BLACKROCK 1998 TERM TRUST INC, N-30D, 1997-03-03

BLACKROCK 1998 TERM TRUST INC
N-30D, 1997-03-03

Previous: BLACKROCK 1998 TERM TRUST INC, DEF 14A, 1997-03-03

Next: WISCONSIN CENTRAL TRANSPORTATION CORP, 4, 1997-03-03

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------

January 31, 1997

Dear Trust Shareholder:

The domestic fixed income markets over the past twelve months were once
again greatly influenced by interest rate volatility. Significant swings in the
pace of U.S. economic growth influenced the bond market's performance, as every
release of economic data led to market participant speculation regarding the
direction of Federal Reserve monetary policy.

Despite strong growth and rising wage pressures, the Fed's decision not to
raise interest rates at their two most recent policy meetings has markedly
increased the stakes in the bond market. The rationale behind the Fed's decision
not to raise interest rates appears to focus on the benign inflation data
released during the third quarter. Should economic growth slow and inflation
remain benign, the Fed will be proven correct in their inaction and the market
would be expected to rally significantly. On the other hand, signs of a stronger
economy could result in weaker bond prices as the likelihood of a Fed tightening
would increase.

BlackRock maintains a positive view on the bond market. On balance, the
outlook for moderate inflation remains intact, suggesting that further declines
in interest rates are likely. In addition to this favorable fundamental
backdrop, foreign demand for U.S. bonds has increased due to the renewed
attractiveness of the U.S. bond market on a global basis.

This consolidated annual report is designed to help you stay informed
about your investment and represents our ongoing commitment to improving our
communication with you. We hope you find this report useful now and in the
future. We appreciate your confidence and look forward to helping you achieve
your long-term investment goals.

Sincerely,

/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
------------------------- ------------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President

<PAGE>

January 31, 1997

Dear Shareholder:

We are pleased to present the consolidated annual report for The BlackRock
1998 Term Trust Inc. ("the Trust") for the year ended December 31, 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 "BBT". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about December 31, 1998 while providing high
current income. Although there can be no guarantee, BlackRock is confident that
the Trust can achieve its investment objectives. The Trust seeks these
objectives by investing in investment grade fixed income securities, including
corporate debt securities, mortgage-backed securities backed by U.S. Government
agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae), asset-backed
securities and commercial mortgage-backed securities. All of the Trust's assets
must be rated at least "BBB" by Standard & Poor's or "Baa" by Moody's at the
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 over the period:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
12/31/96 12/31/95 CHANGE HIGH LOW
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Stock Price $9.375 $8.875 5.63% $9.50 $8.75
- ------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) $9.86 $9.79 0.71% $9.94 $9.66
- ------------------------------------------------------------------------------------------------------
</TABLE>

THE FIXED INCOME MARKETS

While 1996 featured several major shifts in sentiment and some
dramatically sharp market moves, the net year-over-year yield changes turned out
to be modest. Yields rose sharply across the Treasury yield curve throughout the
first half of the year in response to data indicating accelerating economic
growth, including a sharp rise in commodity prices, which rekindled inflationary
concerns. The possibility of a stronger economy dampened investor expectations
of continued Federal Reserve easing of monetary policy and initiated whispers of
a potentially more restrictive Fed policy.

Largely softer economic data and continued moderation in the broad
inflation measures during the third and fourth quarters allowed the Fed to leave
short term interest rates unchanged at their most recent policy meetings.
Additionally, a stronger dollar, large foreign buying of U.S. Treasuries and
balanced budget hopes following the November elections also supported the
market. However, Alan Greenspan's mention of "irrational exuberance in the
financial markets" on December 4th rattled the Treasury market, leading to a
monthlong rise in rates. A resilient housing market and strong consumer
confidence also contributed to the market decline in late December.

The mortgage-backed securities (MBS) market significantly outperformed
Treasuries during 1996 as lower volatility and benign prepayments prompted
strong investor demand. Supply and demand technical conditions remained positive
throughout the period, as strong demand from the mortgage agencies (Fannie Mae
and Freddie Mac) in the third and fourth quarters helped support MBS prices even
as mortgage rates fell and homeowners refinanced at a faster pace during October

2
<PAGE>

and November. For the year, the MBS market as measured by the Lehman Brothers
Mortgage Index posted a 5.35% total return versus the 3.63% return of the Lehman
Brothers Aggregate Index.

Corporate bond returns exceeded those of Treasuries and mortgage
securities during the fourth quarter, underscoring a strong year for corporates
as they outperformed Treasuries during every month in 1996. The demand for
yield, a strong fundamental credit environment and the increased participation
of foreign investors were the major influences which drove corporate bond prices
higher and yields spreads to Treasuries narrower. BlackRock enters 1997 cautious
on the corporate sector. Despite the sound credit environment of 1996 and
positive credit momentum going into the new year, corporate bond spreads versus
Treasuries are fairly narrow.

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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
- ---------------------------------------------------------------------------------------
COMPOSITION DECEMBER 31, 1996 DECEMBER 31, 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds 49% 23%
- ---------------------------------------------------------------------------------------
Asset-Backed Securities 24% 7%
- ---------------------------------------------------------------------------------------
U.S. Government Securities 14% 4%
- ---------------------------------------------------------------------------------------
Municipal Bonds 3% 2%
- ---------------------------------------------------------------------------------------
Mortgage Pass-Throughs 3% 28%
- ---------------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 2% 5%
- ---------------------------------------------------------------------------------------
Adjustable Rate Mortgages 2% 14%
- ---------------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 1% 3%
- ---------------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 1% 2%
- ---------------------------------------------------------------------------------------
Taxable Zero Coupon Bonds 1% 10%
- ---------------------------------------------------------------------------------------
CMOResiduals 0% 2%
- ---------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
RATING %OF CORPORATES
- --------------------------------------------------------------------------------
Credit Rating DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
AAAor equivalent 3% 1%
- --------------------------------------------------------------------------------
AAor equivalent 7% 17%
- --------------------------------------------------------------------------------
Aor equivalent 50% 48%
- --------------------------------------------------------------------------------
BBBor equivalent 40% 34%
- --------------------------------------------------------------------------------

As we have discussed in the Trust's recent reports, we have been seeking
to achieve the Trust's primary investment objective of returning $10 per share
to investors on or about its termination date by emphasizing the purchase of
investment grade corporate bonds with maturity dates on or shortly before the
Trust's scheduled termination date. As of year-end, 49% of the Trust's assets
were invested corporates, an increase of 26% since December 31, 1995. To a
lesser degree, the Trust has also been buying commercial mortgage-backed
securities (CMBS), which are securities backed by commercial (as

3
<PAGE>

opposed to the more traditional residential) mortgage loans. CMBS deals are
typically issued in several pieces, or tranches, which carry different maturity
dates and credit ratings. Whenever possible, we have bought tranches which fit
the Trust's maturity profile.

