---------
The BlackRock
---------
Investment Quality
Term Trust Inc.
=================================================
Annual Report
December 31, 1998
[GRAPHIC OMITTED]
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
January 31, 1999
Dear Shareholders:
Over the past twelve months, U.S. Treasury securities have experienced a
strong rally, as investors sought a safe haven from global market turmoil and
the Federal Reserve continued to cut interest rates. Other segments of the fixed
income market have lagged behind Treasuries, but still produced generally
positive returns since our last report. We anticipate that the Federal Reserve
will remain prepared to combat any signs of a credit crunch through interest
rate cuts, and given the unstable economic situation in Brazil, the Fed likely
will retain an easing bias.
Despite previous worries of a second half slowdown in 1998, the U.S.
economy continues to expand rapidly, supported by strong consumer spending. This
momentum, however, may not continue as briskly into the new year, based on
weaker corporate profits and a loosening of the labor markets. Already, major
corporations have warned of slower profit growth and announced major layoffs.
This report contains detailed market and portfolio strategy by your
Trust's managers in addition to the Trust's audited financial statements and a
detailed list of the portfolio's holdings. We thank you for your continued
investment in the Trust and look forward to serving your investment needs in the
future.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
January 31, 1999
Dear Shareholder:
We are pleased to present the annual report for The BlackRock Investment
Quality Term Trust Inc. ("the Trust") for the year ended December 31, 1998. 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:
--------------------------------------------------------
12/31/98 12/31/97 Change High Low
- --------------------------------------------------------------------------------
Stock Price $8.8125 $8.375 5.22% $9.000 $8.375
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $9.56 $9.43 1.38% $9.98 $9.43
- --------------------------------------------------------------------------------
10-Year Treasury Note 4.65% 5.74% (18.99%) 5.812% 4.612%
- --------------------------------------------------------------------------------
The Fixed Income Markets
The first half of the Trust's fiscal year saw Treasury yields decline
towards historic lows. These lows were the result of budget surplus projections
as well as the Federal Reserve's decision to move from a tightening bias to a
neutral interest rate policy. The positive economic momentum throughout the
first half of the fiscal year was strengthened by unseasonably warm weather that
led to increased consumer spending and job gains, which softened the negative
impact on trade from the Asian financial crisis.
The second half of the Trust's fiscal year witnessed virtually unparalleled
market turbulence. Although consumers continued their spending domestically,
demand for U.S. goods abroad faltered, as the strong dollar and overseas
weakness, especially in Asia, drove prices for U.S. goods higher relative to
foreign goods.
Toward year-end, U.S. GDP growth rebounded; however, the instability in
global financial markets began to rattle investor confidence. The devaluation of
the Russian ruble and the fear of a possible devaluation of the Brazilian
currency caused a flight-to-quality to U.S. Treasuries. Corporate yield spreads
across all credits to Treasuries widened dramatically as a result of the
sell-off. This dramatic shift of investor sentiment culminated in the near
collapse of a prominent hedge fund.
2
<PAGE>
The Treasury market rally pushed Treasury yields to historic levels below
the 5% barrier. In response to the financial fragility in the third quarter of
1998, the Fed eased interest rates on September 29, 1998 by 25bps and again on
October 15, in an unusual between-meetings move. On November 17, the Fed eased
interest rates again by 25bps.
These rate cuts seem to have had their desired effect on the US
economy--which finished the year with a 3.5% growth rate. Growth in 1999,
however, may decrease significantly and further easing of interest rates by the
Federal Reserve is possible as the Western economies will need to provide
support for the global economy. With economic growth and labor markets expected
to soften during the first half of 1999, we expect inflation to remain under
control.
The global instability which resulted in a flight-to-quality to US
Treasuries caused mortgages to severely underperform Treasuries. However, as
these markets have regained some stability, investors have begun to regain
confidence in the international markets. Consequently, we believe that current
spreads in the corporate, and mortgage markets will provide the basis for
outperforming Treasuries.
The Trust's Portfolio and Investment Strategy
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and December 31, 1997 asset
composition.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
The BlackRock Investment Quality Term Trust Inc.
- ---------------------------------------------------------------------------------------------
Composition December 31, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Corporate Bonds 29% 30%
- ---------------------------------------------------------------------------------------------
Mortgage Pass-Throughs 19% 9%
- ---------------------------------------------------------------------------------------------
U.S. Government Securities 8% 11%
- ---------------------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 8% 12%
- ---------------------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 7% 7%
- ---------------------------------------------------------------------------------------------
Money Market Instruments 6% 5%
- ---------------------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 6% 4%
- ---------------------------------------------------------------------------------------------
Municipal Bonds 5% 5%
- ---------------------------------------------------------------------------------------------
Interest-Only Commercial Mortgage-Backed Securities 5% --
- ---------------------------------------------------------------------------------------------
Inverse Floating Rate Mortgages 3% 4%
- ---------------------------------------------------------------------------------------------
Asset-Backed Securities 2% 3%
- ---------------------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 2% 3%
- ---------------------------------------------------------------------------------------------
FHA Project Loans -- 7%
- ---------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------
Rating % of Corporates
---------------------------------------------
Credit Rating December 31, 1998 December 31, 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
AA or equivalent -- 1%
- ---------------------------------------------------------------------------------------------
A or equivalent 48% 45%
- ---------------------------------------------------------------------------------------------
BBB or equivalent 46% 47%
- ---------------------------------------------------------------------------------------------
BB or equivalent 6% 7%
- ---------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
In accordance with the Trust's primary investment objective of returning
the initial offer price upon maturity, the Trust's portfolio management activity
focused on adding securities which offered both attractive yield spreads over
Treasury securities and a maturity date matching 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.
