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THE BLACKROCK STRATEGIC TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
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July 31, 1996
Dear Trust Shareholder:
After posting strong returns during 1995, the fixed income markets have
given back much of their gains in 1996 in response to a strengthening U.S.
economy. Accelerating economic growth has raised concerns about an increased
inflationary environment, which could erode the value of fixed income
investments. The stronger economy also has led some market participants to
consider the possibility that the Federal Reserve may increase interest rates to
thwart inflation threats after three interest rate reductions over the past
twelve months.
Despite the pick-up in economic growth, we believe that current inflationary
fears will subside. Commodity prices have risen but manufacturers will have
difficulty passing along the increased costs of raw materials to consumers,
whose debt levels as a percentage of disposable income are at the highest point
since the recessionary highs of 1990. We believe that the overleveraged consumer
will have to retrench, restricting future economic expansion and creating a
positive environment for bonds in the latter half of this year.
The following semi-annual report provides detailed market commentary and a
review of portfolio management activity. We believe that BlackRock's duration
controlled management style and risk management capabilities will allow each of
our Trusts to achieve its long-term investment objective.
We look forward to maintaining your respect and confidence and to serving
your financial needs in the coming years.
Sincerely,
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1996
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock Strategic
Term Trust Inc. ("the Trust") for the six months ended June 30, 1996. 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 "BGT". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on/or about December 31, 2002 while providing high
current income. 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 "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:
-----------------------------------------------
6/30/96 12/31/95 Change High Low
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Stock Price $7.625 $7.625 - $7.875 $7.25
- -------------------------------------------------------------------------------
Net Asset Value (NAV) $8.89 $9.32 (4.61%) $9.36 $8.71
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The Fixed Income Markets
The domestic fixed income markets witnessed two profoundly different
environments during the past six months, providing an exciting and challenging
environment in which to manage the Trust. The Treasury market rally of 1995
continued through the middle of February 1996, as market demand for fixed income
securities remained strong due to a combination of moderate economic growth, low
absolute levels of inflation and two reductions of the Fed funds target rate.
The rally halted during mid-February, however, as data indicating accelerating
economic growth rekindled inflationary concerns. The strengthening of the
economy continued throughout the second quarter, leading market participants to
become more resolute in their belief that the Federal Reserve will tighten
monetary policy during the second half of 1996, which would result in rising
interest rates. These fears translated into a sharp rise in bond yields across
the Treasury yield curve, resulting in the fixed income markets rescinding much
of their 1995 gains.
Interest rate movements reflected the change in investor sentiment toward
fixed income securities. Interest rates across the Treasury yield curve fell
dramatically through mid-February, as evidenced by the decline in yield levels
on the 10-year Treasury. Continuing the bond market rally of 1995, the yield of
the 10-year Treasury fell to 5.52% on January 19, its lowest yield since October
1993. However, data released during February suggesting renewed economic vigor
placed pressure on bond prices, as the possibility of a stronger economy
dampened investor expectations that interest rates would continue to fall. These
fears translated into a sharp rise in bond yields across the Treasury yield
curve. The yield of the ten-year Treasury ended the semi-annual period at 6.71%,
a net increase of 114 basis points (1.14%) during the first half of 1996.
The mortgage-backed securities (MBS) market outperformed Treasuries for the
period, as rising interest rates coupled with a reduction in prepayment risk
provided investors an opportunity to fundamentally reassess mortgages after
1995's Treasury market rally. Still, many investors remained on the sidelines,
convinced that even historically wide mortgage yield
2
<PAGE>
spreads offered inadequate compensation for the perceived risks of owning
mortgages. As a result of this narrow participation, MBS performance in 1996 has
been good but somewhat short of expectations given the sharp rise in interest
rates.
Corporate bond performance relative to Treasuries was hampered by a heavy
new net issue supply, which expanded above 1995 levels despite the rising
interest rate environment of 1996. However, the yield premium, or "spread",
offered by corporate bonds remained narrow throughout the period. Corporate
yield spreads are not expected to widen significantly, as a subsiding of
recessionary fears in response to the strengthening U.S. economy is expected to
support corporate bond prices.
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, 1995 asset
composition.
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The BlackRock Strategic Term Trust Inc.
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Composition June 30, 1996 December 31, 1995
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Taxable Zero Coupon Bonds 28% 24%
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Agency Multiple Class Mortgage Pass-Throughs 15% 19%
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Corporate Bonds 12% 5%
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Stripped Mortgage-Backed Securities 11% 7%
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Adjustable Rate Mortgages 10% 9%
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Mortgage Pass-Throughs 9% 18%
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Commercial Mortgage-Backed Securities 5% 2%
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Municipal Bonds 3% 2%
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CMO Residuals 3% 2%
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Asset-Backed Securities 2% 1%
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U.S. Government Securities 1% 7%
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Non-Agency Multiple Class Mortgage Pass-Throughs 1% 3%
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FNMA Project Loans - 1%
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Rating % of Corporates
----------------------------------------
Credit Rating June 30, 1996 December 31, 1995
---------------------------------------------------------------------
BBB or equivalent 55% 48%
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A or equivalent 38% 50%
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AA or equivalent 7% 2%
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The Trust maintained its focus on the primary investment objective of
returning $10 per share to investors on or about its termination date. In
conjunction with this objective, the Trust has been reducing its holdings which
are subject to cash flow risk or which can extend beyond the Trust's scheduled
maturity date. BlackRock has been opportunistically selling bonds with
3
<PAGE>
these characteristics, or "tail risk", and emphasized securities offering
attractive yield spreads over Treasury securities, cash flows prior to
termination date, or fixed maturities approximating the Trust's termination
date. To that end, the Trust further increased its allocation to investment
grade corporate bonds, which now comprise approximately 12% of portfolio assets.
Corporate bonds allow the Trust to both match the maturity date of the bond with
the Trust's scheduled termination date by providing a definite maturity value
when they mature and a more defined cash flow. The Trust also increased its
exposure to asset-backed securities (ABS), which are generally collateralized by
auto or credit card loans. ABS offer attractive yields relative to comparable
duration securities in addition to more predictable cash flows than
mortgage-backed securities.
The increased corporate bond and asset-backed security positions were
accompanied by a corresponding decrease in securities which offer less
predictable cash flow streams and maturity dates. Specifically, the Trust has
sold mortgage-backed securities such as agency pass-throughs, which have
characteristics that are typically more sensitive to interest rate movements
than most fixed maturity securities. For example, the maturity of a mortgage
bond can extend if interest rates rise; conversely, a sharp decline in interest
rates can cause a mortgage bond to prepay, which exposes the Trust to
reinvestment risk in a lower interest rate environment. Over the semi-annual
period, this strategy has worked to the Trust's benefit, as mortgages
outperformed most sectors of the taxable fixed income market. The Trust expects
to continue its tail risk reduction strategy as the Trust's maturity date
approaches.