To fund the purchase of finite, or "bullet", maturity securities such as
corporates and CMBS, we have been selling bonds whose maturities may extend
beyond the Trust's termination date (we consider these bonds to have "tail
risk"). In our efforts to eliminate these bonds from the portfolio, a particular
focus has been placed on reducing mortgage-backed securities (MBS), whose actual
maturity dates may fluctuate depending on interest rate movements. Additionally,
MBS offer less predictable cash flows than corporates, which typically pay
semi-annually. We believe that the strategy of reducing the Trust's "tail risk"
will enhance the Trust's ability to return its initial offering price upon
termination. Additionally, the Trust's increased corporate holdings may help
produce a more stable income stream.

We appreciate your continued confidence and look forward to managing The
BlackRock 1998 Term Trust Inc. in the coming years to realize its investment
objectives. Please feel free to contact the mutual fund specialists at
BlackRock's marketing center at (800) 227-7BFM (7236) if you have any questions
that are not answered in this report. Additionally, you can reach us via e-mail
at [email protected].

Sincerely,

/s/ Robert S. Kapito /s/ Michael P. Lustig
----------------------------- --------------------------
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Principal and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BBT
- --------------------------------------------------------------------------------
Initial Offering Date: April 19, 1991
- --------------------------------------------------------------------------------
Closing Stock Price as of 12/31/96: $9.375
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/96: $9.86
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/96 ($9.375)1: 5.33%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.04167
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.50004
- --------------------------------------------------------------------------------

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.

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST, INC.
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------

LONG-TERM INVESTMENTS--132.9%
MORTGAGE PASS-THROUGHS--3.9%
Federal Home Loan Bank,
$ 2,000 4.95%, 3/04/98 ............... $ 1,981,250
5,000+ 8.983%, 10/30/97 ............. 5,200,000
Federal Home Loan Mortgage
Corporation,
10,605 4.50%, 12/01/98, 5 Year ...... 10,342,639
4,781 8.50%, 5/01/99, 7 Year ....... 4,909,614
-----------
22,433,503
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--5.8%
AAA 575 American Southwest Financial Corp.,
Series 48, Class 48-E,
9/01/17 ...................... 583,864
CBA Mortgage Corp.,
AAA 5,000 Series 1993-C1, Class A2,
12/25/03 ................... 5,108,047
AA 5,489 Series 1993-C1, Class B,
12/01/03 ................... 5,582,765
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
757 Series 68, Class 68-G,
5/15/19 .................... 765,377
5,962+ Series 1269, Class 1269-S,
5/15/97, (ARM) ............. 6,025,706
1,550 Series 1402, Class 1402-F,
10/15/97, (ARM) ............ 1,515,181
3,084 Series 1436, Class 1436-SE,
12/15/97, (ARM) ............ 2,568,057
233 Series 1513, Class 1513-JA,
11/15/01, (I) .............. 59,754
1,000 Series 1534, Class1534- D,
3/15/15 .................... 985,690
Federal National Mortgage
Association, REMIC Pass-Through
Certificates,
2,867 Trust 1990-43, Class 43-G,
7/25/03 .................... 2,897,694
899 Trust 1991-79, Class 79-S,
7/25/98, (ARM) ............. 962,747
335 Trust 1991-127, Class 127-S,
9/25/98, (ARM) ............. 340,580
3,025 Trust 1992-3, Class 3-S,
1/25/99, (ARM) ............. 3,326,796
1,536 Trust 1992-119, Class 119-S,
8/25/99, (ARM) ............. 1,466,493
3,000 Trust G1993-26, Class 26-PT,
12/25/17, (I) .............. 577,754
4,094 Trust G1993-26, Class 26-PH,
11/25/11, (I) .............. 173,344
7,649 Trust 1993-82, Class 82-J,
11/25/10, (I) .............. 398,896
2,426 Trust 1993-129, Class 129-J,
2/25/07, (I) ............... 248,121
-----------
33,586,866
-----------

