--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
--------------------------------------------------------------------------------
July 31, 2002
Dear Shareholder:
The semi-annual period ended June 30, 2002, saw general turmoil in the
equity markets. Bond markets, particularly municipal securities, proved to be a
viable shelter from unstable economic conditions and experienced strong inflows
throughout the period. Municipal bonds outperformed Treasuries returning 4.64%
versus 3.61% respectively as measured by the LEHMAN BROTHERS MUNICIPAL BOND
INDEX* and the LEHMAN BROTHERS TREASURY INDEX** for the six months ended June
30, 2002.
The first half of 2002 was markedly different from the last six months of
2001, as the Federal Reserve Board (the "Fed") left interest rates unchanged.
After a 225 basis point decline in interest rates during the latter half of
2001, and the uncertainty of the economic recovery in the first half of this
year, the Fed remained cautious about the state of the economy. Fears of
inflation remained subdued, allowing the Fed to remain on hold and maintain the
lowest interest rates in decades.
The past six months also saw a 20% increase in new municipal issuance
totaling $162 billion, as compared to the same time period last year. Both
retail and institutional investment in municipals remained high and continued to
drive performance as investors sought lower volatility alternatives with
attractive taxable equivalent yields. While economic indicators remained
positive during the period, the instability of the equity and capital
markets--as a result of corporate governance and accounting issues, fears of
renewed terrorist acts and geopolitical instability--weighed on investor
confidence, an integral component of economic recovery.
The volatility, which continues to be seen throughout all sectors of the
market, can be disconcerting for investors. We encourage you to consult with
your financial advisor to help establish a strategy that best fits your overall
goals and risk tolerance.
The semi-annual report includes a summary of market conditions over the
last six months, a review of the strategy employed by your Trust's portfolio
managers, the Trust's unaudited financial statements and a listing of the
portfolio's holdings. We thank you for your continued confidence in BlackRock
and the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
----------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chief Executive Officer President
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
* The Lehman Brothers Municipal Bond Index measures the performance of the
investment grade long-term tax-exempt bond market. The Index is unmanaged
and cannot be purchased directly.
** The Lehman Brothers Treasury Index measures the performance of the public
obligations of the U.S. Treasury. The Index is unmanaged and cannot be
purchased directly.
1
July 31, 2002
Dear Shareholder:
We are pleased to present the unaudited semi-annual report for The
BlackRock Strategic Municipal Trust (the "Trust") for the six months ended June
30, 2002. We would like to take this opportunity to review the change in the
Trust's stock price and net asset value (NAV), summarize developments in the
fixed income markets and discuss recent portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BSD". The
Trust's investment objectives are to provide current income that is exempt from
regular Federal income tax and to invest in municipal bonds that over time will
perform better than the broader municipal bond market. The Trust seeks to
achieve these objectives by investing 80% of its total assets in investment
grade (rated "Baa" or "BBB" or better by a major rating agency or of equivalent
quality), and may invest up to 20% of its total assets in non-investment grade
(rated "Ba/BB" or "B" by a major rating agency or of equivalent quality)
tax-exempt general obligation and revenue bonds issued by city, county and state
municipalities throughout the United States.
The table below summarizes the changes in the Trust's share price and NAV:
--------------------------------------------------------------------------------
06/30/02 12/31/01 CHANGE HIGH LOW
--------------------------------------------------------------------------------
SHARE PRICE $14.05 $13.58 3.46% $14.20 $13.24
--------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $14.83 $14.33 3.49% $14.92 $14.39
--------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
Economic performance was mixed during the semi-annual period ended June 30,
2002, as volatility and instability were prevalent throughout all sectors of the
market. The U.S. economy showed signs of recovery, but mixed economic data and
dismal performance in the equity markets caused a massive unwinding of Fed
tightening expectations. Structural imbalances in the U.S. economy became
evident and the effects of the short-term stimulus post September 11th
diminished, causing the Fed to remain on hold and leave the Federal Funds rate
unchanged at 1.75%. Positive economic data included a rise in first quarter 2002
GDP of 6.1%, the fastest rate in two years, strong manufacturing data, an 8.4%
rise in first quarter 2002 productivity and the Consumer Confidence Index
advancing from year-end levels. Low inventory levels should support
manufacturing data, but we are skeptical about the continued strength of
consumer demand, which is essential to a sustained economic recovery. The
long-term sustainability of the highly leveraged consumer remains a pivotal
issue to the strength of the economic recovery. Although fundamentals support a
recovery, declining equities and a plummeting dollar continue to erode investor
confidence. We remain uncertain that a near-term business investment recovery
will materialize, as pricing power remains weak. While second quarter weakness
may be overstated, the likely outcome is one of several quarters of sub-par
growth in the 2.5%-3.0% range.