We appreciate your investment in The BlackRock Investment Quality Term
Trust Inc. and look forward to managing the fund to realize its investment
objectives. Please feel free to contact the mutual fund specialists at
BlackRock's marketing center at (800) 227-7BFM (7236) if you have any questions
that weren't answered in this report. You can also reach us via e-mail at
[email protected]
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager 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 12/31/98: $ 8.8125
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/98: $ 9.56
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/98 ($8.8125)(1): 6.24%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.045833
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $ 0.55
- --------------------------------------------------------------------------------
(1) Yield on Closing Stock Price is calculated by dividing the current
annualized distribution per share by the closing stock price per share.
(2) The distribution is not constant and is subject to change.
4
<PAGE>
- ------------------------------------------------
The BlackRock Investment Quality Term Trust Inc.
Portfolio of Investments
December 31, 1998
- ------------------------------------------------
<TABLE>
<CAPTION>
================================================================================================================
Principal
Rating* Amount Value
(Unaudited) (000) Description (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS--138.2%
Mortgage Pass-Throughs--29.7%
Federal Home Loan Mortgage Corp.,
$14,765 6.50%, 12/18/20 - 9/01/28.................................... $ 14,871,581
8,500 7.00% (TBA).................................................. 8,664,688
Federal Housing Administration,
2,090 Colonial, Series 37,
7.40%, 12/01/22.............................................. 2,182,704
6,227 GMAC, Series 54,
7.43%, 2/01/21............................................... 6,423,756
1,248 Middlesex, 8.625%, 9/01/34................................... 1,326,601
2,848 Tuttle Grove, 7.25%, 10/01/35................................ 2,954,762
USGI,
1,622 Series 99, 7.43%, 10/01/23................................... 1,685,434
8,053 Series 885, 7.43%, 3/01/22................................... 8,422,518
4,183 Series 2081, 7.43%, 5/01/23.................................. 4,259,872
Federal National Mortgage Association,
35,000 6.50%, 12/01/99 (TBA)........................................ 35,229,688
9,456++ 6.35%, 1/01/04, 10 year,
Multi-family ................................................ 9,494,545
2,000++ 7.625%, 1/25/11
Trust 1996-M5, Class A2,..................................... 2,060,000
2,785+ 8.26%, 2/01/04, 10 year,
Multi-family ................................................ 2,935,735
2,317+ 8.78%, 4/01/04, 10 year,
Multi-family ................................................ 2,365,209
1,550++ 8.89%, 4/01/04, 10 year,
Multi-family ................................................ 1,581,897
------------
104,458,990
------------
Multiple Class Mortgage
Pass-Throughs--15.2%
AAA 2,912 CWMBS Incorporated, Mortgage
Certificate Series 1994-D, Class A-7,
3/25/24 (I).................................................. 2,912,029
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
16,947++ Series 1353, Class 1353-S,
8/15/07(ARM)................................................. 1,841,760
147+ Series 1523, Class 1523-A,
6/15/22...................................................... 146,986
4,000++ Series 1587, Class 1587-KA,
7/15/08..................................................... 4,004,400
83 Series 1607, Class 1607-M,
4/15/13...................................................... 81,962
2,119++ Series 1634, Class 1634-SG,
12/15/22 (ARM)............................................... 2,093,039
34,230 Series 1644, Class 1644-HD,
12/15/23 (I)................................................. 1,630,712
237 Series 1650, Class 1650-LC,
2/15/22...................................................... 238,097
1,268++ Series 1655, Class 1655-SB,
12/15/08..................................................... 1,241,340
1,926++ Series 1667, Class 1667-C,
1/15/09...................................................... 1,915,158
10,470 Series 1998-8, Class 1998-PM,
6/18/19 (I).................................................. 936,436
14,577 Series 2055, Class 2055-C,
12/15/09 (I)................................................. 2,717,252
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,966+ Trust 269, Class 269-1, 9/25/25................................. 2,068,769
1,646++ Trust 1992-155, Class 155-SB,
9/25/25 (ARM)................................................ 1,786,898
1,490 Trust 1993-22, Class 22-PT,
10/25/18 (I)................................................. 156,237
1,500 Trust 1993-143, Class 143-SC,
8/25/23 (ARM)............................................... 1,499,295
374 Trust 1993-179, Class 179-SA,
10/25/23 (ARM)............................................... 366,335
1,932 Trust 1993-192, Class 192-S,
4/25/07 (ARM)................................................ 1,805,693
2,518 Trust 1993-212, Class 212-SB,
11/25/08 (ARM)............................................... 2,341,813
2,735+ Trust 1993-225, Class 225-FK,
12/25/23 (ARM)............................................... 2,714,868
657 Trust 1993-228, Class 228-B,
3/25/23 (P).................................................. 609,713
9,600 Trust 1993-109, Class 109-QC,