CORPORATE BONDS--64.5%
FINANCE & BANKING--32.0%
Baa3 $10,000 AT&T Capital Corp.,
5.81%, 12/04/98 ................ $ 9,888,456
A2 5,000 Allstate Corp.,
5.875%, 6/15/98 ................ 4,983,750
Baa1 11,100 Aristar, Inc.,
8.875%, 8/15/98 ................ 11,548,387
Associates Corp. of North America,
Aa3 6,150 5.58%, 12/14/98 ................ 6,085,775
Aa3 1,500@ 7.30%, 3/15/98 ................. 1,520,430
A1 7,769 Bank of Montreal,
10.00%, 9/01/98 ................ 8,240,129
A3 3,000 Comerica, Inc.,
10.125%, 6/01/98 ............... 3,146,070
Baa2 10,500 Enterprise Rental,
7.875%, 3/15/98 ................ 10,717,279
A1 3,000 First Chicago Corp.,
8.50%, 6/01/98 ................. 3,097,620
A2 6,000 Fleet Financial Group, Inc.,
6.00%, 10/26/98 ................ 5,988,360
A1 10,000 Goldman Sachs Group,
6.10%, 4/15/98 ................. 10,001,485
A3 5,000 Huntington Bankshares, Inc.,
5.68%, 12/08/98 ................ 4,953,050
A1 6,000 ITT Hartford Group,
8.20%, 10/15/98 ................ 6,200,236
A1 6,000 Kemper Corp.,
8.80%, 11/01/98 ................ 6,262,801
Baa1 9,960 Lehman Brothers, Inc.,
5.75%, 11/15/98 ................ 9,846,954
Baa3 8,800 New American Capital, Inc.,
6.9375%, 4/12/00 ............... 8,849,500
A3 4,300 Northern Trust Corp.,
9.00%, 5/15/98 ................. 4,460,605
Norwest Corp.,
Aa3 10,000 5.75%, 11/16/98 ................ 9,931,854
Aa3 5,000 6.00%, 10/13/98 ................ 4,995,400
Baa1 13,897 PaineWebber Group, Inc.,
6.25%, 6/15/98 ................. 13,898,854
A3 5,000 Ryder System, Inc.,
5.78%, 4/27/98 ................. 4,994,700
Salomon, Inc.,
Baa1 5,000 6.70%, 12/01/98 ................ 5,018,900
Baa1 10,000 7.43%, 12/30/98 ................ 10,162,856
A2 11,300 Sears Overseas Finance,
Zero Coupon, 7/12/98 ........... 10,295,893
Smith Barney Holdings, Inc.,
A2 1,000 5.50%, 1/15/99 ................. 986,560
A2 9,000++ 5.625%, 11/15/98 ............... 8,913,420
-----------
184,989,324
-----------

See Notes to Consolidated Financial Statements.

<PAGE>

- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS
INDUSTRIALS--15.9%
A2 $10,000 Atlantic Richfield,
10.25%, 7/02/00 ................. $10,344,394
Caterpillar Financial Services,
A2 5,000 5.18%, 10/01/98 ................. 4,917,245
A2 1,500 5.93%, 12/15/98 ................. 1,493,019
A3 10,000 Chrysler Financial Corp.,
6.04%, 12/07/98 ................. 9,970,161
AA 3,000 Du Pont De Nemours,
8.50%, 6/25/98 .................. 3,098,364
A1 8,000 Ford Motor Credit Co.,
8.00%, 1/15/99 .................. 8,265,272
AAA 1,000 General Electric Capital Corp.,
6.65%, 4/14/08 .................. 1,008,500
General Motors Acceptance Corp.,
A3 8,000 6.125%, 9/18/98 ................. 7,996,525
A3 3,600 7.30%, 2/02/98 .................. 3,654,108
A2 3,000 John Deere Capital Corp.,
7.14%, 9/15/98 .................. 3,048,360
A3 5,000 Lockheed Martin Corp.,
6.625%, 6/15/98 ................. 5,038,550
AAA 8,225 Outlet Broadcasting, Inc.,
10.875%, 7/15/03 ................ 9,085,233
A1 2,000 Pepsico, Inc.,
6.125%, 1/15/98 ................. 2,002,916
A1 1,000 Texaco Capital, Inc.,
8.26%, 9/15/98 .................. 1,034,880
A3 7,000 Textron Financial Services,
6.10%, 6/24/98 .................. 6,988,494
Union Oil Co.,
Baa2 7,500 8.40%, 1/15/99 .................. 7,797,050
Baa2 5,000 8.81%, 5/18/98 .................. 5,169,050
Baa2 1,000 8.84%, 5/18/98 .................. 1,034,200
-----------
91,946,321
-----------

CORPORATE BONDS
UTILITIES--11.7%
Baa2 12,500++ Commonwealth Edison,
6.00%, 3/15/98 .................. 12,484,493
Baa1 5,000 Duquesne Light Co.,
5.85%, 6/01/98 .................. 4,977,300
A3 5,000 GTE Corp.,
8.85%, 3/01/98 .................. 5,157,598
Baa3 2,000 Gulf States Utilities Co.,
7.35%, 11/01/98 ................. 2,026,160
National Rural Utilities,
A1 10,000 5.20%, 1/15/99 .................. 9,807,158
A1 1,000 7.93%, 1/15/99 .................. 1,032,901
A2 5,000 PacifiCorp,
8.95%, 6/30/98 .................. 5,203,306
Baa1 7,000 Philadelphia Electric Co.,
5.375%, 8/15/98 ................. 6,904,510

- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
A2 $ 5,000 Portland General Electric Co.,
5.65%, 5/15/98 .............. $ 4,971,950
Texas Utilities Electric Co.,
Baa2 6,600 5.50%, 10/01/98 ............. 6,526,410
Baa2 1,400 5.75%, 7/01/98 .............. 1,393,336
Baa2 7,050 5.875%, 4/01/98 ............. 7,039,143
-----------
67,524,265
-----------
CORPORATE BONDS
SOVEREIGN & PROVINCIAL--4.9%
Baa3 2,000 Colombia Republic,
7.125%, 5/11/98 ............. 2,010,407
Baa2 8,000 Corporacion Andina De Fomento,
6.625%, 10/14/98 ............ 8,013,112
A1 4,000 Ford Capital B.V.,
9.00%, 8/15/98 .............. 4,172,920
Hydro Quebec,
A2 1,000 7.67%, 11/30/98 ............. 1,025,254
A2 3,000 9.30%, 10/28/98 ............. 3,155,412
A2 7,000 9.55%, 1/06/98 .............. 7,240,793
Aaa 1,400 International Bank For
Reconstruction &
Development Colts,
8.85%, 2/16/98 .............. 1,442,687
Aa3 1,000 Ontario Province,
15.75%, 3/15/12 .............. 1,080,900
-----------
28,141,485
-----------