Year-to-date, rates have fallen across the yield curve. The Treasury market
returned 3.61% during the period, posting exceptionally strong months in April
and June as risk aversion dominated the markets. Over the course of the period,
the yield curve steepened in reaction to mixed economic data and a proliferation
of negative headlines in the corporate sector. Looking ahead, the budget surplus
of 2001 is unlikely to be sustained due to anemic tax revenues and a sharp rise
in defense spending, which should result in larger auction sizes. However, the
allowable debt limit set by Congress will soon be reached, possibly leading the
Treasury to pursue additional methods of financing until it can return to
regular auctions. As of June 30, 2002, the 10-year Treasury was yielding 4.80%
versus 5.05% on December 31, 2001.
On a tax-adjusted basis, municipal bonds outperformed the taxable domestic
bond market for the semi-annual period ended June 30, 2002, returning 7.55% (as
measured by the Lehman Municipal Bond Index at a tax bracket of 38.6%) versus
3.79% for the Lehman Aggregate Index. Retail investment has reached record
highs, as investors searched for a lower volatility asset class providing high
after-tax returns. Institutional demand has also remained strong and is being
fueled by increased profitability on the part of insurance companies, the search
for stable income and asset allocation trades away from segments of the market
experiencing higher volatility. Over the period, strong demand was met by
significant new issuance as the first quarter of 2002 posted a 10% increase over
the same period in 2001 and was the largest first quarter total on record.
Through June, new
2
bond issuance remained robust, bringing total year-to-date issuance to nearly
$170 billion, and is on pace to be the largest issuance year in history. The
municipal yield curve remains historically steep, as the short end of the curve
has outperformed Treasuries over the recent months while longer maturities
performed in line with their Treasury counterparts.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
The Trust's portfolio is actively managed to diversify exposure to various
sectors, issuers, revenue sources and security types. BlackRock's investment
strategy emphasizes a relative value approach, which allows the Trust to
capitalize upon changing market conditions by rotating municipal sectors,
credits and coupons.
Municipals outperformed Treasuries for the period due to strong retail and
institutional demand despite record issuance. In the waning months of the
period, the short-end of the curve outperformed Treasuries while rates at the
long-end remained relatively stagnant, leaving the yield curve at steep levels
on a historical basis.
Additionally, the Trust employs leverage to enhance its income by borrowing
at short-term municipal rates and investing the proceeds in longer maturity
issues that have higher yields. The degree to which the Trust can benefit from
its use of leverage may affect its ability to pay high monthly income. At the
end of the period, the Trust's leverage amount was approximately 36% of total
assets.
