- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
July 31, 1998
Dear Shareholder:
Domestic bonds provided investors with modest total returns during the
past six months, as interest rates generally fell. Supporting the bond market
was favorable inflation news and the belief that the Federal Reserve is unlikely
to raise short-term interest rates in the immediate future.
U.S. economic growth has slowed of late after a robust first quarter of
1998. We expect the fallout from the Asian fiscal crisis to quash any
significant rebound in U.S. growth for the remainder of the year. While we
expect that interest rates will be fairly stable in the near-term, our
longer-term outlook for the bond market remains optimistic, based on the
fundamentally favorable backdrop of low inflation, a currently high level of
real yields, and declining Treasury borrowing.
As you may know, the five investment management firms that comprised the
PNC Asset Management Group have consolidated under BlackRock, resulting in
BlackRock Inc., a $119 billion money management firm. We look forward to using
our global investment management expertise to present exciting investment
opportunities to closed-end fund shareholders in the future.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1998
Dear Shareholder:
We are pleased to present the final shareholder report for The BlackRock
1998 Term Trust Inc. ("the Trust", or "BBT") for the six months ended June 30,
1998. As of this writing, the Trust's net asset value is $10.03 per share. The
current distribution is $0.039583 monthly ($0.475 annualized) and is not
expected to change prior to the Trust's termination. Although there can be no
assurances, we are confident that we will be able to meet the Trust's primary
objective of returning $10.00 at the end of its term this December. Thanks to
the overwhelming response to our survey earlier this year (we received more than
double our expectations and three times the industry average), we have been
developing a new product into which shareholders may invest the proceeds of
their maturing BBT investment. Information on this exciting closed-end
investment opportunity will be provided to you during the next few months
through the same manner in which you receive this report.
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 extrememly confident that the Trust will achieve its
investment objectives. The Trust seeks these objectives by investing in
investment grade fixed income securities, including corporate debt securities,
mortgage-backed securities backed by U.S. Government agencies (such as Fannie
Mae, Freddie Mac or Ginnie Mae), asset-backed securities and commercial
mortgage-backed securities. All of the Trust's assets must be rated at least
"BBB" by Standard & Poor's or "Baa" by Moody's at time of purchase or be issued
or guaranteed by the U.S. Government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV (the market value of its assets per share) over the period:
<TABLE>
<CAPTION>
----------------------------------------------------------
6/30/98 12/31/97 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
STOCK PRICE $9.8125 $9.7500 0.64% $9.8750 $9.7500
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $10.03 $9.97 0.60% $10.03 $9.96
- ----------------------------------------------------------------------------------------------
5-YEAR U.S. TREASURY NOTE 5.47% 5.71% (0.24%) 5.79% 5.21%
- ----------------------------------------------------------------------------------------------
</TABLE>
THE FIXED INCOME MARKETS
After an extremely strong first quarter of 1998, U.S. economic growth
slowed during the past three months. Despite the strong economic growth of the
past year, inflation stayed surprisingly subdued. One explanation for the
absence of inflation in the U.S. economy stems from the aftermath of the Asian
financial crisis. U.S. exports to Asia have slowed, while the strength of the
dollar caused cheap Asian imports to flood the U.S. market and exert downward
price pressure on domestic goods.
Yields of U.S. Treasury securities have remained in a fairly narrow range
during the period. For example, the yield of the 10-Year Treasury posted a net
decline of 29 basis points (0.29%), beginning 1998 at 5.74% and closing on June
30,
2
<PAGE>
1998 at 5.45%. The past six months represented a continuation of strong Treasury
performance, which has been due to moderating economic growth, low inflation and
a "flight to quality" from investors seeking a safe haven in U.S. Treasury
securities. Continued expectations that the Asian crisis will slow economic
growth and that the Fed will adopt an easing bias provided additional support to
the bond market. With Treasury supply waning due to a surplus in the federal
budget and an increased foreign demand for Treasuries due to their U.S.
government backing and relatively attractive yields, we anticipate a positive
environment for Treasuries for the balance of 1998.
In light of declining interest rates and faster prepayment speeds during
the period, mortgages modestly underperformed the broader investment grade bond
market. As measured by the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a
3.37% total return versus 3.92% for the LEHMAN BROTHERS AGGREGATE INDEX.