ASSET-BACKED SECURITIES--32.2%
Aa2 10,862+ Airplanes Passthru Trust
Certificates, Series 1
Class A 5, 5.95%, 3/15/19 .... 10,869,093
Banc One Auto Grantor Trust,
Series 1996- A, Class A,
AAA 17,025++ 6.10%, 10/15/02 .............. 17,052,086
Series 1996-B, Class A,
AAA 8,315 6.55%, 2/15/03 ............... 8,360,284
AAA 27,630++ Banc One Credit Card Master Trust,
Series 1994- C, Class A,
7.80%, 12/15/00 .............. 28,493,437
AAA 15,090++ Chase Manhattan Grantor Trust,
Automobile Loan Pass-Through,
Series 1996-B, Class A, 6.61%,
9/15/02 ...................... 15,193,373
AAA 9,965++ Chevy Chase Auto Receivables,
Series 1996-1, Class A,
6.60%, 12/15/02 .............. 10,037,879
AAA 14,600++ Dayton Hudson Credit Card Trust,
Series 1995-1, Class A,
6.10%, 2/25/02 ............... 14,620,531
Discover Card Master Trust,
Series 1991-D, Class A,
AAA 27,295++ 8.00%, 10/16/00 .............. 28,079,731
Series 1991-F, Class A,
AAA 12,380++ 7.85%, 11/21/00 .............. 12,708,844

See Notes to Consolidated Financial Statements.

<PAGE>

STRIPPED MORTGAGE-BACKED
SECURITIES--3.4%
AAA 5 American Housing Trust VIII,
Mortgage Pass-Through
Certificates, Series 8,
Class M, 1/25/21 (I/O) ......... 1,277,586
303 Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
Series 1700, Class 1700-A,
2/15/24 (P/O) ................ 301,551
2,000 Series 1700, Class 1700-B,
7/15/23, (P/O) ............... 1,820,000
Federal National Mortgage
Association,
14,452 Trust 15, Class 2, 4/01/02 (I/O) 2,086,456
35 Trust 1991-101, Class 101-D,
8/25/18 (I/O) ................ 8,317
6,171 Trust 1991-121, Class 121-B,
9/25/98 (P/O) ................ 5,732,432
6,733 Trust 1992-192, Class 192-G,
5/25/04 (I/O) ................ 769,486
7,496 Trust 1993-158, Class 158-C,
5/25/14 (P/O) ................ 7,256,058
-----------
19,251,886
-----------

U.S GOVERNMENT SECURITIES--18.2%
13,100 Tennessee Valley Authority,
Power Bond, Series 1996,
5.98%, 4/01/36 ................. 13,304,884
United States Treasury Notes,
7,000++ 5.125%, 12/31/98 ............... 6,902,630
25,000++ 5.50%, 11/15/98 ................ 24,832,000
11,360+ 6.00%, 8/15/99 ................. 11,358,182
4,000+ 6.25%, 7/31/98 ................. 4,025,640
50,000 United States Treasury Strips,
11/15/98 ....................... 44,867,500
-----------
105,290,836
-----------

MUNICIPAL ZERO COUPON BONDS--1.0%
6,375 Essex County, Taxable Refunding,
Zero Coupon, Series N,
11/15/98 ....................... 5,693,130
-----------

CONTRACTS # PUT OPTIONS PURCHASED--0.1%
-----------
400 U.S. Treasury Note, 7.00%, 7/15/06
@ $102, expires 7/2/97 ......... 606,240
-----------

Total long-term investments
(cost $771.212,487) ............. 767,633,640
-----------

PRINCIPAL
AMOUNT SHORT-TERM INVESTMENTS--4.0%
(000) CERTIFICATE OF DEPOSIT--2.2%
---------
13,000 MBNA,
6.15%, 6/19/98 .................. 13,000,000
DISCOUNT NOTES--1.3%
6,690 Federal Home Loan Bank,
6.50%, 1/02/97 .................. 6,688,792
980 Federal Home Loan Mortgage
Discount Notes,
6.502%, 1/02/97 ................. 979,823

CORPORATE BONDS--0.3%
Aa3 1,000 Norwest Corp., 7.70%, 11/15/97 ..... 1,014,650
Baa3 868 Connecticut Light & Power Co.,
7.625%, 4/1/97 .................. 868,000

ASSET-BACKED SECURITIES--0.2%
AAA 1,278 Telmex Trust
6.50224%, 4/1/97 ................ 1,277,982
-----------
Total short-term investments
(cost $23,831,282) ............... 23,829,247
-----------
Total Investments before investment
sold short-136.9%
(cost $795,043,769) ............. 791,462,887
-----------

See Notes to Consolidated Financial Statements.

7
<PAGE>

- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------

INVESTMENT SOLD SHORT--(6.1%)
$(35,000) United States Treasury Notes,
6.125%, 8/31/98
(proceeds $34,907,031) ............. $(35,152,950)
------------

Total Investments net of
short sale--130.8%
(cost $760,136,738) ................ 56,309,937

Liabilities in excess of other
assets--(30.8%) .................... (178,168,560)
------------

NET ASSETS--100% ..................... $578,141,377
============

- ----------

* Using the higher of Standard & Poor's or Moody's rating.
+ In aggregate, $32,036,766 of principal amount pledged as collateral for
reverse repurchase agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
# One contract equals 100,000 face value.
@ $760,215 principal amount pledged as collateral for futures
transactions.

- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
G.O.-- General Obligation Bond.
I -- Denotes a CMO with interest only characteristics.
I/O -- Interest Only.
P -- Denotes a CMO with principal only characteristics.
P/O -- Principal Only.
REMIC-- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED STATEMENT OF ASSETS
AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------

ASSETS
Investments, at value (cost $795,043,769)
(Note 1) ................................................ $ 791,462,887
Cash ...................................................... 152,669
Deposit with broker as collateral for
investments sold short (Note 1) ......................... 35,875,000
Interest receivable ....................................... 10,053,872
Unrealized appreciation on interest rate swap ............. 650,627
Due from broker-variation margin .......................... 5,001
Other assets .............................................. 47,546
-------------
838,247,602
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) .................... 213,466,000
Investment sold short at value
(proceeds $34,907,031) (Note 1) ......................... 35,152,950
Payable for investments purchased ......................... 5,693,130
Interest payable .......................................... 1,998,441
Dividends payable ......................................... 2,444,384
Advisory fee payable (Note 2) ............................. 197,839
Administration fee payable (Note 2) ....................... 49,460
Excise tax payable ........................................ 916,097
Other accrued expenses .................................... 187,924
-------------
260,106,225
-------------
NET ASSETS ................................................ $ 578,141,377
=============