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets. BlackRock
remains confident in the Trust's ability to return its initial offering price at
its scheduled termination date. We thank you for your investment in The
BlackRock Strategic 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,
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Vice President and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
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The BlackRock Strategic Term Trust Inc.
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Symbol on New York Stock Exchange: BGT
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Initial Offering Date: December 28, 1990
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Closing Stock Price as of 6/30/96: $7.625
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Net Asset Value as of 6/30/96: $8.89
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Yield on Closing Stock Price as of 6/30/96 ($7.625)1: 6.23%
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Current Monthly Distribution per Share2: $0.039583(3)
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Current Annualized Distribution per Share2: $0.475
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- -------------
1Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2Distribution not constant and is subject to change.
3Distribution rate effective with the July 1996 payment.
4
<PAGE>
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The BlackRock Strategic Term Trust Inc.
Portfolio of Investments
June 30, 1996 (Unaudited)
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(left column)
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Principal
Amount Value
Ratings* (000) Description (Note 1)
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LONG-TERM INVESTMENTS-138.0%
Mortgage Pass-Throughs-20.4%
Federal Home Loan Mortgage
Corporation,
$19,333 6.50%, 01/01/99 ..................... $ 18,106,227
931 7.50%, 11/01/10, 15 Year ............ 935,640
23 7.50%, 02/01/17 ..................... 22,779
10,660 8.00%, 09/01/23 ..................... 10,750,301
2,066 9.00%, 11/01/05, 15 Year ............ 2,140,330
Federal National Mortgage
Association,
4,750 6.50%, Trust 1994-M1, Class M1-D,
10/25/23-Multifamily .............. 4,585,234
5,979 7.25%, 01/01/23, Project 797 ........ 5,710,766
7,083 7.50%, 04/01/08, 15 Year ............ 7,113,790
3,010 8.00%, 08/01/17 ..................... 3,032,986
3,485 8.50%, 01/01/25 ..................... 3,576,646
2,982 10.50%, 06/01/04, 15 Year ........... 3,158,549
Government National
Mortgage Association,
14,000 6.00%, 01/20/99 1 Year CMT (ARM) .... 13,873,125
8,000 6.50%, 12/15/99 1 Year CMT (ARM) .... 8,012,500
1,725 7.00%, 10/15/22 ..................... 1,653,605
15,289 7.00%, 10/20/23 1 Year CMT (ARM) .... 15,494,016
2,237 8.50%, 04/15/21 ..................... 2,299,593
3,338 9.00%, 11/15/16 ..................... 3,493,819
224 10.00%, 02/15/16 .................... 243,984
------------
104,203,890
------------
Commercial Mortgage-Backed
Securities-6.5%
AAA 2,600 Aetna Commercial Mortgage
Trust, Series 1995-CS,
Class B, 12/26/30 ................... 2,478,208
BBB+ 4,000 Federal Deposit Ins. Corp.
Trust, Series 1994-C1,
Class IIF, 09/25/25 ................. 4,101,250
AAA 4,982 LTC Commercial MPT Cert.,
Series 1996-1,
Class A-144A, 04/15/28 .............. 4,896,049
(left column)
- -------------------------------------------------------------------------------
Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
A $ 2,290 Merrill Lynch Mtg Invs Co., Trust
1995-1, Class C1, 05/25/13 .......... $ 2,268,999
AAA 4,378 Morgan Stanley Capital I,
Series 1995-GAL1,
Class A1, 08/15/27 .................. 4,378,437
PaineWebber Mortgage
Acceptance Corp.,
AAA 2,000 Series 1995-M1, Class
M1-A, 01/15/07 .................... 1,961,672
A 2,000 Series 1995-M1, Class
M1-C, 01/15/07 .................... 1,966,799
BBB 1,656 Series 1995-M1, Class
M1-D, 01/15/07 .................... 1,596,255
A 5,986 Resolution Trust Corp.,
Series 1993-C3,
Class C3-D, 12/25/24 .............. 5,829,406
AAA 3,925 Structured Asset Securities
Corp., Series 1996-CFL,
Class B, 02/25/28 ................. 3,752,717
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33,229,792
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Multiple Class Mortgage
Pass-Throughs-29.0%
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
4,038 Series 39, Class 39-J,
03/25/24 (I) ...................... 746,870
22,040 Series 90, Class 90-G,
10/15/20 .......................... 22,665,275
3,000 Series 1218, Class 1218-G,
05/15/14 .......................... 2,789,160
5,000 Series 1295, Class 1295-JB,
03/15/07 .......................... 4,404,900
1,500 Series 1321, Class 1321-E,
01/15/06 .......................... 1,495,215
1,000 Series 1388, Class 1388-FB,
05/15/06 (ARM)..................... 936,390
993 Series 1407, Class 1407-CL,
01/15/22 .......................... 924,172
1,883 Series 1488, Class 1488-F,
09/15/06 .......................... 1,811,804
See Notes to Financial Statements.
