the Proxy Voting Procedures, the Manager has
formed a Proxy Voting Committee (the "Committee"). The Committee, which
is a subcommittee of the Manager's Equity Investment Policy Oversight
Committee ("EIPOC"), is comprised of a senior member of the Manager's
equity management group who is also a member of EIPOC, one or more
other senior investment professionals appointed by EIPOC, portfolio
managers and investment analysts appointed by EIPOC and any other
personnel EIPOC deems appropriate. The Committee will also include two
non-voting representatives from the Manager's Legal Department
appointed by the Manager's General Counsel. The Committee's membership
shall be limited to full-time employees of the Manager. No person with
any investment banking, trading, retail brokerage or research
responsibilities for the Manager's affiliates may serve as a member of
the Committee or participate in its decision making (except to the
extent such person is asked by the Committee to present information to
the Committee on the same basis as other interested knowledgeable
parties not affiliated with the Manager might be asked to do so). The
Committee determines how to vote the proxies of all clients, including
a Fund, that have delegated proxy voting authority to the Manager and
seeks to ensure that all votes are consistent with the best interests
of those clients and are free from unwarranted and inappropriate
influences. The Committee establishes general proxy voting policies for
the Manager and is responsible for determining how those policies are
applied to specific proxy votes, in light of each issuer's unique
structure, management, strategic options and, in certain circumstances,
probable economic and other anticipated consequences of alternate
actions. In so doing, the Committee may determine to vote a particular
proxy in a manner contrary to its generally stated policies. In
addition, the Committee will be responsible for ensuring that all
reporting and recordkeeping requirements related to proxy voting are
fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not
to adopt a specific voting policy applicable to that issue. The Manager
believes that certain proxy voting issues require investment analysis -
such as approval of mergers and other significant corporate
transactions - akin to investment decisions, and are, therefore, not
suitable for general guidelines. The Committee may elect to adopt a
common position for the Manager on certain proxy votes that are akin to
investment decisions, or determine to permit the portfolio manager to
make individual decisions on how best to maximize economic value for a
Fund (similar to normal buy/sell investment decisions made by such
portfolio managers). While it is expected that the Manager will
generally seek to vote proxies over which the Manager exercises voting
authority in a uniform manner for all the Manager's clients, the
Committee, in conjunction with a Fund's portfolio manager, may
determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Manager in voting proxies, the Committee has retained
Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level
proxy-related services to institutional investment managers, plan
sponsors, custodians, consultants, and other institutional investors.
The services provided to the Manager by ISS include in-depth research,
voting recommendations (although the Manager is not obligated to follow
such recommendations), vote execution, and recordkeeping. ISS will also
assist the Fund in fulfilling its reporting and recordkeeping
obligations under the Investment Company Act.
The Manager's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For
instance, under the Proxy Voting Procedures, the Manager generally will
not seek to vote proxies related to portfolio securities that are on
loan, although it may do so under certain circumstances. In addition,
the Manager will vote proxies related to securities of foreign issuers
only on a best efforts basis and may elect not to vote at all in
certain countries where the Committee determines that the costs
associated with voting generally outweigh the benefits. The Committee
may at any time override these general policies if it determines that
such action is in the best interests of a Fund.
