- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
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 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
1
<PAGE>
January 31, 1997
Dear Shareholder:
We are pleased to present the annual report for The BlackRock Investment
Quality 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 "BQT". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about December 31, 2004 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 $7.625 $7.875 (3.17%) $8.125 $7.25
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.09 $9.50 (4.32%) $9.57 $8.67
- ---------------------------------------------------------------------------------------------------
</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
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.
2
<PAGE>
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.
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
- --------------------------------------------------------------------------------
COMPOSITION DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Corporate Bonds 34% 37%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 18% 25%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 11% 9%
- --------------------------------------------------------------------------------
FHA Project Loans 10% 10%
- --------------------------------------------------------------------------------
Commercial Mortgage BackedSecurities 8% 6%
- --------------------------------------------------------------------------------
Taxable Zero-Coupon Bonds 5% 2%
- --------------------------------------------------------------------------------
Strip Mortgage Backed Securities 5% 1%
- --------------------------------------------------------------------------------
U.S. Government Securities 4% 0%
- --------------------------------------------------------------------------------
Municipal Bonds 3% 3%
- --------------------------------------------------------------------------------
Asset-Backed Securities 2% 7%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
----------------------------------------------
CREDIT RATING DECEMBER 31, 1996 DECEMBER 31, 1995
- --------------------------------------------------------------------------------
AA or equivalent 1% 15%
- --------------------------------------------------------------------------------
A or equivalent 43% 50%
- --------------------------------------------------------------------------------
BBB or equivalent 55% 34%
- --------------------------------------------------------------------------------
BB or equivalent 1% 1%
- --------------------------------------------------------------------------------
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, 34% of the Trust's assets
were invested in corporates. To a lesser degree, the Trust has also been buying
commercial mortgage-backed securities (CMBS), which are securities backed by
commercial (as 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
3
<PAGE>
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 Investment Quality 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 INVESTMENT QUALITY TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BQT
- --------------------------------------------------------------------------------
Initial Offering Date: April 21, 1992
- --------------------------------------------------------------------------------
Closing Stock Price as of 12/31/96: $7.625
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/96: $9.09
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/96 ($7.625)1: 7.54%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.047917
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.575000
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--145.8%
MORTGAGE PASS-THROUGHS--41.7%
Federal Home Loan Mortgage
Corporation,
$15,764 6.50%, 8/01/25 - 10/01/25 ........ $ 15,069,203
7,176 7.50%, 7/01/26 - 12/01/26 ........ 7,182,378
Federal Housing Administration,
2,436 Alliance, 7.35%, 4/01/19 ......... 2,458,448
2,151 Colonial, Series 37,
7.40%, 12/01/22 ................ 2,163,547
1,553 Elkton Care Center,
7.30%, 6/01/35 ................. 1,512,143
10,059 GMAC, Series 54,
7.43%, 2/01/21 ................. 10,255,703
1,257 Middlesex, 8.625%, 9/01/34 ....... 1,305,796
1,683 Overlook Green South,
7.50%, 9/01/34 ................. 1,693,611
1,912 Providence Apartments,
7.25%, 12/01/34 ................ 1,852,763
2,114 Rosewood, 7.875%, 12/01/34 ....... 2,126,876
1,519 Senaca Hills, 8.525%, 8/01/34 .... 1,571,524
1,478 St. Camillus Nursing,
7.875%, 5/01/35 ................ 1,487,736
2,877 Tuttle Grove, 7.25%, 10/01/35 .... 2,787,871
USGI,
1,696 Series 99, 7.43%, 10/01/23 ..... 1,728,138
8,292 Series 885, 7.43%, 3/01/22 ..... 8,350,859
9,275 Series 2081, 7.43%, 5/01/23 .... 9,474,123
1,415 Whitehall, 8.25%, 5/25/35 ...... 1,453,509
Federal National Mortgage Association,
9,701++ Multi-family, 6.35%, 10 year,
1/01/04 ........................ 9,467,424
2,429++ Multi-family, 7.66%, 10 year,
3/01/04 ........................ 2,515,448