7/25/07 (I).................................................. 1,236,000
265 Trust 1994-17, Class 17-SA,
1/25/09 (ARM)................................................ 266,257
1,777 Trust 1994-27, Class 27-WC,
3/25/20 (I).................................................. 200,764
498 Trust 1994-36, Class 36-L,
1/25/23...................................................... 499,623
7,000 Trust 1996-20, Class 20-SB,
10/25/08 (ARM)............................................... 1,646,094
1,803 Trust 1997-52, Class 52-39,
4/25/04 (I).................................................. 313,303
1,535 Trust 1997-30, Class 30-S,
4/25/22 (I).................................................. 272,516
2,108 Trust 1997-28, Class 28-PH,
3/18/22 (I).................................................. 97,483
616 Trust 1997-32, Class 32-ML,
2/25/27 (P).................................................. 597,665
1,961 Trust 1998-12, Class 12-PL,
7/18/19 (I).................................................. 224,895
30,205 Trust 1998-37, Class 37-L
4/25/28 (I).................................................. 3,124,301
AAA 1,857 GE Capital Mortgage Services Inc.,
Series 1997-2, Class 2A,
3/25/12 (I).................................................. 218,164
AAA 5,000 New York City Mortgage Loan Trust,
Series 1996, Class A-2,
6/25/11**.................................................... 5,271,875
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Principal
Rating* Amount Value
(Unaudited) (000) Description (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Multiple Class Mortgage
Pass-Throughs--(cont'd)
Residential Funding
Mortgage Secs I,
AAA $ 6,035 Series 1993-S15, Class A-16,
4/25/08 (ARM)................................................ $ 6,095,943
AAA 623 Series 1993-S15, Class A-17,
4/25/08 (ARM)................................................ 623,993
------------
53,797,668
------------
Commercial Mortgage-Backed
Securities--16.9%
AAA 2,000 AETNA,
Series 1995-C5, Class B,
6.74%, 12/26/30.............................................. 2,059,735
AAA 3,500 GMAC Commercial Mortgage
Securities Inc.,
Mortgage Certificate,
6.42%, 8/15/08............................................... 3,637,280
AAA 40,300 Credit Suisse First Boston Mortgage
Corp., Trust 1997-C1, Class AX,
6/20/29 (I/O)**.............................................. 4,007,349
A+ 5,000 Credit Suisse First Boston Mortgage
Securities Corp.,
Series 1995-AEW 1, Class C,
7.46%, 11/25/27............................................. 5,028,125
A 6,485 FDIC REMIC Trust,
Series 1994-C-1, Class 11-F,
8.70%, 9/25/25............................................... 6,757,258
A 1,000 Kidder Peabody Acceptance Corp.,
Series 1994-C3, Class C,
8.80%, 4/01/07............................................... 1,095,991
LTC Commercial Mortgage
Pass-Through Certificates,**
A+ 2,000 Series 1994-1, Class 1-D,
10.00%, 6/15/26.............................................. 2,050,913
AAA 2,830 Series 1996-1, Class 1-A,
7.06%, 4/15/28............................................... 2,901,008
Merrill Lynch Mortgage
Investors, Inc., Mortgage
Pass-Through Certificates,
AAA 38,322 Series 96-C2, Class IO,
11/21/28 (I/O)............................................... 2,916,064
AAA 72,189 Series 97-C2, Class A1,
12/10/29 (I/O)............................................... 5,284,249
AAA 48,442 Series 98-C2, Class I0,
2/15/30 (I/O)................................................ 3,944,267
Morgan Stanley Inc. Capital 1,
AAA 82,267 Series 1998, Class X,
2/15/18 (I/O)................................................ 5,189,673
AAA 182 Series 1997, Class A1,
6.86%, 5/15/06**............................................. 189,735
AAA 39 Series 1997, Class X,
6/15/17, (I/O)**............................................. 3,505
BBB+ 2,600 Nomura Asset Capital Corp.,
Series 1993-M1, Class A3,
7.64%, 11/25/03**............................................ 2,618,126
AA 1,801 Salomon Brothers Mortgage Securities,
Class 97-TZH,
7.15%, 3/25/25**............................................. 1,863,887
Structured Asset Securities
Corp., Mortgage Certificates,
A+ 3,865 Series 1996, Class D,
7.03%, 2/25/28............................................... 3,924,093
BBB 5,970 Series 1996, Class E,
7.75%, 2/25/28............................................... 5,798,388
------------
59,269,646
------------
Corporate Bonds--40.5%
Finance & Banking--12.9%
A3 2,450 Amsouth Bancorp.,
6.75%, 11/01/25.............................................. 2,525,490
A2 3,000 Den Danske Bank,
7.25%, 6/15/05**............................................. 3,196,639
A 1,300 Equitable Life of America,
6.95%, 12/01/05**............................................ 1,363,967
A2 5,000@ Farmers Insurance,
8.50%, 8/01/04**............................................. 5,534,647
A- 4,800++ First National Bank of Boston,
8.00%, 9/15/04............................................... 5,195,664
A- 5,000 Fleet Financial Group,
8.125%, 7/01/04.............................................. 5,526,400
A- 4,850 Goldman Sachs Group,
6.25%, 2/01/03**............................................. 4,857,636
A 3,500 Lehman Brothers Holdings Inc.,
6.75%, 9/24/01............................................... 3,530,183
BB+ 3,500 Macsaver Financial Services Inc.,
7.875%, 8/01/03.............................................. 2,765,000
A+ 1,000 Metropolitan Life Insurance Co.,
6.30%, 11/01/03**............................................ 1,014,624