The following charts show the Trust's asset composition and credit quality
allocations:
---------------------------------------------------------------
SECTOR BREAKDOWN
---------------------------------------------------------------
SECTOR JUNE 30, 2002 DECEMBER 31, 2001
---------------------------------------------------------------
Industrial & Pollution Control 19% 18%
---------------------------------------------------------------
Hospital 16% 16%
---------------------------------------------------------------
Power 11% 11%
---------------------------------------------------------------
Tax Revenue 9% 11%
---------------------------------------------------------------
Education 8% 9%
---------------------------------------------------------------
City, County & State 8% 6%
---------------------------------------------------------------
Housing 6% 5%
---------------------------------------------------------------
Transportation 6% 6%
---------------------------------------------------------------
District 6% 5%
---------------------------------------------------------------
Water & Sewer 4% 7%
---------------------------------------------------------------
Tobacco 3% 2%
---------------------------------------------------------------
Other 4% 4%
---------------------------------------------------------------
---------------------------------------------------------------
CREDIT RATING* JUNE 30, 2002 DECEMBER 31, 2001
---------------------------------------------------------------
AAA/Aaa 35% 37%
---------------------------------------------------------------
AA/Aa 20% 19%
---------------------------------------------------------------
A/A 12% 11%
---------------------------------------------------------------
BBB/Baa 9% 8%
---------------------------------------------------------------
BB/Ba 18% 20%
---------------------------------------------------------------
Not Rated 6% 5%
---------------------------------------------------------------
----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
3
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment and continued interest in The BlackRock Strategic
Municipal Trust. Please feel free to call our marketing center at (800) 227-7BFM
(7236) if you have any specific questions which were not addressed in this
report.
Sincerely,
/s/ Robert S. Kapito /s/ Kevin M. Klingert
------------------ --------------------------
Robert S. Kapito Kevin M. Klingert
Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
--------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BSD
--------------------------------------------------------------------------------
Initial Offering Date: August 25, 1999
--------------------------------------------------------------------------------
Closing Share Price as of 6/30/02: $14.05
--------------------------------------------------------------------------------
Net Asset Value as of 6/30/02: $14.83
--------------------------------------------------------------------------------
Yield on Closing Share Price as of 6/30/02 ($14.05)(1): 6.14%
--------------------------------------------------------------------------------
Current Monthly Distribution per Common Share(2): $ 0.0719
--------------------------------------------------------------------------------
Current Annualized Distribution per Common Share(2): $ 0.8628
--------------------------------------------------------------------------------
(1) Yield on closing share price is calculated by dividing the current
annualized distribution per share by the closing share price.
(2) The distribution is not constant and is subject to change. The monthly
distribution was increased in July 2002 for shareholders of record July 15,
2002 from $0.0719 to $0.075233 per common share.
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 nonpublic personal information of
its 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 the
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.
4
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
PORTFOLIO OF INVESTMENTS JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OPTION CALL VALUE
RATING* (000) DESCRIPTION PROVISIONS+ (NOTE 1)
-------------------------------------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--154.8%
ALABAMA--14.4%
AA $ 7,000 Alabama St. Pub. Sch. & Coll. Auth. Rev., Cap. Impvt., Ser. C,
5.75%, 7/01/18 ................................................. 7/09 @ 101.5 $ 7,487,970
Baa2 3,000 Courtland Ind. Dev. Brd. Solid Wst. Disp. Rev., Champion Intl.
Corp. Proj., Ser. A, 6.70%, 11/01/29 ........................... 11/09 @ 101 3,136,470
AAA 4,635 Jefferson Cnty. Swr. Rev., Ser. D, 5.75%, 2/01/27, FGIC ......... 2/07 @ 101 4,798,940
-----------
15,423,380
-----------
ALASKA--1.1%
AAA 1,130 Alaska St. Hsg. Fin. Corp. Rev., Ser. A, 5.875%, 12/01/24, MBIA . 12/05 @ 102 1,152,182
-----------
COLORADO--1.7%
AAA 10,000 Northwest Pkwy. Pub. Hwy. Auth. Rev., Ser B, Zero Coupon,
6/15/30, FSA ................................................... 6/11 @ 31.387 1,872,100
-----------
CONNECTICUT--8.7%
Mashantucket Western Pequot Tribe, Spec. Rev.,
Baa3 1,500++ Ser. A, 5.50%, 9/01/28 ......................................... 9/09 @ 101 1,435,845
Baa3 8,000++ Ser. B, 5.75%, 9/01/27 ......................................... 9/07 @ 102 7,947,120
-----------
9,382,965
-----------
FLORIDA--6.9%
Florida Hsg. Fin. Corp. Rev., Sunset Place, Ser. K-1,
A 2,400 6.00%, 10/01/19 ................................................ 10/09 @ 102 2,426,880
A 2,000 6.10%, 10/01/29 ................................................ 10/09 @ 102 2,021,720
NR 3,300 Hillsborough Cnty. Ind. Dev. Auth. Fac. Rev., National Gypsum,
Ser. A, 7.125%, 4/01/30 ........................................ 4/10 @ 101 2,941,125
-----------
7,389,725
-----------
ILLINOIS--11.3%
AAA 5,000 Chicago Brd. of Ed. Chicago Sch. Reform, 5.75%, 12/01/27, AMBAC . 12/07 @ 102 5,223,350
BB+ 7,560 Chicago O'Hare Intl. Arpt. Spec. Fac. Rev., Delta Air Lines Inc.
