--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
--------------------------------------------------------------------------------
July 31, 2000
Dear Shareholder:
In the first half of the year, fears of an open-ended tightening policy by
the Federal Reserve peaked in May, which resulted in a subsequent relief in the
market as the U.S. economy seemed to decelerate significantly. During the
period, the Federal Reserve tightened short-term rates by 1.00% in an attempt to
engineer a "soft landing" for the U.S. economy. In the first six months of the
new millennium we have witnessed unprecedented volatility in both the Treasury
yield curve and the spread sectors. The Treasury curve inverted sharply in the
first quarter, but as weak economic data emerged in the second quarter, market
participants embraced an economic "soft landing" scenario causing the yield
curve to steepen. The downward revision in growth expectations allowed spread
sectors to rally in the month of June, but year-to-date their performance still
trails Treasuries.
While fears of a hawkish Federal Reserve and consequent risks of a
"hard-landing" may not materialize immediately, the risks are skewed in that
direction. A longer period of subdued financial market performance is necessary
to enable the labor markets to build up slack, which is an important
pre-condition for the Fed to achieve its goal. Given the likelihood of a
re-emergence of risk aversion in the capital markets as well as a continual
increase in the "scarcity premium" of Treasury securities, we are less inclined
to be aggressive with respect to spread assets. We are also focusing on the use
of high quality spread assets to increase the income or "carry" so that a total
return advantage over Treasuries is achieved despite further spread widening.
This report contains a summary of market conditions during the semi-annual
period and a review of portfolio strategy by your Trust's managers in addition
to the Trust's unaudited financial statements and a detailed list of the
portfolio's holdings. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 2000
Dear Shareholder:
We are pleased to present the unaudited semi-annual report for The
BlackRock Investment Quality Term Trust Inc. ("the Trust") for the six months
ended June 30, 2000. 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 over the period:
------------------------------------------------------
6/30/00 12/31/99 CHANGE HIGH LOW
--------------------------------------------------------------------------------
STOCK PRICE $7.9375 $7.875 0.79% $7.9375 $7.625
--------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $8.77 $8.79 (0.23)% $8.79 $8.59
--------------------------------------------------------------------------------
10-YEAR TREASURY NOTE 6.02% 6.44% (6.52)% 6.78% 5.79%
--------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
The economy entered 2000 with a tremendous amount of strength and momentum,
labor markets were very tight, and the opinion was that the best news on
inflation was behind us. Despite this, throughout the period, the view was that
the Federal Reserve would maintain a gradual process of slowing the economy
until a more pronounced pick-up in inflation was evident. In March, the Federal
Reserve raised both the overnight rate and the discount rate 0.25% to 6.0% and
5.5%, respectively. Despite the sell-off in the equity market in April, in May
concerns about an overheating economy due to an increased shortage of labor and
rising oil prices led the Federal Reserve to raise rates another 0.50% to 6.5%.
Recent economic data indicates that the U.S. economy started to slow in the
second quarter. Consumer spending, manufacturing, and labor activity all point
to a softer economy. The real question is whether this slowdown is the start of
something bigger (soft or hard landing) or simply a natural pause from well
above-trend growth. Goldman Sachs' financial conditions index shows that
conditions are as accommodative now as they were last June, prior to the 175
basis points of Fed tightening. This suggests that growth is likely to
reaccelerate later in the year and bring the Fed back into play.
Treasury yields decreased in the first half of 2000. Over the course of the
year so far, the yield of the 30-year Treasury has decreased by nearly 58 basis
points (0.58%). The yield of the 10-Year Treasury posted a net decrease of 42
basis points (0.42%). Bond prices, which move inversely to their yields, have
risen in expectation of a slowing economy due to higher short-term interest
rates. We anticipate a continued flattening of the yield curve as a result of an
active Federal Reserve and potential Treasury repurchases of long maturity debt.
Mortgages posted positive returns during the first half of the year but
trailed the broader market, which was led by the strong rally in the Treasury
market. As measured by the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a
3.67% total return versus 3.99% for the LEHMAN BROTHERS AGGREGATE INDEX.
Strength in the housing market has continued unabated,
2
<PAGE>
leading to more supply than expected, but in comparison to other spread sectors,
mortgages benefited from greater liquidity and higher credit quality. On a
relative valuation basis mortgages appear cheap, although uncertainty was
increased in the market by Treasury Undersecretary Gensler's testimony
concerning a bill seeking to end the quasi-governmental status of FNMA and
FHLMC. GNMAs performed well during the first quarter as a Treasury substitute,
since it is the only other asset class backed by the full faith and credit of
the U.S. Government.
Investment grade corporate securities encountered difficulty as fixed
income investors sought the credit quality and liquidity of Treasuries. For the
first half of the year, corporates as measured by MERRILL LYNCH U.S. CORPORATE
MASTER INDEX returned 2.22%, under performing the LEHMAN BROTHERS AGGREGATE
INDEX'S 3.99%. Fundamentally the corporate market appears healthy, with
companies reporting strong earnings in the first half of the year. The negatives
in the corporate market are from stock market volatility, poor liquidity,
increased leverage and deteriorating credit quality, which has increased
uncertainty in the market. With the uncertainty of future fed action in the
market, lower current yields could cloud the supply picture and lead to an
acceleration in issuance.
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, 1999 asset
composition.
