WORLD CLASS
INSTITUTIONAL
ASSET MANAGEMENT
AT A PERSONAL LEVEL
--------------------------------
NOT FDIC May Lose Value
INSURED No Bank Guarantee
--------------------------------
BLACKROCK
CLOSED-END FUNDS
--------------------------
ANNUAL REPORT
--------------------------
October 31, 2002
BlackRock Broad Investment Grade 2009 Term Trust
[BLACKROCK LOGO]
TABLE OF CONTENTS
Letter to Shareholders ...................................................... 1
Portfolio Managers' Report .................................................. 2
Trust Summary ............................................................... 4
Consolidated Portfolio of Investments ....................................... 5
Financial Statements
Consolidated Statement of Assets and Liabilities ......................... 8
Consolidated Statement of Operations ..................................... 9
Consolidated Statement of Cash Flows ..................................... 10
Consolidated Statements of Changes in Net Assets ......................... 11
Consolidated Financial Highlights ........................................... 12
Notes to Consolidated Financial Statements .................................. 13
Independent Auditors' Report ................................................ 17
Directors Information ....................................................... 18
Tax Information ............................................................. 20
Dividend Reinvestment Plan .................................................. 20
Investment Summary .......................................................... 21
Additional Information ...................................................... 23
Glossary .................................................................... 23
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PRIVACY PRINCIPLES OF THE TRUST
The Trust is committed to maintaining the privacy of shareholders and to
safeguarding its non-public personal information. The following information is
provided to help you understand what personal information the Trust collects,
how we protect that information and why, in certain cases, we may share
information with select other parties.
Generally, the Trust does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information
of shareholders may become available to the Trust. The Trust does not disclose
any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third party
administrator).
The Trust restricts access to non-public personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. The Trust maintains physical, electronic and procedural safeguards
designed to protect the non-public personal information of its shareholders.
--------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
November 30, 2002
Dear Shareholder:
We are pleased to report that during the fiscal year, the Trust continued
to provide monthly income, as well as the opportunity to invest in a diversified
portfolio of fixed income securities.
The Trust is actively managed, which means that the management team is
continuously monitoring the fixed income markets and adjusting the portfolio to
gain exposure to various issuers, revenue sources and security types. This
strategy enables the Trust to move among different sectors, credits and coupons
to capitalize on changing market conditions.
During the fiscal year, the fixed income markets showed strength as large
numbers of individual investors, concerned about the economic environment and
substantial volatility in the stock market, pursued opportunities in bonds. For
the year ended October 31, 2002, the LEHMAN AGGREGATE INDEX, a broad measure of
the fixed income market, had a total return of 5.89%(1). Within the fixed income
universe, mortgages and Treasuries were noteworthy performers. For the year
ended October 31, 2002, the LEHMAN MORTGAGE INDEX returned 6.30% and the LEHMAN
TREASURY INDEX returned 6.28%(2). The corporate market did not fare as well on a
relative basis amidst several high profile bankruptcies and accounting concerns.
However, despite lagging much of the fixed income market during the year, the
LEHMAN CREDIT INDEX posted a return of 4.35%(3) for the year ended October 31,
2002.
The following table shows the Trust's yield, closing market price per
share and net asset value ("NAV") per share as of October 31, 2002.
MARKET
TRUST YIELD(4) PRICE NAV
--------------------------------------------------------------------------------------
BlackRock Broad Investment Grade 2009 Term Trust (BCT) 5.56% $16.18 $17.33
BlackRock, Inc. ("BlackRock"), a world leader in asset management, has a
proven commitment to fixed income. As of September 30, 2002, BlackRock managed
$163 billion in bonds including 16 open-end and 40 closed-end funds. At
BlackRock, we are recognized for our emphasis on risk management and proprietary
analytics and for our reputation managing money for the world's largest
institutional investors. Individual investors in our closed-end and open-end
funds benefit from the same investment management skills and resources as the
world's largest institutional investors. BlackRock Advisors, Inc., which manages
the Trust, is a wholly owned subsidiary of BlackRock, Inc.
This report contains a summary of market conditions for the year, a review
of the strategy used by your Trust's managers, the Trust's audited financial
statements and a listing of the portfolio's holdings.
On behalf of BlackRock, we thank you for your continued trust and assure
you that we remain committed to excellence in managing your assets.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
------------------------ ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chief Executive Officer President
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
(1) The LEHMAN AGGREGATE INDEX is designed to measure the performance of the
U.S. investment grade fixed rate bond market. The index is unmanaged and
cannot be purchased directly.
(2) The LEHMAN MORTGAGE INDEX is designed to measure the mortgage-backed
pass-through securities of Ginnie Mae ("GNMA"), Fannie Mae ("FNMA") and
Freddie Mac ("FHLMC"). The LEHMAN TREASURY INDEX is designed to measure
long-term public obligations of the U.S. Treasury. The indexes are unmanaged
and cannot be purchased directly.
(3) The LEHMAN CREDIT INDEX is designed to measure the performance of
investment-grade bonds issued by corporations and non-corporate entities.
The index is unmanaged and cannot be purchased directly.
(4) Yield is based on market price.
1
PORTFOLIO MANAGERS' REPORT
November 30, 2002
Dear Shareholder:
We are pleased to present the audited consolidated annual report for the
following BlackRock closed-end Trust:
PRIMARY
TRUST EXCHANGE
--------------------------------------------------------------------------------
BlackRock Broad Investment Grade 2009 Term Trust (BCT) AMEX
The annual report reviews the Trust's market price and NAV performance,
summarizes developments in the relevant fixed income markets and discusses
recent portfolio management activity for the year ended October 31, 2002.
THE FIXED INCOME MARKETS
Fixed income markets displayed considerable vigor during the fiscal year.
For the year ended October 31, 2002, the LEHMAN AGGREGATE INDEX, a broad measure
of the fixed income market, returned 5.89%. The Index returned an even more
impressive 8.05% year-to-date, despite giving back some gains in October, when
the equity markets posted one of the strongest monthly gains in 15 years.
Over the period (the Trust's fiscal year), several high profile corporate
credit scandals, ongoing economic weakness, as well as continued geopolitical
issues, most notably concerns over the possible war in the Middle East and the
ongoing threats of terrorism, weighed on the markets. Accordingly, the bond
market priced in various scenarios of potential action by the Federal Reserve
(the "Fed"). These expectations ranged from a tightening of up to 175 basis
points ("bps") by the end of 2002, to the conviction that the Fed's next move
would be yet another easing. Indeed, a week after the conclusion of the fiscal
year, the Federal Open Market Committee ("FOMC") elected to further reduce
interest rates by 50 bps. In their decision, the FOMC cited the existence of
greater uncertainty and geopolitical risks, which are, "currently inhibiting
spending, production, and employment".
