================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
================================================================================
July 31, 1998
Dear Shareholder:
Domestic bonds provided investors with modest total returns during the
past six months, as interest rates generally fell. Supporting the bond market
was favorable inflation news and the belief that the Federal Reserve is unlikely
to raise short-term interest rates in the immediate future.
U.S. economic growth has slowed of late after a robust first quarter of
1998. We expect the fallout from the Asian fiscal crisis to quash any
significant rebound in U.S. growth for the remainder of the year. While we
expect that interest rates will be fairly stable in the near-term, our
longer-term outlook for the bond market remains optimistic, based on the
fundamentally favorable backdrop of low inflation, a currently high level of
real yields, and declining Treasury borrowing.
As you may know, the five investment management firms that comprised the
PNC Asset Management Group have consolidated under BlackRock, resulting in
BlackRock Inc., a $119 billion money management firm. We look forward to using
our global investment management expertise to present exciting investment
opportunities to closed-end fund shareholders in the future.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/Laurence D. Fink /s/Ralph L. Schlosstein
- ------------------- -----------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1998
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock
Advantage Term Trust Inc. ("the Trust") for the six months ended June 30, 1998.
We would like to take this opportunity to review the Trust's stock price and net
asset value (NAV) performance, summarize market developments and discuss recent
portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BAT". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about December 31, 2005 while providing high
current income. Although there can be no guarantee, BlackRock is confident that
the Trust can achieve its investment objectives. The Trust seeks these
objectives by investing in investment grade fixed income securities, including
corporate debt securities, mortgage-backed securities backed by U.S. Government
agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae), asset-backed
securities and commercial mortgage-backed securities. All of the Trust's assets
must be rated at least "BBB" by Standard & Poor's or "Baa" by Moody's at time of
purchase or be issued or guaranteed by the U.S. Government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV (the market value of its assets per share) over the period:
<TABLE>
<CAPTION>
6/30/98 12/31/97 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
STOCK PRICE $9.5625 $9.3750 2.00% $9.8750 $9.3125
NET ASSET VALUE (NAV) $10.81 $10.60 1.98% $10.86 $10.62
10-YEAR TREASURY NOTE 5.45% 5.74% (0.29%) 5.81% 5.35%
</TABLE>
THE FIXED INCOME MARKETS
After an extremely strong first quarter of 1998, U.S. economic growth
slowed during the past three months. Despite the strong economic growth of the
past year, inflation stayed surprisingly subdued. One explanation for the
absence of inflation in the U.S. economy stems from the aftermath of the Asian
financial crisis. U.S. exports to Asia have slowed, while the strength of the
dollar caused cheap Asian imports to flood the U.S. market and exert downward
price pressure on domestic goods.
Yields of U.S. Treasury securities have remained in a fairly narrow range
during the period. For example, the yield of the 10-Year Treasury posted a net
decline of 29 basis points (0.29%), beginning 1998 at 5.74% and closing on June
30, 1998 at 5.45%. The past six months represented a continuation of strong
Treasury performance, which has been due to moderating economic growth, low
inflation and a "flight to quality" from investors seeking a safe haven in U.S.
Treasury securities. Continued expectations that the Asian crisis will slow
economic growth and that the Fed will adopt an easing bias provided additional
support to the bond market. With Treasury supply waning due to a surplus in the
federal budget and an increased foreign demand for Treasuries due to their U.S.
government backing and relatively attractive yields, we anticipate a positive
environment for Treasuries for the balance of 1998.
2
<PAGE>
In light of declining interest rates and faster prepayment speeds during
the period, mortgages modestly underperformed the broader investment grade bond
market. As measured by the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a
3.37% total return versus 3.92% for the LEHMAN BROTHERS AGGREGATE INDEX.
Mortgage rates fell below the critical 7% threshold for the first time since
January 1994, causing concerns that increased refinancing activity would
negatively impact the performance of mortgage securities. Accordingly, lower
coupon securities generally outperformed more prepayment-sensitive higher-coupon
issues. The financial turmoil in Asia caused a decline in perceived corporate
bond credit quality ratings and as a result corporate bonds underperformed
Treasuries during both the first and second quarters. Lower interest rates
brought a flood of new corporate supply during the first quarter of 1998,
contributing to the modest performance of corporates.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and December 31, 1997 asset
composition.
- --------------------------------------------------------------------------------
THE BLACKROCK ADVANTAGE TERM TRUST INC.