Term. Proj., 6.45%, 5/01/18 .................................... 5/03 @ 103 6,929,572
-----------
12,152,922
-----------
KENTUCKY--8.8%
AAA 32,345 Kentucky Econ. Dev. Fin. Auth. Hlth. Sys. Rev., Norton Hlth.
Care Inc., Ser. B, Zero Coupon, 10/01/24, MBIA ................. No Opt. Call 9,468,352
-----------
MICHIGAN--13.4%
AAA 2,000 Michigan St. Hosp. Fin. Auth. Rev., Mercy Hlth. Svcs., 5.75%,
8/15/19, MBIA .................................................. 8/09 @ 101 2,126,640
BB+ 12,000 Midland Cnty. Econ. Dev. Rev., Ser. A, 6.875%, 7/23/09 .......... 7/07 @ 101 12,220,800
-----------
14,347,440
-----------
MISSOURI--1.9%
A 2,000 Missouri St. Hlth. & Edl. Facs. Auth. Hlth. Facs. Rev.,
St. Anthony's Med. Ctr., 6.125%, 12/01/19 ...................... 12/10 @ 101 2,097,760
-----------
NEW JERSEY--11.2%
BB- 6,000 New Jersey Econ. Dev. Auth. Spec. Fac. Rev., Continental
Airlines Inc. Proj., 6.25%, 9/15/19 ............................ 9/09 @ 101 5,106,540
AA- 6,000 +++ New Jersey St. Transp. Trust Fund Auth. Sys. Rev., Ser. A,
6.00%, 6/15/10 ................................................. N/A 6,889,380
-----------
11,995,920
-----------
See Notes to Financial Statements.
5
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OPTION CALL VALUE
RATING* (000) DESCRIPTION PROVISIONS+ (NOTE 1)
-------------------------------------------------------------------------------------------------------------------
NEW YORK--13.8%
NR $2,000++ Charter Mac Equity Issuer Trust, Ser. B, 7.60%, 11/30/50 ........ 11/10 @ 100 $ 2,148,660
New York City Transitional Fin. Auth. Rev.,
AA+ 3,300 Ser. A, 5.25%, 11/01/11 ........................................ No Opt. Call 3,598,089
AA+ 6,000 Ser. B, 6.00%, 11/15/21 ........................................ 5/10 @ 101 6,496,440
Aa1 2,500 New York St. Mtge. Agcy. Rev., Homeowner Mtge., Ser. 85,
5.70%, 10/01/17 ................................................ 9/09 @ 100 2,576,750
-----------
14,819,939
-----------
PENNSYLVANIA--21.5%
Lehigh Cnty. Gen. Purp. Auth. Rev., Kidspeace Oblig. Grp.,
Ba2 2,250 6.00%, 11/01/23 ................................................ 11/08 @ 102 1,954,260
Ba2 2,335 6.20%, 11/01/14 ................................................ 11/09 @ 102 2,220,678
A- 1,500 Montgomery Cnty. Ind. Dev. Auth., Retirement Cmnty. Rev., 5.25%,
11/15/28 ....................................................... 11/08 @ 101 1,400,745
NR 4,000 ++ MuniMae TE Bond Subsidiary LLC, Ser. A, 6.875%, 6/30/09 ......... 6/09 @ 100 4,195,120
Pennsylvania Econ. Dev. Fin. Auth. Exempt Facs. Rev., Amtrak Proj.,
Ser. A,