Uncertainty and volatility remain the primary themes in the U.S. markets,
as the underlying economic data appears inconclusive of either a sustainable
market recovery or a "double-dip" scenario. Many fundamental economic factors
began the period with optimistic readings, but more recent data point towards an
economic recovery that is far from certain. GDP growth began the first quarter
of 2002 on a strong note (+5.0%), as inventory rebuilding was a major
contributor. However, the barometer of the nation's total output of goods and
services has noticeably dropped off since then. GDP growth rose marginally
during the third quarter of 2002 and has lagged expectations over the past two
quarters. In addition, manufacturing data, as measured by the Institute of
Supply Managers Index, indicates that business confidence is weak and the
prospects for growth remain sluggish. Consumer confidence, which remained strong
through the summer months and reached historical highs, also significantly
declined and stood at a nine-year low by the end of the period. The Consumer
Confidence measure, which has suffered five consecutive months of declining
numbers, suggests concern regarding the strength of the highly leveraged
consumer. Job growth advanced from the initial drop-off seen post-September
11th, but remained mostly flat during the year. Jobless claims are also a
noticeable source of interest as the unemployment rate peaked at 6% in April and
remains at elevated levels. The U.S. trade balance is another topic of concern
and the dollar has come under pressure, owing in part to a widening gap in the
trade deficit. Some encouraging data has surfaced during the period, most
notably in the form of housing starts. Spurred on by historically low interest
rates, new residential home building has persevered. Also, the Consumer Price
Index has continued to emerge with statistics suggestive of a benign
inflationary environment. Although this alleviated the impetus for the Fed to
raise interest rates during the period, concern has surfaced surrounding a
possible deflationary atmosphere. Indeed, with the conflicting and often
negative economic data offered towards the end of the period, the markets had
positioned themselves in anticipation of the next move by the FOMC to be their
12th consecutive rate reduction of the current easing cycle.
The uncertainty in the overall marketplace was evidenced by volatility in
the Treasury market over the fiscal year. As we entered the period, the market
was positioned for aggressive Federal Reserve easing. Expectations of a
prolonged economic slowdown caused the yield curve to reach its steepest level
in almost a decade. The market then reversed its expectations amid signs of an
improving economy. As a result, Treasury bonds suffered, leading to a drop in
prices and a corresponding rise in yields. When the prospects of a near-term
economic recovery faded over the second half of the period, Treasuries rallied
strongly. Year-to-date, the Treasury market returned 10.05%, as measured by the
LEHMAN TREASURY INDEX. Yields of short and intermediate maturities, specifically
in the two- to five-year range, have declined faster than those of longer
maturity issues due to risk aversion and expectations for short-term rates to
fall. However, rates have fallen across the curve in 2002 and the 10-year yield
touched 3.5%, a low not seen since the early 1960s. The equity market rally in
early October pushed yields back up and the 10-year note finished the period
just under 4.0%. Over the final month of the fiscal year, volatility continued
to remain high in the Treasury market given the apparent willingness of
investors to assume more risk. As of October 31, 2002, the 10-year Treasury was
yielding 3.89% versus 4.23% a year earlier.
2
For the year ended October 31, 2002, the LEHMAN MORTGAGE INDEX returned
6.30% versus 5.89% for the LEHMAN AGGREGATE INDEX. Two historically high levels
of mortgage refinancing bound the period. As mortgage refinancing spiked in
November 2001, lower coupon mortgages outperformed higher coupons, which were
more sensitive to general market instability and high levels of refinancing. As
the period progressed, higher coupon mortgages outperformed lower coupons, and
30-year mortgages outperformed 15-years. Lower coupons suffered amidst continued
low interest rates, threats of supply and prepayments and rising volatility. In
the final month of the period, lower coupons and 15-year mortgages returned to
favor as the MBA REFINANCING INDEX again spiked to an all-time high. Mortgages
outperformed Treasuries for the fiscal year on a duration-adjusted basis. Strong
demand for mortgages has been sparked in part by the steepness of the yield
curve and their high credit quality profile, as banks have been reluctant to
assume credit risk in the corporate market.
The corporate sector underperformed the broad market during the period in
response to several corporate blowups, volatile equity and Treasury markets and
anemic economic indicators. For the fiscal year ended October 31, 2002, the
LEHMAN CREDIT INDEX returned 4.35% compared to the 5.89% posted by the LEHMAN
AGGREGATE INDEX over the same period. Relative to Treasuries, corporates
outperformed over the final months of 2001, on the heels of a rally in the
equity markets. However, as investors' hopes for a vibrant marketplace were
dashed, corporates lagged Treasuries on a duration-adjusted basis by 480 bps in
2002. Following record gross new issuance of $587 billion in 2001 and sizeable
issuance in early 2002, this trend has slowed dramatically despite the ability
to finance at historically low interest rates. The primary reasons for the
decline in new supply is the lack of liquidity in the market and reduced capital
spending by corporations. The effects of these deterrents are underscored by
October's issuance, which is running at less than one-third the pace of the
average month in 2001. Investors have become intolerant of any negative
headlines and valuations of more stable companies are becoming increasingly
impacted by concentrated events. Nevertheless, fundamentals remain weak overall
as downgrades continue and corporate leverage is historically high. Pricing
power also remains an issue and will likely pressure future profits. In the
presence of opaque accounting, firms have come under increased scrutiny, which
may lead to greater transparency in reporting and ultimately bolster investor
confidence.
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 objective.
BlackRock's investment strategy emphasizes a relative value approach, which
allows the Trust to capitalize upon changing market conditions by rotating
sectors, credits and coupons.
The Trust continues to focus on securities with final maturity dates (or
"bullet" maturities) that match the Trust's termination date on or about
December 31, 2009. Currently, the Trust remains on schedule to achieve its
primary investment objective of returning the initial offering price to
shareholders on or about the termination date.
During the course of the annual period, the Trust raised its monthly
dividend payment. Effective with the dividend payable September 30, 2002, the
Trust's new annualized dividend was raised to $0.9000 from the previously
annualized rate of $0.7500.
Additionally, the Trust employs leverage to enhance its income by
borrowing at short-term rates and investing the proceeds in longer maturity
issues which typically have higher yields. As of October 31, 2002, the Trust was
leveraged 32% of managed assets. The degree to which the Trust can benefit from
its use of leverage may affect its ability to pay high monthly income.
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets. We thank you
for your investment and continued confidence in the Trust. Please feel free to
call our marketing center at (800) 227-7BFM (7236) if you have any specific
questions that 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.