5
<PAGE>
(Left Column)
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Principal
Amount Value
Ratings* (000) Description (Note 1)
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Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
$ 1,625 Series 1488, Class 1488-PF,
09/15/06 .......................... $ 1,630,704
25,889 Series 1551, Class 1551-J,
07/15/08 (ARM) .................... 1,253,998
11,262 Series 1590, Class 1590-JC,
01/15/19 (ARM) .................... 679,435
1,543 Series 1602, Class 1602-Y,
07/15/22 .......................... 1,417,088
4,039 Series 1603, Class 1603-MB,
10/15/23 .......................... 3,656,543
4,973 Series 1626, Class 1626-PV,
12/15/08 (I) ...................... 962,129
2,067 Series 1662, Class 1662-P,
11/15/07 (I) ...................... 525,058
1,908 Series 1704, Class 1704-S,
03/15/09 (ARM) .................... 1,630,957
Federal National Mortgage
Association, REMIC Pass-
Through Certificates,
1,172 Trust 1991-146, Class 146-S,
10/25/06 (ARM) .................... 1,204,944
10,000 Trust 1992-43, Class 43-E,
04/25/22 .......................... 9,789,800
4,895 Trust 1992-129, Class 129-G,
06/25/18 .......................... 4,367,955
2,000 Trust 1992-155, Class 155-SB,
12/25/06 (ARM) .................... 1,788,120
35,550 Trust 1992-156, Class 156-H,
04/25/06 .......................... 32,065,389
40 Trust 1992-210, Class 210-KB,
10/25/20 (I) ...................... 1,933,256
1,469 Trust 1993-G17, Class G17-SH,
04/25/23 (ARM) .................... 832,601
2,870 Trust 1993-G22, Class G22-SA,
09/2/09 (ARM) ..................... 2,674,398
4,532 Trust 1993-26, Class 26-PT,
12/25/17 (I) ...................... 976,626
40,921 Trust 1993-G31, Class G31-PS,
08/25/18 (ARM) .................... 1,663,024
31,720 Trust 1993-35, Class G35-S,
01/25/22 (ARM) .................... 1,538,084
100 Trust 1993-92, Class 92-F,
06/25/23 (I) ...................... 5,450,000
2,617 Trust 1993-92, Class 92-G,
05/25/23 .......................... 818,371
9,800 Trust 1993-124, Class 124-D,
08/25/22 (P) ...................... 7,928,788
536 Trust 1993-132, Class 132-CA,
10/25/22 (P) ...................... 289,312
(right column)
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Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
$ 7,041 Trust 1993-170, Class 170-SA,
09/25/08 (ARM) .................... $ 6,212,841
3,841 Trust 1993-179, Class 179-SD,
10/25/23 (ARM) .................... 3,313,099
5,000 Trust 1993-245, Class 245-JA,
03/25/19 (I) ...................... 909,150
2,205 Trust 1994-40, Class 40-H,
10/25/20 .......................... 2,105,841
3,391 Trust 1994-42, Class 42-SO,
03/25/23 (ARM) .................... 452,459
3,445 Trust 1994-54, Class 54-C,
11/25/23 .......................... 2,471,834
20,598 Trust 1996-15, Class 15-SG,
08/25/08 (ARM) .................... 2,330,150
12,937 Trust 1996-20, Class 20-SB,
10/25/08 (ARM) .................... 3,961,849
4,484 Trust 1996-24, Class 24-SB,
10/25/08 (ARM) .................... 863,231
8,499 Trust 1996-24, Class 24-SJ,
01/25/22 (ARM) .................... 2,188,506
AAA 3,250 Prudential Bache Collateralized
Mortgage Obligation, Trust 10-H,
Class H, 04/01/19 (P) ............... 2,429,375
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148,088,701
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Collateralized Mortgage Obligation
Residuals **-3.6%
AAA 942 American Housing Trust 8,
Senior Mortgage Pass-Through
Certificate, Series 8,
Class R (REMIC), 01/25/21# .......... 893,708
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
947 Series 87, Class 87-R,
11/15/20 .......................... 307,219
3 Series 88, Class 88-R,
10/15/20 .......................... 342,765
10 Series 1016, Class 1016-R,
11/15/20 .......................... 142,000
100 Series 1033, Class 1033-R,
01/15/06 .......................... 1,044,345
1,480 Series 1060, Class 1060-R,
03/15/21 .......................... 1,600,000
1 Series 1060, Class 1060-RS,
03/15/21 .......................... 1,000
See Notes to Financial Statements.
6
<PAGE>
(Left Column)
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Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
Federal Home Loan Mortgage Corporation,
Multiclass Mortgage Participation
Certificates,
$ 1,425 Series 1064, Class 1064-R,
04/15/21 .......................... $ 1,575,000
1 Series 1064, Class 1064-RS,
04/15/21 .......................... 1,000
2 Series 1068, Class 1068-R,
04/15/21 .......................... 2,300,000
2 Series 1068, Class 1068-RS,
04/15/21 .......................... 1,000
2 Series 1073, Class 1073-R,
05/15/21 .......................... 1,656,000
2 Series 1073, Class 1073-RS,
05/15/21 .......................... 1,000
2 Series 1075, Class 1075-R,
05/15/21 .......................... 1,833,894
100 Series 1102, Class 1102-R,
06/15/21 .......................... 926,343
Federal National Mortgage
Association, Pass-Through
Certificates,
10 Trust 1989-64, Class 64-R,
10/25/19 .......................... 715,999
1 Trust 1991-9, Class 9-R,
02/25/06 .......................... 1,018,710
1 Trust 1991-9, Class 9-RL,
02/25/06 .......................... 1,000
2 Trust 1991-48, Class 48-R,
05/25/06 .......................... 3,415,000
2 Trust 1991-48, Class 48-RL,
05/25/06 .......................... 1,000
21 Trust 1991-50, Class 50-R,
05/25/06 .......................... 669,431
AAA 947 Ryland Acceptance Corp,
Collateralized Mortgage
Obligation, Series 1983-R,
Class R, 10/01/18# .................. 125,000
------------
18,571,414
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Taxable Zero Coupon Bonds-38.3%
Financing Corp. (FICO Strips),
6,339 02/08/02 ............................ 4,372,452
18,000 03/07/02 ............................ 12,354,120
6,754 03/26/02 ............................ 4,617,710
12,950 04/06/02 ............................ 8,827,756
(right column)
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Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
$ 3,667 05/02/02 ............................ $ 2,487,729
9,425 06/27/02 ............................ 6,331,715
5,311 08/08/02 ............................ 3,535,533
5,400 09/07/02 ............................ 3,576,852
4,472 09/26/02 ............................ 2,950,670
2,992 10/06/02 ............................ 1,968,108
3,667 11/02/02 ............................ 2,400,492
4,535 11/11/02 ............................ 2,964,847
3,616 12/06/02 ............................ 2,353,112
29,300 12/27/02 ............................ 18,992,553
Aid to Israel,
2,932 02/15/02 ............................ 1,983,550
2,932 08/15/02 ............................ 1,946,155
Government Trust
Certificates,
5,880 11/15/01 ............................ 4,109,120
15,350 05/15/02 ............................ 10,333,774
25,000 11/15/02 ............................ 16,237,000
Certificates on Government
Receipts,
7,505 05/15/03, Series 1 .................. 4,760,647
7,600 05/15/03, Series 2 .................. 4,820,908
15,425 Tennessee Valley Authority,
04/15/02 ............................ 10,517,922
U.S. Treasury Strip,
33,000 08/15/02 ............................ 22,205,700
61,750 11/15/02 ............................ 40,850,712
280 05/15/04 ............................ 166,157
------------
195,665,294
------------
United States Government
Securities-1.5%
United States Treasury
Notes,
5,000 6.375%, 03/31/01 ................. 4,978,100
2,800 6.250%, 02/15/03 ................. 2,750,552
------------
7,728,652
------------
Stripped Mortgage-Backed
Securities-15.2%
AAA 3,830 Collateralized Mortgage
Obligation Trust 26,
Class A, 04/23/17 (P/O) ............. 2,900,041
Federal National Mortgage
Association REMIC Pass-
Through Certificates,
3,988 Trust 11, Class 2,
02/01/17 (I/O) .................... 1,203,785
See Notes to Financial Statements.