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THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
--------------------------------------------------------------------------------
COMPOSITION JUNE 30, 2000 DECEMBER 31, 1999
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Corporate Bonds 26% 27%
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Mortgage Pass-Throughs 20% 20%
--------------------------------------------------------------------------------
U.S. Government Securities 11% 11%
--------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 9% 5%
--------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 8% 8%
--------------------------------------------------------------------------------
Stripped Money Market Instruments 7% 6%
--------------------------------------------------------------------------------
Taxable Municipal Bonds 5% 5%
--------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 4% 5%
--------------------------------------------------------------------------------
Commercial Mortgage-BackedSecurities 3% 6%
--------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 3% 2%
--------------------------------------------------------------------------------
Asset-Backed Securities 2% 3%
--------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 2% 2%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RATING % OF CORPORATES
--------------------------------------------------------------------------------
CREDIT RATING JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------
AA or equivalent 7% 4%
--------------------------------------------------------------------------------
A or equivalent 48% 44%
--------------------------------------------------------------------------------
BBB or equivalent 41% 46%
--------------------------------------------------------------------------------
BB or equivalent 4% 6%
--------------------------------------------------------------------------------
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 offer attractive yield spreads over Treasury
securities and an emphasis on bonds with maturity dates approximating the
Trust's termination date of December 31, 2004. Additionally, the Trust has been
active in reducing positions in bonds which have maturity dates or potential
cash flows after the Trust's termination date.
During the reporting period, the most significant additions have been in
adjustable rate mortgage-backed securities (ARMS). Additionally, the Trust
maintained its significant weighting in investment grade corporate bonds and
well-structured mortgage securities. To finance these purchases, the Trust sold
commercial mortgage-backed securities, as their maturity may extend past the
Trust's termination date in a rising interest rate environment.
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment in the BlackRock Investment Quality Term Trust
Inc. Please feel free to contact our marketing center at (800) 227-7BFM (7236)
if you have specific questions which were not addressed in this report.
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
--------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BQT
--------------------------------------------------------------------------------
Initial Offering Date: April 21, 1992
--------------------------------------------------------------------------------
Closing Stock Price as of 6/30/00: $7.9375
--------------------------------------------------------------------------------
Net Asset Value as of 6/30/00: $8.77
--------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/00 ($7.9375)(1): 5.67%
--------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.0375
--------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $0.45
--------------------------------------------------------------------------------
(1) Yield on Closing Stock Price is calculated by dividing the current
annualized distribution per share by the closing stock price per share.
(2) The distribution is not constant and is subject to change.
4
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--134.6%
MORTGAGE PASS-THROUGHS--27.3%
Federal Home Loan Mortgage Corp.,
$14,151@ 6.50%, 9/01/25 - 6/01/29 ................... $ 13,368,530
6,769@ 7.00%, 12/01/28 ............................ 6,544,875
Federal Housing Administration,
2,037 Colonial, Series 37,
7.40%, 12/01/22 ............................ 2,002,233
4,573 GMAC, Series 51,
7.43%, 2/01/21 ............................. 4,532,496
1,240 Middlesex, 8.625%, 9/01/34 ................. 1,237,918
2,824 Tuttle Grove, 7.25%, 10/01/35 .............. 2,707,957
USGI,
1,169 Series 99, 7.43%, 10/01/23 ............... 1,148,097
7,849 Series 885, 7.43%, 3/01/22 ............... 7,708,151
4,052 Series 2081, 7.43%, 5/01/23 .............. 3,981,368
Federal National Mortgage Association,
9,247@ 6.35%, 1/01/04,
10 Year, Multi-family .................... 8,964,283
31,239@ 6.50%, 8/01/28 - 6/01/29 ................... 29,453,819
2,738@ 8.26%, 2/01/04,
10 Year, Multi-family .................... 2,745,815
2,282@ 8.78%, 4/01/04,
10 Year, Multi-family .................... 2,302,675
1,526@ 8.89%, 4/01/04,
10 Year, Multi-family .................... 1,540,501
------------
88,238,718
------------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--4.8%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
11 Series 1523, Class 1523-A,
6/15/22 .................................. 10,929
4,167@ Series 1587, Class 1587-KA,
7/15/08 .................................. 4,095,914
26 Series 1607, Class 1607-M,
4/15/13 .................................. 25,642
120 Series 1650, Class 1650-LC,
2/15/22 .................................. 119,142
2,728 Series 1667, Class 1667-C,
1/15/09 .................................. 2,655,013
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,143 Trust 269, Class 269-1,
8/01/22 .................................. 1,170,374
5,238 Trust 1992-43, Class 43-E,
4/25/22 .................................. 5,204,006
155 Trust 1994-36, Class 36-L,
1/25/23 .................................. 154,154
2,000@ Trust 1996-M5, Class A2,
1/25/11 .................................. 1,987,429
------------
15,422,603
------------
NON-AGENCY MULTIPLE CLASS
MORTGAGE PASS-THROUGHS--3.0%
Aaa 3,721 Chase Mortgage Finance Corp.,
Series 1993, Class A-9,
12/25/09 ................................. 3,690,423
AAA 1,065 Citicorp Mortgage Securities, Inc.,
Series 1998-3, Class A-6,
5/25/28 .................................. 1,033,451
AAA 954 DLJ Mortgage Acceptance Corp.,
Series 1993-19, Class A-3,
1/25/24 .................................. 943,894
AAA 665 GE Capital Mortgage Services, Inc.,
Series 1994-2, Class A-4,
1/25/09 .................................. 659,163
AAA 3,366 Norwest Asset Securitization Corp.,
Series 1997-9, Class A-2,
7/25/12 .................................. 3,349,038
------------
9,675,969
------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES--11.8%
AAA 1,186 CWMBS, Inc., Mortgage Certificate,
Series 1994-D, Class A-7,
3/25/24 .................................. 1,153,825
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
9,831 Series 1944, Class 1944-SY,
5/17/22 .................................. 168,974
484 Series 1512, Class 1512-NB,
5/15/08 .................................. 461,765
20,848 Series 1954, Class 1954-BB,
4/15/21 .................................. 145,516
9,167 Series 1954, Class 1954-LL,
5/15/21 .................................. 65,362
9,167 Series 1954, Class 1954-LM,
5/15/21 .................................. 65,362
2,439@ Series 1565, Class 1565-0A,
8/15/08 .................................. 2,287,020
1,075@ Series 1584, Class 1584-SE,
2/15/23 .................................. 745,998
13,100@ Series 1635, Class 1635-P,
12/15/08 ................................. 11,094,407
448 Series 1655, Class 1655-SB,
12/15/08 ................................. 420,537
See Notes to Financial Statements.