Mortgage rates fell below the critical 7% threshold for the first time since
January 1994, causing concerns that increased refinancing activity would
negatively impact the performance of mortgage securities. Accordingly, lower
coupon securities generally outperformed more prepayment-sensitive higher-coupon
issues. The financial turmoil in Asia caused a decline in perceived corporate
bond credit quality ratings and as a result corporate bonds underperformed
Treasuries during both the first and second quarters. Lower interest rates
brought a flood of new corporate supply during the first quarter of 1998,
contributing to the modest performance of corporates.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and December 31, 1997 asset
composition.
<TABLE>
<CAPTION>
THE BLACKROCK 1998 TERM TRUST INC.
----------------------------------------------------------------------------
COMPOSITION JUNE 30, 1998 DECEMBER 31, 1997
<S> <C> <C>
----------------------------------------------------------------------------
Corporate Bonds 44% 63%
----------------------------------------------------------------------------
Asset-Backed Securities 36% 18%
----------------------------------------------------------------------------
U.S. Government Securities 9% 8%
----------------------------------------------------------------------------
Mortgage Pass-Throughs 5% 2%
----------------------------------------------------------------------------
Municipal Bonds 5% 4%
----------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 1% 1%
----------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 0% 2%
----------------------------------------------------------------------------
Taxable Zero Coupon Bonds 0% 1%
----------------------------------------------------------------------------
Inverse Floating Rate Mortgages 0% 1%
----------------------------------------------------------------------------
</TABLE>
<TABLE>
----------------------------------------------------------------------------
RATING % OF CORPORATES
CREDIT RATING JUNE 30, 1998 DECEMBER 31, 1997
----------------------------------------------------------------------------
<S> <C> <C>
AAA or equivalent 4% 3%
----------------------------------------------------------------------------
AA or equivalent 15% 7%
----------------------------------------------------------------------------
A or equivalent 60% 51%
----------------------------------------------------------------------------
BBB or equivalent 21% 39%
----------------------------------------------------------------------------
</TABLE>
3
<PAGE>
As the Trust is in excellent position to return $10.00 per share,
portfolio management activity during the period further prepared the portfolio
for a successful termination at the end of 1998. As of June 30, approximately 4%
of the Trust was in cash equivalents, which is a result of securities maturing
and the realization of capital gains by the Trust. This percentage will rise as
the remainder of the Trust's assets mature prior to December 31, 1998. As has
been the Trust's practice, additions to the portfolio were confined to bonds
whose final maturities occur on or shortly before December 31, 1998. To that
end, investment grade corporates, asset-backed securities (ABS) and
well-structured mortgages were considered for purchase. The Trust was active in
reducing positions in bonds that have maturity dates or potential cash flows
after the Trust's termination date, such as Agency CMO's. Lastly, the Trust's
use of leverage was eliminated and the Trust does not expect to utilize leverage
before termination.
We thank you for your investment in the BlackRock 1998 Term Trust Inc.
Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you
have specific questions about the Trust or its termination. We look forward to
being able to serve your future investment needs.
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
- -------------------- ---------------------
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
-----------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
-----------------------------------------------------------------------------
Symbol on New York Stock Exchange: BBT
-----------------------------------------------------------------------------
Initial Offering Date: April 19, 1991
-----------------------------------------------------------------------------
Closing Stock Price as of 6/30/98: $9.8125
-----------------------------------------------------------------------------
Net Asset Value as of 6/30/98: $10.03
-----------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/98 ($9.8125)1: 4.84%
-----------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.039583
-----------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.475
-----------------------------------------------------------------------------
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.