7
<PAGE>
(Left Column)
- -------------------------------------------------------------------------------
Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
Federal National Mortgage
Association, REMIC Pass-
Through Certificates
$13,275 Trust 19, Class 2,
06/01/17 (I/O) .................... $ 4,256,356
9,457 Trust 22, Class 2,
11/01/16 (I/O) .................... 3,138,659
7,952 Trust 63, Class 2,
06/01/18 (I/O) .................... 2,539,694
7,600 Trust 95, Class 2,
10/01/20 (I/O) .................... 2,395,233
5,990 Trust 116, Class 2,
01/01/17 (I/O) .................... 1,826,985
1,639 Trust 225, Class 1,
02/01/23, (P/O) ................... 1,179,331
77 Trust 1991-79, Class 79-B,
07/25/98 (P/O) .................... 68,318
3,611 Trust 1992-82, Class 82-IO,
05/25/22 (I/O) .................... 1,119,265
29 Trust 1992-132, Class 132-J,
12/25/18 (I/O) ..................... 544,796
236 Trust 1992-156, Class 156-HA,
04/25/06 (I/O) .................... 7,037,567
3,624 Trust 1993-23, Class 23-PN,
04/25/22 (I/O) .................... 1,546,282
895 Trust 1993-17, Class 17-N,
10/25/22 (I/O) .................... 392,438
97 Trust 1993-G20, Class G20-PT,
02/25/19 (I/O) .................... 2,253,553
2,721 Trust 1993-31, Class 31-N,
04/25/22 (I/O) .................... 958,850
2,077 Trust 1993-G35, Class G35-N,
11/25/23 (P/O) .................... 633,516
59 Trust 1993-92, Class 92-G,
12/25/19 (I/O) .................... 1,987,940
6,292 Trust 1993-161, Class 161-E,
02/25/23 (P/O) .................... 4,257,892
15,652 Trust 1993-213, Class G213-CL
09/25/23 (P/O) ...................... 11,557,754
1,711 Trust 1994-24, Class 24-B,
11/25/23 (P/O) .................... 1,254,854
550 Trust 1994-54, Class 54-B,
11/25/23 (P/O) .................... 279,427
7,998 Trust 1994-87, Class 87-E,
03/25/09 (P/O) .................... 5,853,183
19,385 Trust 1994-61, Class 61-DB,
03/25/24 (P/O) .................... 10,371,087
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
131 Series G2, Class G2-M,
07/25/18 (I/O) .................... 2,515,601
(right column)
- -------------------------------------------------------------------------------
Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
$ 54 Series 186, Class 186-J,
08/15/21 (I/O) .................... $ 998,206
19 Series 1375, Class 1375-H,
12/15/05 (I/O) .................... 329,695
2,269 Series 1597, Class 1597-H,
07/15/23 (P/O) .................... 776,045
4,077 Series 1662, Class 1662-PO,
01/15/09 (P/O) .................... 2,972,602
AAA 1,238 Salomon Brothers Mortgage
Securities, Series 873,
Class B, 10/23/17 (I/O) ........... 430,104
------------
77,579,059
------------
Asset-Backed Securities-2.7%
AAA 6,982 Chase Manhattan Grantor
Trust, Series 1996-A,
Class A, 02/15/02 ................... 6,871,073
AAA 2,435 Fleetwood Credit Corporation,
Series 1991, Class A, 8.75%,
03/15/06 ............................ 2,463,017
AAA 4,500 Student Loan Marketing
Assoc., Trust 1995-1,
Class 1, 10/25/09 ................... 4,500,000
------------
13,834,090
------------
Municipal Bonds-4.4%
Los Angeles County California,
Pension Series A
BBB+ 6,250 7.60%, 06/30/98 ................... 6,367,125
AAA 1,750 8.30%, 06/30/02 ................... 1,864,188
Pension Series D
AAA 5,000 6.54%, 06/30/02 ................... 4,900,300
AAA 3,510 Long Beach California,
Pension Series 6.56%, 09/01/02 ...... 3,431,376
AAA 1,000 Kern County California,
Pension Series 6.54%, 08/15/02 ...... 970,840
BBB+ 5,000 New York City,
Taxable Series 1, 6.54%,
03/15/02 .......................... 4,830,200
------------
22,364,029
------------
Corporate Bonds-16.4%
Banking & Finance-8.4%
BBB+ 4,960 Ahmanson HF&Co.,
8.25%, 10/01/02 ..................... 5,223,169
BBB+ 1,700 Amsouth Bankcorporation,
6.75%, 11/01/25 ..................... 1,629,720
A+ 5,000 Goldman Sachs Group L.P.,
6.25%, 02/01/03 ..................... 4,748,976
A+ 2,800 Merrill Lynch & Co. Inc.,
6.00%, 01/15/01 ..................... 2,700,824
See Notes to Financial Statements.
8
<PAGE>
(Left Column)
- -------------------------------------------------------------------------------
Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
AA- $ 850 Metropolitan Life Insurance Co.,
7.00%, 11/01/05 ..................... $ 822,392
A 5,000 Nationbank Corp., Series E,
6.65%, 04/09/02 ..................... 4,921,900
BBB+ 2,190 PaineWebber Group Inc.,
7.875%, 02/15/03 .................... 2,244,706
BBB 3,000 Salomon Inc., 7.50%, 12/01/03 ......... 2,980,080
Smith Barney Holdings Inc.,
A- 3,000 6.63%, 06/01/00 ..................... 2,972,880
A- 1,500 7.00%, 05/15/00 ..................... 1,504,890
A- 4,500 7.98%, 03/01/00 ..................... 4,658,985
A 8,500 Transamerica Finance
Corporation, 6.75%, 06/01/00 ........ 8,452,455
------------
42,860,977
------------
Corporate Bonds (Cont'd)
Industrial-2.7%
A+ 1,000 Bass America Inc.,
8.125%, 03/31/02 .................... 1,054,130
A+ 1,000 Ford Motor Credit Co.,
8.00%, 06/15/02 ..................... 1,045,920
BBB- 5,000 RJR Nabisco Inc.,
8.625%, 12/01/02 .................... 5,069,950
BBB- 2,700 Royal Carib. Cruises,
7.128%, 09/18/02 (Liberia) .......... 2,615,024
BBB- 4,000 Tele Communications Inc.,
9.25%, 04/15/02 ..................... 4,253,320
------------
14,038,344
------------
Corporate Bonds (Cont'd)
Utility-2.8%
BBB 5,000 Columbia Gas Systems Inc.,
6.610%, 11/28/02 .................... 4,872,450
BBB- 4,000 360 Communications,
7.125%, 03/01/03 .................... 3,830,880
BBB- 3,500 Empresa Elec. Guacolda SA,
7.950%, 04/30/03 (Chile) ............ 3,481,549
BBB+ 2,000 Empresa Elec. Pehuence,
7.30%, 05/01/03 (Chile) ............. 1,991,355
------------
14,176,234
------------
Corporate Bonds (Cont'd)
Yankee Bonds-2.5%
AA- 5,000 African Dev. Bank,
7.75%, 12/15/01 (SNAT) .............. 5,153,800
BBB 5,000 Corporacion Andina De Fome,
7.10%, 02/01/03 (SNAT) .............. 4,801,950
BBB 2,777 YPF Sociedad Anonima,
7.50%, 10/26/02 (Argentina) ......... 2,994,750
------------
12,950,500
------------
(Right Column)
- -------------------------------------------------------------------------------
Principal
Amount Value
Ratings* (000) Description (Note 1)
- -------------------------------------------------------------------------------
Total Investments before
securities sold short
(Cost $717,613,614) ................. $705,290,976
------------
Securities Sold Short-(17.8%)
U.S. Treasury Bond,
($45,000) 6.00%, 02/15/26 ..................... (39,902,400)
(48,000) 7.50%, 11/15/24 ..................... (50,880,000)
------------
Total Securities Sold Short
(Proceeds $84,209,688) .............. (90,782,400)
------------
Total Investments net of
short sales-120.2%
(Cost $633,403,926) ................. 614,508,576
Liabilities in excess of other
assets-(20.2%) ...................... (103,479,521)
------------
NET ASSETS-100% ....................... $511,029,055
============
- ------------
* Using the higher of Standard & Poor's or Moody's rating.