2,839+ Multi-family, 8.26%, 10 year,
2/01/04 ........................ 3,001,303
2,357+ Multi-family, 8.78%, 10 year,
4/01/04 ........................ 2,482,747
1,576++ Multi-family, 8.89%, 10 year,
4/01/04 ........................ 1,696,120
36,000 7.00%, 7 Year .................... 36,146,160
Government National Mortgage
Association,
12,063 7.00%, 4/15/23 - 4/15/24 ....... 11,798,997
-------------
139,582,427
-------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--15.8%
10,000+ Community Program Loan Trust,
Series 1987-A, Class A-4, 4.50%,
10/01/18 ......................... 8,565,625
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates, (REMIC)
5,000++ Series 1295, Class 1295-JB,
3/15/07 ........................ 4,476,500
1,827++ Series 1552, Class 1552-LF,
9/15/22 (ARM) .................. 1,624,072
6,001+ Series 1634, Class 1634-SG,
12/15/22 (ARM) ................. 5,332,585
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
REMIC Pass-Through Certificates,
3,496++ Trust 269, Class 269-1, 8/01/22 3,712,437
2,204++ Trust G93-27, Class 27-SE,
8/25/23 (ARM) .................. 1,122,495
1,646++ Trust 1992-155, Class 155-SB,
12/25/06 (ARM) ................. 1,595,369
3,883+ Trust 1992-192, Class 192-SB,
11/25/07 (ARM) ................. 3,507,113
1,490 Trust 1993-22, Class 22-PT
10/25/18 (I) ................... 362,452
712 Trust 1993-179, Class 179-SA,
10/25/23 (ARM) ................. 611,193
1,932++ Trust 1993-192, Class 192-S,
4/25/07 (ARM) .................. 1,483,007
3,731+ Trust 1993-212, Class 212-SB,
11/25/08 (ARM) ................. 2,853,538
825 Trust 1993-228, Class 228-B,
3/25/23 (P) .................... 637,313
3,500+ Trust 1994-M1, Class B
10/25/03 ....................... 3,452,422
950 Trust 1994-10, Class 10-S
1/25/24 (ARM) .................. 755,278
714 Trust 1994-17, Class 17-SA
1/25/09 (ARM) .................. 686,846
6,441+ Trust 1994-19, Class 19-C,
1/25/24 ........................ 5,715,307
3,537 Trust 1994-42, Series 42-SO,
3/25/23 (ARM) .................. 501,828
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$ 2,000++ Trust 1996-M5, Class A2,
1/25/11 ........................ $ 2,048,125
7,000 Trust 1996-20, Class 20-SB,
10/25/08 (ARM) ................. 2,552,813
4,128 Trust 1996-24, Class 24-SE,
3/25/09 (ARM) .................. 836,020
660 Residential Funding Mortgage Sec I,
Series 1993-S15, Class A-17,
4/25/08 .......................... 557,630
-------------
52,989,968
-------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--11.4%
AAA 2,000 AETNA, Series 1995-C5, Class B,
6.74%, 12/26/30 ................ 1,960,484
A 2,700 American Southwest Financial
Securities Corp., Series 1994-C2,
Class A4, 8.00%, 8/25/10 ....... 2,740,032
A 5,000 CS First Boston Corp.,
Series 1995-AEW 1, Class C,
7.458%, 11/25/27 ............... 5,028,125
AA 4,000 Debartolo Capital Partnership, 144A
Class B1, 7.61%, 5/01/04 ....... 4,120,483
Baa2 6,485 FDIC REMIC Trust, Series 1994-C1,
Class II-F, 8.70%, 9/25/25 ..... 6,763,046
LTC Commercial Mortgage
Pass-Through Certificates,
A 2,000 Series 1994-1, Class 1-D,
10.00%, 6/15/26 .............. 2,219,908
AAA 3,236 Series 1996-1, Class 1-A, 144A
7.06%, 4/15/28 ............... 3,248,347
BBB 2,600 Nomura Asset Capital Corp.,
Series 1993-M1, Class A3, 144A
7.64%, 11/25/03 .............. 2,637,526
BBB 500 PaineWebber Mortgage
Acceptance Corp., Series 1995-M2,
144A CLASS D, 7.20%, 12/01/03... 499,465
Structured Asset Securities
Corporation, Mortgage Certificate,
A 3,000 Series 1996, Class D,
7.034%, 2/25/28, ............... 2,972,242
BBB 5,970 Series 1996, Class E,
7.75%, 2/25/28, ................ 5,877,788
-------------
38,067,446
-------------
CORPORATE BONDS--49.9%
FINANCE & BANKING--15.2%
A3 2,450 Amsouth Bancorp.,
6.75%, 11/01/25 ................ 2,383,214
A2 2,000 Bank of Hawaii,
6.875%, 6/01/03 ................ 1,981,320
A2 3,000 Den Danske Bank, 144A
7.25%, 6/15/05 ................. 3,016,539
A2 1,300 Equitable Life of America, 144A
6.95%, 12/01/05 ................ 1,278,689
A2 5,000@+ Farmers Insurance, 144A
8.50%, 8/01/04 ................. 5,257,641
A3 4,800 First National Bank of Boston,
8.00%, 9/15/04 ................. 5,031,024
A3 5,000++ Fleet Financial Group,
8.125%, 7/01/04 ................ 5,316,750
A1 4,850 Goldman Sachs Group, 144A
6.25%, 2/01/03 ................. 4,695,651
BBB 3,500 Macsaver Financial Services Inc.,
Gtd. Note, 7.875%, 8/01/03 ..... 3,519,848
A1 1,000 Metropolitan Life Insurance Co., 144A
6.30%, 11/01/03 ................ 968,126
Baa3 3,100 New American Capital, Inc., 144A
Series C, 6.94%, 4/12/00 ....... 3,117,438
A- 3,800 Old Kent Financial Corp.,
6.625%, 11/15/05 ............... 3,669,925
PaineWebber Group, Inc.,
Baa2 500 6.90%, 2/09/04 ................. 486,628
Baa1 2,000 8.875%, 3/15/05 ................ 2,169,240
BBB 3,000 Peoples Bank Bridgeport Ct.,
7.20%, 12/01/06 ................ 2,939,306
A3 3,100 Reliaster Financial Corp.,
6.625%, 9/15/03 ................ 3,026,787
Baa1 2,000 Salomon, Inc.,
6.75%, 1/15/06 ................. 1,902,560
-------------
50,760,686
-------------
CORPORATE BONDS--(CONT.)