4
<PAGE>
- -------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--82.4%
MORTGAGE PASS-THROUGHS--1.1%
Federal Home Loan Mortgage Corp.,
$ 5,817 4.50%, 12/01/98, 5 Year ............... $ 5,791,804
942 8.50%, 5/01/99, 7 Year ................. 943,610
----------
6,735,414
----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--0.1%
AAA 516 American Southwest Financial Corp.,
Series 48, Class 48-E, 9/01/17 ......... 542,935
Federal Home Loan Mortgage
Corp., Multiclass Mortgage
Participation Certificates,
85 Series 1534, Class 1534- D,
3/15/15 .............................. 84,441
250 Series 1557 Class 1557- S,
8/15/98 (ARM) ........................ 249,224
42 Federal National Mortgage
Association, REMIC
Pass-Through Certificates,
Trust 1993-82, Class 82-J,
11/25/10 (I) ........................... 7
---------
876,607
---------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--3.5%
CBA Mortgage Corp.,
AAA 14,797 Series 1993 -C1, Class A2,
7.76%, 12/25/03 ........................ 14,862,523
AA 5,489 Series 1993 -C1, Class B,
7.76%, 12/01/03 ........................ 5,501,284
----------
20,363,807
----------
CORPORATE BONDS--36.4%
FINANCE & BANKING--21.7%
Baa1 11,100 Aristar, Inc.,
8.875%, 8/15/98 ........................ 11,140,293
Aa3 6,150 Associates Corp. of North America,
5.58%, 12/14/98 ........................ 6,151,783
Baa3 10,000 AT&T Capital Corp.,
5.81%, 12/04/98 ........................ 10,004,900
A2 6,000 Fleet Financial Group, Inc.,
6.00%, 10/26/98 ........................ 6,008,340
A1 8,000 Ford Motor Credit Co.,
8.00%, 1/15/99 ......................... 8,088,560
A2 8,000 General Motors Acceptance Corp.,
6.125%, 9/18/98 ........................ 8,006,843
A3 5,000 Huntington Bankshares, Inc.,
5.68%, 12/08/98 ........................ 4,999,800
A2 6,000 ITT Hartford Group,
8.20%, 10/15/98 ........................ 6,042,081
A1 6,000 Kemper Corp.,
8.80%, 11/01/98 ........................ 6,061,260
A 9,960 Lehman Brothers, Inc.,
5.75%, 11/15/98 ........................ 9,963,287
Norwest Corp.,
Aa3 10,000 5.75%, 11/16/98 ........................ 10,009,800
Aa3 5,000 6.00%, 10/13/98 ........................ 5,007,400
Salomon Smith Barney Holdings, Inc.,
A2 1,000 5.50%, 1/15/99 ......................... 999,220
A2 9,000 5.625%, 11/15/98 ....................... 8,990,460
A2 5,000 6.70%, 12/01/98 ........................ 5,020,224
A2 10,000 7.43%, 12/30/98 ........................ 10,088,300
A2 11,300 Sears Overseas Finance,
Zero Coupon, 7/12/98 ................... 11,279,689
-----------
127,862,240
-----------
CORPORATE BONDS
INDUSTRIALS--6.1%
Caterpillar Financial Services,
A2 5,000 5.18%, 10/01/98 ........................ 4,996,450
A2 1,500 5.93%, 12/15/98 ........................ 1,502,745
A2 10,000 Chrysler Financial Corp.,
6.04%, 12/07/98 ........................ 10,024,600
A2 3,000 John Deere Capital Corp.,
7.14%, 9/15/98 ......................... 3,009,330
AAA 8,225 Outlet Broadcasting, Inc.,
10.875%, 7/15/03 ....................... 8,565,515
Baa1 7,500 Union Oil Co.,
8.40%, 1/15/99 ......................... 7,602,825
----------
35,701,465
----------
CORPORATE BONDS
UTILITIES--4.7%
Baa3 2,000 Entergy Gulf States, Inc.,
7.35%, 11/01/98 ........................ 2,009,860
National Rural Utilities,
AA- 10,000 5.20%, 1/15/99 ......................... 9,980,700
AA- 1,000 7.93%, 1/15/99 ......................... 1,011,129
Baa1 7,000 PECO Energy Co.,
5.375%, 8/15/98 ........................ 6,997,200
Texas Utilities Electric Co.,
Baa1 6,600 5.50%, 10/01/98 ........................ 6,597,096
Baa1 1,400 5.75%, 7/01/98 ......................... 1,399,790
----------
27,995,775
----------
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS
YANKEE--3.9%
A1 $ 7,769 Bank of Montreal,
10.00%, 9/01/98 ........................ $ 7,821,208
A3 8,000 Corporacion Andina De Fomento,
6.625%, 10/14/98 ....................... 8,007,423
A1 4,000 Ford Capital B.V.,
9.00%, 8/15/98 ......................... 4,013,360
A2 3,000 Hydro Quebec,
9.30%, 10/28/98 ........................ 3,032,607
-----------
22,874,598
-----------
Total Corporate Bonds 214,434,078
-----------
ASSET-BACKED SECURITIES--29.7%
AAA 600 Advanta Credit Card Master Trust,
Series 1993-2, 5.92%, 8/31/00 ............ 600,186
AAA 7,400 American Express Master Trust,
Series 1994-1, Class A,
7.15%, 8/15/99 ........................... 7,418,500
AAA 27,630 Banc One Credit Card Master Trust,
Series 1994-C, Class A,
7.80%, 12/15/00 ........................ 27,844,076
AAA 500 Chase Manhattan Credit Card
Master Trust, Series 1995-1,
5.79%, 5/15/01 ......................... 500,000