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
COMPOSITION 1998 1997
- --------------------------------------------------------------------------------
Zero-Coupon Bonds 40% 39%
- --------------------------------------------------------------------------------
Corporate Bonds 11% 12%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 9% 8%
- --------------------------------------------------------------------------------
U. S. Government Securities 9% 8%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 8% 6%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 6% 9%
- --------------------------------------------------------------------------------
Inverse Floating Rate Mortgages 5% 7%
- --------------------------------------------------------------------------------
Taxable Municipal Bonds 4% 4%
- --------------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 3% 3%
- --------------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 2% 1%
- --------------------------------------------------------------------------------
Asset-Backed Securities 1% 0%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 1% 2%
- --------------------------------------------------------------------------------
CMO Residuals 1% 1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
- --------------------------------------------------------------------------------
CREDIT RATING JUNE 30, 1998 DECEMBER 31, 1997
- --------------------------------------------------------------------------------
AA or equivalent 0% 3%
- --------------------------------------------------------------------------------
A or equivalent 51% 41%
- --------------------------------------------------------------------------------
BBB or equivalent 43% 51%
- --------------------------------------------------------------------------------
BB or equivalent 6% 5%
- --------------------------------------------------------------------------------
3
<PAGE>
In accordance with the Trust's primary investment objective of returning
the initial offer price upon maturity, the Trust's portfolio management activity
focused on adding securities which offered both attractive yield spreads over
Treasury securities and a maturity date matching the Trust's termination date of
December 31, 2005. Additionally, the Trust has been active in reducing positions
in bonds which have maturity dates or potential cash flows after the Trust's
termination date. During the reporting period, the most significant additions
have been in the asset-backed securities (ABS) sector. Additionally, the Trust
maintained its significant weighting in investment grade corporate bonds and
well-structured mortgage securities such as commercial mortgage-backed
securities (CMBS). To finance these purchases, the Trust primarily sold mortgage
pass-through securities, as their maturities may extend past the Trust's
termination date in a rising interest rate environment.
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment in the BlackRock Advantage Term Trust Inc. Please
feel free to contact our marketing center at (800) 227-7BFM (7236) if you have
specific questions which were not addressed in this report.
Sincerely,
/s/Robert S. Kapito /s/Michael P. Lustig
- -------------------- ---------------------
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- --------------------------------------------------------------------------------
THE BLACKROCK ADVANTAGE TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BAT
- --------------------------------------------------------------------------------
Initial Offering Date: April 27, 1990
- --------------------------------------------------------------------------------
Closing Stock Price as of 6/30/98: $9.5625
- --------------------------------------------------------------------------------
Net Asset Value as of 6/30/98: $10.81
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/98 ($9.5625)1: 6.54%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.052083
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.625
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 Distribution not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK ADVANTAGE TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--144.5%
MORTGAGE PASS-THROUGHS--8.4%
Federal Home Loan Mortgage Corp.,
$1,292 6.50%, 8/01/25 - 10/01/25 ........... $1,288,309
3,798++ 9.50%, 1/01/05, 15 Year ............. 3,924,890
13 Federal National Mortgage
Association, 9.50%, 7/01/20 ......... 14,380
Government National Mortgage
Association,
3,325 8.00%, 1/15/26 - 7/15/27 ............ 3,445,952
-----------
8,673,531
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--22.2%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
3,200+ Series 1295, Class 1295-JB,
3/15/07 ........................... 3,053,792
553 Series 1490, Class 1490-SE,
4/15/08 (ARM) ..................... 504,191
698 Series 1541, Class 1541-TB,
7/15/23 (ARM) ..................... 623,024
434 Series 1655, Class 1655-SB,
12/15/08 (ARM) .................... 409,519
Federal National Mortgage
Association, REMIC Pass-
Through Certificates,
3,583 Trust 1992-129, Class 129-J,
7/25/20 ........................... 3,296,826
2,000+ Trust 1992-190, Class 190-S,
11/25/07 (ARM) .................... 1,992,262
231 Trust 1993-59, Class 59-SC,
11/25/07 (ARM) .................... 235,906
1,444 Trust 1993-193, Class 193-E,
9/25/23 (I) ....................... 666,435
134 Trust 1993-193, Class 193-PC,
9/25/23 ........................... 127,683
1,605 Trust 1993-212, Class 212-SA,
11/25/08 (ARM) .................... 1,583,807
2,940 Trust 1993-223, Class 223-PT
10/25/23 (I) ...................... 446,794
1,000 Trust 1994-13, Class 13-SM,
2/25/09 (ARM) ..................... 949,230
1,590 Trust 1994-37, Class 37-SC,
3/25/24 (ARM) ..................... 1,512,015
4,462+ Trust 1994-72, Class L,