5
<PAGE>
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PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES (CONTINUED)
$ 716@ Series 1671, Class 1671-MF,
2/15/24 .................................. $ 657,356
1,578@ Series 1678, Class 1678-SA,
2/15/09 .................................. 1,491,887
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,646@ Trust 1992-155, Class 155-SB,
12/25/06 ................................. 1,476,265
1,500 Trust 1993-143, Class 143-SC,
8/25/23 .................................. 1,374,480
146 Trust 1993-179, Class 179-SA,
10/25/23 ................................. 139,433
Federal National Mortgage Association,
REMIC Pass-Through
Certificates, (continued)
8,144@ Trust 1993-188, Class 188-S,
2/25/08 .................................. 7,759,721
181 Trust 1993-202, Class 202-VJ,
11/25/23 ................................. 162,876
1,408 Trust 1993-212, Class 212-SB,
11/25/08 ................................. 1,346,775
288@ Trust 1993-225, Class 225-FK,
12/25/23 ................................. 286,247
189 Trust 1994-17, Class 17-SA,
1/25/09 .................................. 182,395
15,402 Trust 1997-44, Class 44-SC,
6/25/08 .................................. 1,113,218
Residential Funding Mortgage
Securities I,
AAA 4,945 Series 1993-S15, Class A-16,
4/25/08 .................................. 4,988,559
AAA 510 Series 1993-S15, Class A-17,
4/25/08 .................................. 475,935
------------
38,063,913
------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--10.6%
AAA 113,143 Citicorp Mortgage Securities, Inc.,
REMIC Pass-Through Certificates,
Series 1999-3, Class A3,
5/25/29 .................................. 1,520,358
AAA 39,396 Credit Suisse First Boston Mortgage
Securities Corp., Series 1997-C1,
Class AX, 4/20/22** ........................ 3,166,771
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
4,954 Series G-25, Class 25-S,
8/25/06 .................................. 55,881
10,908@ Series 1353, Class 1353-S,
8/15/07 .................................. 875,586
914 Series 1489, Class 1489-K,
10/15/07 ................................. 73,991
686 Series 1751, Class 1751-PL,
10/15/23 ................................. 87,850
3,416 Series 1917, Class 1917-AS,
5/15/08 .................................. 550,795
42,883 Series 1918, Class 1918-SC,
1/15/04 .................................. 455,635
831 Series 1946, Class 1946-SN,
10/15/08 ................................. 133,778
14,577 Series 2055, Class 2055-IB,
12/15/09 ................................. 2,361,340
10,547 Series 2061, Class 2061-PJ,
5/15/16 .................................. 906,389
10,854 Series 2083, Class 2083-PI,
2/15/18 .................................. 970,009
4,544 Series 2134, Class 2134-PJ,
4/15/11 .................................. 660,339
1,712 Series 2144, Class 2144-GI,
12/15/07 ................................. 144,980
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
164 Trust 1993-22, Class 22-PT,
10/25/18 ................................. 1,150
1,303 Trust 1993-39, Class 39-K,
4/25/04 .................................. 168,462
8,410 Trust 1993-109, Class 109-QC,
7/25/07 .................................. 509,166
1,090 Trust 1994-27, Class 27-WC,
3/25/20 .................................. 81,087
1,964 Trust 1994-42, Class 42-SO,
3/25/23 .................................. 182,491
7,000@ Trust 1996-20, Class 20-SB,
10/25/08 ................................. 1,356,250
4,128 Trust 1996-24, Class 24-SE,
3/25/09 .................................. 642,228
674 Trust 1997-28, Class 28-PH,
3/18/22 .................................. 73,322
45,004 Trust 1997-37, Class 37-SD,
10/25/22 ................................. 281,275
6,250 Trust 1997-50, Class 50-HK,
8/25/27 .................................. 1,768,444
48,928 Trust 1997-81, Class 81-S,
12/18/04 ................................. 152,899
7,693 Trust 1998-8, Class 8-PM,
6/18/19 .................................. 736,453
1,680 Trust 1998-12, Class 12-PL,
7/18/19 .................................. 174,807
6,606 Trust 1998-15, Class 15-PC,
12/18/19 ................................. 681,259
14,859 Trust 1998-27, Class 27-PI,
12/18/20 ................................. 1,839,905
5,782 Trust 1999-43, Class 43-PL,
1/25/21 .................................. 722,692
AAA 1,488 GE Capital Mortgage Services, Inc.,
Series 1997-2, Class 2-A-4,
3/25/12 .................................. 275,822
Merrill Lynch Mortgage Investors, Inc.,
AAA 70,846 Series 1997-C2, Class IO,
12/10/29 ................................. 4,473,846
AAA 47,097 Series 1998-C2, Class IO,
2/15/30 .................................. 3,214,319
See Notes to Financial Statements.
