- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
July 31, 1999
Dear Shareholder:
Since the Trust's last report, interest rates rose sharply as U.S. economic
growth remained strong, labor markets tightened and international markets began
to recover. In light of these factors, the Federal Reserve's Federal Open Market
Committee increased short-term interest rates by 25 basis points in June, citing
a concern that inflation might start to accelerate.
In tandem with the Fed's recent rate tightening, BlackRock has taken a
defensive interest rate stance. With the Treasury curve currently pricing in the
possibility of another Fed tightening by year-end, we believe that interest
rates will trade in a relatively narrow range until the economy shows signs of
slowing.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's semi-annual 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. Schlosstrin
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1999
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock Investment
Quality Term Trust Inc. ("the Trust") for the six months ended June 30, 1999. 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 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>
- -----------------------------------------------------------------------------------------------------------------
6/30/99 12/31/98 CHANGE HIGH LOW
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK PRICE $8.3125 $8.8125 (5.67%) $8.975 $8.3125
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.01 $9.56 (5.75%) $9.66 $8.92
- -----------------------------------------------------------------------------------------------------------------
10-YEAR TREASURY NOTE 5.78% 4.65% 24.30% 6.03% 4.61%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
THE FIXED INCOME MARKETS
The past six months have witnessed continued rapid expansion of the U.S.
economy. GDP growth for the second quarter of 1999 is estimated at an annual
rate of 3.5%-4%, far exceeding the historical non-inflationary level of 2%.
While BlackRock believes that growth may slow down in the second half of 1999,
we anticipate GDP to remain above 3% for the year. In spite of strong domestic
economic growth, inflationary forces continue to remain contained; still, the
Federal Reserve chose to raise its target for the federal funds rate from 4.75%
to 5.00% at its June meeting. The Fed cited an easing of financial strain, tight
labor markets and a firming of foreign economies in the release accompanying the
move. The Fed dropped its tightening bias to a neutral bias, which should reduce
the likelihood of another hike at the August 24th meeting. However, an
additional 25-50 basis points of tightening by year end is possible, as the
combination of a very strong domestic economy and an improving situation in
Europe and Japan may allow for tighter monetary policy.
U.S. Treasury securities dramatically reversed their fourth quarter gains in
the first half of 1999. The yield of the 10-Year Treasury posted a net decline
of 113 basis points (1.13%), beginning 1999 at 4.65% and closing on June 30,
1999 at 5.78%. Strong economic numbers led the Federal Reserve to adopt a
tightening bias on May 18, 1999 and ultimately raised interest rates by 25 basis
points on June 30, 1999. The Federal Reserve eased rates by 0.75% in 1998
because of the global financial crisis but cited in their June 1999 meeting
"Since then much of the financial strain has eased, foreign economies have
firmed and economic activity in the U.S. has moved forward at a brisk pace." We
anticipate Treasuries will trade in a relatively narrow range for the balance of
1999 unless the Fed takes further action.
As interest rates rose and alleviated prepayment fear, mortgage securities
outperformed the broader investment grade bond market. For the period ended June
30th the LEHMAN BROTHERS MORTGAGE INDEX posted a 0.53% total return versus
2
<PAGE>
- -1.39% for the LEHMAN BROTHERS AGGREGATE INDEX. After significantly
underperforming Treasuries in 1998 mortgages experienced a significant rally
late in 1998 following through into the first quarter of 1999. Although yields
have tightened significantly from their crisis levels in 1998, mortgages remain
at attractive levels as a record issuance has come to market and kept yields
attractive. Although higher mortgage rates have reduced prepayment fears,
mortgage rates still remain at historically low levels.
Investment grade corporate securities underperformed the broader investment
grade bond market, as corporates measured by the MERRILL LYNCH U.S. CORPORATE
MASTER INDEX returned -2.52%, as compared to the LEHMAN BROTHERS AGGREGATE
INDEX'S -1.39%. Corporate profitability continues to be the driving factor of
corporate bond performance and profit growth remains under pressure from
overseas markets and a strong labor market. Deteriorating fundamentals (four
times as many downgrades as upgrades in the first quarter according to S&P)
combined with weakening profit growth and increased issuance will continue to
pressure the corporate market. Investor appetite for credit and liquidity risk
remains suppressed after last year's volatility. We anticipate new supply to
start to taper off early in the fourth quarter and relieve some of the pressure
that investment grade corporates have been experiencing.
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 charts compare the Trust's current and December 31, 1998 asset
composition and credit rating.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
- --------------------------------------------------------------------------------------------------------
COMPOSITION JUNE 30, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Corporate Bonds 27% 29%
- --------------------------------------------------------------------------------------------------------
Mortgage Pass-Throughs 18% 19%
- --------------------------------------------------------------------------------------------------------
U.S. Government Securities 11% 8%
- --------------------------------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 10% 11%
- --------------------------------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 9% 11%
- --------------------------------------------------------------------------------------------------------
Commercial Mortgage-BackedSecurities 7% 7%
- --------------------------------------------------------------------------------------------------------
Stripped Money Market Instruments 6% 6%
- --------------------------------------------------------------------------------------------------------
Taxable Municipal Bonds 5% 5%
- --------------------------------------------------------------------------------------------------------
Asset-Backed Securities 3% 2%
- --------------------------------------------------------------------------------------------------------
FHA Project Loans 3% --
- --------------------------------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 1% 2%
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
RATING % OF CORPORATES
- --------------------------------------------------------------------------------------------------------
CREDIT RATING JUNE 30, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
AA or equivalent -- --
- --------------------------------------------------------------------------------------------------------
A or equivalent 52% 48%
- --------------------------------------------------------------------------------------------------------
BBB or equivalent 42% 46%
- --------------------------------------------------------------------------------------------------------
BB or equivalent 6% 6%
- --------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
In accordance with the Trust's primary investment objective of returning the
initial offering price upon maturity, the Trust's portfolio management activity
focused on adding securities which offer attractive yield spreads over Treasury
securities and an emphasis on bonds with maturity dates approximating the
Trust's termination date of December 31, 2004. Additionally, the Trust has been
active in reducing positions in bonds which have maturity dates or potential
cash flows after the Trust's termination date.