PaineWebber Group, Inc.,
BBB+ 500 6.90%, 2/09/04............................................... 505,719
BBB+ 2,000 8.875%, 3/15/05.............................................. 2,246,200
A 3,100 Reliaster Financial Corp.,
6.625%, 9/15/03.............................................. 3,163,271
A 2,000 Salomon Smith Barney, Inc.,
6.75%, 1/15/06............................................... 2,078,140
BBB- 2,000 TPSA Finance BV,
7.125%, 12/10/03**........................................... 1,977,693
------------
45,481,273
------------
Industrials--10.6%
A2 400 American Airlines, Inc.,
10.44%, 3/04/07.............................................. 503,684
BBB- 3,600 Anixter Inc.,
8.00%, 9/15/03............................................... 3,646,029
BBB 2,000 Conagra, Inc.,
7.40%, 9/15/04............................................... 2,123,179
A 5,500++ Ford Motor Credit Co.,
7.50%, 6/15/04............................................... 5,964,640
BB- 5,000 Lukens, Inc.,
7.625%, 8/01/04.............................................. 5,111,050
BBB+ 5,000 Newmont Mining Corp.,
8.00%, 12/01/04.............................................. 5,466,600
BBB- 3,000 News America Holdings, Inc.,
8.50%, 2/15/05............................................... 3,347,220
</TABLE>
See notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Principal
Rating* Amount Value
(Unaudited) (000) Description (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Industrials (cont'd)
BBB $ 5,000++ Pulte Corp.,
8.375%, 8/15/04.............................................. $ 5,470,150
A+ 2,000 Ralcorp Holdings, Inc.,
8.75%, 9/15/04............................................... 2,296,260
BBB- 3,000 TCI-Communications, Inc.,
8.25%, 1/15/03............................................... 3,285,000
------------
37,213,812
------------
Utilities--7.7%
360 Communications Co.,
A 2,000 7.125%, 3/01/03.............................................. 2,115,520
A 2,000 7.50%, 3/01/06............................................... 2,207,420
BBB- 5,000 Gulf States Utilities Co.,
8.25%, 4/01/04............................................... 5,520,700
BBB- 5,400++ Niagara Mohawk Power Corp.,
7.375%, 8/01/03.............................................. 5,715,414
BBB- 5,000 NRG Energy, Inc,
7.625%, 2/01/06**............................................ 5,154,998
BBB- 2,000 Ohio Edison,
8.625%, 9/15/03.............................................. 2,223,825
BBB- 5,000++ Telekom Malaysia Berhad,
7.125%, 8/01/05**............................................ 4,074,300
------------
27,012,177
------------
Yankee--9.3%
A- 6,000 Banamex Remittance Master Trust,
Series 1996, 7.57%, 1/01/01**................................ 5,983,125
BBB+ 2,000 Canadian Pacific Ltd.,
6.875%, 4/15/03.............................................. 2,038,342
A3 2,000 Corporacion Andina De Fomento,
7.10%, 2/01/03............................................... 1,940,380
BBB- 5,000 Empresa Electric Guacolda SA,
7.95%, 4/30/03**............................................. 4,588,373
A- 3,500++ Israel Electric Corp. Ltd.,
7.25%, 12/15/06**............................................ 3,520,755
A+ 5,000++ Quebec Province,
8.625%, 1/19/05.............................................. 5,758,950
BBB- 3,000 Telefonica De Argentina S A,
11.875%, 11/01/04............................................ 3,150,000
Xtra, Inc.,
BBB+ 2,000 6.50%, 1/15/04............................................... 2,009,080
BBB+ 2,500 7.22%, 7/31/04............................................... 2,588,350
BBB 1,223 YPF Sociedad Anonima,
7.50%, 10/26/02.............................................. 1,224,930
------------
32,802,285
------------
Total Corporate Bonds........................................... 142,509,547
------------
Asset-Backed Securities--3.0%
AAA 2,756 Global Rated Eligible Asset Trust,
Series 1998-A, Class A-1,
7.33%, 9/15/07**/@@.......................................... 1,913,123
Structured Mortgage Asset Residential
Trust,**/@@
N/R 4,106 Series 1997-2, Class E,
8.24%, 3/15/06............................................ 2,483,922
N/R 4,497 Series 1997-3, Class E,
8.57%, 4/15/06............................................ 2,487,977
A 4,000 Student Loan Marketing Associates,
Series 1995-1, Class B,
6.22%, 10/25/09........................................... 3,812,500
------------
10,697,522
------------
Stripped Mortgage-Backed Securities--6.9%
$ 423 Federal Home Loan Mortgage Corp.,
Series 1243, Class 1243-N,
8/15/06 (P/O)............................................. 388,103
14,610 Series 1506, Class 1506-SA,
1/15/05 (I/O)............................................. 169,481
2,519 Series 1751, Class 1751-PL,
10/15/23 (I/O)............................................ 297,282
408 Series 1862, Class 1862-DA,
12/15/22 (P/O)............................................ 381,194
476 Series 1862, Class 1862-DB,
12/15/22 (P/O)............................................ 444,727
4,448 Series 1917, Class 1917-AS,
5/15/08 (I/O)............................................. 981,581
4,263+ Series 1946, Class 1946-N,
10/15/08 (I/O)............................................ 3,801,092
4,263 Series 1946, Class 1946-SN,
10/15/08 (I/O)............................................ 342,351
37,083 Series 1954, Class 1954-BB,
4/15/21 (I/O)............................................. 423,118
15,844 Series 1954, Class 1954-LL,
5/15/21 (I/O)............................................. 185,378