6
<PAGE>
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PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONTINUED)
Morgan Stanley Capital 1, Inc.,
AAA $ 2,818 Series 1997-HF1, Class HF1-X,
6/15/17** ................................ $ 185,013
AAA 77,882 Series 1998-HF1, Class HF1-X,
2/15/18 .................................. 3,974,006
AAA 5,350 PNC Mortgage Securities Corp.,
Series 1999-5, Class 1A-11,
6/25/29 .................................. 907,850
------------
34,366,448
------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--4.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
423 Series 1243, Class 1243-N,
8/15/06 .................................. 387,438
250 Series 1862, Class 1862-DA,
12/15/22 ................................. 160,055
292 Series 1862, Class 1862-DB,
12/15/22 ................................. 186,731
831 Series 1946, Class 1946-N,
10/15/08 ................................. 595,506
778 Series 2009, Class 2009-JH,
11/15/21 ................................. 600,418
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
366@ Trust 1993-147, Class H,
8/25/23 .................................. 250,692
566 Trust 1993-228, Class 228-B,
3/25/23 .................................. 529,272
2,800 Trust 1993-254, Class 254-D,
11/25/23 ................................. 2,201,500
635 Trust 1994-54, Class 54-D,
10/25/23 ................................. 531,740
4,454 Trust 1994-57, Class 57-D,
1/15/24 .................................. 3,691,464
692@ Trust 1996-32, Class 32-E,
10/25/08 ................................. 673,138
3,653 Trust 1996-45, Class 45-E,
1/25/24 .................................. 3,090,275
------------
12,898,229
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--4.5%
Aaa 144 Morgan Stanley Capital 1, Inc.,
Series 1997-HF1, Class A1,
6.86%, 5/15/06** ......................... 142,330
AAA 5,000 New York City Mortgage Loan Trust,
Multifamily,
Series 1996, Class A-2,
6.75%, 6/25/11** ......................... 4,642,969
Structured Asset Securities Corp.,
Mortgage Certificates,
A 3,865 Series 1996, Class D,
7.034%, 2/25/28 .......................... 3,821,519
BBB 5,970 Series 1996, Class E,
7.75%, 2/25/28 ........................... 5,912,411
------------
14,519,229
------------
ASSET-BACKED SECURITIES--2.0%
NR 2,685 Global Rated Eligible Asset Trust,
Series 1998-A, Class A-1**/***
7.33%, 3/15/06 ........................... 805,550
Structured Mortgage Asset
Residential Trust@@/***
NR 4,077 Series 1997-2,
8.24%, 3/15/06 ........................... 896,996
NR 4,496 Series 1997-3,
8.57%, 4/15/06 ........................... 989,210
4,000 Student Loan Marketing Association,
Series 1995-1, Class B,
6.852%, 10/25/09 ......................... 3,930,000
------------
6,621,756
------------
U.S. GOVERNMENT AND AGENCY
SECURITIES--15.1%
Small Business Administration,
1,716 Series 1996-20F,
7.55%, 6/01/16 ........................... 1,709,850
1,594 Series 1996-20G,
7.70%, 7/01/16 ........................... 1,601,851
4,103 Series 1996-20K,
6.95%, 11/01/16 .......................... 3,951,602
1,577 Series 1998-P10, Class P10-A,
6.12%, 2/01/08 ........................... 1,455,330
25,000@ U.S. Treasury Bond,
5.50%, 8/15/28 ........................... 22,929,750
U.S. Treasury Notes,
12,000@ 4.75%, 2/15/04 ............................. 11,409,360
870@ 5.875%, 11/15/04 ........................... 857,359
4,800 6.00%, 8/15/09 ............................. 4,761,744
------------
48,676,846
------------
TAXABLE MUNICIPAL BONDS--6.9%
AAA 2,875 California Housing Finance Agency Rev.,
6.69%, 8/01/03 ............................. 2,778,860
A+ 2,000 Fresno California Pension Obligation,
7.15%, 6/01/04 ............................. 1,982,520
AAA 4,000 Los Angeles County California
Pension Obligation,
6.77%, 6/30/05 ............................. 3,888,080
AAA 7,000 New Jersey Economic Development
Authority,
Zero Coupon, 2/15/04 ....................... 5,376,140
A- 5,000 New York City, G.O.,
7.50%, 4/15/04 ............................. 5,012,100
A 1,000 New York State Environmental
Facilities Corp., Service
Contract Revenue,
6.95%, 9/15/04 ............................. 973,370
See Notes to Financial Statements.