3
TRUST SUMMARY AS OF OCTOBER 31, 2002
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BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
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TRUST INFORMATION
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Symbol on American Stock Exchange: BCT
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Initial Offering Date: June 17, 1993
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Closing Market Price as of 10/31/02: $16.18
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Net Asset Value as of 10/31/02: $17.33
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Yield on Closing Market Price as of 10/31/02 ($16.18):(1) 5.56%
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Current Monthly Distribution per Share:(2) $ 0.0750
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Current Annualized Distribution per Share:(2) $ 0.9000
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(1) Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
(2) The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust's market price and NAV:
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10/31/02 10/31/01 CHANGE HIGH LOW
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MARKET PRICE $16.18 $14.39 12.44% $16.30 $14.17
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NET ASSET VALUE (NAV) $17.33 $16.05 7.98% $17.58 $15.51
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10-YEAR U.S. TREASURY NOTE 3.89% 4.23% (8.04)% 5.43% 3.57%
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The following chart shows the Trust's asset composition:
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SECTOR BREAKDOWN
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COMPOSITION OCTOBER 31, 2002 OCTOBER 31, 2001
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U.S. Government and Agency Securities 36% 6%
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Multiple Class Mortgage Pass-Throughs 20 22
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Inverse-Floating Rate Mortgages 18 22
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Corporate Bonds 10 15
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Interest-Only Mortgage-Backed Securities 8 18
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Taxable Municipal Bonds 5 6
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Asset-Backed Securities 2 2
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Commercial Mortgage-Backed Securities 1 6
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Principal-Only Mortgage-Backed Securities -- 3
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4
CONSOLIDATED PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
----------------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--140.0%
MORTGAGE PASS-THROUGHS--2.8%
Federal National Mortgage Association,
$ 1,229 5.50%, 1/01/17 - 2/01/17 ............................................................. $ 1,268,619
173 6.50%, 7/01/29 ....................................................................... 178,954
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1,447,573
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--24.8%
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
2,168 Series 1510, Class 1510-G, 5/15/13 ................................................... 2,371,098
400 Series 1534, Class 1534-IG, 2/15/10 .................................................. 421,632
495 Series 1601, Class 1601-SD, 10/15/08 ................................................. 508,388
Federal National Mortgage Association, REMIC Pass-Through Certificates,
252 Trust 1992-43, Class 43-E, 4/25/22 ................................................... 269,319
1,000 Trust 1993-49, Class 49-H, 4/25/13 ................................................... 1,117,450
104 Trust 1993-69, Class 69-Z, 1/25/22 ................................................... 105,104
3,053 Trust 1993-79, Class 79-PK, 4/25/22 .................................................. 3,205,915
3,146 Trust 1993-87, Class 87-J, 4/25/22 ................................................... 3,283,228
692 Trust 1993-214, Class 214-SK, 12/25/08 ............................................... 817,452
596 Trust 1994-13, Class 13-SJ, 2/25/09 .................................................. 608,285
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12,707,871
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INVERSE FLOATING RATE MORTGAGES--25.3%
AAA 462 Citicorp Mortgage Securities, Inc., Series 1993-14, Class A-4, 11/25/23 ................ 593,104
Aaa 550 Countrywide Funding Corp., Series 1994-2, Class A-12S, 2/25/09 ......................... 579,731
Aaa 866 Countrywide Mortgage-Backed Securities, Inc., Series 1993-D, Class A-15, 1/25/09 ....... 940,922
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
336 Series 1425, Class 1425-SB, 12/15/07 ................................................. 393,239
259 Series 1506, Class 1506-S, 5/15/08 ................................................... 283,790
389 Series 1515, Class 1515-S, 5/15/08 ................................................... 428,073
129 Series 1580, Class 1580-SD, 9/15/08 .................................................. 132,838
360 Series 1618, Class 1618-SA, 11/15/08 ................................................. 373,865
496 Series 1621, Class 1621-SH, 11/15/22 ................................................. 530,493
800 Series 1626, Class 1626-SA, 12/15/08 ................................................. 801,015
480 Series 1661, Class 1661-SB, 1/15/09 .................................................. 521,512
500 Series 1688, Class 1688-S, 12/15/13 .................................................. 510,625
Federal National Mortgage Association, REMIC Pass-Through Certificates,
598 Trust 1992-187, Class 187-SB, 10/25/07 ............................................... 693,833
523 Trust 1992-190, Class 190-S, 11/25/07 ................................................ 655,819
929 Trust 1993-156, Class 156-SE, 10/25/19 ............................................... 941,270
399 Trust 1993-173, Class 173-SA, 9/25/08 ................................................ 401,737
565 Trust 1993-191, Class 191-SD, 10/25/08 ............................................... 657,532
412 Trust 1993-202, Class 202-VB, 11/25/23 ............................................... 449,586
498 Trust 1993-214, Class 214-SH, 12/25/08 ............................................... 553,474
525 Trust 1993-224, Class 224-SE, 11/25/23 ............................................... 554,627
Aaa 600 PaineWebber Mortgage Acceptance Corp., Series 1994-6, Class A-9, 4/25/09 ............... 660,563
Residential Funding Mortgage Securities, Inc.,
AAA 592 Series 1993-S23, Class A-12, 6/25/08 ................................................. 629,828
AAA 612 Series 1993-S23, Class A-16, 6/25/08 ................................................. 670,012
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12,957,488
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INTEREST ONLY MORTGAGE-BACKED SECURITIES--11.2%
11,926 Chase Mortgage Finance Corp., Series 1999-S4, Class A-14, 4/25/29 ...................... 11,181
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
4 Series 65, Class 65-I, 8/15/20 ....................................................... 72,645
1 Series 141, Class 141-H, 5/15/21 ..................................................... 7,101
5 Series 1114, Class 1114-J, 7/15/06 ................................................... 66,769
5 Series 1285, Class 1285-M, 5/15/07 ................................................... 51,663
1,569 Series 1645, Class 1645-IB, 9/15/08 .................................................. 158,289
46 Series 1747, Class 1747-I, 6/15/23 ................................................... 257
136 Series 2049, Class 2049-LC, 10/15/23 ................................................. 763
134 Series 2061, Class 2061-JR, 9/20/22 .................................................. 1,439
2,266 Series 2063, Class 2063-PU, 10/15/26 ................................................. 158,628
168 Series 2075, Class 2075-IB, 12/15/21 ................................................. 526
7,452 Series 2081, Class 2081-S, 5/15/25 ................................................... 220,070
See Notes to Consolidated Financial Statements.