INDUSTRIALS--15.4%
A3 400 American Airlines, Inc.,
10.44%, 3/04/07 ................ 481,272
BBB 3,600 Anixter Inc.,
8.00%, 9/15/03 ................. 3,673,735
AA- 2,000 Coca Cola Enterprises, Inc.,
7.875%, 2/01/02 ................ 2,109,880
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Baa2 $ 2,000 Conagra, Inc.,
7.40%, 9/15/04 ................. $ 2,044,769
A1 5,500++ Ford Motor Credit Co.,
7.50%, 6/15/04 ................. 5,684,612
Baa1 7,000 ITT Corp.,
6.75%, 11/15/03 ................ 6,849,754
BBB+ 5,000 Lukens, Inc.,
7.625%, 8/01/04 ................ 5,100,950
Baa3 2,000 Lyondell Petrochemical Co.,
9.125%, 3/15/02 ................ 2,192,537
BBB+ 5,000 Newmont Mining Corp.,
8.00%, 12/01/04 ................ 5,263,050
BBB 3,000 News America Holdings, Inc.,
8.50%, 2/15/05 ................. 3,232,170
BBB 5,000 Pulte Corp.,
8.375%, 8/15/04 ................ 5,217,600
BBB- 2,000 Ralcorp Holdings, Inc.,
8.75%, 9/15/04 ................. 2,203,324
BBB- 3,000 Tele-Communications, Inc.,
8.25%, 1/15/03 ................. 3,035,367
Xtra, Inc.,
BBB+ 2,000 6.50%, 1/15/04 ................. 1,940,920
BBB+ 2,500 7.22%, 7/31/04 ................. 2,523,300
-----------
51,553,240
-----------
CORPORATE BONDS--(CONT.)
SOVEREIGN & PROVINCIAL 11.5%
A- 6,000 Banamex Remittance Master Trust,
Series 1996, 7.57%, 1/01/01 .... 5,955,938
A3 6,500 Bangkok Bank, 144A
7.25%, 9/15/05 ................. 6,371,573
BBB+ 2,000 Canadian Pacific Ltd.,
6.875%, 4/15/03 ................ 1,997,422
Baa3 1,500 Colombia Republic Euro Medium
144A Term Note, 8.66%, 10/07/16 1,563,960
BBB+ 2,000 Corporacion Andina De Fomento,
7.10%, 2/01/03 ................. 2,002,760
BBB- 5,000 Empresa Electric Guacolda Sa, 144A
7.95%, 4/30/03 ................. 5,088,910
A2 5,000 Industrial Finance Corp., Thailand,
144A 6.875%, 4/01/03 ........... 4,961,121
A3 3,500 Israel Electric Corp. Ltd., 144A
7.25%, 12/15/06 ................ 3,479,770
A2 5,000 Quebec Province,
8.625%, 1/19/05 ................ 5,498,900
Baa1 1,735 YPF Sociedad Anonima,
7.50%, 10/26/02 ................ 1,769,626
-----------
38,689,980
-----------
UTILITIES--7.8%
360 Degree Communications Co.,
BBB- $ 2,000 7.125%, 3/01/03 ................ $ 1,974,380
BBB- 2,000 7.50%, 3/01/06 ................. 1,980,180
BBB- 5,000 Gulf States Utilities Co.,
8.25%, 4/01/04 ................. 5,284,150
BB- 5,400 Niagara Mohawk Power Corp.,
7.375%, 8/01/03 ................ 5,002,520
Baa3 5,000 NRG Energy, Inc., 144A
7.625%, 2/01/06 ................ 4,734,904
Baa2 2,000 Ohio Edison Co.,
8.625%, 9/15/03 ................ 2,126,116
A1 5,000 Telekom Malaysia Berhad, 144A
7.125%, 8/01/05 ................ 5,019,600
-----------
26,121,850
-----------
ASSET-BACKED SECURITIES--2.6%
AAA 5,000 NYC Mortgage Loan Trust,
Series 1996, Class A-2, 144A
6.75%, 6/25/11 ................. 4,817,969
A 4,000 Student Loan Marketing Associates,
Series 1995-1, Class B,
6.22%, 10/25/09 ................ 4,000,000
-----------
8,817,969
-----------
STRIPPED MORTGAGE-BACKED
SECURITIES--7.3%
Federal Home Loan Mortgage Corporation
21,036+ Series G25 Class 25-S,
8/25/06 (I/O) .................. 947,887
49,675 Series 1506 Class 1506-SA,
1/15/05 (I/O) .................. 1,366,069
8,302++ Series 1751, Class 1751-PL
10/15/23 (I/O) ................. 1,271,287
1,346++ Series 1862, Class 1862-DA
12/15/22, (P/O) ................ 1,034,436
1,570++ Series 1862, Class 1862-DB
12/15/22, (P/O) ................ 1,206,844
5,000+ Series 1917, Class 1917-AS,
5/15/08 (I/O) .................. 1,200,000
Federal National Mortgage
Association,
5,354++ Trust 63, Class 2
6/01/18 (I/O) .................. 1,619,504
9,600+ Trust 1990-108, Class 108-H,
9/25/20 (I/O) .................. 2,100,322
2,352 Trust 1991-G39, Class MC,
11/25/20 (I/O) ................. 391,590
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$ 4,097++ Trust 1993-147, Class 147-H,
8/25/23 (P/O) .................. $ 3,180,289
9,857 Trust 1996-24, Class 24-SL,
8/25/23 (I/O) .................. 1,607,947
6,852 Trust 1996-32, Class 32-E,
10/25/08 (I/O) ................. 5,379,050
87,162 Trust 1996-54, Class 54-SH
8/25/23 (I/O) .................. 2,682,954
55,914 Trust 1996-54, Class 54-SI
8/25/23 (I/O) .................. 428,095
------------
24,416,274
------------
U.S GOVERNMENT SECURITIES--6.4%
Small Business Administration
Participation Certificate,
5,000++ Series 1996-20-K,
6.95%, 11/01/16 ................ 4,960,156
3,000++ Series 1995-10-C,
7.35%, 8/01/05 ................. 3,030,938
2,000++ Series 1996-10-C,
7.35%, 8/01/06 ................. 2,023,750
1,379++ Series 1996-20-F,
7.55%, 6/01/16 ................. 1,411,512
2,000++ Series 1996-20-G,
7.70%, 7/01/16 ................. 2,065,938
U.S. Treasury Notes,
2,000++ 5.75%, 8/15/03 ................... 1,940,000
2,300++ 6.50%, 10/15/06 .................. 2,312,581
3,450+ 7.25%, 8/15/04 ................... 3,631,125
------------
21,376,000
------------
TAXABLE ZERO COUPON BONDS--7.0%
40,000 Bankers Trust,
12/31/04 ....................... 23,320,000
------------
TAXABLE MUNICIPAL BONDS--3.7%
AAA 4,285 California Housing Finance Agency
Revenue, Taxable Home
Mortgage Series
6.69%, 8/01/03 ................. 4,258,262
AA- 2,000 Fresno California Taxable Pension
Obligation, 7.15%, 6/01/04 ..... 2,025,720
AAA 4,000 Los Angeles County California
Pension, Taxable Series D,
6.77%, 6/30/05 ................. 4,002,680
AAA 2,250 San Francisco California City &
Cnty. Arpts., Commission
International Airport,
6.55%, 5/01/04 ................. 2,228,647
------------
12,515,309
------------
Total Long-Term Investments
(cost $488,290,762) ............ 488,211,150
------------
SHORT-TERM INVESTMENTS--1.0%
Contracts** PUT OPTION PURCHASED
---------
2,200 U.S. TREASURY NOTE, 7.00% 7/15/06
@102 EXPIRING 7/2/97
(COST $3,162,500) .............. 3,334,320
------------
Total investments before
security sold short
(cost $491,453,262) ............ 491,545,470
SECURITY SOLD SHORT--(14.1%)
United States Treasury Bonds,
(47,000) 6.75% 8/15/26
(proceeds $46,604,072) ......... (47,352,500)