** Illiquid securities representing 2.6% of portfolio assets. See Note 3.
# Private placement securities restricted as to resale. See Note 3.
+ 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.
@ Amount pledged as collateral for Financial Futures.
- -------------------------------------------------------------------------------
Key to Abbreviations
ARM -Adjustable Rate Mortgage.
CMO -Collateralized Mortgage Obligation.
CMT -Constant Maturity Treasury.
I/O -Interest Only.
I -Denotes a CMO with Interest Only Characteristics.
P/O -Principal Only.
P -Denotes a CMO with Principal Only Characteristics.
REMIC -Real Estate Mortgage Investment Conduit.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
(left column)
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at value (cost $717,613,614) (Note 1) ............. $705,290,976
Cash ........................................................... 338,531
Deposit with broker for investments sold short (Note 1) ........ 91,263,750
Interest receivable ............................................ 5,405,519
Receivable for variation margin ................................ 588,337
Receivable for investments sold ................................ 4,013
Deferred organization expenses and other assets (Note 1) ....... 33,014
------------
802,924,140
------------
Liabilities
Reverse repurchase agreement (Note 4) .......................... 157,236,000
Investment sold short, at value
(proceeds $84,209,688) (Note 1) .............................. 90,782,400
Payable for investments purchased .............................. 41,492,764
Interest payable ............................................... 1,475,991
Advisory fee payable (Note 2) .................................. 193,027
Administration fee payable (Note 2) ............................ 53,619
Other accrued expenses and liabilities ......................... 661,284
------------
291,895,085
------------
Net Assets ..................................................... $511,029,055
============
Net assets were comprised of:
Common stock, at par (Note 5) ................................ $ 575,106
Paid-in capital in excess of par ............................. 535,942,670
------------
536,517,776
Undistributed net investment income .......................... 5,800,915
Accumulated net realized losses .............................. (14,238,646)
Net unrealized depreciation .................................. (17,050,990)
------------
Net assets, June 30, 1996 .................................... $511,029,055
============
Net asset value per share:
($511,029,055 / 57,510,639 shares of
common stock issued and outstanding) ........................ $8.89
=====
(Right column)
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Statement of Operations
For the Six Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (including net accretion of discount of
$6,165,234 and net of interest expense
of $5,928,892) ............................................. $ 18,730,131
------------
Expenses
Investment advisory .......................................... 1,189,552
Administration ............................................... 330,431
Reports to shareholders ...................................... 149,240
Custodian .................................................... 67,704
Transfer agent ............................................... 62,608
Audit ........................................................ 48,776
Directors .................................................... 35,854
Registration ................................................. 24,024
Legal ........................................................ 10,010
Miscellaneous ................................................ 79,597
------------
Total operating expenses ................................. 1,997,796
------------
Net investment income .......................................... 16,732,335
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 3)
Net Realized gain (loss) on:
Investments .................................................. 7,714,544
Short Sales .................................................. (1,689,832)
Futures ...................................................... (10,156,521)
------------
(4,131,809)
------------
Change in net unrealized depreciation on:
Investments .................................................. (34,042,731)
Short Sales .................................................. 10,696,741
Futures ...................................................... 412,260
------------
(22,933,730)
------------
Net loss on investments ........................................ (27,065,539)
------------
Net Decrease in Net Assets Resulting
from Operations .............................................. $(10,333,204)
============
See Notes to Financial Statements.
10
<PAGE>
(Left column)
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Statement of Cash Flows
For the Six Months Ended June 30, 1996
(Unaudited)
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Interest received (excluding net discount
amortization of $6,165,234) ................................ $ 18,367,732
Operating expenses paid ...................................... (1,626,906)
Interest expense paid ........................................ (6,534,098)
Proceeds from disposition of short-term
portfolio investments, net ................................. 1,319,789
Variation margin on futures .................................. (10,023,229)
Purchase of long-term portfolio investments .................. (498,816,561)
Proceeds from disposition of long-term
portfolio investments ...................................... 587,184,953
------------
Net cash flows provided by operating activities .............. 89,871,680
------------
Cash flows used for financing activities:
Net proceeds from issuance of reverse
repurchase agreements ...................................... (75,159,750)
Cash dividends paid .......................................... (14,378,809)
------------
Net cash flows used for financing
activities ................................................. (89,538,559)
------------
Net increase in cash ........................................... 333,121
Cash at beginning of period .................................... 5,410
------------
Cash at end of period .......................................... $ 338,531
============
Reconciliation of Net Increase in Net Assets
Resulting from Operations to Net Cash Flows
Provided by Operating Activities
Net decrease in net assets resulting from operations ........... $(10,333,204)
------------
Decrease in investments ........................................ 55,138,049
Net realized loss .............................................. 4,131,809
Increase in unrealized depreciation ............................ 22,933,730
Decrease in receivable for investments sold .................... 10,169
Increase in receivable for variation margin .................... (278,968)
Increase in interest receivable ................................ (125,997)
Increase in other assets ....................................... (32,917)
Increase in payable for investments purchased .................. 19,115,300
Increase in deposits with brokers for short sales .............. (16,107,500)
Increase in payable for securities sold short .................. 15,655,525
Decrease in interest payable ................................... (605,206)
Increase in accrued expenses and other liabilities ............. 370,890
------------
Total adjustments ........................................ 100,204,884
------------
Net cash flows provided by operating activities ................ (89,871,680)
============
See Notes to Financial Statements.