5
CONSOLIDATED PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
----------------------------------------------------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--(CONT'D)
$ 2,829 Series 2306, Class 2306-PM, 5/15/26 .................................................. $ 187,425
3,906 Series 2370, Class 2370-EI, 2/15/21 .................................................. 209,929
6,396 Series 2376, Class 2376-MI, 7/15/11 .................................................. 531,642
3,114 Series 2417, Class 2417-EI, 3/15/12 .................................................. 254,977
1,807 Series 2462, Class 2462-NI, 8/15/21 .................................................. 241,672
Federal National Mortgage Association, REMIC Pass-Through Certificates,
1 Trust G-21, Class 21-L, 7/25/21 ...................................................... 27,545
41 Trust G93-25, Class 25-J, 12/25/19 ................................................... 51,384
3 Trust 1991-72, Class 72-H, 7/25/06 ................................................... 56,958
31 Trust 1992-51, Class 51-K, 4/25/07 ................................................... 372,157
20 Trust 1992-174, Class 174-S, 9/25/22 ................................................. 53,145
12 Trust 1993-8, Class 8-HA, 1/25/08 .................................................... 209,514
28 Trust 1993-49, Class 49-L, 4/25/13 ................................................... 228,209
27 Trust 1993-191, Class 191-S, 10/25/07 ................................................ 8
589 Trust 1993-194, Class 194-PV, 6/25/08 ................................................ 43,429
4,034 Trust 1993-208, Class 208-S, 2/25/23 ................................................. 294,950
693 Trust 1993-223, Class 223-PT, 10/25/23 ............................................... 66,263
334 Trust 1994-39, Class 39-PE, 1/25/23 .................................................. 21,644
1,180 Trust 1994-42, Class 42-SO, 3/25/23 .................................................. 112,488
1,136 Trust 1996-20, Class 20-SL, 9/25/08 .................................................. 222,984
1,500 Trust 1997-90, Class 90-M, 1/25/28 ................................................... 367,860
1,223 Trust 1998-30, Class 30-QG, 12/18/25 ................................................. 51,594
10,011 Trust 2000-22, Class 22-SE, 11/25/23 ................................................. 132,252
3,206 Trust 2001-9, Class 9-IB, 5/25/27 .................................................... 180,337
1,499 Trust 2001-29, Class 29-BE, 5/25/28 .................................................. 74,726
1,250 Trust 2001-53, Class 53-IC, 10/25/21 ................................................. 57,812
4,895 Trust 2001-80, Class 80-PI, 9/25/23 .................................................. 425,295
4,779 Trust 2002-14, Class PI, 4/25/12 ..................................................... 266,421
188 Government National Mortgage Association, REMIC Pass-Through Certificates,
Trust 1998-24, Class 24-IB, 5/20/23 .................................................. 1,588
509 PNC Mortgage Securities Corp., Series 1998-8, Class 4-X, 10/25/13 ...................... 45,826
Residential Funding Mortgage Securities I, Inc.,
2,520 Series 1993-S44, Class A-4, 11/25/23 ................................................. 53,948
959 Series 1998-S19, Class A-8, 8/25/28 .................................................. 150
16,958 Structured Asset Securities Corp., Series 1999-ALS1, Class ALS1-3AX, 5/25/29 ........... 66,241
31,904 Vendee Mortgage Trust, Series 2002-1, Class 1-1IO, 10/15/31 ............................ 49,851
-----------
5,709,555
-----------
PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--0.3%
AAA 88 PaineWebber Mortgage Acceptance Corp. IV, Series 1993-5, Class A-14, 6/25/08 ........... 82,636
AAA 73 Salomon Brothers Mortgage Securities Inc. VI, Series 1987-3, Class A, 10/23/17 ......... 65,758
-----------
148,394
-----------
COMMERCIAL MORTGAGE-BACKED SECURITIES--1.7%
AAA 25 Citicorp Mortgage Securities, Inc., Series 1998-3, Class A-6, 6.75%, 5/25/28 ........... 25,531
AAA 750 New York City Mortgage Loan Trust, Multifamily, Series 1996, Class A2, 6.75%, 6/25/11** 838,359
-----------
863,890
-----------
ASSET-BACKED SECURITIES--2.5%
AAA 1,230+ Chase Credit Card Master Trust, Series 1997-5, Class A, 6.194%, 8/15/05 ................ 1,236,150
NR 240++ Global Rated Eligible Asset Trust, Series 1998-A, Class A-1, 7.33%, 3/15/06 @/** ....... 13,173
Structured Mortgage Asset Residential Trust @/@@/**
NR 578++ Series 1997-2, 8.24%, 3/15/06 ........................................................ 21,685
NR 641++ Series 1997-3, 8.724%, 4/15/06 ....................................................... 24,039
-----------
1,295,047
-----------
U.S. GOVERNMENT AND AGENCY SECURITIES--51.2%
240 Small Business Investment Companies, Series 1998-10, 6.12%, 2/01/08 .................... 255,274
27,000+ U.S. Treasury Bond Strip, Zero coupon, 11/15/09 ........................................ 20,402,820
U.S. Treasury Notes,
1,450+ 3.50%, 11/15/06 ...................................................................... 1,503,795
525 4.375%, 8/15/12 ...................................................................... 545,013
500 5.00%, 8/15/11 ....................................................................... 544,635
1,700+ 5.75%, 11/15/05 ...................................................................... 1,879,894
See Notes to Consolidated Financial Statements.
6
CONSOLIDATED PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES--(CONT'D) U.S.
Treasury Notes, (cont'd)
$ 550 6.00%, 8/15/09 ....................................................................... $ 635,701
385 6.625%, 5/15/07 ...................................................................... 449,980
-----------
26,217,112
-----------
TAXABLE MUNICIPAL BONDS--6.9%
AAA 500 Fresno California Pension Obligation, Series 1994, 7.80%, 6/01/14 ...................... 620,110
AAA 500 Kern County California Pension Obligation, 6.98%, 8/15/09 .............................. 588,680
Los Angeles County California Pension Obligation,
AAA 1,000 Series A, 8.62%, 6/30/06 ............................................................. 1,197,220
AAA 500 Series D, 6.97%, 6/30/08 ............................................................. 586,165
AAA 500 Orleans Parish Louisiana School Board, Series A, 6.60%, 2/01/08 ........................ 566,430
-----------
3,558,605
-----------
CORPORATE BONDS--13.3%
FINANCE & BANKING--4.6%
A+ 500 Metropolitan Life Insurance Co., 6.30%, 11/01/03** ..................................... 516,090
Aa3 1,000 Morgan Stanley Group, Inc., 10.00%, 6/15/08 ............................................ 1,284,560
AAA 500 PaineWebber Group, Inc., 8.875%, 3/15/05 ............................................... 557,500
-----------
2,358,150
-----------
INDUSTRIALS--4.6%
BB+ 100 American Airlines, Inc., 10.44%, 3/04/07 ............................................... 40,000
A 1,000 Dow Capital BV, 9.20%, 6/01/10 ......................................................... 1,246,980
BBB+ 500 Ralcorp Holdings, Inc., 8.75%, 9/15/04 ................................................. 556,090
BBB+ 500 TCI Communications, Inc., 8.25%, 1/15/03 ............................................... 498,355
-----------
2,341,425
-----------
UTILITIES--2.1%
A 500 Alltel Corp., 7.50%, 3/01/06 ........................................................... 558,680
Baa1 500 Ohio Edison Co., 8.625%, 9/15/03 ....................................................... 508,625
-----------
1,067,305
-----------
YANKEE--2.0%
BBB- 500 Empresa Electrica Guacolda SA, 7.95%, 4/30/03** ........................................ 511,945
A- 500 Israel Electric Corp., Ltd., 7.25%, 12/15/06** ......................................... 541,970
-----------
1,053,915
-----------
TOTAL CORPORATE BONDS .................................................................. 6,820,795
-----------
TOTAL LONG-TERM INVESTMENTS (cost $69,320,162) ......................................... 71,726,330
-----------
SHORT-TERM INVESTMENT--5.0%
DISCOUNT NOTE
2,600 Federal Home Loan Bank, 1.65%, 11/01/02 (cost $2,600,000) .............................. 2,600,000
-----------
TOTAL INVESTMENTS--145.0% (cost $71,920,162) ........................................... 74,326,330
LIABILITIES IN EXCESS OF OTHER ASSETS--(45.0)% ......................................... (23,082,697)
-----------
NET ASSETS--100% ....................................................................... $ 51,243,633
===========
----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is not registered under the Securities Act of 1933. These
securities may be resold in transactions in accordance with Rule 144A under
the Act, to qualified institutional buyers. As of October 31, 2002, the
Trust held 4.8% of its net assets, with a current market value of
$2,467,261, in securities restricted as to resale.
+ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
++ Security is fair valued. (Note 1)
@ Illiquid securities representing 0.11% of net assets.
@@ Security is restricted as to public resale. The securities were acquired in
1997 and have an aggregate current cost of $106,265.
--------------------------------------------------------------------------------
KEY TO ABBREVIATION
REMIC -- Real Estate Mortgage Investment Conduit.