15,844 Series 1954, Class 1954-LM,
5/15/21 (I/O)............................................. 188,547
4,037+ Series 2009, Class 2009-JH,
11/15/21 (I/O)............................................ 3,894,786
11,257 Series G-25, Class 25-S,
8/25/06 (I/O)............................................. 346,491
Federal National Mortgage Association,
783+ Trust 1993-147, Class 147-H,
8/25/23 (P/O)............................................. 741,568
2,614 Trust 1994-42, Class 42-SO,
3/25/23 (I/O)............................................. 394,674
4,128 Trust 1996-24, Class 24-SE,
3/25/09 (I/O)............................................. 948,728
9,857 Trust 1996-24, Class 24-SL,
8/25/23 (I/O)............................................. 1,675,714
2,920+ Trust 1996-32, Class 32-E,
10/25/08 (P/O)............................................ 2,735,556
48,755 Trust 1996-54, Class 54-SH,
8/25/23 (I/O)............................................. 868,808
31,276 Trust 1996-54, Class 54-SL,
8/25/23 (I/O)............................................. 50,730
15,402 Trust 1997-44, Class 44-SC,
6/25/08 (I/O)............................................. 907,766
6,250 Trust 1997-50, Class HK,
8/25/27 (I/O)............................................. 1,928,189
15,220 Trust 1998-27, Class 27-PI
12/18/20 (I/O)............................................ 2,098,106
------------
24,193,970
------------
U.S. Government Securities--10.3%
Small Business Administration,
Participation Certificate,
1,239 Series 1996-20-F,
7.55%, 6/01/16............................................ 1,341,423
1,800 Series 1996-20-G,
7.70%, 7/01/16............................................ 1,955,134
4,556 Series 1996-20-K, 6.95%,
11/01/16.................................................. 4,802,828
1,875 Series 1998-10-A, 6.12%,
2/01/08................................................... 1,906,198
25,000++ United States Treasury Bonds,
5.50%, 8/15/28............................................ 26,168,000
------------
36,173,583
------------
</TABLE>
See notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================
Principal
Rating* Amount Value
(Unaudited) (000) Description (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable Zero Coupon Bonds--8.2%
AAA $40,000 Vanguard Prime Money Market Strip,
12/31/04..................................................... $ 28,972,000
-------------
Taxable Municipal Bonds--7.0%
AAA 3,945 California Housing Finance Agency Rev.,
6.69%, 8/01/03............................................... 4,011,039
AA- 2,000 Fresno California Pension Obligation,
7.15%, 6/01/04............................................... 2,143,040
AAA 4,000 Los Angeles County California Pension
Obligation,
6.77%, 6/30/05............................................... 4,246,480
AAA 7,000 New Jersey Economic Development
Authority,
Zero Coupon, 2/15/04......................................... 5,337,290
A- 5,000 New York City G.O.,
7.50%, 4/15/04............................................... 5,369,950
BBB 1,000 New York State Environmental Facilities
Corp., Service Contract Revenue,
6.95%, 9/15/04............................................... 1,053,710
AAA 2,250 San Francisco California City & Cnty.
Arpts. Commission, International
Airport, 6.55%, 5/01/04...................................... 2,349,383
-------------
24,510,892
-------------
<CAPTION>
Notional
Amount
(000)
--------
<S> <C> <C> <C>
Call Option Purchased--0.5%,
$50,000 Interest Rate Swap,
5.60% over 3 months LIBOR,
expires 8/07/00
(cost $687,500).............................................. 1,702,005
-------------
Total long-term investments
(cost $480,297,878).......................................... 486,285,823
-------------
<CAPTION>
Principal
Amount
(000)
---------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS--3.5%
Discount Note--2.4%
$ 8,520 Federal Home Loan Bank,
4.68%, 1/04/99
(cost $8,515,929)............................................ 8,515,929
-------------
Repurchase Agreement--1.1%
3,941 Goldman, Sachs & Co. 4.60%,
dated 12/31/98, due 1/4/99 in the amount of
$3,943,014 (cost $3,941,000) collateralized by
$3,941,000 Federal Home Loan Mortgage Corporation,
4.50% due 3/15/07 value including accrued
interest $3,980,279.......................................... 3,941,000
-------------
Total short-term Investments
(cost $12,456,929)........................................... 12,456,929
-------------
Total investments before outstanding
call options written and investment
sold short--141.7%
(cost $492,754,807).......................................... $ 498,742,752
-------------
CALL OPTIONS WRITTEN--(0.5%)
$80,000 Interest Rate Swap,
5.50% over 3 month LIBOR,
expires 8/10/99
(premium received $490,000)................................. (1,776,320)
-------------
<CAPTION>
Principal
Amount
(000)
---------
<S> <C> <C> <C>
INVESTMENT SOLD SHORT--(18.9%)
$65,000 United States Treasury Bonds,
5.25%, 11/15/28
(proceeds $65,711,718)....................................... (66,543,750)
-------------
Total investments, net of outstanding
call options written and investment
sold short--122.3%
(cost $426,553,089).......................................... 430,422,682
Liabilities in excess of
other assets--(22.3%)......................................... (78,451,824)
-------------
NET ASSETS--100%................................................. $ 351,970,858
==============
</TABLE>
- ----------
* Using the higher of Standard & Poor's or Moody's rating.