7
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (CONTINUED)
AAA $ 2,250 San Francisco California City &
Cnty. Arpts. Commission,
International Airport,
6.55%, 5/01/04 ............................. $ 2,187,855
------------
22,198,925
------------
CORPORATE BONDS--35.6%
FINANCE & BANKING--13.8%
A3 2,450 Amsouth Bancorp.,
6.75%, 11/01/25 ............................ 2,308,537
Aa2 2,500 Bank of America,
7.875%, 5/16/05 ............................ 2,527,475
A+ 3,000 CIT Group, Inc.,
7.125%, 10/15/04 ........................... 2,933,954
A+ 1,300 Equitable Life Assurance Society,
6.95%, 12/01/05** .......................... 1,248,758
A+ 5,000@ Farmers Insurance,
8.50%, 8/01/04** ........................... 4,998,688
A 4,800 First National Bank of Boston,
8.00%, 9/15/04 ............................. 4,808,880
A3 5,000 Fleet Financial Group,
8.125%, 7/01/04 ............................ 5,062,650
A+ 4,850 Goldman Sachs Group,
6.25%, 2/01/03** ........................... 4,661,951
A 3,500 Lehman Brothers Holdings, Inc.,
6.75%, 9/24/01 ............................. 3,461,667
A+ 1,000 Metropolitan Life Insurance Co.,
6.30%, 11/01/03** .......................... 959,210
PaineWebber Group, Inc.,
BBB 500 6.90%, 2/09/04 ............................. 474,213
A 2,000 8.875%, 3/15/05 ............................ 2,061,381
A 3,100 Reliaster Financial Corp.,
6.625%, 9/15/03 ............................ 2,997,266
Aa3 2,000 Salomon Smith Barney Holdings, Inc.,
6.75%, 1/15/06 ............................. 1,917,200
Xtra, Inc.,
BBB+ 2,000 6.50%, 1/15/04 ............................. 1,902,900
BBB+ 2,500 7.22%, 7/31/04 ............................. 2,427,200
------------
44,751,930
------------
INDUSTRIALS--8.9%
A2 400 American Airlines, Inc.,
10.44%, 3/04/07 ............................ 446,568
BBB- 3,600 Anixter, Inc.,
8.00%, 9/15/03 ............................. 3,418,929
BBB 2,000 Conagra, Inc.,
7.40%, 9/15/04 ............................. 1,986,820
BB- 5,000 Lukens, Inc.,
7.625%, 8/01/04 ............................ 4,814,500
BBB 5,000 Newmont Mining Corp.,
8.00%, 12/01/04 ............................ 4,873,550
BBB- 3,000 News America Holdings, Inc.,
8.50%, 2/15/05 ............................. 3,070,440
Baa3 5,000 Pulte Corp.,
8.375%, 8/15/04 ............................ 4,840,600
A+ 2,000 Ralcorp Holdings, Inc.,
8.75%, 9/15/04 ............................. 2,113,640
AA- 3,000 TCI Communications, Inc.,
8.25%, 1/15/03 ............................. 3,058,500
------------
28,623,547
------------
UTILITIES--3.4%
360 Communications Co.,
A 2,000 7.125%, 3/01/03 ............................ 1,976,260
A 2,000 7.50%, 3/01/06 ............................. 1,972,420
BBB- 5,000 Gulf States Utilities Co.,
8.25%, 4/01/04 ............................. 5,003,850
Baa2 2,000 Ohio Edison Co.,
8.625%, 9/15/03 ............................ 2,037,360
------------
10,989,890
------------
YANKEE--9.5%
NR 1,848 Banamex Remittance Master Trust,
Series 1996, 7.57%, 1/01/01** .............. 1,840,747
BBB+ 2,000 Canadian Pacific Ltd.,
6.875%, 4/15/03 ............................ 1,965,480
A 2,000 Corporacion Andina de Fomento,
7.10%, 2/01/03 ............................. 1,953,300
A1 3,000 Den Danske Bank,
7.25%, 6/15/05** ........................... 2,954,352
BBB- 5,000 Empresa Electric Guacolda SA,
7.95%, 4/30/03** ........................... 4,790,058
A- 3,500 Israel Electric Corp., Ltd.,
7.25%, 12/15/06** .......................... 3,391,605
A+ 5,000 Quebec Province,
8.625%, 1/19/05 ............................ 5,230,250
BBB- 3,000 Telefonica de Argentina SA,
11.875%, 11/01/04 .......................... 3,150,000
BBB 5,000 Telekom Malaysia Berhad,
7.125%, 8/01/05** .......................... 4,749,050
BBB+ 786 YPF Sociedad Anonima,
7.50%, 10/26/02 ............................ 773,954
------------
30,798,796
------------
Total corporate bonds ........................ 115,164,163
------------
STRIPPED MONEY MARKET
INSTRUMENTS--9.0%
40,000 Vanguard Prime Money Market
Portfolio, 12/31/04 ........................ 28,956,000
------------
NOTIONAL
AMOUNT
(000)
--------
CALL OPTIONS PURCHASED
50,000 Interest Rate Swap,
5.60% over 3 month LIBOR,
expires 8/07/00 (Cost $687,500) ............ 5
------------
Total long-term investments
(cost $449,292,374) ........................ 434,802,804
------------
See Notes to Financial Statements.
8
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.0%
DISCOUNT NOTE
$3,080 Student Loan Marketing Association,
6.57%, 7/03/00
(amortized cost $3,078,876) ................ $ 3,078,876
------------
Total investments--135.6%
(cost $452,371,250) ........................ 437,881,680
Liabilities in excess of other
assets--(35.6)% ............................ (114,942,720)
------------
NET ASSETS--100% ............................. $322,938,960
============
-----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
*** Illiquid securities representing 0.83% of net assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
@@ Securities are restricted as to public resale. The securities were acquired
in 1997 and have an aggregate current cost of $2,759,605.
--------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
G.O.-- General Obligation.
LIBOR-- London InterBank Offer Rate.
REMIC-- Real Estate Mortgage Investment Conduit.