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
7
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $71,920,162) (Note 1) ................................ $74,326,330
Cash ............................................................................. 75,724
Interest receivable .............................................................. 865,162
Due from broker--variation margin (Notes 1 & 3) .................................. 23,562
Other assets ..................................................................... 9,163
-----------
75,299,941
-----------
LIABILITIES
Reverse repurchase agreements (Note 4) ........................................... 23,669,187
Investment advisory fee payable (Note 2) ......................................... 24,029
Interest payable ................................................................. 17,323
Deferred Directors fees (Note 1) ................................................. 7,677
Administration fee payable (Note 2) .............................................. 6,553
Other accrued expenses ........................................................... 331,539
-----------
24,056,308
-----------
NET ASSETS ....................................................................... $51,243,633
===========
Composition of Net Assets:
Par value (Note 5) ............................................................. $ 29,571
Paid-in capital in excess of par ................................................. 40,240,039
Undistributed net investment income ............................................ 7,480,911
Accumulated net realized gain .................................................. 1,014,050
Net unrealized appreciation .................................................... 2,479,062
-----------
Net assets, October 31, 2002 ..................................................... $51,243,633
===========
NET ASSET VALUE PER SHARE:
($51,243,633 / 2,957,093 shares of common stock issued and outstanding) ........ $17.33
======
See Notes to Consolidated Financial Statements.
8
CONSOLIDATED STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Interest income (net of interest expense of $356,285) ............ $ 6,814,816
-----------
EXPENSES
Investment advisory ............................................ 268,019
Administration ................................................. 73,096
Transfer agent ................................................. 11,245
Custodian ...................................................... 67,759
Reports to shareholders ........................................ 38,245
Directors fees ................................................. 15,448
Registration ................................................... 5,153
Independent accountants ........................................ 48,241
Legal .......................................................... 14,502
Miscellaneous .................................................. 23,442
-----------
Total expenses ............................................... 565,150
-----------
Net investment income before excise tax .......................... 6,249,666
Excise tax ..................................................... 296,658
-----------
Net investment income ............................................ 5,953,008
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investments .................................................... 593,780
Futures ........................................................ 1,405,803
Options written ................................................ 180,952
-----------
2,180,535
-----------
Net change in unrealized appreciation (depreciation) on:
Investments .................................................... (2,124,916)
Futures ........................................................ 50,523
Interest rate cap .............................................. 9,803
-----------
(2,064,590)
-----------
Net gain on investments .......................................... 115,945
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............. $ 6,068,953
===========
See Notes to Consolidated Financial Statements.
9
CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED OCTOBER 31, 2002
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH FLOWS USED FOR OPERATING ACTIVITIES
Net increase in net assets resulting from operations ............. $ 6,068,953
------------
Increase in investments .......................................... (13,541,044)
Net realized gain ................................................ (2,180,535)
Decrease in unrealized appreciation .............................. 2,064,590
Increase in interest rate cap .................................... (71,419)
Decrease in receivable for investments sold ...................... 5,537
Decrease in interest receivable .................................. 105,306
Decrease in due from broker-variation margin ..................... 51,754
Decrease in payable for investments purchased .................... (873,316)
Increase in interest payable ..................................... 12,204
Increase in options written ...................................... 180,952
Increase in other accrued expenses ............................... 143,724
Increase in other assets ......................................... (2,394)
------------
Total adjustments .............................................. (14,104,641)
------------
Net cash flows used for operating activities ..................... $ (8,035,688)
============
INCREASE (DECREASE) IN CASH
Net cash flows used for operating activities ..................... $ (8,035,688)
------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements ...................... 10,296,549
Cash dividends paid ............................................ (2,291,473)
------------
Net cash flows provided by financing activities .................. 8,005,076
------------
Net decrease in cash ........................................... (30,612)
Cash at beginning of year ...................................... 106,336
------------
Cash at end of year ............................................ $ 75,724
============
See Notes to Consolidated Financial Statements.
10
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------
2002 2001
----------- -----------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income ........................................ $ 5,953,008 $ 3,467,213
Net realized gain (loss) ..................................... 2,180,535 (10,528)
Net change in unrealized appreciation (depreciation) ......... (2,064,590) 5,979,787
----------- -----------
Net increase in net assets resulting from operations ......... 6,068,953 9,436,472
Dividends from net investment income ......................... (2,291,473) (2,291,507)
----------- -----------
Total increase ............................................... 3,777,480 7,144,965
----------- -----------
NET ASSETS
Beginning of year .............................................. 47,466,153 40,321,188
----------- -----------
End of year .................................................... $51,243,633 $47,466,153
=========== ===========
End of year undistributed net investment income ................ $ 7,480,911 $ 3,686,583
See Notes to Consolidated Financial Statements.
11
CONSOLIDATED FINANCIAL HIGHLIGHTS
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
2002 2001 2000 1999 1998
------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year(1) ................... $ 16.05 $ 13.64 $ 13.64 $ 15.01 $ 14.48
------- ------- ------- ------- -------
Investment operations:
Net investment income (net of interest expense of
$0.12, $0.30, $0.36, $0.33, and $0.36,
respectively) ......................................... 2.01 1.17 0.91 0.93 1.20
Net realized and unrealized gain (loss) ................. 0.04 2.01 (0.09) (1.45) 0.23
------- ------- ------- ------- -------
Net increase (decrease) from investment operations ...... 2.05 3.18 0.82 (0.52) 1.43
------- ------- ------- ------- -------
Dividends from net investment income .................... (0.77) (0.77) (0.82) (0.85) (0.90)
------- ------- ------- ------- -------
Net asset value, end of year(1) ......................... $ 17.33 $ 16.05 $ 13.64 $ 13.64 $ 15.01
======= ======= ======= ======= =======
Market value, end of year(1) ............................ $ 16.18 $ 14.39 $ 11.94 $ 11.44 $ 13.25
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN(2) .............................. 18.34% 27.66% 12.11% (7.68)% 17.15%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ...................................... 1.16% 1.16% 1.31% 1.03% 1.01%
Operating expenses and interest expense ................. 1.89% 3.20% 4.02% 3.33% 3.44%
Operating expenses, interest expense and excise taxes ... 2.50% 3.52% 4.36% 3.49% 3.51%
Net investment income ................................... 12.22% 7.93% 6.83% 6.58% 8.13%
SUPPLEMENTAL DATA:
Average net assets (000) ................................ $48,731 $43,701 $39,425 $41,909 $43,482
Portfolio turnover ...................................... 35% 19% 36% 25% 25%
Net assets, end of year (000) ........................... $51,244 $47,466 $40,321 $40,345 $44,395
Reverse repurchase agreements outstanding,
end of year (000) ..................................... $23,669 $13,373 $18,850 $16,304 $19,770
Asset coverage(3) ....................................... $ 3,165 $ 4,550 $ 3,139 $ 3,475 $ 3,246
-------------
(1) Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
(2) Total investment return is calculated assuming a purchase of a common share
at the current market price on the first day and a sale at the current
market price on the last day of each year reported. Dividends and
distributions, if any, are assumed for purposes of this calculation to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. Past
performance is no guarantee of future results.
(3) Per $1,000 of reverse repurchase agreements outstanding.