From time to time, the Manager may be required to vote proxies in
respect of an issuer where an affiliate of the Manager (each, an
"Affiliate"), or a money management or other client of the Manager,
including investment companies for which the Manager provides
investment advisory, administrative and/or other services (each, a
"Client"), is involved. The Proxy Voting Procedures and the Manager's
adherence to those procedures are designed to address such conflicts of
interest. The Committee intends to strictly adhere to the Proxy Voting
Procedures in all proxy matters, including matters involving Affiliates
and Clients. If, however, an issue representing a non-routine matter
that is material to an Affiliate or a widely known Client is involved
such that the Committee does not reasonably believe it is able to
follow its guidelines (or if the particular proxy matter is not
addressed by the guidelines) and vote impartially, the Committee may,
in its discretion for the purposes of ensuring that an independent
determination is reached, retain an independent fiduciary to advise the
Committee on how to vote or to cast votes on behalf of the Manager's
clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent
fiduciary, the Committee may pass the voting power to a subcommittee,
appointed by EIPOC (with advice from the Secretary of the Committee),
consisting solely of Committee members selected by EIPOC. EIPOC shall
appoint to the subcommittee, where appropriate, only persons whose job
responsibilities do not include contact with the Client and whose job
evaluations would not be affected by the Manager's relationship with
the Client (or failure to retain such relationship). The subcommittee
shall determine whether and how to vote all proxies on behalf of the
Manager's clients or, if the proxy matter is, in their judgment, akin
to an investment decision, to defer to the applicable portfolio
managers, provided that, if the subcommittee determines to alter the
Manager's normal voting guidelines or, on matters where the Manager's
policy is case-by-case, does not follow the voting recommendation of
any proxy voting service or other independent fiduciary that may be
retained to provide research or advice to the Manager on that matter,
no proxies relating to the Client may be voted unless the Secretary, or
in the Secretary's absence, the Assistant Secretary of the Committee
concurs that the subcommittee's determination is consistent with the
Manager's fiduciary duties.
In addition to the general principles outlined above, the Manager has
adopted voting guidelines with respect to certain recurring proxy
issues that are not expected to involve unusual circumstances. These
policies are guidelines only, and the Manager may elect to vote
differently from the recommendation set forth in a voting guideline if
the Committee determines that it is in a Fund's best interest to do so.
In addition, the guidelines may be reviewed at any time upon the
request of a Committee member and may be amended or deleted upon the
vote of a majority of Committee members present at a Committee meeting
at which there is a quorum.
The Manager has adopted specific voting guidelines with respect to the
following proxy issues:
o Proposals related to the composition of the board of directors of
issuers other than investment companies. As a general matter, the
Committee believes that a company's board of directors (rather than
shareholders) is most likely to have access to important, nonpublic
information regarding a company's business and prospects, and is,
therefore, best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the foundation of
good corporate governance is the election of qualified, independent
corporate directors who are likely to diligently represent the
interests of shareholders and oversee management of the corporation in
a manner that will seek to maximize shareholder value over time. In
individual cases, the Committee may look at a nominee's number of other
directorships, history of representing shareholder interests as a
director of other companies or other factors, to the extent the
Committee deems relevant.
o Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that corporate
auditors have a responsibility to represent the interests of
shareholders and provide an independent view on the propriety of
financial reporting decisions of corporate management. While the
Committee will generally defer to a corporation's choice of auditor, in
individual cases, the Committee may look at an auditors' history of
representing shareholder interests as auditor of other companies, to
the extent the Committee deems relevant.
o Proposals related to management compensation and employee benefits.
As a general matter, the Committee favors disclosure of an issuer's
compensation and benefit policies and opposes excessive compensation,
but believes that compensation matters are normally best determined by
an issuer's board of directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set arbitrary
restrictions on compensation or benefits will, therefore, generally not
be supported.
o Proposals related to requests, principally from management, for
approval of amendments that would alter an issuer's capital structure.
As a general matter, the Committee will support requests that enhance
the rights of common shareholders and oppose requests that appear to be
unreasonably dilutive.
o Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the Committee opposes
poison pill provisions.
o Routine proposals related to requests regarding the formalities of
corporate meetings.
o Proposals related to proxy issues associated solely with holdings of
investment company shares. As with other types of companies, the
Committee believes that a fund's board of directors (rather than its
shareholders) is best positioned to set fund policy and oversee
management. However, the Committee opposes granting boards of directors
authority over certain matters, such as changes to a fund's investment
objective, which the Investment Company Act envisions will be approved
directly by shareholders.
o Proposals related to limiting corporate conduct in some manner that
relates to the shareholder's environmental or social concerns. The
Committee generally believes that annual shareholder meetings are
inappropriate forums for discussion of larger social issues, and
opposes shareholder resolutions "micromanaging" corporate conduct or
requesting release of information that would not help a shareholder
evaluate an investment in the corporation as an economic matter. While
the Committee is generally supportive of proposals to require corporate
disclosure of matters that seem relevant and material to the economic
interests of shareholders, the Committee is generally not supportive of
proposals to require disclosure of corporate matters for other
purposes.