--------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $452,371,250)
(Note 1) .................................................... $ 437,881,680
Cash .......................................................... 6,341
Interest receivable ........................................... 6,291,232
Interest rate cap, at value (amortized cost $422,334)
(Note 1 and 3) .............................................. 706,256
Receivable for investments sold ............................... 21,039
Other assets .................................................. 1,492
-------------
444,908,040
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ........................ 121,056,188
Interest payable .............................................. 491,246
Investment advisory fee payable (Note 2) ...................... 158,505
Interest rate floor, at value
(proceeds $261,000) (Note 1 and 3) ........................ 133,308
Administration fee payable (Note 2) ........................... 26,417
Accrued expenses and other liabilities ........................ 103,416
-------------
121,969,080
-------------
NET ASSETS .................................................... $ 322,938,960
=============
Net assets were comprised of:
Common stock, at par (Note 5) ............................... $ 368,106
Paid-in capital in excess of par ............................ 344,145,594
-------------
344,513,700
Undistributed net investment income ......................... 10,595,106
Accumulated net realized loss ............................... (17,914,909)
Net unrealized depreciation ................................. (14,254,937)
-------------
Net assets, June 30, 2000 ................................... $ 322,938,960
=============
Net asset value per share:
($322,938,960 / 36,810,639 shares of
common stock issued and outstanding) ........................ $8.77
=====
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium amortization
of $4,380,488 and interest expense of
$3,866,057) $ 11,372,468
------------
Operating expenses
Investment advisory ......................................... 962,713
Administration .............................................. 160,452
Legal ....................................................... 70,000
Custodian ................................................... 46,000
Reports to shareholders ..................................... 46,000
Directors ................................................... 42,000
Independent accountants ..................................... 22,000
Registration ................................................ 16,000
Transfer agent .............................................. 14,000
Miscellaneous ............................................... 7,506
-------------
Total operating expenses .................................. 1,386,671
-------------
Net investment income before excise tax ..................... 9,985,797
Excise tax ................................................ 307,659
-------------
Net investment income ....................................... 9,678,138
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized loss on:
Investments ................................................. (252,744)
Futures ..................................................... (4,470,216)
-------------
(4,722,960)
-------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................. 2,036,734
Futures ..................................................... 117,019
Interest rate caps .......................................... 218,624
Interest rate floors ........................................ 127,692
Short sales ................................................. (1,045,824)
-------------
1,454,245
-------------
Net loss on investments ..................................... (3,268,715)
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................................... $ 6,409,423
=============
See Notes to Financial Statements.
10
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from
operations .................................................. $ 6,409,423
-------------
Decrease in investments ...................................... 4,155,567
Net realized loss ........................................... 4,722,960
Increase in unrealized appreciation .......................... (1,454,245)
Increase in interest receivable ............................... (413,005)
Increase in other assets ...................................... (1,492)
Decrease in receivable for investments sold ................... 265,355
Decrease in investments sold short ............................ (17,874,000)
Decrease in deposits with brokers for
investments sold short ...................................... 18,421,876
Increase in interest rate cap ................................. (90,088)
Increase in interest rate floor ............................... 133,308
Decrease in due to broker-variation margin .................... (375,000)
Decrease in interest payable .................................. (388,985)
Decrease in accrued expenses .................................. (123,853)
-------------
Total adjustments .......................................... 6,978,398
-------------
Net cash flows provided by operating activities ............... $ 13,387,821
=============
DECREASE IN CASH
Net cash flows provided by operating activities ............... $ 13,387,821
-------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements .................. (5,571,187)
Cash dividends paid ........................................ (8,282,274)
-------------
Net cash flows used for financing activities .................. (13,853,461)
-------------
Net decrease in cash .......................................... (465,640)
Cash at beginning of period ................................... 471,981
-------------
Cash at end of period ......................................... $ 6,341
=============
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
DECREASE IN NET ASSETS JUNE 30, DECEMBER 31,
2000 1999
Operations: ------------ ------------
Net investment income ....................... $ 9,678,138 $ 18,898,423
Net realized loss ........................... (4,722,960) (9,945,056)
Net change in unrealized
appreciation (depreciation) .............. 1,454,245 (19,240,071)
------------ ------------
Net increase (decrease) in
net assets resulting
from operations .......................... 6,409,423 (10,286,704)
Dividends from net
investment income ........................ (6,901,875) (18,252,742)
------------ ------------
Total decrease .............................. (492,452) (28,539,446)
NET ASSETS
Beginning of period ............................ 323,431,412 351,970,858
------------ ------------
End of period (including
undistributed net investment
income of $10,595,106 and
$7,818,843, respectively) .................. $322,938,960 $323,431,412
============ ============
See Notes to Financial Statements.