AAA 21,000 Chemical Master Credit Card
Trust, Series 1995-1, Class A,
5.78%, 6/15/01 ......................... 21,006,510
AAA 8,600 CSXT Trade Receivables
Master Trust, Series 1993-1,
5.05%, 9/25/99 ......................... 8,590,594
AAA 22,425 Dayton Hudson Credit Card Trust,
Series 1995-1, Class A,
6.10%, 2/25/02 ......................... 22,459,350
Discover Card Master Trust,
AAA 28,216 Series 1991-D, Class A,
8.00%, 10/16/00 ........................ 28,303,236
AAA 20,371 Series 1991-F, Class A,
7.85%, 11/21/00 ........................ 20,434,558
A2 1,270 Discover Card Trust,
Series 1993-A, Class B,
6.80%, 8/16/00 ......................... 1,268,806
AAA 8,000 First Chicago Master Trust,
Series 1993, Class F,
5.99%, 2/15/00 ......................... 8,004,960
AAA 500 First USA Credit Card Master
Trust, Series 95-4, Class A,
5.81%, 4/15/01 ......................... 500,000
AAA 15,000 Green Tree Floorplan Receivables
Master Trust, Series 95, Class A,
5.85%, 12/13/00 ........................ 15,004,695
AAA 38 Premier Auto Trust, Series 1993-4,
Class A2, 4.65%, 2/02/9 ................ 38,443
AAA 2,732 Signet Credit Card Master Trust,
Series 1993-1, Class A,
5.20%, 2/15/02 ......................... 2,728,804
Standard Credit Card Master Trust,
AAA 7,200 Series 1991-6, Class A,
7.875%, 11/07/98 ....................... 7,257,695
Series 1991-3, Class A,
AAA 2,500 8.875%, 9/07/99 ........................ 2,500,000
-----------
174,460,413
-----------
STRIPPED MORTGAGE-BACKED SECURITIES--0.5%
$ 331 Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates, Series 1700, Class
1700-B, 7/15/23 (P/O) .................. 323,267
2,514 Federal National Mortgage Association,
REMIC Pass-Through
Certificates,
Trust 1991-121, Class 121-B,
9/25/98 (P/O) .......................... 2,488,329
-----------
2,811,596
-----------
U.S GOVERNMENT SECURITIES--7.2%
United States Treasury Notes,
7,000 5.125%, 12/31/98 ....................... 6,992,370
10,200 5.625%, 11/30/98 ....................... 10,212,750
25,000 5.75%, 12/31/98 ........................ 25,050,750
-----------
42,255,870
-----------
TAXABLE MUNICIPAL BONDS--3.9%
AAA 7,800 Alameda County California Pension
Obligation, Series A,
7.25%, 12/01/98 ........................ 7,853,196
AAA 6,375 Essex Cnty. New Jersey,
Series N, Zero Coupon, 11/15/98 ........ 6,248,455
AAA 1,415 Long Beach California Pension
Obligation,
6.13%, 9/01/98 ......................... 1,416,132
Baa1 2,125 New York St. Environ. Fac. Auth.,
Series A,
6.08%, 9/15/98 ......................... 2,125,808
A 5,250 Sacramento California Utility
District Electric, Series F,
5.90%, 11/15/98 ........................ 5,256,667
-----------
22,900,258
-----------
Total long-term investments
(cost $484,325,695) .................... 484,838,043
-----------
SHORT-TERM INVESTMENTS--18.3%
COMMERCIAL PAPER--14.4%
A2 13,000 Case Credit Corp.,
5.77%, 7/15/98 ......................... 12,970,930
A2 10,000 Columbia Gas Systems, Inc.,
5.75%, 7/20/98 ......................... 9,969,811
A1 15,000 Den Norske Bank,
5.69%, 12/28/98 ........................ 14,590,500
A2 8,000 Donaldson Luftkin & Jenrette,
5.77%, 9/08/98 ......................... 7,912,546
A2 10,000 ICI Wilmington, Inc.,
5.75%, 8/10/98 ......................... 9,936,667
A2 10,000 Occidental Petroleum Corp.,
5.76%, 8/07/98 ......................... 9,941,417
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
A2 $10,000 Safeway, Inc.,
5.87%, 12/31/98 ...................... $ 9,712,283
P2 10,000 Williams Holdings of Delaware Inc.,
5.87%, 12/11/98 ...................... 9,744,083
------------
84,778,237
------------
DISCOUNT NOTES--3.9%
22,560 Federal Home Loan Mortgage Corp.,
5.85%, 7/01/98 ....................... 22,560,000
------------
Total short-term investments
(cost $107,338,237) .................. 107,338,237
------------
Total investments--100.7%
(cost $591,663,932) .................. 592,176,280
Liabilities in excess of other
assets--(0.7%) ....................... (3,916,064)
------------
NET ASSETS--100% ....................... $588,260,216
=============
- ---------
* Using the higher of Standard & Poor's or Moody's rating.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
I -- Denotes a CMO with Interest only characteristics.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $591,663,932)
(Note 1) .................................. $592,176,280
Cash ........................................ 6,899
Interest receivable ......................... 6,856,528
Receivable for investments sold ............. 5,000,000
Unrealized appreciation on