Information about how a Fund voted proxies relating to securities held
in the Fund's portfolio during the most recent 12 month period ended
June 30 is available without charge (1) at www.blackrock.com and (2) on
the Commission's web site at http://www.sec.gov.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of October 31, 2006.
(a)(1) The Fund is managed by a team of investment professionals
comprised of Scott Amero, Managing Director at BlackRock, John
D. Burger, Managing Director at BlackRock and Daniel Chen, CFA,
Vice President at BlackRock. Each is a member of BlackRock's
fixed income portfolio management group. Mr. Amero is
responsible for setting the Fund's overall investment strategy
and overseeing the management of the Fund. Messrs. Burger and
Chen are the Fund's co-portfolio managers and are responsible
for the day-to-day management of the Fund's portfolio and the
selection of its investments. Messrs. Amero and Chen have been
members of the Fund's management team since 2006.
John D. Burger joined BlackRock in 2006. Prior to joining
BlackRock, he was a Managing Director of Merrill Lynch
Investment Managers ("MLIM") from 2002 to 2006 and a Director of
MLIM from 1996 to 2004. From 1992 to 1996, he was a portfolio
manager of MLIM. Mr. Burger has been a portfolio manager and
Vice President of the Fund since 2003.
Scott Amero is co-head of BlackRock's fixed income portfolio
management group. He is a member of the Management Committee and
the Investment Strategy Group. Mr. Amero is a senior strategist
and portfolio manager with responsibility for overseeing all
fixed income sector strategy and the overall management of
client portfolios. He is also the head of global credit
research. He is director of Anthracite Capital, Inc.,
BlackRock's publicly-traded real estate investment trust. Mr.
Amero has been with BlackRock since 1990.
Daniel Chen has been a portfolio manager at BlackRock since 2002
and is a member of BlackRock's fixed income portfolio management
group. He is primarily responsible for managing total return
client portfolios, with a sector emphasis on corporate bonds.
Mr. Chen has been with BlackRock since 1999.
(a)(2)As of October 31, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
---------------- ----------------
Scott Amero 56 45 394 0 4 21
$ 29,842,195,229 $ 17,900,000,000 $119,200,000,000 $ 0 $ 2,500,000,000 $ 6,400,000,000
John D. Burger 2 0 11 0 0 0
$ 743,649,093 $ 0 $ 2,161,964,208 $ 0 $ 0 $ 0
Daniel Chen 3 0 8 0 0 0
$ 1,413,520,503 $ 0 $ 655,653,265 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
Real, potential or apparent conflicts of interest may arise when a
portfolio manager has day-to-day portfolio management responsibilities with
respect to more than one fund or account, including the following:
Certain investments may be appropriate for the Fund and also for other
clients advised by the Investment. Adviser and its affiliates, including other
client accounts managed by the Fund's portfolio management team. Investment
decisions for the Fund and other clients are made with a view to achieving their
respective investment objectives and after consideration of such factors as
their current holdings, availability of cash for investment and the size of
their investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, because clients of the Investment
Adviser and its affiliates may have differing investment strategies, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. The investment results for the Fund may differ
from the results achieved by other clients of the Investment Adviser and its
affiliates and results among clients may differ. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Investment Adviser and its affiliates to be equitable to each.
The Investment Adviser will not determine allocations based on whether it
receives a performance based fee from the client. In some cases, the allocation
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Investment Adviser and its
affiliates in the interest of achieving the most favorable net results to the
Fund.
To the extent that the Fund's portfolio management team has
responsibilities for managing accounts in addition to the Fund, a portfolio
manager will need to divide his time and attention among relevant accounts.
In some cases, a real, potential or apparent conflict may also arise
where (i) the Investment Adviser may have an incentive, such as a performance
based fee, in managing one account and not with respect to other accounts it
manages or (ii) where a member of the Fund's portfolio management team owns an
interest in one fund or account he or she manages and not another.