11
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, --------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 8.79 $ 9.56 $ 9.43 $ 9.09 $ 9.50 $ 8.21
-------- -------- -------- -------- -------- --------
Net investment income (net of interest
expense of $0.11, $0.25, $0.21, $0.21,
$0.17 and $0.23, respectively) ......................... 0.26 0.52 0.66 0.65 0.64 0.60
Net realized and unrealized gain (loss) .................. (0.09) (0.79) 0.02 0.31 (0.46) 1.31
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment operations ......... 0.17 (0.27) 0.68 0.96 0.18 1.91
-------- -------- -------- -------- -------- --------
Dividends from net investment income ....................... (0.19) (0.50) (0.55) (0.62) (0.59) (0.60)
Distributions in excess of net investment income ........... -- -- -- -- -- (0.02)
-------- -------- -------- -------- -------- --------
Total dividends and distributions .......................... (0.19) (0.50) (0.55) (0.62) (0.59) (0.62)
-------- -------- -------- -------- -------- --------
Net asset value, end of period* ............................ $ 8.77 $ 8.79 $ 9.56 $ 9.43 $ 9.09 $ 9.50
======== ======== ======== ======== ======== ========
Market value, end of period* ............................... $ 7.94 $ 7.88 $ 8.81 $ 8.38 $ 7.63 $ 7.88
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ................................... 3.22% (4.99)% 11.50% 18.58% 4.58% 21.91%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ......................................... 0.87%+++ 0.86% 0.85% 0.89% 0.91% 0.92%
Operating expenses and interest expense .................... 3.29%+++ 3.64% 2.99% 3.15% 2.83% 3.44%
Operating expenses, interest expense and excise taxes ...... 3.48%+++ 3.70% 3.01% 3.15% 2.83% 3.44%
Net investment income ...................................... 6.06%+++ 5.65% 6.89% 6.98% 7.03% 6.76%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .......................... $320,936 $334,553 $353,745 $341,607 $332,778 $328,950
Portfolio turnover ratio ................................... 12% 81% 106% 135% 221% 160%
Net assets, end of period (in thousands) ................... $322,939 $323,431 $351,971 $346,998 $334,779 $349,862
Reverse repurchase agreements outstanding,
end of period (in thousands) ............................. $121,056 $126,627 $105,869 $142,948 $ 96,846 $112,007
Asset coverage++ ........................................... $ 3,667 $ 3,554 $ 4,325 $ 3,427 $ 4,457 $ 4,124
</TABLE>
----------
* Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
This calculation does not reflect brokerage commissions. Total investment
return for the period of less than one year has not been annualized.
++ Per $1,000 of reverse repurchase agreements outstanding.
+++ Annualized.
The information above represents the unaudited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
12
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
The BlackRock Investment Quality Term Trust Inc. ("the Trust"), a Maryland
corporation, is a diversified, closed-end management investment company. The
Trust's investment objective is to manage a portfolio of fixed income securities
that will return $10 per share to investors on or about December 31, 2004 while
providing high monthly income. The ability of issuers of debt securities held by
the Trust to meet their obligations may be affected by economic developments in
a specific industry or region. No assurance can be given that the Trust's
investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities, interest rate swaps, caps, floors and non-exchange traded
options on the basis of current market quotations provided by dealers or pricing
services approved by the Trust's Board of Directors. In determining the value of
a particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. In the absence of a last sale, options are valued at the average of
the quoted bid and asked prices as of the close of business. A futures contract
is valued at the last sale price as of the close of the commodities exchange on
which it trades. Short-term securities are valued at amortized cost. 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.
REPURCHASE AGREEMENTS: In connection with transactions in repurchase agreements,
the Trust's custodian takes possession of the underlying collateral securities,
the value of which at least equals the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions, or collections of positions, so that changes in interest rates do not
change the duration of the portfolio unexpectedly. In general, the Trust uses
options to hedge a long or short position or an overall portfolio that is longer
or shorter than the benchmark security. A call option gives the purchaser of the
option the right (but not obligation) to buy, and obligates the seller to sell
(when the option is exercised), the underlying position at the exercise price at
any time or at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy the underlying position
at the exercise price at any time or at a specified time during the option
period. Put options can be purchased to effectively hedge a position or a
portfolio against price declines if a portfolio is long. In the same sense, call
options can be purchased to hedge a portfolio that is shorter than its benchmark
against price changes. The Trust can also sell (or
13
<PAGE>
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.
Interest rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by "marking-to-market" to reflect the
market value of the swap. When the swap is terminated, the Trust will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the swap. However, the Trust does not anticipate non-performance
by any counterparty.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are subsequently adjusted to
the current market value of the option written or purchased. Premiums received
or paid from writing or purchasing options which expire unexercised are treated
by the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of 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
14
<PAGE>
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, 2000.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short-term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short-term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front payment
which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis, and the Trust accretes discount and amortizes premium on
securities purchased using the interest method.
FEDERAL INCOME 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 sufficient 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.
15
<PAGE>
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net invest-ment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards may be distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
DEFERRED COMPENSATION PLAN. Under a deferred compensation plan approved by the
board of Directors on February 24, 2000, non-interested Directors may elect to
defer receipt of all or a portion of their annual compensation.
Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock funds selected by the Directors.
This has the same economic effect as if the Directors had invested the deferred
amounts in such other BlackRock funds.
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Trust. The
Trust may, however, elect to invest in common shares of those funds selected by
the Directors in order to match its deferred compensation obligations.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Advisors, Inc.
(the "Advisor"), which is a wholly-owned subsidiary of BlackRock, Inc., which in
turn is an indirect majority-owned subsidiary of PNC Financial Services Group,
Inc. Corp. The Trust has an Administration Agreement with Prudential Investments
Fund Management LLC ("PIFM"), a wholly-owned subsidiary of The Prudential
Insurance Co. of America.
The investment advisory fee paid to the Advisor 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 0.10% of the Trust's average weekly net assets
until December 31, 2002, and 0.08% from January 1, 2003 to the termination or
liquidation of the Trust.
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Advisor. PIFM pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the six months ended June 30, 2000 aggregated $50,549,024
and $54,139,465, respectively.
The Trust may invest up to 30% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At June 30, 2000, the Trust held
11.9% of its net 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 affiliates such
as PNC Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities
Corp. succeeded to rights and duties of Sears) or mortgage related securities
containing loans or mortgages originated by PNC Bank or its affiliates,
including Midland Loan Services, Inc. It is possible under certain
circumstances, PNC Mortgage Securities Corp. or its affiliates, including
Midland Loan Services, Inc. could have interests that are in conflict with the
holders of these mortgage backed securities, and such holders could have rights
against PNC Mortgage Securities Corp. or its affiliates, including Midland Loan
Services, Inc.