interest rate swaps (Notes 1 & 3) ......... 2,784,985
------------
606,824,692
------------
LIABILITIES
Payable for investments purchased ........... 17,919,926
Investment advisory fee payable (Note 2) 193,042
Administration fee payable (Note 2) ......... 38,608
Other accrued expenses ...................... 412,900
------------
18,564,476
------------
NET ASSETS .................................. $588,260,216
============
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 ....... 34,433,196
Accumulated net realized loss ......... ... (2,385,312)
Net unrealized appreciation ............... 3,297,333
------------
Net assets, June 30, 1998 ................. $588,260,216
============
Net asset value per share:
($588,260,216 / 58,660,527 shares of
common stock issued and outstanding) ...... $10.03
======
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$943,137 and interest expense
of $153,474) ............................ $17,139,024
-----------
Operating Expenses
Investment advisory ....................... 1,164,939
Administration ............................ 232,988
Reports to shareholders ................... 86,000
Custodian ................................. 69,000
Directors ................................. 34,000
Audit ..................................... 32,000
Transfer agent ............................ 22,000
Legal ..................................... 5,000
Miscellaneous ............................. 91,888
-----------
Total operating expenses ................ 1,737,815
-----------
Net investment income ....................... 15,401,209
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized loss on investments ............ (2,310,970)
----------
Net change in unrealized appreciation on:
Investments ............................... 2,715,434
Interest rate swaps ....................... 1,772,179
----------
4,487,613
----------
Net gain on investments ..................... 2,176,643
----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. $17,577,852
===========
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received .......................... $ 19,941,292
Operating expenses paid .................... (1,609,417)
Interest expense paid ...................... (153,474)
Purchase of short-term portfolio
investments, net ......................... (84,339,904)
Purchase of long-term portfolio investments (85,449,889)
Proceeds from disposition of long-term
portfolio investments .................... 164,575,228
-------------
Net cash flows provided by
operating activities ..................... 12,963,836
-------------
Cash flows used for financing activities:
Cash dividends paid ........................ (13,931,579)
-------------
Net decrease in cash ......................... (967,743)
Cash at beginning of period .................. 974,642
-------------
Cash at end of period ........................ $ 6,899
=============
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 ................................. $ 17,577,852
------------
Increase in investments ...................... (15,419,175)
Net realized loss ............................ 2,310,970
Increase in unrealized appreciation .......... (4,487,613)
Decrease in interest receivable .............. 1,705,657
Increase in appreciation of interest rate swap (1,772,179)
Increase in payable for investments purchased 17,919,926
Increase in receivable for investments sold .. (5,000,000)
Increase in accrued expenses and other
liabilities ................................ 128,398
------------
Total adjustments .......................... (4,614,016)
------------
Net cash provided by operating activities .... $ 12,963,836
============
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
STATEMENT OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1997
--------------- ------------
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income ....... $ 15,401,209 $ 33,640,074
Net realized loss
on investments ............ (2,310,970) (2,255,987)
Net change in
unrealized appreciation ... 4,487,613 1,976,403
------------ ------------
Net increase
in net assets
resulting from operations 17,577,852 33,360,490
Dividends from net
investment income ......... (13,931,579) (26,887,924)
------------ ------------
TOTAL INCREASE ................ 3,646,273 6,472,566
------------ ------------
NET ASSETS
Beginning of period ......... 584,613,943 578,141,377
------------ ------------
End of period ............... $588,260,216 $584,613,943
============ ============
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------
1998 1997 1996 1995 1994 1993