Consistent with the Trust's primary investment objective, the continual
reinvestment of cash flows into shorter maturity securities over time as the
Trust approaches its maturity date results in a natural reduction in the amount
of net investment income generated by the Trust. Therefore, after careful
evaluation of the current and anticipated level of the Trust's net investment
income, the Board of Directors voted to reduce the Trust's monthly dividend from
$0.045833 ($0.55 annualized) to $0.04167 ($0.50 annualized) effective with the
March 31, 1999 dividend payment.
During the reporting period, the most significant additions have been in the
asset-backed security (ABS) and US Government and Agency sector. Additionally,
the Trust maintained its significant weighting in investment grade corporate
bonds and well-structured mortgage securities such as commercial mortgage-backed
securities (CMBS). To finance these purchases, the Trust sold mortgage back
securities, as their maturity may extend past the Trust's termination date in a
rising interest rate environment. The Trust also sold some high yield bonds,
which performed very well in the first half of the year. The Trust bought
Treasuries to add liquidity so that the portfolio could participate in the new
issue market for corporates and asset-backed securities, which are offering
attractive yields relative to existing bonds.
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment in the BlackRock Investment Quality Term Trust
Inc. Please feel free to contact our marketing center at (800) 227-7BFM (7236)
if you have specific questions which were not addressed in this report.
Sincerely,
/s/ Robert S. Kapito /s/Michael P. Lustig
- ----------------------------------- -------------------------------------
Robert S. Kapito Michael P.Lustig
Vice Chairman and Portfolio Manager Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BQT
- --------------------------------------------------------------------------------
Initial Offering Date: April 21, 1992
- --------------------------------------------------------------------------------
Closing Stock Price as of 6/30/99: $8.3125
- --------------------------------------------------------------------------------
Net Asset Value as of 6/30/99: $9.01
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/99 ($8.3125)1: 6.02%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.04167
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.50
- --------------------------------------------------------------------------------
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
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--142.3%
MORTGAGE PASS-THROUGHS--28.5%
Federal Home Loan Mortgage Corp.,
$15,152 6.50%, 5/1/26 - 6/1/29 ....................... $14,626,103
7,554 7.00%, 12/1/28 ............................... 7,473,369
Federal Housing Administration,
2,072 Colonial, Ser. 37, 7.40%, 12/1/22 2,042,099
4,656 GMAC, Ser. 51, 7.43%, 2/1/21 ................. 4,690,108
1,245 Middlesex, 8.63%, 9/1/34 ..................... 1,285,014
2,840 Tuttle Grove, 7.25%, 10/1/35 ................. 2,819,510
USGI,
1,582 Ser. 99, 7.43%, 10/1/23 .................... 1,596,779
7,988 Ser. 885, 7.43%, 3/1/22 .................... 7,638,553
4,141 Ser. 2081, 7.43%, 5/1/23 ................... 4,180,292
Federal National Mortgage Association,
33,420 6.50%, 8/1/28 - 6/1/29 ....................... 32,239,910
9,389++ 6.35%, 1/1/04, 10 year,
Multi-family ............................... 9,173,438
2,770++ 8.26%, 2/1/04, 10 year,
Multi-family ............................... 2,877,120
2,306++ 8.78%, 4/1/04, 10 year,
Multi-family ............................... 2,350,124
1,542++ 8.89%, 4/1/04, 10 year,
Multi-family ............................... 1,571,950
-----------
94,564,369
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--14.3%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
75++ Ser. 1523, Class 1523-A,
6/15/22 ..................................... 75,295
1,037 Ser. 1584, Class 1584-SE,
2/15/23 ..................................... 847,755
4,000++ Ser. 1587, Class 1587-KA,
7/15/08 ..................................... 3,939,920
48 Ser. 1607, Class 1607-M,
4/15/13 ..................................... 46,808
698++ Ser. 1634, Class 1634-SG,
12/15/22, (ARM) ............................. 674,627
174 Ser. 1650, Class 1650-LC,
2/15/22 ..................................... 168,399
645 Ser. 1655, Class 1655-SB,
12/15/08, (ARM) ............................. 625,956
1,926 Ser. 1667, Class 1667-C,
1/15/09 ..................................... 1,869,675
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,522++ Trust 269, Class 269-1,
8/1/22 ...................................... 1,612,455
7,466+ Trust 1992-43, Class 43-E,
4/25/22 ..................................... 7,532,802
1,646++ Trust 1992-155, Class 155-SB,