------------
Total Investments net of
short sale--132.7%
(cost $444,849,190) ............ 444,192,970
Liabilities in excess of other
assets--(32.7%) .................. (109,413,985)
------------
NET ASSETS--100% ................. $334,778,985
============
- ----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** One contract equals 100,000 face value.
+ In aggregate, $27,647,125 of principal amount pledged as collateral for
reverse repurchase agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
@ In aggregate, $2,250,000 of principal amount pledged as collateral for
futures transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM-- Adjustable Rate Mortgage.
CMO-- Collateralized Mortgage Obligation.
CMT-- Constant Maturity Treasury.
I-- Denotes a CMO with interest only characteristics.
P-- Denotes a CMO with principal only characteristics.
I/O-- Interest Only.
P/O-- Principal Only.
REMIC-- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $491,453,262)
(Note 1) ............................................... $491,545,470
Cash ..................................................... 476,955
Deposits with brokers as collateral
for investments sold short (Note 1) .................... 48,880,000
Interest receivable ...................................... 5,769,405
Receivable for investments sold .......................... 35,926
Due from broker-variation margin ......................... 25,305
Deferred organization expenses and other
assets ................................................. 4,634
-------------
546,737,695
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ................... 96,846,375
Payable for investments purchased ........................ 64,079,629
Investment sold short, at value
(proceeds $46,604,072)(Note 1) ......................... 47,352,500
Swap option written, at value
(premium received $1,267,500) .......................... 1,340,550
Interest payable ......................................... 1,851,512
Dividends payable ........................................ 176,977
Advisory fee payable (Note 2) ............................ 171,776
Administration fee payable (Note 2) ...................... 34,335
Other accrued expenses ................................... 105,056
-------------
211,958,710
-------------
NET ASSETS ............................................... $334,778,985
=============
Net assets were comprised of:
Common stock, at par (Note 5) .......................... $ 368,106
Paid-in capital in excess of par ....................... 344,473,944
-------------
344,842,050
Undistributed net investment income .................... 1,782,057
Accumulated net realized losses ........................ (11,155,487)
Net unrealized depreciation ............................ (689,635)
-------------
Net assets, December 31, 1996 .......................... $334,778,985
=============
Net asset value per share:
($334,778,985 / 36,810,639 shares of
common stock issued and outstanding) ................... $9.09
=====
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium amortization
of $1,299,664 and interest expense of
$6,382,217) $ 26,451,447
------------
Operating Expenses
Investment advisory ...................................... 2,006,371
Administration ........................................... 401,274
Reports to shareholders .................................. 247,000
Directors ................................................ 79,000
Custodian ................................................ 65,000
Audit .................................................... 34,000
Legal .................................................... 30,000
Transfer agent ........................................... 23,000
Miscellaneous ............................................ 157,626
------------
Total operating expenses ............................... 3,043,271
------------
Net investment income .................................... 23,408,176
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss)
Investments .............................................. 8,242,680
Short sales .............................................. (663,984)
Futures .................................................. (4,436,600)
------------
3,142,096
------------
Net change in unrealized
appreciation (depreciation)
Investments .............................................. (19,625,002)
Short sales .............................................. (748,428)
Options .................................................. (73,050)
Futures .................................................. 439,569
------------
(20,006,911)
------------
Net loss on investments .................................. (16,864,815)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 6,543,361
============
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received ..................................... $ 34,804,756
Operating expenses and excise taxes paid .............. (3,235,454)
Interest expense paid ................................. (5,050,206)
Proceeds from disposition of short-term
portfolio investments, net ......................... 36,989
Purchase of long-term portfolio investments ........... (1,081,506,674)
Proceeds from disposition of long-term
portfolio investments .................. 1,096,069,618
Variation margin on futures ........................... (3,995,618)
---------------
Net cash flows provided by operating
activities ......................................... 37,123,411
---------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ............. (15,160,367)
Cash dividends paid ................................... (21,677,657)
---------------
Net cash flows used for financing activities .......... (36,838,024)
---------------
Net increase in cash ..................................... 285,387
Cash at beginning of year ................................ 191,568
---------------
Cash at end of year ...................................... $ 476,955
===============
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 ............................................ $ 6,543,361