Net assets were comprised of:
Common stock, at par (Note 5) ........................... $ 586,605
Paid-in capital in excess of par ........................ 552,328,394
-------------
552,914,999
Undistributed net investment income ..................... 26,211,416
Accumulated net realized gain ........................... 2,181,645
Net unrealized depreciation ............................. (3,166,683)
-------------
Net assets, December 31, 1996 ........................... $ 578,141,377
-------------

Net asset value per share:
($578,141,377 / 58,660,527 shares of
common stock issued and outstanding) .................... $9.86
=====

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------

NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$8,007,953 and interest expense
of $15,915,900) ......................................... $ 37,567,667
------------
Operating Expenses
Investment advisory ....................................... 2,311,481
Administration ............................................ 582,601
Reports to shareholders ................................... 334,000
Custodian ................................................. 150,000
Transfer agent ............................................ 72,000
Directors ................................................. 72,000
Legal ..................................................... 35,000
Audit ..................................................... 29,000
Miscellaneous ............................................. 284,123
------------
Total operating expenses ................................ 3,870,205
------------
Net investment income before excise tax ..................... 33,697,462
Excise tax ................................................ 1,200,000
------------
Net investment income ....................................... 32,497,462
------------

REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss)
Investments ............................................... 1,918,567
Short sales ............................................... (519,112)
Futures ................................................... (16,685)
------------
1,382,770
------------
Net change in unrealized appreciation (depreciation)
Investments ............................................... 284,726
Short sales ............................................... (245,919)
Futures ................................................... (865,726)
------------
(826,919)
------------
Net gain on investments ..................................... 555,851
------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................... $ 33,053,313
============

See Notes to Consolidated Financial Statements.

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received ......................... $ 58,900,841
Operating expenses and excise taxes paid .. (4,656,669)
Interest expense paid ..................... (15,322,952)
Purchase of short-term
portfolio investments, net .............. (11,850,024)
Purchase of long-term portfolio investments (1,907,544,997)
Proceeds from disposition of long-term
portfolio investments ................... 1,937,938,766
Variation margin on futures ............... (710,285)
Other ..................................... 55,162
--------------
Net cash flows provided by
operating activities .................... 56,809,842
--------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements . (27,405,229)
Cash dividends paid ....................... (29,332,384)
--------------
Net cash flows used for financing
activities .............................. (56,737,613)
--------------
Net increase in cash ........................ 72,229
Cash at beginning of year ................... 80,440
--------------
Cash at end of year ......................... $ 152,669
===============

RECONCILIATION OF NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES
Net increase in net assets resulting from
operations .................................. $ 33,053,313
--------------
Decrease in investments .................... 64,181,008
Net realized gain ........................... (1,382,770)
Increase in unrealized depreciation ........ 826,919
Increase in interest receivable ............ (2,590,679)
Decrease in depreciation of interest rate floor (988,963)
Increase in appreciation of interest rate swap (650,627)
Decrease in variation margin receivable ... 162,124
Increase in deposits with broker for
investments sold short .................... (35,875,000)
Increase in other assets ................. (34,897)
Decrease in payable for investments purchased. (36,050,020)
Increase in interest payable ............. 592,948
Increase in payable for securities sold short 35,152,950
Increase in accrued expenses and other
liabilities ............................... 413,536
-------------
Total adjustments ......................... 23,756,529
-------------
Net cash provided by operating activities ... $ 56,809,842
=============

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED STATEMENT OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
------ ------
INCREASE (DECREASE) IN
NET ASSETS

Operations:

Net investment income ..... $ 32,497,462 $ 40,073,177

Net realized gain
on investments,
short sales and futures . 1,382,770 6,555,447

Net change in net
unrealized appreciation
(depreciation) on
investments, short
sales and futures ....... (826,919) 32,584,414
------------- -------------

Net increase
in net assets
resulting from operations 33,053,313 79,213,038

Dividends from net
investment income ....... (29,332,354) (31,166,089)
------------- -------------

Total increase ............ 3,720,959 48,046,949

NET ASSETS

Beginning of year ....... 574,420,418 526,373,469
------------- -------------

End of year ................. $ 578,141,377 $ 574,420,418
============= =============

See Notes to Consolidated Financial Statements.

10
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,

1996 1995 1994 1993 1992
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ...... $ 9.79 $ 8.97 $ 9.91 $ 10.22 $ 10.39
----------- ----------- ----------- ----------- ----------
Net investment income (net of $.27,
$.29, $.13, $.14, and $.18,
respectively, of interest expense) .. .55 .68 .58 .81 .92
Net realized and unrealized gain (loss)
on investments, short sales and
futures ............................. .02 .67 (.89) (.40) (.31)
----------- ----------- ----------- ----------- ----------
Net increase (decrease) from investment
operations ............................ .57 1.35 (.31) .41 .61
----------- ----------- ----------- ----------- ----------
Dividends from net investment income .... (.50) (.53) (.63) (.72) (.78)
----------- ----------- ----------- ----------- ----------
Net asset value, end of year* ........... $ 9.86 $ 9.79 $ 8.97 $ 9.91 $ 10.22
=========== =========== ========== =========== ===========

Market value, end of year* .............. $ 9.375 $ 8.875 $ 8.00 $ 10.125 $ 9.875
------------ ------------ ---------- ------------ ------------

TOTAL INVESTMENT RETURN+: ............... 11.46% 17.73% (15.15%) 10.13% 1.40%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses @ .................... .67% .67% 0.81% 0.81% 0.75%
Net investment income ................... 5.65% 7.21% 6.21% 7.95% 9.01%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ....... $ 574,738 $ 555,561 $ 546,853 $ 600,058 $ 601,439
Portfolio turnover ...................... 225% 136% 193% 55% 8%
Net assets, end of period (in thousands) $ 578,141 $ 574,420 $ 526,373 $ 581,169 $ 599,324
Reverse repurchase agreements
outstanding, end of year (in
thousands) ............................ $ 213,466 $ 240,871 $ 175,091 $ 272,866 $ 267,893
Asset coverage++ ........................ $ 3,708 $ 3,385 $ 4,006 $ 3,130 $ 3,237
</TABLE>

- ----------
* Net asset value and market value published in The Wall Street Journal each
Monday.
@ The ratios of operating expenses, including interest expense, to average
net assets were 3.44%, 3.76%, 2.19%, 2.14%, and 2.56% for the periods
indicated above, respectively. The ratios of operating expenses, including
interest expense and excise tax, to average net assets were 3.65%, 3.85%,
2.28%, 2.15%, and 2.63% for the years indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
This calculation does not reflect brokerage commissions. Total investment
returns for periods of less than one full year are not annualized.
++ Per $1,000 of reverse repurchase agreement outstanding.