The federal income tax basis of the Trust's investments at June 30, 2000
was $452,398,736 and, accordingly, net unrealized depreciation for federal
income tax purposes was $14,517,056 (gross unrealized appreciation--$8,261,826;
gross unrealized depreciation--$22,778,882).
For federal income tax purposes, the Trust has a capital loss carryforward
at December 31, 1999 of approximately $15,774,000 of which approximately
$530,000 will expire in 2002, approximately $3,845,000 will expire in 2003,
approximately $1,498,000 will expire in 2005, and approximately $9,901,000 will
expire in 2007. Accordingly, no capital gains distribution is expected to be
paid to shareholders until net gains have been realized in excess of such
amounts.
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<PAGE>
Details of the open financial futures contract at June 30, 2000 are as
follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 2000 DEPRECIATION
--------- ---- ---- ----------- ----------- ------------
Short position:
300 30-Yr.
T-Bond Sep 2000 $29,073,019 $29,250,000 $(176,981)
=========
Details of the interest rate cap held at June 30, 2000 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED JUNE 30, UNREALIZED
(000) RATE RATE DATE COST 2000 APPRECIATION
----- ---- ---- ---- ---- ---- ------------
$40,000 6.00% 3-month LIBOR 2/19/02 $422,334 $706,256 $283,922
==========
Details of the interest rate floor held at June 30, 2000 are as follows:
NOTIONAL VALUE AT VALUE AT
AMOUNT FIXED FLOATING TERMINATION TRADE JUNE 30, UNREALIZED
(000) RATE RATE DATE DATE 2000 APPRECIATION
----- ---- ---- ---- ---- ---- ------------
$30,000 7.00% 3-month LIBOR 2/27/02 $261,000 $133,308 $127,692
========
NOTE 4. BORROWINGS
REVERSE REPURCHASE AGREEMENTS: The Trust may enter into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it will establish and maintain a segregated
account with the lender, the value of which at least equals the principal amount
of the reverse repurchase transactions including accrued interest.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended June 30, 2000 was approximately $123,959,521 at a
weighted average interest rate of approximately 6.08%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period was
$135,154,900 as of February 29, 2000, which was 30.0% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The Trust did not enter into any dollar rolls during the six months ended
June 30, 2000.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of the
36,810,39 shares outstanding at June 30, 2000, the Advisor owned 10,639 shares.
NOTE 6. DIVIDENDS
Since June 30, 2000, the Board of Directors of the Trust declared dividends from
undistributed earnings of $0.0375 per share payable July 31, 2000 to
shareholders of record on July 14, 2000.
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THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
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
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--------------------------------------------------------------------------------
THE BLACKROCK INVESTMENT QUALITY TERM TRUST INC.
ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------
ANNUAL MEETING OF TRUST SHAREHOLDERS. There have been no material changes
in the Trust's Investment objectives or policies that have not been approved by
the shareholders or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust. There have been no changes in the
persons who are promarily responsible for the day to day management of the
Trust's Portfolio.
The Annual Meeting of Trust Shareholders was held May 18, 2000 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTORS CLASS TERM EXPIRING
--------- ----- ---- --------
Frank J. Fabozzi...................... II 3 years 2003
Walter F. Mondale..................... II 3 years 2003
Ralph L. Schlosstein.................. II 3 years 2003
Directors whose term of office continues beyond this meeting are
Andrew F. Brimmer, Richard E. Cavanagh, Kent Dixon, Laurence D. Fink
and James Clayburn La Force, Jr.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December 31, 2000.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
Frank J. Fabozzi .......... 27,930,086 -- 1,037,558
Walter F. Mondale ......... 27,752,419 -- 1,215,225
Ralph L. Schlosstein ...... 27,948,342 -- 1,019,302
Ratification of
Deloitte & Touche LLP ... 28,560,331 155,322 251,991
19
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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.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. (the "Advisor") is an SEC-registered investment
advisor. As of June 30, 2000, the "Advisor" and its affiliates (together,
"BlackRock") managed $177 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-two closed-end funds that are traded on either the New York or
American stock exchanges, and a $28 billion family of open-end funds. BlackRock
manages over 629 accounts, domiciled in the United States and overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
WHAT IS THE ADVISOR'S INVESTMENT STRATEGY?
The Advisor 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 Advisor 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,
the Advisor 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 order to maintain competitive yields as the Trust approaches maturity and
depending on market conditions, the Advisor 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. It is important to
note that the Trust will be managed so as to preserve the integrity of the
return of the initial offering price.
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HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial Advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial Advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN A TERM TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage.
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. The Advisor'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 the Advisor consider that
reduction to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BQT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity,
therefore interim price movements on these securities are generally more
sensitive to interest rate movements than securities that make periodic coupon
payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S SECURITIES. The Trust may invest up to 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.
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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: 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, FNMA and FHLMC.
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: Mortgage securities including CMBS that receive
only the interest cash flows from an underlying
pool of mortgage loans or underlying pass-through
securities.
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 FNMA, FHLMC,
GNMA or FHA.
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: Mortgage securities that receive only the
principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities.
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, FNMA
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
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---------
BlackRock
---------
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISOR
BlackRock Advisors, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(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 ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
LEGAL COUNSEL -- INDEPENDENT DIRECTORS
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 2000 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK INVESTMENT
QUALITY TERM TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[RECYCLE LOGO] Printed on recycled paper 09247J-102
---------
BlackRock
THE ---------
INVESTMENT QUALITY
TERM TRUST INC.
-----------------------
SEMI-ANNUAL REPORT
JUNE 30, 2000
[Graphic omitted]