----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............... $ 9.97 $ 9.86 $ 9.79 $ 8.97 $ 9.91 $10.22
------ ------ -------- ------ ------ ------
Net investment income (net of $0.003, $0.16,
$0.27, $0.29, $0.13 and $0.14 respectively,
of interest expense) ........................... 0.26 0.58 0.55 0.68 0.58 0.81
Net realized and unrealized gain (loss) .......... 0.04 (0.01) 0.02 0.67 (0.89) (0.40)
------ ------ -------- ------ ------ ------
Net increase (decrease) from investment operations.. 0.30 0.57 0.57 1.35 (0.31) 0.41
------ ------ -------- ------ ------ ------
Dividends from net investment income ............... (0.24) (0.46) (0.50) (0.53) (0.63) (0.72)
------ ------ -------- ------ ------ ------
Net asset value, end of period* .................... $10.03 $ 9.97 $ 9.86 $ 9.79 $ 8.97 $ 9.91
------ ------ -------- ------ ------ ------
Market value, end of period* ....................... $ 9.81 $ 9.75 $ 9.38 $ 8.88 $ 8.00 $10.13
====== ====== ======== ====== ====== ======
TOTAL INVESTMENT RETURN+: .......................... 3.10% 9.07% 11.46% 17.73% (15.15%) 10.13%
====== ====== ======== ====== ====== ======
RATIOS TO AVERAGE NET ASSETS:
Operating expenses @ ............................... 0.60%# 0.63% 0.67% 0.67% 0.81% 0.81%
Net investment income .............................. 5.30%# 5.79% 5.65% 7.21% 6.21% 7.95%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .................. $585,670 $580,776 $574,738 $555,561 $546,853 $600,058
Portfolio turnover ................................. 19% 30% 225% 136% 193% 55%
Net assets, end of period (in thousands) ........... $588,260 $584,614 $578,141 $574,420 $526,373 $581,169
Reverse repurchase agreements outstanding,
end of period (in thousands) ...................... -- -- $213,466 $240,871 $175,091 $272,866
Asset coverage++ ................................... -- -- $ 3,708 $ 3,385 $ 4,006 $ 3,130
</TABLE>
- -------------
* Net asset value and market value are published in The Wall Street Journal
each Monday.
@ The ratios of operating expenses, including interest expense, to average
net assets were 0.65%#, 2.23%, 3.44%, 3.76%, 2.19%, and 2.14% for the
periods indicated above, respectively. The ratios of operating expenses,
including interest expense and excise tax, to average net assets were
0.65%#, 2.23%, 3.65%, 3.85%, 2.28% and 2.15% for the periods indicated
above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each 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.
# Annualized.
The information above represents the unaudited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERMTRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & The BlackRock 1998
ACCOUNTING Term Trust Inc. (the
POLICIES "Trust"), a Maryland cor-
poration, 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.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships between securities
observed in the market and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors. Short-term securities are
valued at amortized cost.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings commence with
respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
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 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
11
<PAGE>
and the option is exercised. The risk in writing put options is that the Trust
may incur a loss if the market value of the underlying position decreases and
the option is exercised. In addition, as with futures contracts, the Trust risks
not being able to enter into a closing transaction for the written option as the
result of an illiquid market.
INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate
of interest on a notional principal amount and receives a fixed rate of interest
on the same notional principal amount for a specified period of
time.Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by "marking-to-market" to reflect the market value
of the swap. When the swap is terminated, the Trust will record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the mortgage swap. However, the Trust does not anticipate
non-performance by any counterparty.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy 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. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker/dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount will be recognized upon the termination of a short sale if the
market price is less or greater than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
12
<PAGE>
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. 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.