12/25/06, (ARM) ............................. 1,593,789
1,500++ Trust 1993-143, Class 143-SC,
8/25/23, (ARM) .............................. 1,376,175
250 Trust 1993-179, Class 179-SA,
10/25/23, (ARM) ............................. 243,973
9,589+ Trust 1993-188, Class 188-S,
2/25/08, (ARM) .............................. 9,331,655
1,142 Trust 1993-192, Class 192-S,
4/25/07, (ARM) .............................. 1,110,200
1,739++ Trust 1993-212, Class 212-SB,
11/25/08, (ARM) ............................. 1,723,983
1,360++ Trust 1993-225, Class 225-FK,
12/25/23, (ARM) ............................. 1,325,333
220 Trust 1994-17, Class 17-SA,
1/25/09, (ARM) .............................. 220,162
371 Trust 1994-36, Class 36-L,
1/25/23 ..................................... 360,155
2,000++ Trust 1996-M5, Class A2,
1/25/11 ..................................... 2,025,625
AAA 5,000 New York City Mortgage Loan Trust,
Ser. 1996, Class A-2,
6/25/11** ................................... 4,862,500
Residential Funding Mortgage
Securities I,
AAA 5,408 Ser. 1993-S15, Class A-16,
4/25/08, (ARM) .............................. 5,461,642
AAA 558 Ser. 1993-S15, Class A-17,
4/25/08, (ARM) .............................. 554,696
-----------
47,583,580
-----------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--13.0%
AAA 124,892 Citicorp Mortgage Securities Inc.,
REMIC Pass-Through Certificates,
Ser. 1999-3, Class A3, 5/25/29 ................ 1,541,630
AAA 40,038 Credit Suisse First Boston
Mortgage Securities Corp.,
Ser. 1997-C1, Class AX,
6/20/29** ................................... 3,636,328
AAA 1,794 CWMBS Inc., Mortgage Certificate,
Ser. 1994-D, Class A-7,
3/25/24 ..................................... 1,790,878
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
13,879++ Ser. 1353, Class 1353-S,
8/15/07 ..................................... 1,172,383
1,662 Ser. 1489, Class 1489-K,
10/15/07 .................................... 144,390
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$ 5,884 Ser. 1506, Class 1506-SA,
1/15/05 ..................................... $ 14,769
28,604 Ser. 1644, Class 1644-DA,
12/15/23 .................................... 975,979
1,127 Ser. 1751, Class 1751-PL,
10/15/23 .................................... 141,838
3,624 Ser. 1917, Class 1917-AS,
5/15/08 ..................................... 533,379
1,696 Ser. 1946, Class 1946-SN,
10/15/08 .................................... 25,852
31,484 Ser. 1954, Class 1954-BB,
4/15/21 ..................................... 281,784
27,054 Ser. 1954, Class 1954-L,
5/15/21 ..................................... 247,813
14,577++ Ser. 2055, Class 2055-IB,
12/15/09 .................................... 2,778,755
1,938 Ser. 2144, Class 2144-GI,
12/15/07 .................................... 236,133
8,729 Ser. G-25, Class 25-S,
8/25/06 ..................................... 203,990
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
904 Trust 1993-22, Class 22-PT,
10/25/18 .................................... 32,537
1,636 Trust 1993-39, Class 39-K,
4/25/04 ..................................... 258,126
9,600 Trust 1993-109, Class 109-QC,
7/25/07 ..................................... 949,440
1,606 Trust 1994-27, Class 27-WC,
3/25/20 ..................................... 156,539
2,391 Trust 1994-42, Class 42-SO,
3/25/23 ..................................... 280,665
7,000++ Trust 1996-20, Class 20-SB,
10/25/08 .................................... 1,954,531
4,128 Trust 1996-24, Class 24-SE,
3/25/09 ..................................... 1,033,114
9,857 Trust 1996-24, Class 24-SL,
8/25/23 ..................................... 1,225,983
26,807 Trust 1996-54, Class 54-SH,
8/25/23 ..................................... 140,470
17,197 Trust 1996-54, Class 54-SI,
8/25/23 ..................................... 79,708
602 Trust 1997-7, Class 7-WC,
4/25/22 ..................................... 81,253
1,375 Trust 1997-28, Class 28-PH,
3/18/22 ..................................... 129,644
15,402++ Trust 1997-44, Class 44-SC,
6/25/08 ..................................... 972,009
6,250 Trust 1997-50, Class 50-HK,
8/25/27 ..................................... 2,041,748
9,918 Trust 1998-8, Class 8-PM,
6/18/19 ..................................... 816,246
1,924 Trust 1998-12, Class 12-PL,
7/18/19 ..................................... 259,072
15,220 Trust 1998-27, Class 27-PI,
12/18/20 .................................... 2,523,226
26,627 Trust 1998-37, Class 37-L,
4/25/28 ..................................... 2,704,290
AAA 1,857 GE Capital Mortgage Services Inc.,
Ser. 1997-2, Class 2A,
3/25/12 ..................................... 230,929
Merrill Lynch Mortgage Investors Inc.,
AAA 71,749 Ser. 1997-C2, Class IO,
12/10/29 .................................... 4,904,965
AAA 48,039 Ser. 1998-C2, Class IO,
2/15/30 ..................................... 3,627,779
Morgan Stanley Capital 1,