4/25/24 ........................... 4,427,539
Federal National Mortgage
Association, REMIC Pass-
Through Certificates,
2,500 Trust 1997-50, Class 50-HK,
8/25/27 (I) ....................... 889,062
A2 2,000 New York City Mortgage Loan Trust,
Series 1996, Class A2,
6/25/11 ............................. 2,068,750
-----------
22,786,835
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--12.2%
Credit Suisse First Boston
Mortgage Securities Corp.,
A 1,000 Series 1995-AEW 1, Class C,
7.46%, 11/25/27 ................... 1,012,811
AAA 8,899 Series 1997-C1, Class AX,
1.97%, 6/20/29 (I/O) .............. 983,910
BBB 1,000 DLJ Mortgage Acceptance
Corp., Series 1997-CF,
Class B1, 7.91%, 4/15/07 ............ 1,064,024
AAA 1,000 Goldman Sachs Mortgage
Securities Corp.,
Series 1996-PL, Class A2,
7.41%, 2/15/27 .................... 1,066,099
AAA 839 LTC Commercial Mortgage
Corp., Series 1996-1,
Class A, 7.06%, 4/15/28 ............. 855,547
Merrill Lynch Mortgage Investors Inc.,
Multiclass Mortgage
Pass-Through Certificates,
BBB 1,000 Series 1995-C1, Class D,
7.99%, 5/25/15 .................... 1,040,212
BBB 500 Series 1996-C1, Class D,
7.42%, 4/25/28 .................... 515,382
AAA 11,934 Series 1997-C2, Class IO,
1.29%, 12/10/29 (I/O) ............. 960,338
Morgan Stanley Capital 1 Inc.,
Commercial Mortgage
Pass-Through Certificates,
BBB 1,000 Series 1995-GAL1, Class D,
8.25%, 8/15/27 .................... 1,068,873
AAA 3,602 Series 1997-HF1, Class X,
1.77%, 6/15/17 (I/O) .............. 320,251
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--(CONT'D)
AA $ 468 Salomon Brothers Mortgage
Securities Corp.,
Multiclass Mortgage Pass-
Through Certificates,
Series 1997-TZH, Class A1,
7.15%, 3/25/25 ...................... $ 488,921
AAA 2,635 Sears Mortgage Securities Corp.,
Series 1993-7, Class S3,
9.51%, 4/25/08 (ARM) ................ 2,641,984
AAA 500 Structured Asset Securities Corp.,
Series 1996-CFL, Class B,
6.30%, 2/25/28 ...................... 499,147
-----------
12,517,499
-----------
CORPORATE BONDS--15.5%
FINANCE & BANKING--8.8%
A3 1,000@ American Savings Bank,
6.63%, 2/15/06 ...................... 1,015,599
Equitable Life Assurance Society USA,
A 1,521 Zero Coupon, 12/01/98 - 12/01/05 .... 1,037,413
Ba1 1,000 Macsaver Financial Services Inc.,
7.88%, 8/01/03 ...................... 943,149
Baa1 1,900 PaineWebber Group Inc.,
7.88%, 2/15/03 ...................... 2,015,197
Salomon Smith Barney, Inc.,
A2 1,000 6.75%, 1/15/06 ...................... 1,023,360
A2 1,425 7.98%, 3/01/00 ...................... 1,468,676
A- 1,485 Transamerica Finance Corp.,
6.75%, 6/01/00 ...................... 1,505,627
-----------
9,009,021
-----------
INDUSTRIALS--2.5%
Baa3 1,000@@ TCI Communications, Inc.,
8.25%, 1/15/03 ...................... 1,080,180
Union Pacific Corp.,
Baa2 2,145 Zero Coupon,
11/01/98 - 5/01/05 .................. 1,508,239
-----------
2,588,419
-----------
UTILITIES--2.0%
A 1,000 AlltelCorp.,
7.50%, 3/01/06 ...................... 1,067,260
Baa3 1,000 NRG Energy, Inc,
7.63%, 2/01/06 ...................... 1,036,688
-----------
2,103,948
-----------
YANKEE--2.2%
Baa3 1,000 Empresa Electric Guacolda SA,
7.95%, 4/30/03 ...................... 998,920
Baa1 200 Empresa Electric Pehuhuenche,
7.30%, 5/01/03 ...................... 196,687
A3 1,000 Israel Electric Corp. Ltd.,
7.25%, 12/15/06 ..................... 1,038,470
-----------
2,234,077
-----------
Total corporate bonds 15,935,465
-----------
ASSET-BACKED SECURITIES--2.1%
AAA 800 Chase Credit Card Master Trust,
6.19%, 8/15/05 ...................... 809,751
Structured Mortgage Asset
Residential Trust,
A 920 Series 1997-3, 8.57%, 4/15/06 ....... 934,890
A 456 Series 1997-4, 7.85%, 9/15/01 ....... 458,826
-----------
2,203,467
-----------
STRIPPED MORTGAGE-BACKED
SECURITIES--6.8%
Collateralized Mortgage
Obligation Trust,
AAA 903 Trust 26, Class A, 4/23/17 (P/O) .... 763,645
AAA 72 Trust 29, Class A, 5/23/17 (P/O) .... 56,891
Federal Home Loan Mortgage Corp.,
1,500 Series 1543, Class 1543-VU,
4/15/23 (I/O) ..................... 522,633
663 Series 1700, Class 1700-B,
7/15/23 (P/O) ..................... 646,533
1,500 Series 1946, Class 1946-N,
10/15/08 (P/O) .................... 1,165,781
1,500 Series 1946, Class 1946-SN,
10/15/08 (I/O) .................... 344,940
30,065 Series 1995, Class 1995-SJ,
10/15/27 (I/O) .................... 75,163
4,760 Series G-25, Class S,
8/25/06 (I/O) ..................... 173,605
Federal National Mortgage Association,
1,406 Trust 1993-225, Class 225-ME,
11/25/23 (P/O) .................... 581,732
945 Trust 1997-85, Class 85-LE,
10/25/23 (P/O) .................... 832,634
6,755 Trust 1997-84, Class 84-PJ
1/25/08 (I/O) ..................... 1,785,955
-----------
6,949,512
-----------
U.S. GOVERNMENT SECURITIES--12.6%
1,095 Small Business Administration,
Series 1998-10, Class 10A,
6.12%, 2/01/08 ...................... 1,092,214
U.S. Treasury Notes,
675 5.50%, 2/15/08 ...................... 674,684
10,000+ 6.63%, 3/31/02 ...................... 10,357,800
765 6.63%, 5/15/07 ...................... 821,656
-----------
12,946,354
-----------
ZERO COUPON BONDS--58.0%
Aid to Israel,
12,407 2/15/05 - 8/15/05 ................... 8,422,206
Government Trust Certificates,
5,220 Class 2F, 5/15/05 ................... 3,524,492
13,760 Class T-1, 5/15/05 .................. 9,336,848
22,926++ Resolution Trust Funding Corp.,
7/15/05 ............................. 15,470,694
6,216 Tennessee Valley Authority,
11/01/05 ............................ 4,096,841
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$18,000+ U.S. Treasury Strips,
11/15/05 ............................ $12,013,920
10,000 Vanguard Prime Money Market Strip,
12/31/04 ............................ 6,776,000
-----------
59,641,001
-----------
TAXABLE MUNICIPAL BONDS--6.0%
AAA 1,000 Alameda County California
Pension Obligation,
Zero Coupon, 12/01/05 ............... 626,030