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 exdividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS The Trust has an Investment
Advisory Agreement with
BlackRock Financial Management Inc. (the "Adviser"), a wholly-owned corporate
subsidiary of BlackRock Advisors, Inc., which is an indirect majority-owned
subsidiary of PNC Bank, N.A., and an Administration Agreement with Prudential
Investments Fund Management LLC, ("PIFM") an indirect wholly-owned subsidiary of
The Prudential Insurance Co. of America.
The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of 0.40% of the Trust's average weekly net
assets. The administration fee paid to PIFM is also computed weekly and payable
monthly at an annual rate of 0.10% of the Trust's average weekly net assets.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. PIFM pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO Purchases and sales of
SECURITIES investment securities, other
than short-term investments, and dollar rolls for the six months ended June 30,
1998 aggregated $103,369,815 and $178,896,181, 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, 1998, 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, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage-backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland LoanServices, Inc.
The federal income tax basis of the Trust's investments at June 30, 1998 was
substantially the same as for financial reporting purposes and, accordingly, net
unrealized appreciation for federal income tax purposes was $512,348 (gross
unrealized appreciation-$1,267,388; gross unrealized depreciation-$755,040).
13
<PAGE>
For federal income tax purposes, the Trust has a capital loss carryforward at
December 31, 1997 of approximately $3,784,874 which will expire at the
termination of the Trust. Accordingly, no capital gains distribution is expected
to be paid to shareholders until net gains have been realized in excess of such
amounts.
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. Details of open interest rate swaps at June 30, 1998 are as
follows:
NOTIONAL
AMOUNT FIXED TERMINATION UNREALIZED
(000) TYPE RATE FLOATING RATE DATE APPRECIATION
---------------------------------------------------------------------------
$16,000 Interest Rate 7.27% 3-mo. LIBOR Dec. `98 $ 109,968
44,000 Interest Rate 7.25% 3-mo. LIBOR Dec. `98 303,600
23,000 Interest Rate 7.00% 3-mo. LIBOR Dec. `98 390,057
16,000 Interest Rate 7.00% 3-mo. LIBOR Dec. `98 634,176
32,000 Interest Rate 6.99% 3-mo. LIBOR Dec. `98 721,984
10,000 Interest Rate 6.99% 3-mo. LIBOR Dec. `98 338,600
10,000 Interest Rate 6.975% 3-mo. LIBOR Dec. `98 286,600
----------
$2,784,985
==========
NOTE 4. BORROWINGS REVERSE REPURCHASE
AGREEMENTS: The Trust may
enter into reverse repurchase agreements with qualified, third party
broker-dealers as determined by and under the direction of the Trust's Board of
Directors. Interest on the value of reverse repurchase agreements issued and
outstanding will be based upon competitive market rates at the time of issuance.
At the time the Trust enters into a reverse repurchase agreement, it will
establish and maintain a segregated account with the lender, the value of which
at least equals the principal amount of the reverse repurchase transaction,
including accrued interest.
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1998 was approximately $5,541,366 at a weighted
average interest rate of approximately 5.59%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the six months ended
June 30,1998 was $22,719,125 on January 31, 1998 which was 3.73% of total
assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. The Trust did not enter into dollar rolls during the
six months ended June 30, 1998.
NOTE 5. CAPITAL There are 200 million shares
of $.01 par value common
stock authorized. Of the 58,660,527 shares outstanding at June 30, 1998, the
Adviser owned 10,527 shares.
NOTE 6. DIVIDENDS Subsequent to June 30,1998,
the Board of Directors of the
Trust declared a dividend from undistributed earnings of $.039583 per share
payable July 31, 1998 to shareholders of record on July 15, 1998.
14
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & 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.
The Annual Meeting of Trust Shareholders was held May 6, 1998 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
-------- ----- ----- ------
Andrew F. Brimmer ......... III 3 years 2001
Kent Dixon ................ III 3 years 2001
Laurence D. Fink .......... III 3 years 2001
Directors whose term of office continues beyond this meeting are Frank
J. Fabozzi, Ralph L. Schlosstein, Walter F.Mondale, Richard E.
Cavanagh, James Grosfeld, and James Clayburn La Force, Jr.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December 31, 1998.