** Private placements restricted as to resale.
+ (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 transactions.
@@@ Illiquid securities representing .9% of portfolio assets.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
G.O. -- General Obligation Bond.
I -- Denotes a CMO with interest only characteristics.
I/O -- Interest Only.
LIBOR -- London Interbank Offer Rate
P -- Denotes a CMO with Principal only characteristics.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
TBA -- To be allocated.
- --------------------------------------------------------------------------------
See notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Investment
Quality Term Trust Inc.
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
Assets
Investments, at value (cost $492,754,807)
(Note 1) ................................................. $ 498,742,752
Deposit with brokers as collateral for investments
sold short (Note 1) ...................................... 116,563,447
Receivable for investments sold ............................ 14,511,604
Interest receivable ........................................ 6,468,871
Unrealized appreciation on interest rate swaps
(Note 1 and 3) ........................................... 326,625
Interest rate cap, at value (amortized cost $808,649)
(Note 1 and 3) ........................................... 227,240
-------------
636,840,539
-------------
Liabilities
Bank overdraft ............................................. 137,314
Payable for investments purchased .......................... 107,494,848
Reverse repurchase agreements (Note 4) ..................... 105,868,750
Investment sold short, at value
(proceeds $65,711,718) (Note 1) .......................... 66,543,750
Swap option written, at value
(premium received $490,000) (Note 1) ..................... 1,776,320
Dividends payable .......................................... 1,687,153
Interest payable ........................................... 770,931
Investment advisory fee payable (Note 2) ................... 182,807
Due to broker-variation margin ............................. 83,921
Administration fee payable (Note 2) ........................ 36,561
Other accrued expenses ..................................... 287,326
-------------
284,869,681
-------------
Net Assets ................................................. $ 351,970,858
=============
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 ...................... 6,973,162
Accumulated net realized loss ............................ (3,246,893)
Net unrealized appreciation .............................. 3,530,889
-------------
Net assets, December 31, 1998 ............................ $ 351,970,858
=============
Net asset value per share:
($351,970,858/36,810,639 shares of
common stock issued and outstanding) ................... $ 9.56
=============
- --------------------------------------------------------------------------------
The BlackRock Investment
Quality Term Trust Inc.
Statement of Operations
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest earned (net of premium amortization
of $3,513,666 and interest expense of $7,566,564) ........ $ 27,460,272
------------
Operating Expenses
Investment advisory ........................................ 2,128,764
Administration ............................................. 425,753
Reports to shareholders .................................... 95,000
Custodian .................................................. 89,500
Directors .................................................. 80,000
Audit ...................................................... 38,000
Transfer agent ............................................. 23,000
Legal ...................................................... 15,000
Miscellaneous .............................................. 97,919
------------
Total operating expenses ................................. 2,992,936
------------
Net investment income before excise tax .................... 24,467,336
Excise tax ................................................. 98,350
------------
Net investment income ...................................... 24,368,986
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 3)
Net realized gain (loss) on:
Investments ................................................ 1,095,663
Written options ............................................ (1,666,094)
Short sales ................................................ 1,948,737
Futures .................................................... 5,849,852
------------
7,228,158
------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ (5,370,958)
Short sales ................................................ 2,331
Interest rate caps ......................................... (192,091)
Interest rate swaps ........................................ 347,537
Written options ............................................ (1,316,920)
Futures .................................................... 151,445
------------
(6,378,656)
------------
Net gain on investments ...................................... 849,502
------------
Net Increase In Net Assets
Resulting from Operations .................................. $ 25,218,488
============
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Investment
Quality Term Trust Inc.
Statement of Cash Flows
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Interest received ....................................... $ 37,986,685
Operating expenses and excise taxes paid ................ (3,149,418)
Interest expense paid ................................... (8,040,826)
Purchase of short-term
portfolio investments including
options, net ........................................ (15,157,443)
Purchase of long-term portfolio investments ............. (467,935,567)
Proceeds from disposition of long-term
portfolio investments ................................. 507,336,881
Variation margin on futures ............................. 6,007,235
Other assets ............................................ 49,740
-------------
Net cash flows provided by operating
activities ............................................ 57,097,287
-------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ............... (37,079,000)
Cash dividends paid ..................................... (20,245,529)
-------------
Net cash flows used for financing activities ............ (57,324,529)
-------------
Net decrease in cash ...................................... (227,242)
Cash at beginning of year ................................. 89,928
-------------
Cash at end of year ....................................... $ (137,314)
=============
Reconciliation of Net Increase in Net
Assets Resulting from Operations to
Net Cash Flows Provided by Operating Activities
Net increase in net assets resulting from
operations .............................................. $ 25,218,488
-------------
Decrease in investments ................................... 16,500,406
Net realized loss ......................................... (7,228,158)
Decrease in unrealized appreciation ....................... 6,378,656
Decrease in depreciation of interest rate swaps ........... (20,912)
Decrease in interest receivable ........................... (568,976)
Decrease in receivable for investments sold ............... (14,501,703)
Increase in deposits with brokers for
investments sold short .................................. (104,766,017)
Increase in investments sold short ........................ 55,416,145
Increase in swap option written ........................... 1,034,420
Increase in interest rate cap ............................. 449,870
Decrease in other assets .................................. 49,740
Increase in payable for investments purchased ............. 80,000,286
Decrease in due to broker-variation margin ................ (5,938)
Decrease in interest payable .............................. (474,262)
Increase in unrealized appreciation
on interest rate swap ................................... (326,625)
Decrease in other accrued expenses ........................ (58,133)
-------------
Total adjustments ........................................ 31,878,799
-------------
Net cash flows provided by operating activities ........... $ 57,097,287
=============
- --------------------------------------------------------------------------------
The BlackRock Investment
Quality Term Trust Inc.