(Right Column)
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Statements of Changes
in Net Assets
(Unaudited)
- --------------------------------------------------------------------------------
For the Six Months For the Year
ended ended
June 30, 1996 December 31,
(Unaudited) 1995
------------- ------------
Increase (Decrease) in
Net Assets
Operations:
Net investment income ....................... $ 16,732,335 $ 35,797,123
Net realized gain (loss) .................... (4,131,809) 814,320
Net change in unrealized appreciation
(depreciation) on investments,
futures and short sales ................... (22,933,730) 64,354,396
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................. (10,333,204) 100,965,839
Dividends from net investment income ........ (14,378,809) (32,349,734)
------------ ------------
Total increase (decrease) ............... (24,712,013) 68,616,105
Net Assets
Beginning of period ........................... 535,741,068 467,124,963
------------ ------------
End of period ................................. $511,029,055 $535,741,068
============ ============
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December
Six Months One Month 1990**
Ended Year Ended December 31, Ended through
June 30, ------------------------------------------ December 31, November 30,
1996 1995 1994 1993 1992 1991 1991
---- ---- ---- ---- ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 9.32 $ 8.12 $ 9.36 $ 9.76 $10.13 $ 9.94 $ 9.40
Net investment income (net interest
expense of $.10, $.34, $.19, $.12,
$.17, $.02 and $.07, respectively) .29 .62 .46 .82 .82 .09 .98
Net realized and unrealized gain (loss)
on investments (.47) 1.14 (1.07) (.39) (.29) .26 .39
------ ------ ------ ------ ------ ------ ------
Net increase (decrease) from investment
operations (.18) 1.76 (.61) .43 .53 .35 1.37
Dividends from net investment income (.25) (.56) (.49) (.83) (.90) (.16) (.81)
Distribution in excess of net
investment income - - (.14) - - - -
Capital charge with respect of
issuance of shares - - - - - - (.02)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period* $ 8.89 $ 9.32 $ 8.12 $ 9.36 $ 9.76 $10.13 $ 9.94#
====== ====== ====== ====== ====== ====== ======
Market value, end of period* $ 7.63 $ 7.63 $ 7.13 $ 9.75 $ 9.88 $10.63 $10.38@
====== ====== ====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN+: 3.33% 14.68% (20.28%) 7.24% 1.29% 3.96% 19.30%
RATIOS TO AVERAGE NET ASSETS:
Operating Expenses*** .77%++ .78% .98% .93% .89% 1.35%(DD) .92%(DD)
Net Investment Income 6.45%++ 7.13% 5.32% 8.40% 8.32% 11.06%(DD) 11.14%(DD)
SUPPLEMENTAL DATA:
Average net assets (000) $518,991 $501,869 $491,747 $560,543 $568,959 $575,792 $548,431
Portfolio turnover rate 56% 135% 133% 94% 18% 0% 199%
Net assets, end of period (000) $511,029 $535,741 $467,125 $538,465 $561,407 $582,514 $571,615
Reverse repurchase agreements
outstanding, end of period (000) $157,236 $232,396 $184,672 $175,569 $249,768 $269,867 $273,788
Asset coverage+++ $ 4,250 $ 3,305 $ 3,529 $ 4,067 $ 3,248 $ 3,159 $ 3,088
</TABLE>
- -------------
* NAV and market value published in The Wall Street Journal each Monday.
** Commencement of investment operations.
*** The ratios of operating expenses, including interest expense, to average
net assets, were 3.05%, 4.68%, 3.18%, 2.12%, 2.64%, 3.82% and 1.04% for the
periods indicated above, respectively. The ratios of operating expenses,
including interest expense and excise tax, to average net assets, were
3.05%, 4.68%, 3.18%, 2.12%, 2.67%, 3.85% and 1.04% for the periods indicated
above, respectively.
# Net asset value immediately after the closing of the first public offering
was $9.38.
+ Total investment return is calculated assuming a purchase of common stock at
the current market value on the first day and a sale at the current market
value on the last day of each period reported. Dividends and distributions,
if any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Trust's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions. Total investment
return for periods of less than one full year are not annualized.
++ Annualized.
+++ Per $1,000 of reverse repurchase agreements outstanding.
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.
12
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Strategic Term Trust Inc.
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(Left Column)
Note 1. Accounting Policies
The BlackRock Strategic Term Trust Inc., (the "Trust") a Maryland corporation,
is a diversified, closed-end management investment company. The investment
objective of the Trust is to manage a portfolio of investment grade fixed income
securities that will return at least $10 per share to investors on or about
December 31, 2002, 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, municipal
and other debt securities on the basis of current market quotations provided by
dealers or pricing services, approved by the Trust's Board of Directors. In
determining the value of a particular security, pricing services may use certain
information with respect to transactions in such securities, quotations from
dealers, market transactions in comparable securities, various relationships
observed in the market between securities, and calculated yield measures based
on valuation technology commonly employed in the market for such securities.
Exchange-traded options are valued at their last sales price as of the close of
options trading on 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 market 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 more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost, if their term to maturity from date of purchase was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
their original term to maturity from date of purchase exceeded 60 days.
(Right column)
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 agreement,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
Option Selling/Purchasing: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as a 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 more
volatile positions so that changes in interest rates do not change the duration
of the portfolio
13
<PAGE>
(Left Column)
unexpectedly. In general, the Trust uses options to hedge a long or short
position or an overall portfolio that is longer or shorter than the benchmark
security. A call option gives the purchaser of the option the right (but not
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
price at any time or at a specified time during the option period. Put options
can be purchased to effectively hedge a position or a portfolio against price
declines if a portfolio is long. In the same sense, call options can be
purchased to hedge a portfolio that is shorter than its benchmark against price
changes. The Trust can also sell (or write) covered call options and put options
to hedge portfolio positions.
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.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy or 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 that 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. 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"
(Right Column)
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. 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.
Securities Lending: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned, that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the six months ended June 30, 1996.
Short Sales: The Trust may make short sales of securities as a method of hedging
potential price declines in similarsecurities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the broker-
14
<PAGE>
(Left Column)
dealer through which it made the short sale as collateral for its obligation to
deliver the security upon conclusion of the sale. The Trust may have to pay a
fee to borrow the particular securities and may be obligated to pay over any
payments received on such borrowed securities. A gain, limited to the price at
which the Trust sold the security short, or a loss, unlimited as to dollar
amount, will be recognized upon the termination of a short sale if the market
price is greater or less than the proceeds originally received.