Shareholders elected the three Directors and ratified the selection of
Deloitte &Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
Andrew F. Brimmer ............ 45,463,390 0 2,582,870
Kent Dixon ................... 45,567,060 0 2,479,200
Laurence D. Fink ............. 45,552,942 0 2,493,318
Ratification of Deloitte
& Touche LLP ............... 46,943,555 429,842 672,863
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock 1998 Term Trust Inc.'s investment objective is to manage a
portfolio of investment grade fixed income securities that will return $10 per
share (the initial public offering price per share) to investors on or shortly
before December 31, 1998 while providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $119
billion on behalf of tax tax-exempt clients worldwide. Strategies include fixed
income, equity and cash any may incorporate both domestic and international
securities. Domestic fixed income strategies utilize the government, mortgage,
corporate and municipal bond sectors.BlackRock manages twenty-one closed-end
funds that are traded on either the New York or American stock exchanges, and a
$23 billion family of open-end equity and bond funds. Current institutional
clients number 334, domiciled in the United States and overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The Trust will implement a conservative strategy that will seek to
closely match the maturity of the assets of the portfolio with the future return
of the initial investment at the end of 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
331/3% of total assets) to enhance the income of the portfolio. In order to
maintain competitive yields as the Trust approaches maturity and depending on
market conditions, the Adviser will attempt to purchase securities with call
protection or maturities as close to the Trust's maturity date as possible.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates. Since the Trust's primary goal is to return the initial offering price at
maturity, any cash that the Trust receives prior to its maturity date (i.e. cash
from early and regularly scheduled payments of principal on mortgage-backed
securities) will be reinvested in securities with maturities which coincide with
the remaining term of the Trust. Since shorter-term securities typically yield
less than longer-term securities, this strategy will likely result in a decline
in the Trust's income over time. However, the Adviser will attempt to maintain a
yield which is competitive with a comparable maturity Treasury at the same point
on the yield curve (i.e. if the Trust has three years left until its maturity,
the Adviser will attempt to maintain a yield at a spread over a 3-year
Treasury). It is important to note that the Trust will be managed so as to
preserve the integrity of the return of the initial offering price.
16
<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.
17
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THE BLACKROCK 1998 TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
<S> <C>
ADJUSTABLE RATE MORTGAGE- Mortgage instruments with interest rates that
BACKED SECURITIES (ARMS): 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-backed securities which separate mortgage
MORTGAGE OBLIGATIONS (CMOS): 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).
INVERSE-FLOATIN GRATE instruments with coupons that adjust at periodic
MORTGAGES: intervals according to a formula which sets
inversely with a market level interest rate
index.
18
<PAGE>
INTEREST-ONLY SECURITIES Mortgage securities that receive only the
(I/O): interest cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as STRIP.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund, this is
the price at which one share of the fund trades
on the stock exchange. If you were to buy or sell
shares, you would pay or receive the market
price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which
the Trust sells mortgage-backed securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar
(although not the same) securities on a specified
future date. During the "roll" period, the Trust
does not receive principal and interest payments
on the securities, but is compensated for giving
up these payments by the difference in the
current sales price (for which the security is
sold) and lower price that the Trust pays for the
similar security at the end date as well as the
interest earned on the cash proceeds of the
initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae,
Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total
market value of all securities and other assets
held by the Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total number of
outstanding shares. It is the underlying value of
a single share on a given day. Net asset value
for the Trust is calculated weekly and published
in Barron's on Saturday and The Wall Street
Journal 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
sells securities and agrees to repurchase them at
REPURCHASE AGREEMENTS: 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.
</TABLE>
19
<PAGE>
[BlackRock logo]
DIRECTORS
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, President
Scott Amero, Vice President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Robert S. Kapito, Vice President
Richard M. Shea, Vice President/Tax
Henry Gabbay, Treasurer
James Kong, Assistant Treasurer
Karen H. Sabath, Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 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
The accompanying financial statements as of June 30, 1998 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus
intended for use in the purchase or sale of any securities.
THE BLACKROCK 1998 TERM TRUST INC.
c/o Prudential Investments 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.
=================================
Semi-Annual Report
June 30, 1998
[LOGO]