Statements of Changes
in Net Assets
- --------------------------------------------------------------------------------
Year Ended December 31,
1998 1997
------------- -------------
Increase (Decrease) in
Net Assets
Operations:
Net investment income ............ $ 24,368,986 $ 23,792,454
Net realized gain on
investments .................... 7,228,158 680,436
Net change in unrealized
appreciation
on investments ................. (6,378,656) 10,599,180
------------- -------------
Net increase in net assets
resulting from
operations ..................... 25,218,488 35,072,070
Dividends from net
investment income .............. (20,245,529) (22,853,156)
------------- -------------
Total increase ................... 4,972,959 12,218,914
Net Assets
Beginning of year .................. 346,997,899 334,778,985
------------- -------------
End of year ........................ $ 351,970,858 $ 346,997,899
============= =============
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Investment Quality Term Trust Inc.
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year .................... $ 9.43 $ 9.09 $ 9.50 $ 8.21 $ 9.47
-------- -------- -------- -------- --------
Net investment income (net of interest expense of
$0.21, $0.21, $0.17, $0.23 and $0.17, respectively) 0.66 0.65 0.60 0.62 .62
Net realized and unrealized gain (loss) ............. 0.02 0.31 (0.46) 1.31 (1.16)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations .... 0.68 0.96 0.18 1.91 (0.54)
-------- -------- -------- -------- --------
Dividends from net investment income .................. (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 ..................... (0.55) (0.62) (0.59) (0.62) (0.72)
-------- -------- -------- -------- --------
Net asset value, end of year* ......................... $ 9.56 $ 9.43 $ 9.09 $ 9.50 $ 8.21
======== ======== ======== ======== ========
Market value, end of year* ............................ $ 8.81 $ 8.38 $ 7.63 $ 7.88 $ 7.00
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ .............................. 11.50% 18.58% 4.58% 21.91% (18.10%)
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ................................... 0.85% 0.89% 0.91% 0.92% 0.93%
Net investment income ................................. 6.89% 6.98% 7.03% 6.76% 7.10%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ..................... $353,745 $341,607 $332,778 $328,950 $320,366
Portfolio turnover .................................... 106% 135% 221% 160% 111%
Net assets, end of year (in thousands) ................ $351,971 $346,998 $334,779 $349,862 $302,147
Reverse repurchase agreements outstanding,
end of year (in thousands) .......................... $105,869 $142,948 $ 96,846 $112,007 $149,800
Asset coverage++ ...................................... $ 4,325 $ 3,427 $ 4,457 $ 4,124 $ 3,017
</TABLE>
- ----------
* Net asset value and market value are published in The Wall Street Journal
each Monday.
# The ratios of operating expenses, including interest expense, to average
net assets were 2.99%, 3.15%, 2.83%, 3.44% and 2.84% for the years
indicated above, respectively. The ratios of operating expenses, including
interest expense and excise tax, to average net assets were 3.01%, 3.15%,
2.83%, 3.44% and 2.85% for the years indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of the period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Trust's dividend reinvestment plan. This calculation
does not reflect brokerage commissions.
++ Per $1,000 of reverse repurchase agreements outstanding.
The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the years indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock Investment Quality Term Trust Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1. 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 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 pur-chases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
price at any time or at a specified time during the option period. Put
12
<PAGE>
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.
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.
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 or as part of an income producing strategy reflecting the view
of the Trust's management in the direction of interest rates.
Financial Futures Contracts: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin
13
<PAGE>
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 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, 1998.
Securities Transactions and Net Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis, and the Trust accretes discount and amortizes premium on
securities purchased using the interest method. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
Taxes: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. As part of a tax planning strategy,
the Trust intends to retain a portion of its taxable income and pay an excise
tax on the undistributed amounts.
Dividends and Distributions: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
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.
Reclassification of Capital Accounts: The Trust accounts for and reports
distributions to shareholders in accordance with the A.I.C.P.A.'s Statements of
Position 93-2: Determination, Disclosure, and Return of Capital Distributions by
Investment Companies. The effect caused by applying this statement was to
decrease paid-in capital and increase undistributed net investment income by
$98,350 due to certain expenses not being deductible for tax purposes. Net
investment income, net realized gains and net assets were not affected by this
change.
14
<PAGE>
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 year ended December 31, 1998 aggregated $547,935,853
and $529,155,434 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 December 31, 1998, the Trust
held 13% 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 December 31,
1998 was substantially the same as for financial reporting purposes and,
accordingly, net unrealized appreciation for federal income tax purposes was
$5,987,945 (gross unrealized appreciation--$20,801,436; gross unrealized
depreciation--$14,813,491).
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.
Such carryforward is after utilization of approximately $9,283,000 to offset the
Trust's net taxable gains recognized in the year ended December 31, 1998.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amounts.