AAA 1,000 Alaska Energy Power Authority Revenue,
Zero Coupon, 7/01/05 ................ 730,040
AAA 1,500 Kern County California
Pension Obligation,
Zero Coupon, 8/15/98 - 8/15/05 ...... 1,054,832
Long Beach California
Pension Obligation,
AAA 1,509 Zero Coupon, 9/01/98 - 9/01/05 ...... 1,059,816
AAA 500 7.09%, 9/01/09 ...................... 536,430
Los Angeles County California
Pension Obligation,
AAA 474 Zero Coupon, 12/31/98 - 6/30/05 ..... 377,923
AAA 1,000 6.77%, 6/30/05 ...................... 640,170
AAA 1,000 8.62%, 6/30/06 ...................... 1,154,080
-----------
6,179,321
-----------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS**--0.7%
10 Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
Series 1035, Class 1035-R,
1/15/21 ............................. 751,500
-----------
Total long-term investments before
investment sold short
(cost $138,324,277) ................. 148,584,485
-----------
INVESTMENT SOLD SHORT--(3.2%)
$3,000 U.S. Treasury Bonds,
6.38%, 8/15/27
(proceeds $3,088,008) ............... (3,294,360)
-----------
Total investments, net of investment
sold short--141.3%
(cost $135,236,269) ................. 145,290,125
Liabilities in excess of other
assets--(41.3%) ..................... (42,436,628)
-----------
NET ASSETS--100% ...................... $102,853,497
============
- --------
* Using the higher of Standard & Poor's or Moody's rating.
** Illiquid security--representing 0.7% of portfolio assets.
+ Partial principal amount pledged as collateral for reverse
repurchase agreements. See Note 4.
++ Entire principal amount pledged as collateral for reverse
repurchase agreements. See Note 4.
@ Partial principal amount pledged as collateral for futures transactions.
@@ Entire principal amount pledged as collateral for futures transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
I -- Denotes a CMO with Interest only characteristics.
I/O -- Interest Only. P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
7
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
================================================================================
ASSETS
Investments, at value
(cost $138,324,277) (Note 1) .............................. $148,584,485
Cash ........................................................ 54,128
Deposits with brokers as
collateral for investment sold short (Note 1) ............. 5,575,000
Interest receivable ......................................... 901,144
Receivable for investments sold ............................. 33,850
------------
155,148,607
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ...................... 44,452,660
Payable for investments purchased ........................... 4,037,141
Investment sold short, at value
(proceeds $3,088,008) (Note 1) ............................ 3,294,360
Interest payable ............................................ 71,851
Due to broker-variation margin .............................. 52,263
Investment advisory fee payable (Note 2) .................... 42,269
Unrealized depreciation on
interest rate swaps (Notes 1 and 3) ....................... 31,091
Administration fee payable (Note 2) ......................... 8,454
Other accrued expenses ...................................... 305,021
------------
52,295,110
------------
NET ASSETS .................................................. $102,853,497
============
Net assets were comprised of:
Common stock, at par (Note 5) ............................. $ 95,107
Paid-in capital in excess of par .......................... 87,551,396
------------
87,646,503
Undistributed net investment income ....................... 4,911,315
Accumulated net realized gain ............................. 548,351
Net unrealized appreciation ............................... 9,747,328
------------
Net assets, June 30, 1998 ................................. $102,853,497
============
Net asset value per share:
($102,853,497 / 9,510,667 shares of
common stock issued and outstanding) ...................... $10.81
=======
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
================================================================================
NET INVESTMENT INCOME
Income
Interest earned (including net discount
accretion of $2,235,152 and net of interest
expense of $1,470,389) .................................. $ 4,051,646
-----------
Operating expenses
Investment advisory ....................................... 254,431
Administration ............................................ 50,886
Reports to shareholders ................................... 50,000
Custodian ................................................. 24,000
Audit ..................................................... 14,000
Transfer agent ............................................ 11,000
Directors ................................................. 11,000
Miscellaneous ............................................. 18,854
-----------
Total operating expenses ................................ 434,171
-----------
Net investment income ....................................... 3,617,475
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments and options ................................... 2,792,392
Futures ................................................... (509,185)
Short Sales ............................................... (138,516)
-----------
2,144,691
-----------
Net change in unrealized depreciation on:
Investments and options ................................... (1,096,522)
Futures ................................................... (63,032)
Short Sales ............................................... (79,582)
Interest RateSwaps ........................................ (25,863)
-----------
(1,264,999)
-----------
Net gain on investments ..................................... 879,692
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................. $ 4,497,167
===========
See Notes to Financial Statements.