AAA 38 Ser. 1997-HF1, Class X,
6/15/17** ................................... 3,192
AAA 80,631 Ser. 1998, Class X,
2/15/18 ..................................... 4,833,457
-----------
42,964,824
-----------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--1.7%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
423 Ser. 1243, Class 1243-N,
8/15/06 ..................................... 375,412
318 Ser. 1862, Class 1862-DA,
12/15/22 .................................... 270,048
371 Ser. 1862, Class 1862-DB,
12/15/22 .................................... 315,057
1,696 Ser. 1946, Class 1946-N,
10/15/08 .................................... 1,330,533
1,226++ Ser. 2009, Class 2009-JH,
11/15/21 .................................... 1,161,403
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
530++ Trust 1993-147, Class 147-H,
8/25/23 ..................................... 447,225
627 Trust 1993-228, Class 228-B,
3/25/23 ..................................... 580,657
1,329++ Trust 1996-32, Class 32-E,
10/25/08 .................................... 1,271,402
-----------
5,751,737
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--10.0%
AAA 2,000 AETNA, SER. 1995-C5, CLASS B,
6.74%, 12/26/30 ............................... 2,017,854
A+ 5,000 Credit Suisse First Boston
Mortgage Securities Corp.,
Ser. 1995-AEW 1, Class C, 7.46%,
11/25/27 .................................... 4,991,823
A 6,485 FDIC REMIC Trust, Ser. 1994-C-1,
Class 11-F, 8.70%, 9/25/25 .................... 6,652,227
AAA 265 GMAC Commercial Mortgage Securities
Inc., Ser. 1998-C2, Class A2,
6.42%, 8/15/08 .............................. 256,312
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--(CONT'D)
LTC Commercial Mortgage
Pass-Through Certificates,
AA- $ 2,000 Ser. 1994-1, Class 1-D, 10.00%,
6/15/26** ................................... $ 2,048,580
AAA 2,798 Ser. 1996-1, Class 1-A, 7.06%,
4/15/28** ................................... 2,795,169
AAA 171 Morgan Stanley Capital 1,
Ser. 1997, Class A1, 6.86%,
5/15/06** ................................... 172,177
BBB+ 2,600 Nomura Asset Capital Corp.,
Ser. 1993-M1, Class A3, 7.64%,
11/25/03** .................................. 2,601,904
AA 1,812 Salomon Brothers Mortgage Securities
Corp., Ser. 1997-TZH, Class A1,
7.15%, 3/25/25** .............................. 1,841,120
Structured Asset Securities Corp.,
Mortgage Certificates,
A+ 3,865 Ser. 1996, Class D, 7.03%,
2/25/28 ..................................... 3,884,765
BBB 5,970 Ser. 1996, Class E, 7.75%,
2/25/28 ..................................... 5,707,462
-----------
32,969,393
-----------
ASSET-BACKED SECURITIES--4.2%
N/R 2,699 Global Rated Eligible Asset Trust,
Ser. 1998-A, Class A1, 7.33%,
3/15/06**/*** ............................... 1,470,875
AA 4,809 Pegasus Aviation Lease Securitization,
Ser. 1999-1A, Class A1, 6.30%,
3/25/29 ..................................... 4,700,598
Structured Mortgage Asset Residential
Trust,**/***
N/R 4,077 Ser. 1997-2, Class E, 8.24%,
3/15/06 ..................................... 1,950,968
N/R 4,496 Ser. 1997-3, 8.57%,
4/15/06 ..................................... 2,000,003
A1 4,000 Student Loan Marketing Association,
Ser. 1995-1, Class B, 5.89%,
10/25/09 .................................... 3,946,875
-----------
14,069,319
-----------
U.S GOVERNMENT AND
AGENCY SECURITIES--15.9%
Small Business Administration,
1,172 Ser. 1996-20F, 7.55%,
6/1/16 ...................................... 1,206,885
1,747 Ser. 1996-20G, 7.70%,
7/1/16 ...................................... 1,810,018
4,406 Ser. 1996-20K, 6.95%,
11/1/16 ..................................... 4,422,500
1,875 Ser. 1998-10A, 6.12%,
2/1/08 ...................................... 1,808,913
25,000++ U.S. Treasury Bonds,
5.50%, 8/15/28 ................................ 22,890,500
U.S. Treasury Notes,
20,000++ 4.75%, 2/15/04 ................................ 19,237,400
1,410++ 5.50%, 5/15/09 ................................ 1,377,387
-----------
52,753,603
-----------
TAXABLE ZERO COUPON BONDS--8.5%
AAA 40,000 Vanguard Prime Money Market Strip,
12/31/04 ...................................... 28,008,000
-----------
TAXABLE MUNICIPAL BONDS--7.0%
AAA 3,600 California Housing Finance Agency Rev.,
6.69%, 8/1/03 ................................. 3,568,824
AA- 2,000 Fresno California Pension Obligation,
7.15%, 6/1/04 ................................. 2,060,440
AAA 4,000 Los Angeles County
California Pension Obligation,
6.77%, 6/30/05 ................................ 4,047,760
AAA 7,000 New Jersey Economic Development
Authority,
Zero Coupon, 2/15/04 .......................... 5,178,110
A- 5,000 New York City, G.O.,
7.50%, 4/15/04 ................................ 5,166,500
Baa1 1,000 New York State Environmental Facilities
Corp., Service Contract Revenue,
6.95%, 9/15/04 ................................ 1,011,170
AAA 2,250 San Francisco California City & Cnty.