---------------
Decrease in investments .................................. 7,141,685
Net realized gain ........................................ (3,142,096)
Increase in unrealized depreciation ...................... 20,006,911
Decrease in interest receivable .......................... 671,428
Decrease in receivable for investments sold .............. 86,938
Increase in deposits with brokers ........................ (48,880,000)
Increase in investments sold short ....................... 47,352,500
Increase in swap option written .......................... 1,340,550
Decrease in other assets ................................. 14,041
Increase in payable for investments purchased ............ 4,846,851
Decrease in due from broker-variation margin ............. 1,413
Increase in interest payable ............................. 1,332,011
Decrease in other accrued expenses ....................... (192,182)
---------------
Total adjustments ..................................... 30,580,050
---------------
Net cash flows provided by operating activities .......... $ 37,123,411
===============
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------
1996 1995
---------- ---------
Increase (Decrease) in
Net Assets
Operations:
Net investment income ............... $ 23,408,176 $ 22,249,441
Net realized gain (loss) on
investments, short sales
and futures ...................... 3,142,096 (3,158,168)
Net change in unrealized
appreciation
(depreciation) on
investments, short sales,
options and futures .............. (20,006,911) 51,630,619
------------- -------------
Net increase (decrease) in
net assets resulting from
operations ....................... 6,543,361 70,721,892
------------- -------------
Dividends & Distributions:
Dividends from net
investment income ................ (21,626,119) (22,249,441)
Distributions in excess of
net investment income ............ -- (757,692)
------------- -------------
Total dividends &
distributions .................... (21,626,119) (23,007,133)
------------- -------------
Total increase (decrease) ........... (15,082,758) 47,714,759
NET ASSETS
Beginning of year ...................... 349,861,743 302,146,984
------------- -------------
End of year ............................ $ 334,778,985 $ 349,861,743
============= =============
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APRIL 29,
1992*
YEAR ENDED DECEMBER 31, THROUGH
----------------------------------- DECEMBER 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................... $ 9.50 $ 8.21 $ 9.47
-------- -------- --------
Net investment income (net of interest expense of
$.17, $.23, $.17, $.15 and $.08, respectively) ..... .64 .60 .62
Net realized and unrealized gain (loss) on investments (.46) 1.31 (1.16)
-------- -------- --------
Net increase (decrease) from investment operations ..... .18 1.91 (.54)
-------- -------- --------
Dividends from net investment income ................... (.59) (.60) (.68)
Distributions in excess of net investment income ....... -- (.02)
-------- -------- --------
Total dividends and distributions ...................... (.59) (.62) (.72)
-------- -------- --------
Capital charge with respect to issuance of shares ...... -- -- --
-------- -------- --------
Net asset value, end of period** ....................... $ 9.09 $ 9.50 $ 8.21
-------- -------- --------
Market value, end of period** .......................... $ 7.625 $ 7.875 $ 7.00
======== ======== ========
TOTAL INVESTMENT RETURN+ ............................... 4.58% 21.91% (18.10%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses## ................................... 0.91% 0.92% 0.93%
Net investment income .................................. 7.03% 6.76% 7.10%
SUPPLEMENTALDATA:
Average net assets (in thousands) ...................... $332,778 $328,950 $320,366
Portfolio turnover ..................................... 221% 160% 111%
Net assets, end of period (in thousands) ............... $334,779 $349,862 $302,147
Reverse repurchase agreements outstanding, end of period
(in thousands) ....................................... $ 96,846 $112,007 $149,800
Asset coverage+++ ...................................... $ 4,457 $ 4,124 $ 3,017
</TABLE>
<TABLE>
<CAPTION>
APRIL 29,
1992*
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1993 1992
---------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................... $9.57 $9.40
------------ ------------
Net investment income (net of interest expense of
$.17, $.23, $.17, $.15 and $.08, respectively) ..... .80 .54
Net realized and unrealized gain (loss) on investments (.16) .19
------------ ------------
Net increase (decrease) from investment operations ..... .64 .73
------------ ------------
Dividends from net investment income ................... (.74) (.54)
Distributions in excess of net investment income ....... -- --
------------ ------------
Total dividends and distributions ...................... (.74) (.54)
------------ ------------
Capital charge with respect to issuance of shares ...... -- (.02)
------------ ------------
Net asset value, end of period** ....................... $9.47 $9.57#
------------ ------------
Market value, end of period** .......................... $9.375 $9.375
============ ============
TOTAL INVESTMENT RETURN+ ............................... 7.96% 5.24%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses## ................................... 0.89% 0.91%++
Net investment income .................................. 8.19% 8.45%++
SUPPLEMENTALDATA:
Average net assets (in thousands) ...................... $358,623 $348,471
Portfolio turnover ..................................... 77% 26%
Net assets, end of period (in thousands) ............... $348,528 $352,417
Reverse repurchase agreements outstanding, end of period
(in thousands) ....................................... $156,558 $172,195
Asset coverage+++ ...................................... $3,226 $3,047
</TABLE>
- ----------
* Commencement of investment operations.