The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for 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 Consolidated Financial Statements.

11
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERMTRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock 1998 Term Trust Inc. (the "Trust"), a
POLICIES 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 (the initial public offering
price per share) to investors on or shortly before December 31, 1998 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.

On August 19, 1996 the Trust transferred a substantial portion of its
total assets to a 100% owned regulated investment company subsidiary called
BBTSubsidiary, Inc. These consolidated financial statements include the
operations of both the Trust and its wholly-owned subsidiary, after elimination
of all intercompany transactions and balances.

The following is a summary of significant accounting policies followed by
the Trust.

SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors.

Short-term securities which mature in 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.

In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.

OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.

Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.

Option selling and purchasing is used by the Trust to effectively hedge
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the

12
<PAGE>

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"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 the risk
of not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.

SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
brokerdealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount will be recognized upon the termination of a short sale if the
market price is less or greater than the proceeds originally received.

SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay inrecovery 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 year ended December 31, 1996.

INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate
of interest on a notional principal amount and receives a fixed rate of interest
on the same notional principal amount for a specified period of
time.Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate

13
<PAGE>

swaps were conceived as asset/liability management tools. In more complex swaps,
the notional principal amount may decline (or amortize) over time.

During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by "marking-to-market" to reflect the
market value of the swap. When the swap is terminated, the Trust will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Trust's basis in the contract, if any.

The Trust is exposed to credit loss in the event of non-performance by the
other party to the mortgage swap. However, the Trust does not anticipate
non-performance by any counterparty.

INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed rate.

Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. 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. Owning interest rate caps reduces the
portfolio's duration, making it less sensitive to changes in interest rates from
a market value perspective. The effect on income involves protection from rising
short term rates, which the Trust experiences primarily in the form of leverage.

The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.

INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate under a specified fixed rate.

Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. 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. Owning interest rate floors
reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from falling short term rates, which the Trust experiences primarily
in the form of leverage.

The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.

SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes discount and amortizes premium on
securities purchased using the interest method. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.

TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. As part of its tax planning
strategy, the Trust intends to retain a portion of its taxable income and pay an
excise tax on the undistributed amounts.

DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.

Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.

DEFERRED ORGANIZATION EXPENSES: A total of $70,000 was incurred in connection
with the organization of the Trust. These costs were deferred and amortized
ratably over a period of sixty months from the date the Trust commenced
investment operations.

A total of $50,000 was incurred in connection with the organization of the
Subsidiary Fund. These costs have been deferred and are being amortized ratably
over a period beginning the date the Trust commenced investment operations and
ending at the Trust's termination date.

ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect

14
<PAGE>

the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the A.I.C.P.A's Statement of
Position 93-2: Determination, Disclosure, and Return of Capital Distributions by
Investment Companies. The effect caused by applying this statement was to
decrease paid-in capital and increase undistributed net investment income by
$1,200,000 due to certain expenses not being deductible for tax purposes. Net
investment income, net realized gains and net assets were not affected by this
change.

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 Prudential Mutual Fund Management, LLC, an
indirect wholly-owned subsidiary of The Prudential Insurance Co. of America.

The investment advisory fee paid to the Adviser was computed weekly and
payable monthly at an annual rate of 0.40% of the Trust's average weekly net
assets from January 1, 1995 to December 31, 1996 and 0.30% from January 1, 1997
to the termination or liquidation of the Trust. The administration fee paid to
PMF was also computed weekly and payable monthly at an annual rate of 0.10% of
the Trust's average weekly net assets from January 1, 1995 to December 31, 1996
and 0.08% from January 1, 1997 to the termination or liquidation of the Trust.

Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Advisor. PMF pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.

NOTE 3. PORTFOLIO Purchases and sales of investment securities, other
SECURITIES than short-term investments, and dollar rolls for
the year ended December 31, 1996 aggregated
$1,871,494,977 and $1,824,856,681 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 December 31, 1996, the Trust
did not hold any illiquid securities.

The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates. It is possible under
certain circumstances, PNC Mortgage Securities Corp. or its affiliates could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates.

The federal income tax basis of the Trust's investments at December 31,
1996 was substantially the same as for financial reporting purposes and,
accordingly, net unrealized depreciation for federal income tax purposes was
$3,580,882 (gross unrealized appreciation-$407,313; gross unrealized
depreciation-$3,988,195).

For federal income tax purposes, the Trust's year-end is December 31 and
its wholly-owned subsidiary's year-end is June 30. For federal income tax
purposes, the Trust has a capital loss carryforward at December 31, 1996 of
approximately $792,000 which will expire at the termination of the Trust. Such
carryforward amount is after realization of approximately $1,244,500 in net
taxable gains recognized during the year ended December 31, 1996. Accordingly,
no capital gains distribution is expected to be paid to until net gains have
been realized in excess of such amounts.