Arpts. Commission, International
Airport, 6.55%, 5/1/04 2,263,500
-----------
23,296,304
-----------
CORPORATE BONDS--39.1%
FINANCE & BANKING--12.7%
A3 2,450 Amsouth Bancorp.,
6.75%, 11/1/25 ................................ 2,423,613
A1 3,000 Den Danske Bank,
7.25%, 6/15/05** .............................. 3,026,616
A 1,300 Equitable Life of America,
6.95%, 12/1/05** .............................. 1,298,303
A+ 5,000@ Farmers Insurance,
8.50%, 8/1/04** ............................... 5,281,144
A2 4,800++ First National Bank of Boston,
8.00%, 9/15/04 ................................ 5,055,504
A- 5,000 Fleet Financial Group,
8.13%, 7/1/04 ................................. 5,264,600
A+ 4,850 Goldman Sachs Group,
6.25%, 2/1/03** ............................... 4,787,733
A 3,500 Lehman Brothers Holdings Inc.,
6.75%, 9/24/01 ................................ 3,494,296
BB+ 3,500 Macsaver Financial Services Inc.,
7.88%, 8/1/03 ................................. 2,905,000
A+ 1,000 Metropolitan Life Insurance Co.,
6.30%, 11/1/03** .............................. 983,283
PaineWebber Group, Inc.,
BBB 500 6.90%, 2/9/04 ................................. 489,714
BBB+ 2,000 8.88%, 3/15/05 ................................ 2,141,279
A 3,100 Reliaster Financial Corp.,
6.63%, 9/15/03 ................................ 3,080,377
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS--(CONT'D)
FINANCE & BANKING--(CONT'D)
Aa3 $ 2,000 Salomon Smith Barney Holdings, Inc.,
6.75%, 1/15/06 ................................ $ 1,961,340
-----------
42,192,802
-----------
INDUSTRIALS--10.6%
A2 400 American Airlines, Inc.,
10.44%, 3/4/07 ................................ 462,560
BBB- 3,600 Anixter Inc.,
8.00%, 9/15/03 ................................ 3,457,498
BBB 2,000 Conagra, Inc.,
7.40%, 9/15/04 ................................ 2,036,160
A1 5,500 Ford Motor Credit Co.,
7.50%, 6/15/04 ................................ 5,653,065
BB- 5,000 Lukens, Inc.,
7.63%, 8/1/04 ................................. 4,876,950
BBB+ 5,000 Newmont Mining Corp.,
8.00%, 12/1/04 ................................ 4,915,150
BBB- 3,000 News America Holdings, Inc.,
8.50%, 2/15/05 ................................ 3,166,320
BBB 5,000++ Pulte Corp.,
8.38%, 8/15/04 ................................ 5,160,150
A+ 2,000 Ralcorp Holdings, Inc.,
8.75%, 9/15/04 ................................ 2,194,800
AA- 3,000 TCI Communications, Inc.,
8.25%, 1/15/03 ................................ 3,162,810
-----------
35,085,463
-----------
UTILITIES--5.1%
360 Communications Co.,
A 2,000 7.13%, 3/1/03 ................................. 2,038,960
A 2,000 7.50%, 3/1/06 ................................. 2,051,960
BBB- 5,000 Gulf States Utilities Co.,
8.25%, 4/1/04 ................................. 5,222,350
BBB+ 5,400++ Niagara Mohawk Power Corp.,
7.38%, 8/1/03 ................................. 5,537,700
Baa2 2,000 Ohio Edison,
8.63%, 9/15/03 ................................ 2,130,000
-----------
16,980,970
-----------
YANKEE--10.7%
N/R 4,824 Banamex Remittance Master Trust,
Ser. 1996, 7.57%, 1/1/01** .................... 4,814,513
BBB+ 2,000 Canadian Pacific Ltd.,
6.88%, 4/15/03 ................................ 2,010,080
A3 2,000 Corporacion Andina De Fomento,
7.10%, 2/1/03 ................................. 1,956,140
BBB- 5,000 Empresa Electric Guacolda SA,
7.95%, 4/30/03** .............................. 4,542,758
A- 3,500 Israel Electric Corp. Ltd.,
7.25%, 12/15/06** ............................. 3,355,135
A+ 5,000++ Quebec Province,
8.63%, 1/19/05 ................................ 5,411,200
BBB- 3,000 Telefonica De Argentina SA,
11.88%, 11/1/04 ............................... 3,082,500
BBB- 5,000 Telekom Malaysia Berhad,
7.13%, 8/1/05** ............................... 4,666,350
Xtra, Inc.,
BBB+ 2,000 6.50%, 1/15/04 ................................ 1,970,820
BBB+ 2,500 7.22%, 7/31/04 ................................ 2,526,850
Baa1 11,083 YPF Sociedad Anonima,
7.50%, 10/26/02 ............................... 1,088,937
-----------
35,425,283
-----------
Total Corporate Bonds ........................... 129,684,518
-----------
NOTIONAL
AMOUNT
(000)
-------
CALL OPTIONS PURCHASED--0.1%
Interest Rate Swap,
50,000 5.60% over 3 month LIBOR,
expires 8/7/00
(cost $687,500) ............................. 268,155
-----------
Total Long-Term Investments
(cost $487,419,939) ........................... 471,913,802
-----------
PRINCIPAL
AMOUNT
(000)
-------
SHORT-TERM INVESTMENTS--1.3%
DISCOUNT NOTE--1.1%
3,770 Federal Home Loan Mortgage Corp.,
4.60%, 7/1/99
(cost $3,770,000) ............................. 3,770,000
-----------
REPURCHASE AGREEMENT--0.2%
500 State Street Bank & Trust Co.
4.60%, dated 6/30/99, due 7/1/99
in the amount of $500,064 (cost
$500,000) collateralized by
$505,000 U.S. Treasury
Note, 5.00% due
5/31/01 value including accrued
interest $554,167 ............................. 500,000
-----------
Total short-term Investments
(cost $4,270,000) ............................. 4,270,000
-----------
Total investments before call options
written (cost $491,689,939) ................... 476,183,802
-----------
NOTIONAL
AMOUNT
(000)
-------
CALL OPTIONS WRITTEN--0.0%
80,000 Interest Rate Swap,
5.50% over 3 month LIBOR, expires 8/10/99
(premium received $490,000) ................... (176)
-----------
See Notes to Financial Statement.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Total investments, net of call
options written--143.6%
(cost $491,199,939) ........................... $476,183,626
Liabilities in excess of
other assets --(43.6)% .......................... (144,582,742)
------------
NET ASSETS--100% ................................ $331,600,884
============
- -----------------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security restricted as to resale.