A3 700 6.125%, 11/01/21 ............................................... 5/11 @ 101 688,436
A3 1,000 6.25%, 11/01/31 ................................................ 5/11 @ 101 982,850
A3 1,000 6.50%, 11/01/16 ................................................ 5/11 @ 101 1,038,600
AAA 8,500 Philadelphia Sch. Dist., GO, Ser. C, 5.75%, 3/01/29, MBIA ....... 3/10 @ 100 8,928,995
AAA 1,500 Washington Cnty. Auth. Rev., Cap. Fdg. & Equip. Proj., 6.15%,
12/01/29, AMBAC ................................................ No Opt. Call 1,690,695
-----------
23,100,379
-----------
TENNESSEE--5.6%
A3 3,750 Maury Cnty. Ind. Dev. Brd., PCR, Saturn Corp. Proj., 6.50%,
9/01/24 ........................................................ 9/04 @ 102 3,907,388
AAA 2,000 Memphis Shelby Cnty. Arpt. Auth. Rev., Ser. D, 6.00%, 3/01/24,
AMBAC .......................................................... 3/10 @ 101 2,126,420
-----------
6,033,808
-----------
TEXAS--16.8%
BB 6,500 Dallas Ft. Worth Intl. Arpt. Fac. Impvt. Rev., Amer. Airlines Inc.,
6.375%, 5/01/35 ................................................ 11/09 @ 101 5,067,855
AAA 4,750 Harris Cnty. Houston Sports Auth. Rev., Ser. A, Zero Coupon,
11/15/38, MBIA ................................................ 11/30 @ 61.166 587,908
AAA 1,500 Lower Colorado River Auth. Rev., Ser. A, 5.50%, 5/15/21, AMBAC .. 5/09 @ 101 1,546,320
BBB 3,000 Port Corpus Christi Auth. Rev., Celanese Proj., Ser. B, 6.70%,
11/01/30 ....................................................... 5/12 @ 101 3,035,940
Aa1 500 Texas St. Wtr. Fin. Asst., GO, 5.75%, 8/01/22 ................... 8/10 @ 100 526,400
AAA 7,030 Travis Cnty. Hlth. Facs. Dev. Corp. Rev., Ascension Hlth.,
Ser. A, 5.875%, 11/15/24, AMBAC ................................ 11/09 @ 101 7,334,469
-----------
18,098,892
-----------
UTAH--4.0%
AAA 4,000 Intermountain Pwr. Agcy. Pwr. Supply Rev., Ser. B, 5.75%,
7/01/19, MBIA .................................................. 7/07 @ 102 4,271,200
-----------
VIRGINIA--1.7%
AAA 1,750 Virginia St. Res. Auth. Clean Wtr. Rev., 5.625%, 10/01/22 ....... 10/10 @ 100 1,835,295
-----------
WASHINGTON--6.5%
Washington St., GO,
AA+ 4,750 Ser. 2000 A, 5.625%, 7/01/24 ................................... 7/09 @ 100 4,880,767
AA+ 2,000 Ser. B, 6.00%, 1/01/25 ......................................... 1/10 @ 100 2,126,360
-----------
7,007,127
-----------
WISCONSIN--5.5%
A1 6,000 Badger Tobacco Asset Sec. Corp. Rev., 6.375%, 6/01/32 ........... 6/12 @ 100 5,871,240
-----------
TOTAL LONG-TERM INVESTMENTS (COST $160,681,126) ................. 166,320,626
-----------
See Notes to Financial Statements.