During the year ended December 31, 1996, the Trust entered into financial
futures contracts. Details of open contracts at December 31, 1996 were as
follows:

VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE DECEMBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 1996 APPRECIATION
- --------- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C>
Short
position:
30 Yr. March
4 T-Bond 1997 $459,982 $450,500 $9,482
======
</TABLE>

The Trust entered into interest rate swaps with original notional amounts
as stated below. Under these agreements, the Trust receives a fixed rate and
pays a floating rate.
<TABLE>
<CAPTION>
CURRENT
NOTIONAL
AMOUNT FIXED TERMINATION UNREALIZED
(000) TYPE RATE FLOATING RATE DATE APPRECIATION
-------- ------------------ ------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C>
$44,000 Interest Rate Swap 7.25% 3-mo. LIBOR Dec. `98 $213,268
16,000 Interest Rate Swap 7.27% 3-mo. LIBOR Dec. `98 82,318
32,000 Interest Rate Swap 6.991% 3-mo. LIBOR Dec. `98 121,459
23,000 Interest Rate Swap 7.00% 3-mo. LIBOR Dec. `98 77,165
16,000 Interest Rate Swap 7.00% 3-mo. LIBOR Dec. `98 65,730
10,000 Interest Rate Swap 6.988% 3-mo. LIBOR Dec. `98 47,143
10,000 Interest Rate Swap 6.975% 3-mo. LIBOR Dec. `98 43,544
--------
$650,627
========
</TABLE>

15
<PAGE>

NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust may enter
into reverse repurchase agreements with qualified,
third party broker-dealers as determined by and under the direction of the
Trust's Board of Directors. Interest on the value of reverse repurchase
agreements issued and out standing 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 daily balance of reverse repurchase agreements outstanding
during the year ended December 31, 1996 was approximately $254,471,841 at a
weighted average interest rate of approximately 5.54%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the year ended
December 31, 1996 was $286,088,438 on April 30, 1996 which was 33.23% of total
assets.

DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. The Trust did not enter into dollar rolls during the
year ended December 31, 1996.

NOTE 5. CAPITAL There are 200 million shares of $.01 par value common
stock authorized. Of the 58,660,527 shares outstand-
ing at December 31, 1996, the Adviser owned 10,527 shares.

NOTE 6. DIVIDENDS Subsequent to December 31, 1996, the Board of
Directors of the Trust declared a dividend from
undistributed earnings of $.04167 per share payable February 28, 1997 to
shareholders of record on February 14, 1997.

NOTE 7. QUARTERLY DATA
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED
GAINS (LOSSES)
NET INVESTMENT ON INVESTMENTS
QUARTERLY TOTAL INCOME SHORT SALES AND FUTURES
PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE
------ --------- ---------------------- -----------------------
<S> <C> <C> <C> <C> <C>
January 1, 1995 to March 31, 1995 .. $ 9,823,286 $ 9,302,856 $ 0.16 $17,647,060 $ 0.30
April 1, 1995 to June 30, 1995 ..... 13,549,353 12,738,471 0.22 8,042,270 0.14
July 1, 1995 to September 30, 1995 . 9,242,199 7,798,916 0.13 4,526,627 0.08
October 1, 1995 to December 31, 1995 11,704,659 10,232,934 0.17 8,923,904 0.15
January 1, 1996 to March 31, 1996 .. 9,310,675 8,048,579 0.13 (6,082,149) (0.10)
April 1, 1996 to June 30, 1996 ..... 9,363,583 8,399,667 0.15 (301,605) 0.00
July 1, 1996 to September 30, 1996 . 8,953,190 8,329,557 0.14 2,397,610 0.04
October 1, 1996 to December 31, 1996 9,940,219 7,719,659 0.13 4,541,995 0.08
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE PERIOD
IN NET ASSETS DIVIDENDS END
RESULTING FROM AND NET
QUARTERLY OPERATIONS DISTRIBUTIONS SHARE PRICE ASSET
PERIOD AMOUNT PER SHARE AMOUNT PER SHARE HIGH LOW VALUE
------ ---------------------- -------------------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 to March 31, 1995 .. $26,949,916 $ 0.46 $5,622,497 $ 0.10 $8 7/8 $7 7/8 $ 9.34
April 1, 1995 to June 30, 1995 ..... 20,780,741 0.36 8,433,037 0.14 9 3/8 8 1/2 9.55
July 1, 1995 to September 30, 1995 . 12,325,543 0.21 7,333,046 0.13 9 3/8 8 1/2 9.63
October 1, 1995 to December 31, 1995 19,156,838 0.32 9,777,509 0.16 9 1/8 8 3/4 9.79
January 1, 1996 to March 31, 1996 .. 1,966,430 0.03 4,888,705 0.08 9 1/4 8 3/4 9.74
April 1, 1996 to June 30, 1996 ..... 8,098,062 0.15 7,333,100 0.13 9 1/4 9 3/4 9.76
July 1, 1996 to September 30, 1996 . 10,727,167 0.18 7,333,075 0.12 9 3/8 9 9.81
October 1, 1996 to December 31, 1996 12,261,654 0.21 9,777,474 0.17 9 3/8 9 1/4 9.86
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

16
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

The Shareholders and Board of Directors of
The BlackRock 1998 Term Trust Inc.:

We have audited the accompanying consolidated statement of assets and
liabilities of The BlackRock 1998 Term Trust Inc. and its subsidiary including
the consolidated portfolio of investments, as of December 31, 1996, and the
related consolidated statements of operations and of cash flows for the year
then ended, the consolidated statement of changes in net assets for each of the
two years in the period then ended, and the consolidated financial highlights
for each of the five years in the period then ended. These consolidated
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1996, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial statements and financial highlights
present fairly, in all material respects, the consolidated financial position of
The BlackRock 1998 Term Trust Inc. and its subsidiary as of December 31, 1996,
the results of their operations, their cash flows, the changes in their net
assets and the financial highlights for the respective stated periods, in
conformity with generally accepted accounting principles.

/s/ Deloitte & Touche LLP
- ------------------------------
DELOITTE & TOUCHE LLP

New York, New York
February 3, 1997

17
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------

We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during the fiscal year ended December 31, 1996.

During the fiscal year ended December 31, 1996, the Trust paid dividends
of $0.50004 per share from net investment income. For federal income tax
purposes, the aggregate of any dividends and short-term capital gains
distributions you received are reportable in your 1996 federal income tax
returns as ordinary income. Further, we wish to advise you that your income
dividends do not qualify for the dividends received deduction.