** NAV and market value are published in THE WALL STREET JOURNAL each Monday. #
Net asset value immediately after the closing of the first public offering
was $9.38.
## The ratios of operating expenses, including interest expense, to average net
assets were 2.83%, 3.44%, 2.84%, 2.38% and 2.29% for the periods indicated
above, respectively. The ratios of operating expenses, including interest
expense and excise tax, to average net assets were 2.83%, 3.44%, 2.85%,
2.41% and, 2.35% 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 the period reported. Dividends 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.
++ Annualized.
+++ Per $1,000 of reverse repurchase agreements 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 Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
The BlackRock Investment Quality Term Trust Inc. (the "Trust"), a Maryland
corporation, is a diversified, closed-end management investment company. The
Trust's investment objective is to manage a portfolio of fixed income securities
that will return $10 per share to investors on or about December 31, 2004 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 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 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
12
<PAGE>
writer to buy the underlying position at the exercise price at any time or at a
specified time during the option period. Put options can be purchased to
effectively hedge a position or a portfolio against price declines if a
portfolio is long. In the same sense, call options can be purchased to hedge a
portfolio that is shorter than its benchmark against price changes. The Trust
can also sell (or write) covered call options and put options to hedge portfolio
positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In 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 swap. However, the Trust does not anticipate non-performance
by any counterparty.
SWAP OPTIONS: The swap option is similar to an option on securities except that
instead of purchasing the right to buy a security, the purchaser of the swap
option has the right to enter into a previously agreed upon interest rate swap
agreement at any time before the expiration of the option. Premiums received
from writing options are recorded as liabilities, and are subsequently adjusted
to the current value of the options written. Premiums received from writing
options which expire are treated as realized gains. Premiums received from
writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. The Trust, as writer of an option, bears the market risk of an unfavorable
change in the value of the swap contract underlying the written option. Written
interest rate swap options may be used as part of an income producing strategy
reflecting the view of the Trust's management on the direction of interest
rates.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. 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 or a security's price would be expected to
change by approximately one percent with a one percent change in interest rates,
while a duration of "five" would imply that the price would move approximately
five percent in relation to a one percent change in interest rates. Futures
contracts can be sold to effectively shorten an otherwise longer duration
portfolio. In the same sense, futures contracts can be purchased to lengthen a
portfolio that is shorter than its duration target. Thus, by buying or selling
futures contracts, the Trust can effectively "hedge" more volatile positions so
that changes in interest rates do not change the duration of the portfolio
unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market.
13
<PAGE>
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. The Trust did not engage in
securities lending during the year ended December 31, 1996.
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 a 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 invest-ment 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.
DEFERRED ORGANIZATION EXPENSES: A total of $70,000 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
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 PNC
Asset Management Group, Inc., the holding company for PNC's asset management
business, and an Administration Agreement with Prudential Mutual Fund Management
LLC ("PMF"), 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 0.60% of the Trust's average weekly net
assets until December 31, 1998, 0.50% from January 1, 1999 to December 31, 2002
and 0.40% from January 1, 2003 to the termination or liquidation of the Trust.
The administration fee paid to PMF is also computed weekly and payable monthly
at an annual rate of 0.12% of the Trust's average weekly net assets until
December 31, 1998, 0.10% from January 1, 1999 to December 31, 2002, and 0.08%
from January 1, 2003 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. PMF
pays occupancy and certain clerical and accounting costs of the Trust. The Trust
bears all other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for the year ended December 31, 1996 aggregated
$1,086,352,824 and $1,093,234,898, respectively.
14
<PAGE>
The Trust may invest up to 30% 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
held 13.2% of its portfolio assets in securities restricted as to resale.
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 appreciation for federal income tax purposes was
$92,208 (gross unrealized appreciation-$6,763,841; gross unrealized
depreciation-$6,671,633).