The information above represents the audited operating performance for a common
share outstanding, total investment return, ratios to average net assets and
other supplemental data for 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 Consolidated Financial Statements.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLACKROCK BROAD INVESTMENT GRADE 2009 TERM TRUST
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION The BlackRock Broad Investment Grade 2009 Term Trust
& ACCOUNTING POLICIES Inc. (the "Trust"), a Maryland corporation, is a
diversified, closed-end management investment company.
The investment objective of the Trust is to manage a portfolio of fixed income
securities that will return $15 per share to investors on or about December 31,
2009 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.
On December 3, 1999, the Trust transferred a substantial portion of its total
assets to a 100% owned regulated investment company subsidiary called BCT
Subsidiary, Inc. These consolidated financial statements include the operations
of both the Trust and its wholly owned subsidiary after elimination of all
intercompany transactions and balances.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values most of its securities on the basis of
current market quotations provided by dealers or pricing services selected under
the supervision of 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 may be 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. On October 31, 2002, the Trust held three
positions that were valued at fair value, which is significantly lower than
their purchase cost.
SECURITIES TRANSACTIONS AND 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 or amortizes premium on securities
purchased using the interest method.
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 may be used by the Trust as an attempt to
manage the duration of positions, or collections of positions, so that changes
in interest rates do not adversely affect the targeted duration of the portfolio
unexpectedly. 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 or call
options can be purchased or sold to effectively help manage the targeted
duration of the portfolio.
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 forgo 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
13
and receive a floating rate. Interest rate swaps are efficient 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, BlackRock Advisors, Inc. closely monitors
swaps and 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.
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 interest 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.
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 may attempt to manage
the duration of positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
SHORT SALES: The Trust may make short sales of securities as a method of
managing 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
14
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
greater or less 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 enter into any security lending transactions during the
year ended October 31, 2002.
SEGREGATION: In cases in which the Investment Company Act of 1940, as amended
and the interpretive positions of the Securities and Exchange Commission ("SEC")
require that the Trust segregate assets in connection with certain Trust
investments (e.g., when issued securities, reverse repurchase agreements or
futures contracts), the Trust will, consistent with certain interpretive letters
issued by the SEC, designate on its books and records cash or other liquid debt
securities having a market value at least equal to the amount that would
otherwise be required to be physically segregated.
FEDERAL INCOME TAXES: It is the Trust's intention to continue to be treated as a
regulated investment company under the Internal Revenue Code and to distribute
sufficient amounts of its taxable income to shareholders. Therefore, no Federal
income tax provisions are 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 to common shareholders monthly from net investment income, net
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
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 accounting
principles generally accepted in the United States of America.
RECLASSIFICATION OF CAPITAL ACCOUNTS: In order to present undistributed net
investment income and paid-in capital more closely to its tax character, the
Trust increased undistributed net investment income and decreased paid-in
capital by $132,793. Net investment income, net realized gains and net assets
were not affected by this change.
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 the revised deferred compensation plan
approved by the Trust's Board of Directors on September 20, 2002, non-interested
Directors may elect to defer receipt of all or a portion of their annual
compensation and beginning on January 1, 2003 will be required to defer a
portion of their annual compensation pursuant to the plan.
Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock trusts selected by the Directors.
This has the same economic effect as if the Directors had invested the deferred
amounts in such other BlackRock trusts.
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 trusts 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 The PNC Financial Services Group, Inc. The Trust
has an Administration Agreement with Princeton Administrators, L.P. (the
"Administrator"), an indirect wholly owned affiliate of Merrill Lynch & Co.,
Inc.
The investment advisory fee paid to the Advisor is computed weekly and
payable monthly at an annual rate of 0.55% of the Trust's average weekly net
assets. The total dollar amounts paid to the Advisor by the Trust under the
Investment Advisory Agreement for the years ended October 31, 2002, 2001 and
2000 were $268,019, $241,016 and $218,030, respectively. The administration fee
paid to the Administrator is also computed weekly and payable monthly at an
annual rate of 0.15% of the Trust's average weekly net assets. The total dollar
amounts paid to the Administrator by the Trust under the Administration
Agreement for the years ended October 31, 2002, 2001 and 2000 were $73,096,
$65,732 and $59,463, respectively.
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. The Administrator pays occupancy and
certain clerical and accounting costs of the Trust. The Trust bears all other
costs and expenses, which include reimbursements to the Advisor for certain
operational support services provided to the Trust.
15
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term investments and U.S. Government securities,
for the year ended October 31, 2002 aggregated
$16,113,068 and $21,841,318, respectively. Purchases and sales of U.S.
Government securities for the year October 31, 2002 aggregated $22,699,224 and
$1,210,055, respectively.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by affiliates 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, an affiliate of PNC 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
an affiliate of PNC or its affiliates, including Midland Loan Services, Inc.
The Federal income tax basis of the Trust's investments at October 31, 2002
was $71,947,108, and accordingly, net unrealized appreciation was $2,379,222
(gross unrealized appreciation--$5,451,593, gross unrealized
depreciation--$3,072,371).
For Federal income tax purposes, the Trust had a capital loss carryforward at
October 31, 2002 of approximately $558,097, of which $472,280 expires in 2003
and $85,817 expires in 2008. Accordingly, no capital gain distribution is
expected to be paid to shareholders until net gains have been realized in excess
of such amount.
Details of open financial futures contracts at October 31, 2002 were as
follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE OCTOBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 2002 APPRECIATION
----------- ----- -------- -------- --------- ------------
Long Positions:
52 10 Yr. U.S. T-Bond Dec. '02 $5,892,445 $5,965,339 $72,894
========== ========== =======
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 is based upon competitive market rates at the time of
issuance. At the time the Trust enters into a reverse repurchase agreement, it
establishes and maintains a segregated account with the lender, containing
liquid investment grade securities having a value not less than the repurchase
price, including accrued interest of the reverse repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding for
the year ended October 31, 2002 was approximately $18,388,187 at a weighted
average interest rate of approximately 1.82%.
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 roll transactions during the year
ended October 31, 2002.
NOTE 5. CAPITAL There are 200 million shares of $.01 par value common
stock authorized. Of the 2,957,093 shares outstanding at
October 31, 2002, the Advisor owned 7,093 shares.
NOTE 6. DIVIDENDS Subsequent to October 31, 2002, the Board of Directors
of the Trust declared dividends from undistributed
earnings of $0.075 per share payable November 29, 2002 to shareholders of record
on November 15, 2002.
16
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Directors and Shareholders of The BlackRock Broad Investment Grade 2009
Term Trust Inc.