8
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
================================================================================
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received ........................................ $ 3,199,191
Operating expenses and excise taxes paid ................. (714,414)
Interest expense paid .................................... (1,518,935)
Sales of short-term
portfolio investments, net ............................. 549,908
Purchases of long-term portfolio investments ............. (5,546,766)
Proceeds from disposition of long-term
portfolio investments .................................. 11,311,001
Variation margin on futures .............................. (619,591)
------------
Net cash flows provided by operating
activities ............................................. 6,660,394
------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements .................. (3,822,220)
Cash dividends paid .................................... (2,971,918)
------------
Net cash flows used for financing activities ........... (6,794,138)
------------
Net decrease in cash ..................................... (133,744)
Cash at beginning of period .............................. 187,872
------------
Cash at end of period .................................... $ 54,128
============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting
from operations .......................................... $ 4,497,167
------------
Decrease in investments .................................... 758,285
Net realized gain .......................................... (2,144,691)
Decrease in unrealized appreciation ........................ 1,264,999
Decrease in receivable for investments sold ................ 991,146
Increase in interest receivable ............................ (87,692)
Decrease in due to broker-variation
margin ................................................... (47,374)
Increase in deposits with brokers for
investments sold short ................................... (212,500)
Increase in unrealized depreciation of
interest rate swap ....................................... 25,863
Decrease in payable for investments sold short ............. (1,979,090)
Decrease in interest payable ............................... (48,546)
Increase in payable for investments purchased .............. 3,923,070
Decrease in accrued expenses and other
liabilities .............................................. (280,243)
------------
Total adjustments ........................................ 2,163,227
------------
Net cash flows provided by operating activities ............ $ 6,660,394
------------
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
================================================================================
SIX MONTHS YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
1998 1997
-------------- -----------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ........... $ 3,617,475 $ 7,283,176
Net realized gain ................. 2,144,691 259,009
Net change in unrealized
appreciation (depreciation) (1,264,999) 3,206,477
------------- -------------
Net increase in net assets
resulting from operations ..... 4,497,167 10,748,662
Dividends from net investment
income ........................ (2,476,574) (5,943,871)
------------- -------------
Total increase ................ 2,020,593 4,804,791
NET ASSETS
Beginning of period ............... 100,832,904 96,028,113
------------- -------------
End of period ..................... $ 102,853,497 $ 100,832,904
============= =============
See Notes to Financial Statements.
9
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------
1998 1997 1996 1995 1994 1993
-------- ------ ----- ----- ---- ----
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................. $ 10.60 $ 10.10 $ 10.49 $ 9.00 $ 10.73 $ 10.43
------- ------- ------- ------- ------ -------
Net investment income (net of $0.15,
$0.26, $0.22, $0.47, $0.25,
and $0.16, respectively, of interest expense) ... 0.38 0.76 0.57 0.74 0.53 0.56
Net realized and unrealized gain (loss) ........... 0.09 0.36 (0.33) 1.42 (1.53) 0.57
------- ------- ------- ------- ------ -------
Net increase (decrease) from investment operations ... 0.47 1.12 0.24 2.16 (1.00) 1.13
------- ------- ------- ------- ------ -------
Dividends from net investment income ................. (0.26) (0.62) (0.63) (0.67) (0.73) (0.83)
------- ------- ------- ------- ------ -------
Net asset value, end of period* ...................... $ 10.81 $ 10.60 $ 10.10 $ 10.49 $ 9.00 $ 10.73
======= ======= ======= ======= ====== =======
Market value, end of period* ......................... $ 9.56 $ 9.38 $ 8.63 $ 8.63 $ 7.75 $ 10.75
======= ======= ======= ======= ====== =======
TOTAL INVESTMENT RETURN+: ............................ 4.82% 15.79% 7.30% 20.31% (22.16%) 9.33%
======= ======= ======= ======= ====== =======
RATIOS TO AVERAGE NET ASSETS:
Operating expenses # ................................. 0.86%+++ 0.88% 0.91% 1.00% 1.06% 1.07%
Net investment income ................................ 7.13%+++ 7.47% 5.80% 7.53% 5.38% 5.09%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .................... $102,346 $ 97,493 $93,370 $93,044 $92,932 $102,302
Portfolio turnover ................................... 5% 31% 76% 94% 142% 18%
Net assets, end of period (in thousands) ............. $102,853 $100,833 $96,028 $99,723 $85,567 $102,094
Reverse repurchase agreements outstanding,
end of period (in thousands) ...................... $ 44,453 $ 48,275 $26,933 $48,581 $42,176 $ 50,000
Asset coverage++ ..................................... $ 3,314 $ 3,089 $ 4,565 $ 3,053 $ 3,029 $ 3,039
</TABLE>
- ----------
* Net asset value and market value are published in THE WALL STREET JOURNAL
each Monday.
# The ratios of operating expenses, including interest expense, to average
net assets were 3.75%+++, 3.39%, 3.06%, 5.86%, 3.59%, and 2.58%, for the
periods indicated above, respectively. The ratios of operating expenses,
including interest expense and excise tax, to average net assets were
3.75%+++, 3.52%, 3.52%, 5.97%, 3.66%, and 2.74% for the periods indicated
above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each of the periods reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
This calculation does not reflect brokerage commissions. Total investment
returns for less than a full year are not annualized.
++ Per $1,000 of reverse repurchase agreement outstanding.
+++ Annualized.