For the purpose of preparing your 1996 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January 1997.

- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------

Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the "Plan Agent")
in Trust shares pursuant to the Plan. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in United States
dollars mailed directly to the shareholders of record (or if the shares are held
in street or other nominee name, then to the nominee) by the transfer agent as
dividend disbursing agent.

The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan.

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, state or local income taxes that
may be payable on such dividend or distributions.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Trust at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days' written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of
this report.

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

There have been no other material changes in the Trust's investment
objectives or policies that have not been approved by the shareholders, or to
its charter or by-laws, or in the principal risk factors associated with
investment in the Trust. There have been no changes in the persons who are
primarily responsible for the day-to-day management of the Trust's portfolio.

18
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------

THE TRUST'S INVESTMENT OBJECTIVE

The Trust's investment objective is to manage a portfolio of invesment 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,
1998 while providing high monthly income.

WHO MANAGES THE TRUST?

BlackRock Financial Management, Inc. ("BlackRock") is the investment advisor for
the Trust. BlackRock is a registered investment advisor specializing in fixed
income securities. Currently, BlackRock manages approximately $43 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 American Stock
Exchange, several open-end funds and separate accounts for more than 100 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 1998. 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 Advisor
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
on the yield curve (i.e. if the Trust has three years left until its maturity,
the Adviser will attempt to maintain a yield at a spread over a 3-year
Treasury). It is important to note that the Trust will be managed so as to
preserve the integrity of the return of the initial offering price.

<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, State Street
Bank &Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.

LEVERAGE CONSIDERATIONS IN A TERM TRUST

Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets.

Leverage also increases the duration (or price volatility of the net assets) of
the Trust,which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rising rate environment. BlackRock's portfolio managers continuously monitor and
regularly review the Trust's use of leverage and the Trust may reduce, or
unwind, the amount of leverage employed should BlackRock consider that reduction
to be in the best interests of the shareholders.

SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS

The Trust is intended to be a long-term investment and is not a short-term
trading vehicle.

RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.

DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.

LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.

MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BBT) 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 movement on the 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 total 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.

20
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with interest rates that
adjust at periodic intervals at a fixed amount
relative to the market levels of interest rates
as reflected in specified indexes. ARMs are
backed by mortgage loans secured by real
property.

ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit card
receivables.

CLOSED-END FUND: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies. One of the
advantages of a closed-end fund is the
diversification it provides through its multiple
holdings.

COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS): Mortgage-backed securities which separate
mortgage pools into short-, medium-, and long-
term securities with different priorities for
receipt of principal and interest. Each class is
paid a fixed or floating rate of interest at
regular intervals. Also known as multiple-class
mortgage pass-throughs.

DISCOUNT: When a fund's net asset value is greater than
its stock price the fund is said to be trading
at a discount.

DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders after
the deduction of expenses. This Trust declares
and pays dividends on a monthly basis.

DIVIDEND REINVESTMENT: Shareholders may elect to have all dividends and
distributions of capital gains automatically
reinvested into additional shares of the Trust.

FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.

FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered corporation
that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as
savings institutions and reselling them to
investors by means of mortgage-backed
securities. Obligations of FHLMC are not
guaranteed by the U.S. government, however; they
are backed by FHLMC's authority to borrow from
the U.S. government. Also known as Freddie Mac.

FNMA: Federal National Mortgage 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 payment of interest and
principal on mortgages. GNMA's obligations are
supported by the full faith and credit of the
U.S. Treasury. Also known as Ginnie Mae.

GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA (Federal
National Mortgage Association) and FHLMC
(Federal Home Loan Mortgage Corporation).

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 STRIP.

21
<PAGE>

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 aswell as the interest earned on the cash
proceeds of the initial sale.

MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae,
Freddie Mac or Ginnie Mae.

MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.

NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus
any liabilities including accrued expenses,
divided by the total number of outstanding
shares. It is the underlying value of a single
share on a given day. Net asset value for the
Trust is calculated weekly and published in
Barron's on Saturday and The Wall Street Journal
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. Also known as STRIP.

PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.

PREMIUM: When a fund's stock price is greater than its
net asset value, the fund is said to be trading
at a premium.

REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as
a trust, corporation, partnership, or segregated
pool of assets that elects to be treated as a
REMIC for federal tax purposes. Generally, Fannie
Mae REMICs are formed as trusts and are backed by
mortgage-backed securities.

RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from the
mortgage assets underlying the CMO after payment
of principal and interest on the other CMO
securities and related administrative expenses.

REVERSE In a reverse repurchase agreement, the Trust
REPURCHASE AGREEMENTS: 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 Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's are
examples of strips.

22
<PAGE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- ----------------------------------------------------------------------------------------
TAXABLE TRUSTS
- ----------------------------------------------------------------------------------------
STOCK TERMINATION
PERPETUAL TRUSTS SYMBOL DATE
<S> <C> <C>
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
- ----------------------------------------------------------------------------------------
STOCK TERMINATION
PERPETUAL TRUSTS 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
</TABLE>

IF YOU WOULD LIKE FURTHER INFORMATION
PLEASE CALL BLACKROCK AT (800) 227-7BFM (7236)
OR CONSULT WITH YOUR FINANCIAL ADVISOR.

<PAGE>

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
Scott Amero, Vice President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Robert S. Kapito, Vice President
Richard M. Shea, Vice President/Tax
Henry Gabbay, Treasurer
James Kong, Assistant Treasurer
Karen H. Sabath, Secretary

INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM

ADMINISTRATOR
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 10702-4077

CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM

INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434

LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022

This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.

THE BLACKROCK 1998 TERM TRUST INC.
c/o Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 10702-4077
(800) 227-7BFM

[Logo] Printed on recycled paper 09247N-10-3

THE BLACKROCK
1998 TERM
TRUST INC.
================================================================================
CONSOLIDATED
ANNUAL REPORT
DECEMBER 31, 1996

[GRAPHIC]