We have audited the accompanying consolidated statement of assets and
liabilities of The BlackRock Broad Investment Grade 2009 Term Trust Inc. (the
"Trust"), including the consolidated portfolio of investments, as of October 31,
2002, and the related consolidated statements of operations and cash flows for
the year then ended, the consolidated statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These consolidated financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 consolidated financial statements. Our procedures included
confirmation of securities owned as of October 31, 2002, 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 consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of The BlackRock Broad Investment Grade 2009 Term Trust Inc.
as of October 31, 2002, the results of its operations and its cash flows for the
year then ended, the changes in its 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, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
December 6, 2002
17
DIRECTORS INFORMATION
--------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Name, address, age Andrew F. Brimmer Richard E. Cavanagh Kent Dixon
P.O. Box 4546 P.O. Box 4546 P.O. Box 4546
New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10163-4546
Age: 76 Age: 56 Age: 65
------------------------------------------------------------------------------------------------------------------------------------
Current position held Lead Director Director Director
with the Fund Audit Committee Chairman Audit Committee Member Audit Committee Member
------------------------------------------------------------------------------------------------------------------------------------
Term of office and length 3 years(2) / since inception(3) 3 years(2) / since inception(3) 3 years(2) / since inception(3)
of time served
------------------------------------------------------------------------------------------------------------------------------------
Principal occupations President of Brimmer & President and Chief Executive Consultant/Investor. Former
during the past five years Company, Inc., a Washington, Officer of The Conference President and Chief Executive
D.C.-based economic and Board, Inc., a leading global Officer of Empire Federal
financial consulting firm, business membership Savings Bank of America and
also Wilmer D. Barrett organization, from Banc PLUS Savings Association,
Professor of Economics, 1995-present. Former Executive former Chairman of the Board,
University of Massachusetts - Dean of the John F. Kennedy President and Chief Executive
Amherst. Formerly member of School of Government at Officer of Northeast Savings.
the Board of Governors of the Harvard University from
Federal Reserve System. Former 1988-1995. Acting Director,
Chairman, District of Columbia Harvard Center for Business
Financial Control Board. and Government (1991-1993).
Formerly Partner (principal)
of McKinsey & Company, Inc.
(1980- 1988). Former Executive
Director of Federal Cash
Management, White House Office
of Management and Budget
(1977-1979). Co-author, THE
WINNING PERFORMANCE (best
selling management book
published in 13 national
editions).
------------------------------------------------------------------------------------------------------------------------------------
Number of portfolios 44(4) 44(4) 44(4)
overseen within the fund
complex
------------------------------------------------------------------------------------------------------------------------------------
Other Directorships held Director of CarrAmerica Realty Trustee Emeritus, Wesleyan Former Director of ISFA (the
outside of the fund Corporation and Borg-Warner University, Trustee: Drucker owner of INVEST, a national
complex Automotive. Formerly Director Foundation, Airplanes Group, securities brokerage service
of AirBorne Express, Aircraft Finance Trust (AFT) designed for banks and thrift
BankAmerica Corporation (Bank and Educational Testing institutions).
of America), Bell South Service (ETS). Director, Arch
Corporation, College Chemicals, Fremont Group and
Retirement Equities Fund The Guardian Life Insurance
(Trustee), Commodity Exchange, Company of America.
Inc. (Public Governor),
Connecticut Mutual Life
Insurance Company, E.I. Dupont
de Nemours & Company,
Equitable Life Assurance
Society of the United States,
Gannett Company, Mercedes-Benz
of North America, MNC
Financial Corporation
(American Security Bank), NCM
Capital Management, Navistar
International Corporation, PHH
Corp. and UAL Corporation
(United Airlines).
------------------------------------------------------------------------------------------------------------------------------------
For "Interested Director"
Relationships, events or
transactions by reason of
which the Director is an
interested person as
defined in Section
2(a)(19)(1940 Act)
------------------------------------------------------------------------------------------------------------------------------------
(1) Interested Director as defined by Section 2(a)(19) of the Investment Company
Act of 1940.
(2) The Board of Directors is classified into three classes of which one class
is elected annually. Each Director serves a three year term concurrent with
the class from which he is elected.
(3) Commencement of investment operations June 25, 1993.
(4) The fund complex currently consists of 44 separate closed-end funds, each
with one investment portfolio.
(5) Except during the period 8/12/93 through 4/15/97, and except during the
period 10/31/02 through 11/02/02.
18
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INDEPENDENT DIRECTORS (CONTINUED) INTERESTED DIRECTORS(1)
------------------------------------------------------------------------------------------------------------------------------------
Frank J. Fabozzi James Clayburn La Walter F. Mondale Ralph L. Schlosstein(1) Robert S. Kapito(1)
P.O. Box 4546 Force, Jr. P.O. Box 4546 40 East 52nd Street 40 East 52nd Street
New York, NY 10163-4546 P.O. Box 4546 New York, NY 10163-4546 New York, NY 10154 New York, NY 10154
Age: 54 New York, NY 10163-4546 Age: 74 Age: 51 Age: 45
Age: 73
------------------------------------------------------------------------------------------------------------------------------------
Director Director Director Chairman of the Board President and Director
------------------------------------------------------------------------------------------------------------------------------------
3 years(2) / since 3 years(2) / since 3 years(2) / since 3 years(2) / since 3 years(2) / since August
inception(3) inception(3) inception(3), (5) inception(3) 22, 2002
------------------------------------------------------------------------------------------------------------------------------------
Consultant. Editor of THE Dean Emeritus of The John Partner, Dorsey & Director since 1999 and Vice Chairman of
JOURNAL OF PORTFOLIO E. Anderson Graduate Whitney, a law firm President of BlackRock, BlackRock, Inc. Head of
MANAGEMENT and Adjunct School of Management, (December 1996-present, Inc. since its formation the Portfolio Management
Professor of Finance at University of California September 1987-August in 1998 and of BlackRock, Group. Also a member of
the School of Management since July 1, 1993. 1993). Formerly U.S. Inc.'s predecessor the Management Committee,
at Yale University. Acting Dean of The School Ambassador to Japan entities since 1988. the Investment Strategy
Author and editor of of Business, Hong Kong (1993-1996). Formerly Member of the Management Group, the Fixed Income
several books on fixed University of Science and Vice President of the Committee and Investment and Global Operating
income portfolio Technology 1990-1993. United States, U.S. Strategy Group of Committees and the Equity
management. Visiting From 1978 to September Senator and Attorney BlackRock, Inc. Formerly, Investment Strategy
Professor of Finance and 1993, Dean of The John E. General of the State of Managing Director of Group. Responsible for
Accounting at the Sloan Anderson Graduate School Minnesota. 1984 Lehman Brothers, Inc. and the portfolio management
School of Management, of Management, University Democratic Nominee for Co-head of its Mortgage of the Fixed Income,
Massachusetts Institute of California. President of the United and Savings Institutions Domestic Equity and
of Technology from 1986 States. Group. Currently, International Equity,
to August 1992. Chairman of each of the Liquidity, and
closed-end Trusts in Alternative Investment
which BlackRock Advisors, Groups of BlackRock.
Inc. acts as investment Currently President and a
advisor. Trustee of each of the
closed-end Trusts in
which BlackRock Advisors,
Inc. acts as investment
advisor.
------------------------------------------------------------------------------------------------------------------------------------
44(4) 44(4) 44(4) 44(4) 44(4)
------------------------------------------------------------------------------------------------------------------------------------
Director, Guardian Mutual Director, Jacobs Chairman and President of Chairman of the Hope and
Funds Group (18 Engineering Group, Inc., the BlackRock Provident Heroes Children's Cancer
portfolios). Payden & Rygel Investment Institutional Funds (10 Fund. President of the
Trust, Provident portfolios) and Director Board of Directors of the
Investment Counsel Funds. of Anthricite Capital, Periwinkle National
Advisors Series Trust, Inc. and several of Theatre for Young
Arena Pharmaceuticals, BlackRock's alternative Audiences. Director of
Inc. and CancerVax investment vehicles. icruise.com, Corp.