The information above represents the unaudited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
10
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
The BlackRock Advantage Term Trust Inc. (the "Trust"), a Maryland corporation,
is a diversified, closed-end man- agement investment company. The Trust's
investment objective is to manage a portfolio of investment grade fixed income
securities that will return $10 per share to investors on or shortly before
December 31, 2005 while providing high monthly income. The ability of issuers of
debt securities held by the Trust to meet their obligations may be affected by
economic developments in a specific industry or region. No assurance can be
given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships between securities,
observed in the market and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors.
Short-term securities which mature in 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase is 60 days or less.
Short-term securities with a term to maturity greater than 60 days from the date
of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings commence with
respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
cost of the purchase or proceeds from the sale in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively hedge
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at anytime or at a
specified time during the option period. A put option gives the holder the right
to sell
11
<PAGE>
and obligates the writer to buy the underlying position at the exercise price at
any time or at a specified time during the option period. Put options can be
purchased to effectively hedge a position or a portfolio against price declines
if a portfolio is long. In the same sense, call options can be purchased to
hedge a portfolio that is shorter than its benchmark against price changes. The
Trust can also sell (or write) covered call options and put options to hedge
portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by "marking-to-market" to reflect the market value
of the swap. When the swap is terminated, the Trust will record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the mortgage swap. However, the Trust does not anticipate
non-performance by any counterparty.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is less or greater than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at
12
<PAGE>
least equal, at all times, to the market value of the securities loaned. The
Trust may bear the risk of delay in recovery of, or even loss of rights in, the
securities loaned should the borrower of the securities fail financially. The
Trust receives compensation for lending its securities in the form of interest
on the loan. The Trust also continues to receive interest on the securities
loaned, and any gain or loss in the market price of the securities loaned that
may occur during the term of the loan will be for the account of the Trust. The
Trust did not engage in securities lending during the six months ended June 30,
1998.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes discount and amortizes premium on
securities purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to shareholders. Therefore, no
federal income tax provision is required. As part of its tax planning strategy,
the Trust intends to retain a portion of its taxable income and pay an excise
tax on the undistributed amounts.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from net realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards may be distributed annually.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc., (the "Adviser"), a wholly owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC
Bank, N.A., and an Administration Agreement with Prudential Investments Fund
Management, LLC ("PIFM"), an indirect, wholly-owned subsidiary of The Prudential
Insurance Co. of America.
The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of 0.50% of the Trust's average weekly net
assets. The administration fee paid to PIFM is also computed weekly and payable
monthly at an annual rate of 0.10% of the Trust's average weekly net assets
through December 31, 2000 and 0.08% from January 1, 2001 to the termination or
liquidation of the Trust.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. PIFM pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the six months ended June 30, 1998 aggregated $9,469,836
and $7,324,148 , respectively.
The Trust may invest up to 85% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At June 30, 1998, the Trust held
0.7% of its portfolio assets in illiquid securities.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage-backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Services, Inc.
The federal income tax basis of the Trust's investments at June 30, 1998 was
substantially the same as the basis for financial reporting and, accordingly,
net unrealized appreciation for federal income tax purposes was $10,240,936
(gross unrealized appreciation -$10,812,966; gross unrealized
depreciation-$572,030).
13
<PAGE>
For federal income tax purposes, the Trust had a capital loss carryforward at
December 31, 1997 of approximately $3,638,600, of which $36,900 expires in 2001,
$3,385,900 expires in 2004 and $215,800 expires in 2005. Accordingly, no capital
gains distribution is expected to be paid to shareholders until net gains have
been realized in excess of such amount.
Details of open financial futures contracts at June 30, 1998 are as follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 1998 DEPRECIATION
- --------- ---- --------- ----------- ------------ -------------
Short Positions:
100 30-yr. T-bond Sept. 1998 $12,140,956 $12,359,375 $(218,419)
129 10-yr. T-bond Sept. 1998 14,628,826 14,685,844 (57,018)
-----------
$(275,437)
===========
The Trust entered into two interest rate swaps. Under the first interest rate
swap, the Trust pays the fixed rate and receives the floating rate based on the
notional amount. Under the second interest rate swap, the Trust pays the
floating rate and receives the fixed rate based on the notional amount. Details
of open interest rate swaps at June 30, 1998 are as follows:
NOTIONAL UNREALIZED
AMOUNT FIXED FLOATING TERMINATION APPRECIATION
(000) TYPE RATE RATE DATE (DEPRECIATION)
------ ------ ----- -------- ----------- ------------
$25,000 Interest Rate 6.421% 3 month LIBOR 07/27/01 $ (364,650)
36,375 Interest Rate 6.365% 3 month LIBOR 07/27/00 333,559
-----------
$ (31,091)
===========
NOTE 4. BORROWINGS
REVERSE REPURCHASE AGREEMENTS: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender, the value of which at least equals the principal amount
of the reverse repurchase transactions including accrued interest.
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1998 was approximately $46,857,155 at a weighted
average interest rate of approximately 5.64%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the six months ended
June 30, 1998 was $49,556,133 as of January 31, 1998 which was 31.2% of total
assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. The Trust did not enter into dollar rolls during the
six months ended June 30, 1998.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value com- mon stock authorized. Of the
9,510,667 shares outstanding at June 30, 1998, the Adviser owned 10,667 shares.