*** Illiquid securities representing 1.1% of portfolio assets.
+ Partial principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
@ Partial principal amount pledged as collateral for futures contracts.
@@ Entire principal amount pledged as collateral for futures contracts.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
LIBOR -- London InterBank Offer Rate.
REMIC -- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $491,689,939)
(Note 1) ................................................... $476,183,802
Cash ......................................................... 130,625
Interest receivable .......................................... 6,659,393
Receivable for investments sold .............................. 1,544,967
Interest rate cap, at value (amortized cost $680,819)
(Note 1 and 3) ............................................. 437,950
Unrealized appreciation on interest rate swaps
(Note 1 and 3) ............................................. 1,556
------------
484,958,293
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ................... 151,471,303
Due to broker-variation margin ........................... 899,326
Interest payable ......................................... 534,803
Investment advisory fee payable (Note 2) ................. 136,270
Administration fee payable (Note 2) ...................... 27,254
Swap option written, at value
(premium received $490,000) (Note 1) ................... 176
Other accrued expenses ................................... 288,277
-------------
153,357,409
-------------
NET ASSETS ............................................... $ 331,600,884
=============
Net assets were comprised of:
Common stock, at par (Note 5) .......................... $ 368,106
Paid-in capital in excess of par ....................... 344,345,594
-------------
344,713,700
Undistributed net investment income .................... 14,306,141
Accumulated net realized loss .......................... (10,822,181)
Net unrealized depreciation ............................ (16,596,776)
-------------
Net assets, June 30, 1999 .............................. $ 331,600,884
=============
Net asset value per share:
($331,600,884 O 36,810,639 shares of
common stock issued and outstanding) ................... $9.01
=====
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium amortization
of $2,697,408 and interest expense of
$3,902,758) ............................................. $ 16,632,532
------------
Operating Expenses
Investment advisory ....................................... 1,018,877
Administration ............................................ 169,813
Reports to shareholders ................................... 74,500
Custodian ................................................. 44,500
Directors ................................................. 41,500
Audit ..................................................... 22,000
Transfer agent ............................................ 12,000
Legal ..................................................... 2,500
Miscellaneous ............................................. 26,543
------------
Total operating expenses ................................ 1,412,233
------------
Net investment income before excise tax ................... 15,220,299
Excise tax ................................................ 64,724
------------
Net investment income ..................................... 15,155,575
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ............................................... (55,491)
Short sales ............................................... 602,460
Futures ................................................... (8,122,257)
------------
(7,575,288)
------------
Net change in unrealized appreciation (depreciation) on:
Investments ............................................... (24,825,633)
Short sales ............................................... 832,032
Interest rate caps ........................................ 338,540
Interest rate swaps ....................................... 328,181
Written options ........................................... 1,776,144
Futures ................................................... 1,423,072
-----------
(20,127,664)
-----------
Net loss on investments ................................... (27,702,952)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................. $(12,547,377)
============
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
RECONCILIATION OF NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net decrease in net assets resulting from
operations ................................................. $ (12,547,377)
-------------
Increase in investments ....................................... (5,144,002)
Net realized loss ............................................. 7,575,288
Decrease in unrealized appreciation ........................... 20,127,664
Increase in interest receivable ............................... (190,522)
Decrease in receivable for investments sold ................... 12,966,637
Decrease in deposits with brokers for
investments sold short ...................................... 116,563,447
Decrease in investments sold short ............................ (66,543,750)
Decrease in swap option written ............................... (1,776,144)
Increase in interest rate cap ................................. (210,710)
Decrease in payable for investments purchased ................. (107,494,848)
Increase in due to broker-variation margin .................... 815,405
Decrease in interest payable .................................. (236,128)
Decrease in unrealized appreciation
on interest rate swap ...................................... 325,069
Decrease in other accrued expenses ............................ (192,207)
-------------
Total adjustments .......................................... (23,414,801)
-------------
Net cash flows used for operating activities .................. $ (35,962,178)
=============
INCREASE (DECREASE) IN CASH
Net cash flows used for operating activities: ................. $ (35,962,178)
-------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements .................. 45,602,553
Cash dividends paid ........................................ (9,509,750)
-------------
Net cash flows provided by financing activities ............... 36,092,803
-------------
Net increase in cash ....................................... 130,625
Cash at beginning of period ................................ --
-------------
Cash at end of period $ 130,625
=============
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
JUNE 30 DECEMBER 31,
1999 1998
----------- -----------
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income ........................ $15,155,575 $24,368,986
Net realized gain (loss) on
investments ............................... (7,575,288) 7,228,158
Net change in unrealized
appreciation/(depreciation)
on investments ............................ (20,127,664) (6,378,656)
----------- -----------
Net increase (decrease) in
net assets resulting
from operations ........................... (12,547,377) 25,218,488
Dividends from net
investment income ......................... (7,822,597) (20,245,529)
----------- -----------
Total increase (decrease) .................... (20,369,974) 4,972,959
NET ASSETS
Beginning of period ............................. 351,970,858 346,997,899
----------- -----------
End of period ................................... $331,600,884 $351,970,858
============ ============
See Notes to Financial Statements.