Corporation. Currently, a Member of
the Visiting Board of
Overseers of the John F.
Kennedy School of
Government at Harvard
University, the Financial
Institutions Center Board
of the Wharton School of
the University of
Pennsylvania, a Trustee
of Trinity School in New
York City and a Trustee
of New Visions for Public
Education in New York
City. Formerly, a
Director of Pulte
Corporation and a Member
of Fannie Mae's Advisory
Council.
------------------------------------------------------------------------------------------------------------------------------------
Director and President of Vice Chairman of the
the Advisor. Advisor
------------------------------------------------------------------------------------------------------------------------------------
19
TAX INFORMATION
--------------------------------------------------------------------------------
We wish to advise you as to the Federal tax status of dividends paid by the
Trust during its fiscal year ended October 31, 2002.
During the fiscal year ended October 31, 2002, the Trust paid dividends of
$0.7749 per share from net investment income. For Federal income tax purposes,
the dividends you received are reportable in your 2002 Federal income tax return
as ordinary income. Further, we wish to advise you that your income dividends do
not qualify for the dividends received deduction.
For the purpose of preparing your 2002 annual Federal income tax return,
however, you should report the amounts as reflected on the appropriate Form
1099-DIV which will be mailed to you in January 2003.
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
EquiServe Trust Company, N.A. (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 and 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 Plan 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 American
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 or 150 Royall Street, Canton, MA 02021.
20
INVESTMENT SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
BlackRock Broad Investment Grade 2009 Term Trust's investment objective is to
manage a portfolio of fixed income securities that will return $15 per share
(the initial public offering price per share) to investors on or about December
31, 2009 while providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. (the "Advisor") manages the Trust. The Advisor is a
wholly owned subsidiary of BlackRock, Inc. ("BlackRock"), which is one the
largest publicly traded investment management firms in the United States with
$246 billion of assets under management as of September 30, 2002. BlackRock
manages assets on behalf of institutional and individual investors worldwide
through a variety of equity, fixed income, liquidity and alternative investment
products. In addition, BlackRock provides risk management and investment system
services to a growing number of institutional investors under the BlackRock
Solutions name. Clients are served from the Company's headquarters in New York
City, as well as offices in Boston, Edinburgh, Hong Kong, San Francisco, Tokyo
and Wilmington. BlackRock is majority-owned by The PNC Financial Services Group,
Inc. (NYSE: PNC), and by BlackRock employees.
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), corporate debt
securities and privately issued mortgage-backed 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 ($15 per share)
at maturity. The Advisor will implement a strategy that will seek to closely
match the maturity of the assets of the portfolio with the future return of the
initial investment on or about December 31, 2009. 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 Trust also
seeks to provide 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
33 1/3% 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 Advisor will attempt to purchase securities with call
protection or projected 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 Advisor
will attempt to maintain a yield which is competitive with a comparable maturity
Treasury at the same point on the curve (i.e. if the Trust has three years left
until its maturity, the Advisor 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.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the American 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 Trust through the Trust's transfer agent, EquiServe
Trust Company, N.A. 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 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.
21
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the Trust in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate 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.
INVERSE FLOATING RATE MORTGAGE-BACKED SECURITIES. ARMs with interest rates that
adjust at periodic intervals in the opposite direction from the market rate of
interest to which they are indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate may vary by a magnitude that
exceeds the magnitude of the change in the index rate of interest.
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 American Stock Exchange (AMEX symbol: BCT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their NAV.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity;
therefore, interim price movement on the securities are generally more sensitive
to interest rate movements than securities that make periodic coupon payments.
These securities appreciate in value over time and can play an important role in
helping the Trust achieve its primary objectives.
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 total assets in
non-U.S. dollar-denominated securities which involve special risks such as
currency, political and economic risks, although under current market conditions
the Trust 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.
22
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objective 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.
Quarterly performance and other information regarding the Trust may be
found on BlackRock's website, which can be accessed at
http://www.blackrock.com/funds/cefunds.html. This reference to BlackRock's
website is intended to allow investors public access to quarterly information
regarding the Trust and is not intended to incorporate BlackRock's website into
this report.
Certain of the officers of the Trust listed on the inside back cover of
the Report to Shareholders are also officers of the Advisor. They serve in the
following capacities for the Advisor: Robert S. Kapito-Director and Vice
Chairman, Henry Gabbay and Anne Ackerley-Managing Directors.
GLOSSARY
--------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE- Mortgage instruments with interest rates that
BACKED SECURITIES (ARMS): 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 Trust invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
COLLATERALIZED MORTGAGE Mortgage-backed securities which separate
OBLIGATIONS (CMOS): 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 Mortgage-backed securities secured or backed
BACKED SECURITIES (CMBS): by mortgage loans on commercial properties.
DISCOUNT: When a Trust's net asset value is greater
than its market price the Trust 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 dividends
and distributions of capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
Government, however; they are backed by
FHLMC's authority to borrow from the U.S.
Government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Administration, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
Government, however; they are backed by
FNMA's authority to borrow from the U.S.
Government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
U.S. Government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
Government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and
FHLMC.
23
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that
receive only the interest cash flows from an
underlying pool of mortgage loans or
underlying pass-through securities. Also
known as strips.
INVERSE-FLOATING RATE MORTGAGE: Mortgage instruments with coupons that adjust
at periodic intervals according to a formula
which sets inversely with a market level
interest rate index.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end Trust,
this is the price at which one share of the
Trust 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.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, including 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. Also known as strips.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
PREMIUM: When a Trust's market price is greater than
its net asset value, the Trust 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 In a reverse repurchase agreement, the Trust
AGREEMENTS: sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPPED MORTGAGE-BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's are
examples of strips.
24
BLACKROCK BROAD INVESTMENT GRADE
2009 TERM TRUST
Directors
Ralph L. Schlosstein, CHAIRMAN(1)
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Robert S. Kapito1
James Clayburn La Force, Jr.
Walter F. Mondale
Officers
Robert S. Kapito, PRESIDENT(1)
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Anne Ackerley, SECRETARY
Investment Advisor
BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
Administrator
Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 543-6217
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(800) 699-1BFM
Independent Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Legal Counsel - Independent Directors
Debevoise & Plimpton
919 Third Avenue
New York, NY 10022
BlackRock Broad Investment Grade 2009 Term Trust
c/o Princeton Administrators, L.P.
P.O. Box 9095
Princeton, NJ 08543-9095
(800) 543-6217
(1) Laurence D. Fink has resigned his positions as Director and Chairman of the
Board effective August 22, 2002 and will continue as Chairman and Chief
Executive Officer of BlackRock Inc. and Chief Executive Officer of BlackRock
Advisors, Inc. The Board of Directors elected Ralph L. Schlosstein as the
new Chairman of the Board, elected Robert S. Kapito as the new President of
the Trust and appointed Robert S. Kapito as a new Director of the Board
effective August 22, 2002.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares. Statements and other
information contained in this report are as dated and are subject to change.
The Trust will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called "householding" and is
intended to reduce expenses and eliminate duplicate mailings of shareholder
documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Trust at (800) 227-7BFM.
================================================================================
This report is for shareholder information. This is not a
prospectus intended for use in the purchase or sale of Trust
shares. Statements and other information contained in this [LOGO]
report are as dated and are subject to change.