During the year ended December 31, 1998, the Trust entered into one
financial futures contract. Details of the open contract at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Value at Value
Number of Expiration Trade December 31, Unrealized
Contracts Type Date Date 1998 Depreciation
- --------- ---- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Long Positions:
970 30 yr T-Bond Mar. 1999 $124,031,734 $123,947,812 $(83,921)
</TABLE>
Details of open interest rate cap at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Notional . Value at
Amount Floating Fixed Termination Amortized Dec. 31, Unrealized
(000) Rate Rate Date Cost 1998 Depreciation
------ -------- ----- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
$40,000 3 month LIBOR 6.00% 2/19/02 $808,649 $227,240 $(581,409)
</TABLE>
Details of open interest rate swaps at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Current
Notional Floating/ Unrealized
Amount Fixed Termination Appreciation
(000) Type Rate Floating Rate Date (Depreciation)
------- ---- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$145,500 Interest Rate 6.37% 3 Mo. LIBOR 7/27/00 $ 5,291,384
20,000 Floating Rate 3 Mo. T-Bill 3 Mo. LIBOR 9/10/03 (76,665)
+80.25
20,000 Floating Rate 3 Mo. T-Bill 3 Mo. LIBOR 9/10/03 (96,000)
+81.75
(100,000) Interest Rate 6.42% 3 Mo. LIBOR 7/27/01 (4,792,094)
-----------
$ 326,625
===========
</TABLE>
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
15
<PAGE>
equals the principal amount of the reverse repurchase transactions including
accrued interest.
The average daily balance of reverse repurchase agreements outstanding
during the 12 months ended December 31, 1998 was approximately $132,143,200 at a
weighted average interest rate of approximately 4.96%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period was
$173,875,499 as of November 30, 1998, which was 32.3% of total assets.
Dollar Rolls: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The average monthly balance of dollar rolls outstanding during the year
ended December 31, 1998 was approximately $70,450,221. The maximum amount of
dollar rolls outstanding at any month-end during the year was $109,682,135 as of
January 31, 1998, which was 13.35% of total assets.
Note 5. Capital
There are 200 million shares of $.01 par value common stock authorized. Of the
36,810,639 shares outstanding at December 31, 1998, the Adviser owned 10,639
shares.
16
<PAGE>
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THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock Investment Quality Term Trust Inc.:
We have audited the accompanying statement of assets and liabilities of The
BlackRock Investment Quality Term Trust Inc., including the portfolio of
investments, as of December 31, 1998, and the related statements of operations
and of cash flows for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at December
31, 1998, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock
Investment Quality Term Trust Inc. as of December 31, 1998, and the results of
its operations, its cash flows, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
February 12, 1999
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during the fiscal year ended December 31, 1998.
During the fiscal year ended December 31, 1998, the Trust paid dividends
of $0.55 per share from net investment income taxable as 1998 income to
shareholders of record from January 1 to December 31, 1998. For Federal income
tax purposes, the dividends you received are reportable in your 1998 federal
income tax return as ordinary income. In addition, as part of the Trust's annual
tax planning strategy, the monthly distribution payable January 30, 1999 will be
taxed as 1998 income. This dividend shift will bring the number of distributions
taxable in 1998 to twelve. Further, we wish to advise you that your income
dividends do not qualify for the dividends received deduction.
We are required by Massachusetts, Missouri, and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 21.88% of the dividends paid
from ordinary income in the fiscal year ended December 31, 1998 qualify for each
of these states' tax exclusion.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January 1999.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
reinvested by State Street Bank and Trust Company (the "Plan Agent") in Trust
shares pursuant to the Plan. Shareholders who do not participate in the Plan
will receive all distributions in cash paid by check in United States dollars
mailed directly to the shareholders of record (or if the shares are held in
street or other nominee name, then to the nominee) by the transfer agent, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue any new shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan as applied to
any dividend or distribution paid subsequent to written notice of the change
sent to all shareholders of the Trust at least 90 days before the record date
for the dividend or distribution. The Plan also may be amended or terminated by
the Plan Agent upon at least 90 days' written notice to all shareholders of the
Trust. All correspondence concerning the Plan should be directed to the Plan
Agent at (800) 699-1BFM. The addresses are on the front of this report.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders or to its charter or
by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
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 intends to communicate 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, however, the Adviser has not 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.
19
<PAGE>
- --------------------------------------------------------------------------------
THE 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 $132
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 $24 billion family of open-end equity and bond funds.
Current institutional clients number 425, domiciled in the United States and
overseas.
What Can the Trust Invest In?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
What is the Adviser's Investment Strategy?
The Adviser will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The Trust will implement a conservative strategy that will seek to
closely match the maturity of the assets of the portfolio with the future return
of the initial investment at the end of 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.
20
<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 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.
21
<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).
22
<PAGE>
Inverse-Floating Rate
Mortgages: Mortgage instruments with coupons that
adjust at periodic intervals according to a
formula which sets inversely with a market
lend interest rate index.
Interest-Only
Securities (I/O): 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 and The Wall Street Journal on
Monday.
Principal-Only
Securities (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as STRIPS.
Project Loans: Mortgages for multi-family, low- to
middle-income housing.
Premium: When a fund's stock price is greater than
its net asset value, the fund is said to be
trading at a premium.
REMIC: A real estate mortgage investment conduit is
a multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
Residuals: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
Reverse Repurchase
Agreements: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
Stripped Mortgage-Backed
Securities: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
23
<PAGE>
- ---------
BlackRock
- ---------
Directors
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
Officers
Ralph L. Schlosstein, 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
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
[RECYCLE LOGO] Printed on recycled paper 09247E-103