11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..................... $ 9.56 $ 9.43 $ 9.09 $ 9.50 $ 8.21 $ 9.47
-------- -------- -------- -------- -------- --------
Net investment income (net of interest expense of $0.11,
$0.21, $0.21, $0.17, $0.23 and $0.17, respectively) ... 0.41 0.66 0.65 0.64 0.60 .62
Net realized and unrealized gain (loss) ................ (0.75) 0.02 0.31 (0.46) 1.31 (1.16)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations ....... (0.34) 0.68 0.96 0.18 1.91 (0.54)
-------- -------- -------- -------- -------- --------
DIVIDENDS FROM NET INVESTMENT INCOME ..................... (0.21) (0.55) (0.62) (0.59) (0.60) (0.68)
Distributions in excess of net investment income ......... -- -- -- -- (0.02) (0.04)
-------- -------- -------- -------- -------- --------
Total dividends and distributions ........................ (0.21) (0.55) (0.62) (0.59) (0.62) (0.72)
-------- -------- -------- -------- -------- --------
Net asset value, end of period* .......................... $ 9.01 $ 9.56 $ 9.43 $ 9.09 $ 9.50 $ 8.21
======== ======== ======== ======== ======== ========
Market value, end of period* ............................. $ 8.31 $ 8.81 $ 8.38 $ 7.63 $ 7.88 $ 7.00
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN .................................. (3.09%) 11.50% 18.58% 4.58% 21.91% (18.10%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................................... 0.83% 0.85% 0.89% 0.91% 0.92% 0.93%
Net investment income .................................... 8.95% 6.89% 6.98% 7.03% 6.76% 7.10%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $341,429 $353,745 $341,607 $332,778 $328,950 $320,366
Portfolio turnover ....................................... 35% 106% 135% 221% 160% 111%
Net assets, end of period (in thousands) ................. $331,601 $351,971 $346,998 $334,779 $349,862 $302,147
Reverse repurchase agreements outstanding,
end of year (in thousands) ............................. $151,471 $105,869 $142,948 $ 96,846 $112,007 $149,800
Asset coverage ........................................... $ 3,189 $ 4,325 $ 3,427 $ 4,457 $ 4,124 $ 3,017
</TABLE>
- ---------------------
* Net asset value and market value are published in BARRON'S each Saturday,
THE NEW YORK TIMES and THE WALL STREET JOURNAL each Monday.
# The ratios of operating expenses, including interest expense, to average net
assets were 3.14% , 2.99%, 3.15%, 2.83%, 3.44% and 2.84% for the periods
indicated above, respectively. The ratios of operating expenses, including
interest expense and excise tax, to average net assets were 3.18% , 3.01%,
3.15%, 2.83%, 3.44% and 2.85% 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 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 a
year are not annualized.
++ Per $1,000 of reverse repurchase agreements 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.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & 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, interest rate swaps, caps, floors and non-exchange traded
options 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 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase is 60 days or
less. Short-term securities with a term to maturity greater than 60 days from
the date of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings 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, or collections of 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
13
<PAGE>
obligates the writer to buy the underlying position at the exercise price at any
time or at a specified time during the option period. Put options can be
purchased to effectively hedge a position or a portfolio against price declines
if a portfolio is long. In the same sense, call options can be purchased to
hedge a portfolio that is shorter than its benchmark against price changes. The
Trust can also sell (or write) covered call options and put options to hedge
portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In 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: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are 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 commission, 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 loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
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
14
<PAGE>
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. The Trust did not engage in
securities lending during the six months ended June 30, 1999.
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 or floating 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.
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.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
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
deficiency, if any, of a floating rate under a specified fixed or floating 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. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective.
The Trust's leverage provides extra income in a period of falling rates.
Selling floors reduces some of that advantage by partially monetizing it as an
up front payment which the Trust receives. 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.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
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
15
<PAGE>
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.
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 0.60% 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 0.12% 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.
PIFM pays occupancy and certain clerical and accounting costs of the Trust. The
Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the six months ended June 30, 1999 aggregated $192,638,556
and $176,773,420, respectively.
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 June 30, 1999, the Trust held
16% 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, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Services, Inc.
The federal income tax basis of the Trust's investments at June 30, 1999
was substantially the same as for financial reporting purposes and, accordingly,
net unrealized depreciation for federal income tax purposes was $18,648,976
(gross unrealized appreciation--$10,368,375; gross unrealized
depreciation--$29,017,351).
For federal income tax purposes, the Trust has a capital loss carryforward
at December 31, 1998 of approximately $5,865,400 of which approximately
$2,020,900 will expire in 2002 and approximately $3,844,500 will expire 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.
16
<PAGE>
Details of open financial futures contract at June 30, 1999 are as follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 1999 DEPRECIATION
- -------- ----- ---------- ------- -------- ------------
Short positions:
1,250 30-Yr. T-Bond Sept. 1999 $(143,543,662) $(144,882,813) ($1,339,151)
Details of open interest rate cap at June 30, 1999 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED JUNE 30, UNREALIZED
(000) RATE RATE DATE COST 1999 DEPRECIATION
------- ----- -------- ------- --------- --------- ------------
$40,000 6.00% 3 MONTH LIBOR 2/19/02 $680,819 $437,950 ($242,869)
Details of open interest rate swaps at June 30, 1999 are as follows:
NOTIONAL FLOATING/
AMOUNT FIXED TERMINATION UNREALIZED
(000) TYPE RATE FLOATING RATE DATE APPRECIATION
- -------- ----- --------- ------------- ---- ------------
$ 20,000 Floating Rate 3 Mo. T-Bill 3 Mo.LIBOR 9/10/03 $ 836
+80.25 bps
20,000 Floating Rate 3 Mo. T-Bill 3 Mo.LIBOR 9/10/03 720
+81.75 bps -------
$ 1,556
=======
NOTE 4. BORROWINGS
REVERSE REPURCHASE AGREEMENTS: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender, the value of which at least equals the principal amount
of the reverse repurchase transactions including accrued interest.