NOTE 6. DIVIDENDS
Subsequent to June 30, 1998, The Board of Directors of the Trust declared a
dividend from undistributed earnings of $.052083 per share payable July 31, 1998
to shareholders of record on July 15, 1998.
14
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
DIVIDEND REINVESTMENT PLAN
================================================================================
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank and Trust Company (the "Plan
Agent") in Trust shares pursuant to the Plan. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
United States dollars mailed directly to the shareholders of record (or if the
shares are held in street or other nominee name, then to the nominee) by the
custodian, as dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan below net asset value.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fee for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Trust at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days' written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of
this report.
================================================================================
ADDITIONAL INFORMATION
================================================================================
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders, or to its charter
or by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
The Annual Meeting of Trust Shareholders was held May 6, 1998 to vote on
the following matters:
(1) To elect three Directors as follows:
<TABLE>
<CAPTION>
DIRECTOR CLASS TERM EXPIRING
------- ----- ----- -------
<S> <C> <C> <C>
Richard E. Cavanagh ............................ I 3 years 2001
James Grosfeld ................................. I 3 years 2001
James Clayburn La Force, Jr. ................... I 3 years 2001
</TABLE>
Directors whose term of office continues beyond this meeting are
Andrew F. Brimmer, Kent Dixon, Frank J. Fabozzi, Laurence D. Fink,
Walter F.Mondale, and Ralph L. Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent
public accountants of the Trust for the fiscal year ending December
31, 1998.
Shareholders elected the three Directors and ratified the selection
of Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
-------- ----------- ----------
<S> <C> <C> <C>
Richard E. Cavanagh ............................ 6,946,191 0 117,546
James Grosfeld ................................. 6,936,035 0 127,702
James Clayburn La Force, Jr. ................... 6,933,074 0 130,665
Ratification of Deloitte & Touche LLP .......... 6,883,204 76,018 104,515
</TABLE>
15
<PAGE>
================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
INVESTMENT SUMMARY
================================================================================
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock Advantage Term Trust Inc.'s investment objective is to manage a
portfolio of investment grade fixed income securities that will return $10 per
share (the initial public offering price per share) to investors on or shortly
before December 31, 2005 while providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $119
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
Stock exchanges, and a $23 billion family of open-end equity and bond funds.
Current institutional clients number 334, domiciled in the United States and
overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The Trust will implement a conservative strategy that will seek to
closely match the maturity of the assets of the portfolio with the future return
of the initial investment at the end of 2005. At the Trust's termination,
BlackRock expects that the value of the securities which have matured, combined
with the value of the securities that are sold will be sufficient to return the
initial offering price to investors. On a continuous basis, the Trust will seek
its objective by actively managing its assets in relation to market conditions,
interest rate changes and, importantly, the remaining term to maturity of the
Trust. In addition to seeking the return of the initial offering price, the
Adviser also seeks to provide high monthly income to investors. The portfolio
managers will attempt to achieve this objective by investing in securities that
provide competitive income. In addition, leverage will be used (in an amount up
to 331/3% of total assets) to enhance the income of the portfolio. In order to
maintain competitive yields as the Trust approaches maturity and depending on
market conditions, the Adviser will attempt to purchase securities with call
protection or maturities as close to the Trust's maturity date as possible.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates. Since the Trust's primary goal is to return the initial offering price at
maturity, any cash that the Trust receives prior to its maturity date (i.e. cash
from early and regularly scheduled payments of principal on mortgage-backed
securities) will be reinvested in securities with maturities which coincide with
the remaining term of the Trust. Since shorter-term securities typically yield
less than longer-term securities, this strategy will likely result in a decline
in the Trust's income over time. However, the Adviser will attempt to maintain a
yield which is competitive with a comparable maturity Treasury at the same point
on the yield curve (i.e. if the Trust has three years left until its maturity,
the Adviser will attempt to maintain a yield at a spread over a 3-year
Treasury). It is important to note that the Trust will be managed so as to
preserve the integrity of the return of the initial offering price.
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HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial adviser. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN A TERM TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets. Leverage also
increases the duration (or price volatility of the net assets) of the Trust,
which can improve the performance of the fund in a declining rate environment,
but can cause net assets to decline faster than the market in a rising rate
environment. BlackRock's portfolio managers continuously monitor and regularly
review the Trust's use of leverage and the Trust may reduce, or unwind, the
amount of leverage employed should BlackRock consider that reduction to be in
the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange and as such are subject to supply
and demand influences. As a result, shares may trade at a discount or a premium
to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity,
therefore interim price movements on these securities are generally more
sensitive to interest rate movements than securities that make periodic coupon
payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S SECURITIES. The Trust may invest less than 10% of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
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================================================================================
THE BLACKROCK ADVANTAGE TERM TRUST INC.
GLOSSARY
================================================================================
ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS):
Mortgage instruments with interest rates that adjust at periodic intervals at a
fixed amount over the market levels of interest rates as reflected in specified
indexes. ARMS are backed by mortgage loans secured by real property.
ASSET-BACKED SECURITIES:
Securities backed by various types of receivables such as automobile and credit
card receivables.
CLOSED-END FUND:
Investment vehicle which initially offers a fixed number of shares and trades on
a stock exchange. The fund invests in a portfolio of securities in accordance
with its stated investment objectives and policies.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS):
Mortgage-backed securities which separate mortgage pools into short-, medium-,
and long-term securities with different priorities for receipt of principal and
interest. Each class is paid a fixed or floating rate of interest at regular
intervals. Also known as multiple-class mortgage pass-throughs.