Securities Transactions and Investment Income: Security 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 meet the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
sufficient amounts of its taxable income to shareholders. Therefore, no federal
tax provision is required. As part of the tax planning strategy the Trust may
retain a portion of its taxable income and pay an excise tax on the
undistributed amount.
Dividends and Distributions: The Trust declares and pays dividends and
distributions monthly first from net investment income, then from 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.
Deferred Organization Expenses: A total of $67,520 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced operations.
Note 2. Agreements
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc., (the "Adviser") a wholly owned corporate subsidiary of PNC
Asset Management Group, Inc., the holding company for PNC's asset management
business, and an Administration Agreement with Dean Witter InterCapital Inc.
("DWI").
The investment advisory fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.45% from January 1, 1995 through December 31,
1998 and 0.30% from January 1, 1999 to the termination or liquidation of the
Trust. The administration fee paid to DWI is also computed weekly and payable
monthly at an annual rate of 0.125% from January 1, 1995 through December 31,
1998 and 0.10% from January 1, 1999 to the termination of the Trust.
(Right column)
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. DWI 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 invest-
ments and dollar rolls, for the six months ended June 30, 1996 aggregated
$422,325,869 and $545,297,824 respectively.
The Trust may invest up to 60% 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, 1996, the Trust held 2.6%
of its portfolio assets in illiquid securities including 0.2% of its portfolio
assets in securities restricted as to resale.
The portfolio 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. It is possible under
certain circumstances for PNC Mortgage Securities Corp. or its affiliates to
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.
The federal income tax basis of the Trust's investments at June 30, 1996 was
substantially the same as the basis for financial reporting, and, accordingly,
net unrealized depreciation for federal income tax purposes was $17,050,990
(gross unrealized appreciation-$19,047,375; gross unrealized
depreciation-$36,098,365).
For federal income tax purposes the Trust has a capital loss carryforward of
$8,674,737 which expires in 2002.
During the six months ended June 30, 1996, the Trust entered into financial
futures contracts. Details of open contracts at June 30, 1996 are as follows:
Value at Value at
Number of Expiration Trade June 30, Unrealized
Contracts Type Date Date 1996 Appreciation
- --------- ----- ---------- ---------- ----------- ------------
Long
positions:
523 30 Yr.
T-Bond Sept. 55,440,484 57,284,844 1,844,360
15
<PAGE>
(left column)
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 the
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 transaction, including accrued interest.
The average monthly balance of reverse repurchase agreements outstanding
during the six months ended June 30, 1996 was $211,069,542 at a weighted average
interest rate of approximately 5.45%. The maximum amount of repurchase
agreements outstanding at any month-end during the period was $255,006,750 as of
January 31, 1996 which was 26.2% of total assets. The amount of reverse
repurchase agreements outstanding at June 30, 1996 was $157,236,000, which was
19.6% 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
(Right Column)
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 the lower repurchase price
at the future date.
The average monthly balance of dollar rolls outstanding during the six months
ended June 30, 1996 was approximately $14,756,397. The maximum amount of dollar
rolls outstanding at any month end during the period was $20,437,400 as of
January 31, 1996 which was 2.1% of total assets.
Note 5. Capital
There are 200 million shares of $.01 par value common stock authorized. Of the
57,510,639 shares outstanding at June 30, 1996 the adviser owned 10,639 shares.
Note 6. Dividends and Distributions
Subsequent to June 30, 1996, the Board of Directors of the Trust declared a
dividend from undistributed earnings of $0.039583 per share payable July 31,
1996 to shareholders of record on July 15, 1996.
Note 7. Quarterly Data
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and
unrealized Net increase (decrease)
gains (losses) in net assets Dividends Period
Net Investment on resulting from and and
Quarterly Total Income investments operations distributions Share price net asset
period Income Amount Per share Amount Per share Amount Per share Amount Per share High Low value
- ------- ------ ---------------- ----------------- ------------------ ------------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 1,
1994 to
March 31,
1994 ... $ 7,559,790 $ 6,303,137 $ .11 $(36,882,912) $(.64) $(30,579,775) $(.53) $ 7,308,452 $.13 $9-3/4 $8 $8.68
April 1,
1994 to
June 30,
1994.... 8,055,506 6,819,246 .12 (11,925,912) (.21) (5,106,666) (.09) 10,063,787 .17 8-5/8 7-3/4 8.44
July 1,
1994 to
September
30, 1994 14,945,849 6,719,851 .12 (4,901,424) (.08) 1,818,427 .04 9,705,495 .17 8-1/8 7-1/8 8.30
October 1,
1994 to
December
31, 1994. 491,880 6,369,941 .11 (7,777,870) (.14) (1,407,929) (.03) 8,986,612 .16 7-3/8 6-5/8 8.12
January 1,
1995 to
March 31,
1995 .... 11,217,003 10,207,637 .18 25,752,043 .45 35,959,680 .63 8,985,462 .15 7-5/8 7-1/8 8.46
April 1,
1995 to
June 30,
1995 .... 9,182,551 8,009,072 .14 18,586,436 .33 26,595,508 .47 8,985,462 .15 8-1/8 7-9/16 8.90
July 1,
1995 to
September
30, 1995 . 9,683,299 8,804,290 .15 (442,396) (.01) 8,361,894 .14 7,189,405 .13 7-3/4 7-1/4 8.92
October 1,
1995 to
December
31, 1995 . 9,636,633 8,776,124 .15 21,272,633 .37 30,048,757 .52 7,189,405 .13 7-7/8 7-1/2 9.32
January 1,
1996 to
March 31,
1996 .... 10,023,028 9,051,736 .16 (22,776,515) (.40) (13,724,779) (.24) 7,189,405 .13 7-7/8 7-3/8 8.95
April 1,
1996 to
June 30,
1996 ... 8,707,103 7,680,599 .13 (4,289,024) (.07) 3,391,575 .06 7,189,404 .12 7-5/8 7-1/4 8.89
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC 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 Dean Witter Trust Company (the "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, for the participants' accounts. The Trust will not issue shares
under the Plan.
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 fees 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 income tax 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) 576-3143 or BlackRock Financial Management
at (800) 227-7BFM. The addresses are on the front of this report.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Annual Meeting of Trust Shareholders was held May 8, 1996 to vote on the
following matters:
(1) To elect two Directors to serve as follows:
Director Class Term Expiring
-------- ----- ---- --------
Frank J. Fabozzi .......................... II 3 years 1999
Ralph L. Schlosstein ...................... II 3 years 1999
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Richard E. Cavanagh, Kent Dixon, Laurence D. Fink, James
Grosfeld and James Clayburn LaForce, Jr.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December31, 1996.