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1999 was approximately $132,164,796 at a weighted
average interest rate of approximately 4.82%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the period was
$151,471,303 as of June 30, 1999, which was 31.2% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The average monthly balance of dollar rolls outstanding during the six months
ended June 30, 1999 was approximately $14,851,937. The maximum amount of dollar
rolls outstanding at any month-end during the period was $45,043,555 as of
January 31, 1999, which was 12.8% 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 June 30, 1999, the Adviser owned 10,639 shares.
NOTE 6. DIVIDENDS
Since June 30, 1999, the Board of Directors of the Trust declared dividends from
undistributed earnings of $0.04167 per share payable July 30, 1999 to
shareholders of record on July 15, 1999.
17
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THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incur costs
of up to approximately five hundred thousand dollars to complete such evaluation
and to make any modifications to its systems as may be necessary to achieve Year
2000 compliance. The Adviser has advised the Trust that it has fully tested its
systems for Year 2000 compliance. The Trust may be required to bear a portion of
such cost incurred by the Adviser in this regard. The Adviser has advised the
Trust that it does not anticipate any material disruption in the operations of
the Trust as a result of any failure by the Adviser to achieve Year 2000
compliance. There can be no assurance that the costs will not exceed the amount
referred to above or that the Trust will not experience a disruption in
operations.
The Adviser has advised the Trust that it is in the process of evaluating the
Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it has communicated with such suppliers to
determine their Year 2000 compliance status and the extent to which the Adviser
or the Trust could be affected by any supplier's Year 2000 compliance issues. To
date, the Adviser has received responses from all such suppliers with respect to
their Year 2000 compliance, and there can be no assurance that the systems of
such suppliers, who are beyond the Trust's control, will be Year 2000 compliant.
In the event that any of the Trust's significant suppliers do not successfully
and timely achieve Year 2000 compliance, the Trust's business or operations
could be adversely affected. The Adviser has advised the Trust that it is in the
process of preparing a contingency plan for Year 2000 compliance by its
suppliers. There can be no assurance that such contingency plan will be
successful in preventing a disruption of the Trust's operations.
The Trust is designating this disclosure as its Year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
ANNUAL MEETING OF TRUST SHAREHOLDERS. There have been no material changes
in the Trust's investment objectives or policies that have not been approved by
the shareholders or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust. There have been no changes in the
persons who are primarily responsible for the day-to-day management of the
Trust's Portfolio.
The Annual Meeting of Trust Shareholders was held May 19, 1999 to vote on
the following matters:
(1) To elect three Directors as follows:
<TABLE>
<CAPTION>
DIRECTOR CLASS TERM EXPIRING
-------- ------ ----- -------
<S> <C> <C> <C>
Richard E. Cavanagh ........................... I 3 years 2002
James Grosfeld ................................ I 3 years 2002
James Clayburn La Force, Jr. .................. I 3 years 2002
</TABLE>
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Kent Dixon, Frank J. Fabozzi, Laurence D. Fink, Walter F.
Mondale and Ralph L. Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December 31, 1999.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
Richard E. Cavanagh ........................... 26,251,892 -- 752,446
James Grosfeld ................................ 26,247,657 -- 756,681
James Clayburn La Force, Jr. .................. 26,243,507 -- 760,831
Ratification of Deloitte & Touche LLP ......... 26,545,855 166,182 292,301
</TABLE>
18
<PAGE>
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0THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock Investment Quality 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
about December 31, 2004 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 $141
billion on behalf of taxable and 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 $25 billion family of open-end funds. BlackRock manages
over 470 accounts, 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 Adviser 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.
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<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.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
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: BQT) 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.
COMMERCIAL MORTGAGE
BACKED SECURITIES (CMBS): Mortgage-backed securities secured or backed
by mortgage loans on commercial properties.
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 as Fannie 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>
INVERSE-FLOATING RATE Mortgage instruments with coupons that
MORTGAGES: adjust at periodic intervals according to a
formula which sets inversely with a market
lend interest rate index.
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS 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, The New York Times and THE WALL
STREET JOURNAL on Monday.
PRINCIPAL-ONLY SECURITIES: 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 In a reverse repurchase agreement, the Trust
AGREEMENTS: sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPPED MORTGAGE-BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
22
<PAGE>
- --------------------------------------------------------------------------------
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
The BlackRock High Yield Trust BHY N/A
TERM TRUSTS
The BlackRock 1999 Term Trust Inc. BNN 12/99
The BlackRock Target Term Trust Inc. BTT 12/00
The BlackRock 2001 Term Trust Inc. BTM 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
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DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 1999 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 INVESTMENT
QUALITY TERM TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[LOGO]Printed on recycled paper 09247E-103
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THE BLACKROCK
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INVESTMENT QUALITY
TERM TRUST INC.
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SEMI-ANNUAL REPORT
JUNE 30, 1999