For federal income tax purposes, the Trust has a capital loss carryforward
at December 31, 1996 of approximately $13,694,100, of which $7,412,800 expires
in 2001, $2,436,800 expires in 2002 and $3,844,500 expires in 2003. Accordingly,
no capital gains distribution is expected to be paid to shareholders 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 are as
follows:
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE DECEMBER 31, APPRECIATION
CONTRACTS TYPE DATE DATE 1996 (DEPRECIATION)
- --------- ---- ---- ---- ---- --------------
Long
position: March
100 30 yr. U.S. T-Bond 1997 $11,619,275 $11,262,500 $(356,775)
Short
positions: March
29 5 yr. U.S. T-Note 1997 3,131,541 3,091,219 40,322
March
175 10 yr. U.S. T-Note 1997 19,452,963 19,096,875 356,088
---------
$ 39,635
=========
The trust sold a swap option ("swaption")which settled on October 31, 1996
with a notional amount of $150 million. Under this swaption, the Trust received
$1,267,500. The contract consists of an option for the purchaser to enter into a
swap agreement with the trust. The swap would involve the Trust receiving a
variable rate of 3-month LIBORand the Trust paying a fixed rate of 5.00%, both
based on the $150 million notional amount for a period of ten years beginning
June 19, 2001. The option expires on June 15, 2001. At December 31, 1996,
unrealized depreciation was $73,050.
NOTE 4. BORROWINGS
REVERSE REPURCHASE AGREEMENTS: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender, the value of which at least equals the principal amount
of the reverse repurchase transactions including accrued interest.
The average daily balance of reverse repurchase agreements outstanding
during the year ended December 31, 1996 was approximately $93,500,371 at a
weighted average interest rate of approximately 5.56%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the year was
$117,709,548 as of January 31, 1996 which was 21.7% 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 average monthly balance of dollar rolls outstanding during the year
ended December 31, 1996 was approximately $60,787,306. The maximum amount of
dollar rolls outstanding at any month-end during the year was $77,989,475 as of
February 29, 1996, which was 13.65% of total assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of
the 36,810,639 shares outstanding at December 31, 1996, the Adviser owned 10,639
shares.
NOTE 6. DIVIDENDS
Subsequent to December 31, 1996, the Board of Directors of the Trust
declared a dividend from undistributed earnings of $0.047917 per share payable
January 31, 1997 to shareholders of record on January 15, 1997.
15
<PAGE>
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED NET INCREASE
GAINS (LOSSES) (DECREASE)
ON INVESTMENTS IN NET ASSETS
NET INVESTMENT AND SHORT SALES RESULTING FROM
QUARTERLY TOTAL INCOME AND FUTURES OPERATIONS
PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER SHARE
------ ------ ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1995 to March 31, 1995 .. $6,270,299 $5,558,153 $.15 $15,629,817 $.42 $21,187,970 $.57
April 1, 1995 to June 30, 1995 ..... 6,338,180 5,581,999 .15 20,052,401 .55 25,634,400 .70
July 1, 1995 to September 30, 1995 . 6,114,704 5,340,237 .15 952,984 .02 6,293,221 .17
October 1, 1995 to December 31, 1995 6,541,917 5,769,052 .15 11,837,249 .32 17,606,301 .47
January 1, 1996 to March 31, 1996 .. 6,938,785 6,156,204 .17 (18,916,882) (.51) (12,760,678) (.34)
April 1, 1996 to June 30, 1996 ..... 6,362,739 5,620,335 .15 (5,191,858) (.14) 428,477 .01
July 1, 1996 to September 30, 1996 . 6,581,597 5,826,460 .16 1,415,243 .04 7.241,703 .20
October 1, 1996 to December 31, 1996 6,568,326 5,805,177 .16 5,828,683 .15 11,633,860 .31
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PERIOD
AND END
QUARTERLY DISTRIBUTIONS SHARE PRICE NET ASSET
PERIOD AMOUNT PER SHARE HIGH LOW VALUE
------ ------ --------- ---- --- -----
<S> <C> <C> <C> <C> <C>
January 1, 1995 to March 31, 1995 .. $5,982,026 $.16 $7 1/2 $7 $8.62
April 1, 1995 to June 30, 1995 ..... 5,982,063 .16 8 7 3/8 9.16
July 1, 1995 to September 30, 1995 . 5,521,584 .15 8 7 3/8 9.18
October 1, 1995 to December 31, 1995 5,521,460 .15 8 1/4 7 1/2 9.50
January 1, 1996 to March 31, 1996 .. 5,521,596 .15 8 1/8 7 1/2 9.01
April 1, 1996 to June 30, 1996 ..... 5,521,514 .15 7 5/8 7 1/4 8.87
July 1, 1996 to September 30, 1996 . 5,291,498 .14 7 5/8 7 1/4 8.92
October 1, 1996 to December 31, 1996 5,291,511 .15 7 3/4 7 3/8 9.09
</TABLE>
16
<PAGE>
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THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock Investment Quality Term Trust Inc.:
We have audited the accompanying statement of assets and liabilities of The
BlackRock Investment Quality Term Trust Inc., including the portfolio of
investments, as of December 31, 1996, and the related statements of operations
and of cash flows for the year then ended, the statements of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended and for the
period April 29, 1992 (commencement of investment operations) to December 31,
1992. These financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion on these
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 asurance about whether the financial statements and financial
highlights are free of material misstatements. 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 financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock
Investment Quality Term Trust Inc. as of December 31, 1996, and the results of
its operations, its cash flows, the changes in its 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 INVESTMENT QUALITY 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
$0.5875 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 custodian, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue any new shares in connection with 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 dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Trust at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days' written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of
this report.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to manage a portfolio of investment grade
fixed income securities that will return $10 per share (the initial public
offering price per share) to investors on or about December 31, 2004 while
providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is the investment adviser for
the Trust. BlackRock is a registered investment adviser 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 which trade on either the New York Stock or American Stock
Exchanges, 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 2004. At the Trust's termination,
BlackRock expects that the value of the securities which have matured, combined
with the value of the securities that are sold will be sufficient to return the
initial offering price to investors. On a continuous basis, the Trust will seek
its objective by actively managing its assets in relation to market conditions,
interest rate changes and, importantly, the remaining term to maturity of the
Trust.