DISCOUNT:
When a fund's net asset value is greater than its stock price the fund is said
to be trading at a discount.
DIVIDEND:
This is income generated by securities in a portfolio and distributed to
shareholders after the deduction of expenses. This Trust declares and pays
dividends on a monthly basis.
DIVIDEND REINVESTMENT:
Shareholders may elect to have all dividends and distributions of capital gains
automatically reinvested into additional shares of the Trust.
FHA:
Federal Housing Administration, a government agency that facilitates a secondary
mortgage market by providing an agency that guarantees timely payment of
interest and principal on mortgages.
FHLMC:
Federal Home Loan Mortgage Corporation, a publicly owned, federally chartered
corporation that facilitates a secondary mortgage market by purchasing mortgages
from lenders such as savings institutions and reselling them to investors by
means of mortgage-backed securities. Obligations of FHLMC are not guaranteed by
the U.S. government, however; they are backed by FHLMC's authority to borrow
from the U.S. government. Also known as Freddie Mac.
FNMA:
Federal National Mortgage Administration, a publicly owned, federally chartered
corporation that facilitates a secondary mortgage market by purchasing mortgages
from lenders such as savings institutions and reselling them to investors by
means of mortgage-backed securities. Obligations of FNMA are not guaranteed by
the U.S. government, however; they are backed by FNMA's authority to borrow from
the U.S. government. Also known as Fannie Mae. GNMA: Government National
Mortgage Association, a U.S. government agency that facilitates a secondary
mortgage market by providing an agency that guarantees timely payment of
interest and principal on mortgages. GNMA's obligations are supported by the
full faith and credit of the U.S. Treasury. Also known as Ginnie Mae.
GOVERNMENT SECURITIES:
Securities issued or guaranteed by the U.S. government, or one of its agencies
or instrumentalities, such as GNMA (Government National Mortgage Association),
FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan
Mortgage Corporation).
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INVERSE-FLOATING RATE MORTGAGE:
Mortgage instruments with coupons that adjust at periodic intervals according to
a formula which sets inversely with a market level interest rate index.
INTEREST-ONLY SECURITIES (I/O):
Mortgage securities that receive only the interest cash flows from an underlying
pool of mortgage loans or underlying pass-through securities. Also known as a
strip.
MARKET PRICE:
Price per share of a security trading in the secondary market. For a closed-end
fund, this is the price at which one share of the fund trades on the stock
exchange. If you were to buy or sell shares, you would pay or receive the market
price.
MORTGAGE DOLLAR ROLLS:
A mortgage dollar roll is a transaction in which the Trust sells mortgage-backed
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (although not the same) securities on a
specified future date. During the "roll" period, the Trust does not receive
principal and interest payments on the securities, but is compensated for giving
up these payments by the difference in the current sales price (for which the
security is sold) and lower price that the Trust pays for the similar security
at the end date as well as the interest earned on the cash proceeds of the
initial sale.
MORTGAGE PASS-THROUGHS:
Mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS:
Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV):
Net asset value is the total market value of all securities and other assets
held by the Trust, plus income accrued on its investments, minus any liabilities
including accrued expenses, divided by the total number of outstanding shares.
It is the underlying value of a single share on a given day. Net asset value for
the Trust is calculated weekly and published in BARRON'S on Saturday and THE
WALL STREET JOURNAL on Monday.
PRINCIPAL-ONLY SECURITIES (P/O):
Mortgage securities that receive only the principal cash flows from an
underlying pool of mortgage loans or underlying pass-through securities. Also
known as a strip.
PROJECT LOANS:
Mortgages for multi-family, low- to middle-income housing.
PREMIUM:
When a fund's stock price is greater than its net asset value, the fund is said
to be trading at a premium.
REMIC:
A real estate mortgage investment conduit is a multiple-class security backed by
mortgage-backed securities or whole mortgage loans and formed as a trust,
corporation, partnership, or segregated pool of assets that elects to be treated
as a REMIC for federal tax purposes. Generally, Fannie Mae REMICs are formed as
trusts and are backed by mortgage-backed securities.
RESIDUALS:
Securities issued in connection with collateralized mortgage obligations that
generally represent the excess cash flow from the mortgage assets underlying the
CMO after payment of principal and interest on the other CMO securities and
related administrative expenses.
REVERSE REPURCHASE AGREEMENTS:
In a reverse repurchase agreement, the Trust sells securities and agrees to
repurchase them at a mutually agreed date and price. During this time, the Trust
continues to receive the principal and interest payments from that security. At
the end of the term, the Trust receives the same securities that were sold for
the same initial dollar amount plus interest on the cash proceeds of the initial
sale.
STRIP MORTGAGE-BACKED SECURITIES:
Arrangements in which a pool of assets is separated into two classes that
receive different proportions of the interest and principal distributions from
underlying mortgage-backed securities. IO's and PO's are examples of strips.
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BlackRock
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 1998 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus
intended for use in the purchase or sale of any securities.
THE BLACKROCK ADVANTAGE TERM TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[LOGO] Printed on recycled paper
BlackRock
The
Advantage
Term Trust Inc.
===================
Semi-Annual Report
June 30, 1998