(a)(3) As of October 31, 2006:
Portfolio Manager Compensation
The portfolio manager compensation program of BlackRock and its
affiliates, including the Investment Adviser, is critical to BlackRock's ability
to attract and retain the most talented asset management professionals. This
program ensures that compensation is aligned with maximizing investment returns
and it provides a competitive pay opportunity for competitive performance.
Compensation Program
The elements of total compensation for certain BlackRock and its
affiliates portfolio managers are a fixed base salary, annual performance-based
cash and stock compensation (cash and stock bonus) and other benefits. BlackRock
has balanced these components of pay to provide portfolio managers with a
powerful incentive to achieve consistently superior investment performance. By
design, portfolio manager compensation levels fluctuate -- both up and down --
with the relative investment performance of the portfolios that they manage.
Base Salary
Under the BlackRock approach, like that of many asset management firms,
base salaries represent a relatively small portion of a portfolio manager's
total compensation. This approach serves to enhance the motivational value of
the performance-based (and therefore variable) compensation elements of the
compensation program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are served by
recruiting and retaining exceptional asset management talent and managing their
compensation within a consistent and disciplined framework that emphasizes pay
for performance in the context of an intensely competitive market for talent. To
that end, certain BlackRock and its affiliates portfolio manager incentive
compensation is based on a formulaic compensation program.
BlackRock's formulaic portfolio manager compensation program includes:
investment performance over 1-, 3- and 5-year performance periods and a measure
of operational efficiency. Due to the unique nature of the Fund, its performance
is measured based on a Board of Directors-approved metric which considers both
total return performance and dividend performance over time, adjusted for the
cost of leverage. If a portfolio manager's tenure is less than 5-years,
performance periods will reflect time in position. Portfolio managers are
compensated based on the products they manage. A discretionary element of
portfolio manager compensation may include consideration of: financial results,
expense control, profit margins, strategic planning and implementation, quality
of client service, market share, corporate reputation, capital allocation,
compliance and risk control, leadership, workforce diversity, supervision,
technology and innovation. All factors are considered collectively by BlackRock
management.
Cash Bonus
Performance-based compensation is distributed to portfolio managers in a
combination of cash and stock. Typically, the cash bonus, when combined with
base salary, represents more than 60% of total compensation for portfolio
managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based bonus
is paid in restricted shares of BlackRock stock. Paying a portion of annual
bonuses in stock puts compensation earned by a portfolio manager for a given
year "at risk" based on the Company's ability to sustain and improve its
performance over future periods.
The ultimate value of stock bonuses is dependent on future BlackRock stock
price performance. As such, the stock bonus aligns each portfolio manager's
financial interests with those of BlackRock shareholders and encourages a
balance between short-term goals and long-term strategic objectives. Management
strongly believes that providing a significant portion of competitive
performance-based compensation in stock is in the best interests of investors
and shareholders. This approach ensures that portfolio managers participate as
shareholders in both the "downside risk" and "upside opportunity" of the
Company's performance. Portfolio managers therefore have a direct incentive to
protect BlackRock's reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and financial
management objectives during a performance year are eligible to participate in a
deferred cash program. Awards under this program are in the form of deferred
cash that may be benchmarked to a menu of certain BlackRock mutual funds
(including their own funds) during a five-year vesting period. The deferred cash
program aligns the interests of participating portfolio managers with the
investment results of BlackRock products and promotes continuity of successful
portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based plans
offered generally to BlackRock employees, including broad-based retirement,
401(k), health, and other employee benefit plans.
(a)(4) Beneficial Ownership of Securities. As of October 31, 2006,
neither of Messrs. Amero, Burger and Chen beneficially owns any
stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of
the period covered by this report that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
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.
BlackRock Preferred Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Preferred Income Strategies Fund, Inc.
Date: January 3, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Preferred Income Strategies Fund, Inc.
Date: January 3, 2007
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Preferred Income Strategies Fund, Inc.
Date: January 3, 2007