In addition to seeking the return of the initial offering price, the Adviser
also seeks to provide high monthly income to investors. The portfolio managers
will attempt to achieve this objective by investing in securities that provide
competitive income. In addition, leverage will be used (in an amount up to
331/3% of the 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.
19
<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 adviser. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial adviser 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 environment. BlackRock's portfolio managers continuously monitor and
regularly review the Trust's use of leverage and the Trust may reduce, or
unwind, the amount of leverage employed should BlackRock consider that reduction
to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange and as such are subject to supply
and demand influences. As a result, shares may trade at a discount or a premium
to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity,
therefore interim price movements on these securities are generally more
sensitive to interest rate movements than securities that make periodic coupon
payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S SECURITIES. The Trust may invest less than 10% of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
20
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with interest rates that
adjust at periodic intervals at a fixed amount
over the market levels of interest rates as
reflected in specified indexes. ARMS are backed by
mortgage loans secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of receivables
such as automobile and credit card receivables.
CLOSED-END FUND: Investment vehicle which initially offers a fixed
number of shares and trades on a stock exchange.
The fund invests in a portfolio of securities in
accordance with its stated investment objectives
and policies.
COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS): Mortgage-backed securities which separate mortgage
pools into short-, medium-, and long-term
securities with different priorities for receipt
of principal and interest. Each class is paid a
fixed or floating rate of interest at regular
intervals. Also known as multiple-class mortgage
pass-throughs.
DISCOUNT: When a fund's net asset value is greater than its
stock price the fund is said to be trading at a
discount.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders after
the deduction of expenses. This Trust declares and
pays dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all distributions
of dividends and capital gains automatically
reinvested into additional shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a publicly
owned, federally chartered corporation that
facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FHLMC are not guaranteed by the U.S.
government, however; they are backed by FHLMC's
authority to borrow from the U.S. government. Also
known as Freddie Mac.
FNMA: Federal National Mortgage Association, a publicly
owned, federally chartered corporation that
facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FNMA are not guaranteed by the U.S. government,
however; they are backed by FNMA's authority to
borrow from the U.S. government. Also known
asFannie Mae.
GNMA: Government National Mortgage Association, a
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).
21
<PAGE>
INTEREST-ONLY
SECURITIES (I/O): Mortgage securities that receive only the interest
cash flows from an underlying pool of mortgage
loans or underlying pass-through securities. Also
known as a STRIP.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund, this is
the price at which one share of the fund trades on
the stock exchange. If you were to buy or sell
shares, you would pay or receive the market price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which
the Trust sells mortgage-backed securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar
(although not the same) securities on a specified
future date. During the "roll" period, the Trust
does not receive principal and interest payments
on the securities, but is compensated for giving
up these payments by the difference in the current
sales price (for which the security is sold) and
lower price that the Trust pays for the similar
security at the end date as well as the interest
earned on the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae,
Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus any
liabilities including accrued expenses, divided by
the total number of outstanding shares. It is the
underlying value of a single share on a given day.
Net asset value for the Trust is calculated weekly
and published in BARRON'S on Saturday and THE WALL
STREET JOURNAL on Monday.
PRINCIPAL-ONLY
SECURITIES (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as STRIPS.
PROJECT LOANS: Mortgages for multi-family, low- to middle-income
housing.
PREMIUM: When a fund's stock price is greater than its net
asset value, the fund is said to be trading at a
premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as a
trust, corporation, partnership, or segregated
pool of assets that elects to be treated as a
REMIC for federal tax purposes. Generally, Fannie
Mae REMICs are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that generally
represent the excess cash flow from the mortgage
assets underlying the CMO after payment of
principal and interest on the other CMO securities
and related administrative expenses.
REVERSE REPURCHASE
AGREEMENTS: In a reverse repurchase agreement, the Trust sells
securities and agrees to repurchase them at a
mutually agreed date and price. During this time,
the Trust continues to receive the principal and
interest payments from that security. At the end
of the term, the Trust receives the same
securities that were sold for the same initial
dollar amount plus interest on the cash proceeds
of the initial sale.
STRIPPED MORTGAGE-BACKED
SECURITIES: Arrangements in which a pool of assets is
separated into two classes that receive different
proportions of the interest and principal
distributions from underlying mortgage-backed
securities IO's and PO's are examples of strips.
22
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
TAXABLE TRUSTS
- --------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ --------
The BlackRock Income Trust Inc. .............................. BKT N/A
The BlackRock North American Government Income Trust Inc. .... BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ........................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ........................... BNN 12/99
The BlackRock Target Term Trust Inc. ......................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ........................... BLK 06/01
The BlackRock Strategic Term Trust Inc. ...................... BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ............. BQT 12/04
The BlackRock Advantage Term Trust Inc. ...................... BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. .... BCT 12/09
TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------
STOCK MATURITY
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
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE CALL BLACKROCK AT
(800) 227-7BFM 7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
23
<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
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Kevin Klingert, 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 07102-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
c/o Prudential Mutual Fund Management, LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
09247E-103
THE BLACKROCK
INVESTMENT QUALITY
TERM TRUST INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
[Logo]