(3) To modify the investment restriction prohibiting investing for the
purpose of exercising control over the management of a company.
Shareholders elected the two Directors, ratified the selection of Deloitte &
Touche LLP and approved the modification of the investment restriction
prohibiting investing for the purpose of exercising control over the management
of a company. The results of the voting was as follows:
Votes for Votes Against Abstentions
--------- ------------- -----------
Frank J. Fabozzi .............. 32,201,549 16,177 1,115,895
Ralph L. Schlosstein .......... 32,186,335 16,177 1,131,109
Ratification of Deloitte
& Touche LLP ................ 31,186,335 514,016 968,721
Investment restriction ........ 31,137,194 989,324 1,207,103
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
The Trust's Investment Objective
The Trust's investment objective is to manage a portfolio of investment grade
fixed income securities that will return at least $10 per share (the initial
public offering price per share) to investors on or shortly before December 31,
2002 while providing high monthly income.
Who Manages the Trust?
BlackRock Financial Management, Inc. (BlackRock or the Adviser) is the
investment adviser for the Trust. BlackRock is a registered investment adviser
specializing in fixed income securities. Currently, BlackRock manages
approximately $41 billion of assets across the government, mortgage, corporate
and municipal sectors. These assets are managed on behalf of institutional and
individual investors in 21 closed-end funds traded either on the New York Stock
Exchange or the American Stock Exchange, several open-end funds and separate
accounts for more than 80 clients in the U.S. and overseas. BlackRock is a
subsidiary of PNC Asset Management Group, Inc. which is a division of PNC Bank,
one of the nation's largest banking organizations.
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 2002. 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
33-1/3% 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
in 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.
18
<PAGE>
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 advisor. 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, Dean Witter
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 33-1/3% 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.
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC 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 automobiles 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
deduction of expenses. This Trust declares and pays
dividends on a monthly basis.
Dividend Reinvestment: Shareholders may elect to have all distributions of
dividends and 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 Association, 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 payments 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).
20
<PAGE>
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 New
York Times or The Wall Street Journal each 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.
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.
Stripped Mortgage Backed
Securities: Arrangements in which a pool of assets is separated
into two classes that receive different proportions
of the interest and principal distribution from
underlying mortgage-backed securities. IO's and
PO's are examples of strips.
21
<PAGE>
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc.
Summary of Closed-End Funds
- --------------------------------------------------------------------------------
Taxable Trusts
- --------------------------------------------------------------------------------
Termination
Perpetual Trusts Stock Symbol Date
------------ ----------
The BlackRock Income Trust Inc. BKT N/A
The BlackRock North American Government
Income Trust Inc. BNA N/A
Term Trusts
The BlackRock 1998 Term Trust Inc. ............... BBT 12/98
The BlackRock 1999 Term Trust Inc. ............... BNN 12/99
The BlackRock Target Term Trust Inc. ............. BTT 12/00
The BlackRock 2001 Term Trust Inc. ............... BLK 06/01
The BlackRock Strategic Term Trust Inc. .......... BGT 12/02
The BlackRock Investment Quality Term Trust Inc. . BQT 12/04
The BlackRock Advantage Term Trust Inc. .......... BAT 12/05
The BlackRock Broad Investment Grade 2009
Term Trust Inc. .............................. BCT 12/09
Tax-Exempt Trusts
- --------------------------------------------------------------------------------
Termination
Perpetual Trusts Stock Symbol Date
------------ ----------
The BlackRock Investment Quality Municipal
Trust Inc. ................................... BKN N/A
The BlackRock California Investment Quality
Municipal Trust Inc. ......................... RAA N/A
The BlackRock Florida Investment Quality
Municipal Trust .............................. RFA N/A
The BlackRock New Jersey Investment Quality
Municipal Trust Inc. ......................... RNJ N/A
The BlackRock New York Investment Quality
Municipal Trust Inc. ......................... RNY N/A
Term Trusts
The BlackRock Municipal Target Term Trust Inc. ... BMN 12/06
The BlackRock Insured Municipal 2008 Term
Trust Inc. ................................... BRM 12/08
The BlackRock California Insured Municipal 2008
Term Trust Inc. .............................. BFC 12/08
The BlackRock Florida Insured Municipal 2008
Term Trust ................................... BRF 12/08
The BlackRock New York Insured Municipal
2008 Term Trust Inc. ......................... BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. .. BMT 12/10
If you would like further information please call BlackRock at
(800) 227-7BFM or consult with your financial advisor.
22
<PAGE>
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc.
An Overview
- --------------------------------------------------------------------------------
BlackRock Financial Management Inc. (BlackRock) is a registered investment
adviser which specializes in managing high quality fixed income securities, both
taxable and tax exempt. BlackRock currently manages approximately $41 billion of
assets across the government, mortgage, corporate and municipal sectors. These
assets are managed on behalf of institutional and individual investors in 21
closed-end funds traded on either the New York Stock Exchange or American Stock
Exchange, several open-end funds and over 80 institutional clients in the United
States and overseas. BlackRock's institutional investor base includes Chrysler
Corporation Master Retirement Trust, General Retirement System of the City of
Detroit, State Treasurer of Florida, Ford Motor Company Pension Plan, General
Electric Pension Trust and Unisys Corporation Master Trust.
BlackRock was formed in April 1988 by fixed income professionals who sought
to create an asset management firm specializing in managing fixed income
securities for individuals and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities market, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of propriety analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's propriety analytical tools are used for
evaluating, investing in and designing investment strategies and portfolio of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf Rating by S&P and the first closed fund to
invest primarily in North American Government securities. BlackRock's closed-end
funds currently have dividend reinvestment plans which are designed to provide
an ongoing source of demand for the stock in the secondary market. BlackRock
manages a ladder of alternative investment vehicles, with each fund having
specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all of
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
23
<PAGE>
(LEFT COLUMN)
- -----------------------------
BlackRock
- -----------------------------
Directors
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force Jr.
Ralph L. Schlosstein
Officers
Ralph L. Schlosstein, President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Scott Amero, 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
Dean Witter InterCapital Inc.
Two World Trade Center
New York, NY 10048
(800) 729-8855
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
Transfer Agent
Dean Witter Trust Company
Harborside Financial Center-Plaza Two
Jersey City, New Jersey 07311-3977
(800) 526-3143
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of
June 30, 1996 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 Strategic Term Trust Inc.
c/o Dean Witter InterCapital, Inc.
71st Floor
Two World Trade Center
New York, NY 10048
Call toll free (800) 227-7BFM
09247P-10-8
(RIGHT COLUMN)
The BlackRock
Strategic
Term Trust Inc.
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Semi-Annual Report
June 30, 1996