6
-------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT OPTION CALL VALUE
RATING* (000) DESCRIPTION PROVISIONS+ (NOTE 1)
-------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS**--3.2%
MASSACHUSETTS--0.4%
A1+ $ 400 Massachusetts St., GO, Ser. B, 1.25%, 7/04/02, FRWD ............... N/A $ 400,000
------------
TENNESSEE--2.8%
VMIG1 3,000 Montgomery Cnty. Pub. Bldg. Auth., Pooled Fin. Rev., 1.85%, 7/01/02,
FRDD ............................................................. N/A 3,000,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,400,000) .................... 3,400,000
------------
TOTAL INVESTMENTS--158.0% (COST $164,081,126) ..................... 169,720,626
Liabilities in excess of other assets--(0.3)% ..................... (286,905)
Preferred shares at redemption value, including dividends
payable--(57.7)% ................................................. (62,009,510)
------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS--100% ................ $107,424,211
============
----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** For purposes of amortized cost valuation, the maturity dates of these
instruments are considered to be the earlier of the next date on which the
security can be redeemed at par, or the next date on which the rate of
interest is adjusted.
+ Date (month/year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates.
++ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers. As of June 30, 2002, the
Trust held 14.6% of its net assets in securities restricted as to resale.
+++ This bond is prerefunded. See glossary for definition.
----------------------------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
AMBAC -- American Municipal Bond Assurance Corporation FSA -- Financial Security Assurance
FGIC -- Financial Guaranty Insurance Company GO -- General Obligation
FRDD -- Floating Rate Daily Demand MBIA -- Municipal Bond Insurance Association
FRWD -- Floating Rate Weekly Demand PCR -- Pollution Control Revenue
----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
7
--------------------------------------------------------------------------------
THE BLACKROCK
STRATEGIC MUNICIPAL TRUST
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $164,081,126 (Note 1) .......... $ 169,720,626
Cash ....................................................... 1,463,719
Interest receivable ........................................ 2,426,781
Other assets ............................................... 21,617
-------------
173,632,743
-------------
LIABILITIES
Payable for investments purchased .......................... 3,583,569
Dividends payable--common shares ........................... 520,719
Investment advisory fee payable (Note 2) ................... 48,667
Deferred Trustees fees ..................................... 13,049
Other accrued expenses ..................................... 33,018
-------------
4,199,022
-------------
PREFERRED SHARES AT REDEMPTION VALUE
$.001 par value per share and $25,000 liquidation
value per share applicable to 2,480 shares,
including dividends payable (Note 1 & 4) ................. 62,009,510
-------------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS ........................................ $ 107,424,211
=============
Composition of Net Assets Applicable to
Common Shareholders:
Par value (Note 4) ....................................... $ 7,242
Paid in capital in excess of par ......................... 102,593,420
Undistributed net investment income (Note 1) ............. 1,878,044
Accumulated net realized loss (Note 1) ................... (2,693,995)
Net unrealized appreciation (Note 1) ..................... 5,639,500
-------------
Net assets applicable to common shareholders,
June 30, 2002 ............................................ $ 107,424,211
=============
Net asset value per common share:
($107,424,211 / 7,242,261 common shares
of beneficial interest issued and outstanding) ........... $14.83
======
--------------------------------------------------------------------------------
THE BLACKROCK
STRATEGIC MUNICIPAL TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (Note 1) ....................................... $ 5,110,717
-----------
Expenses
Investment advisory ..................................... 499,707
Auction agent ........................................... 83,396
Custodian ............................................... 26,486
Independent accountants ................................. 22,303
Reports to shareholders ................................. 21,076
Registration ............................................ 14,371
Transfer agent .......................................... 10,498
Trustees ................................................ 8,424
Legal ................................................... 5,363
Miscellaneous ........................................... 20,578
-----------
Total expenses ........................................ 712,202
Less fees waived by Advisor (Note 2) .................... (208,211)
Less fees paid indirectly (Note 2) ...................... (2,864)
-----------
Net expenses ............................................ 501,127
-----------
Net investment income ..................................... 4,609,590
-----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments .......................... 378,163
Net change in unrealized appreciation on
investments ............................................. 2,197,843
-----------
Net gain on investments ................................... 2,576,006
-----------
DIVIDENDS TO PREFERRED SHAREHOLDERS
FROM NET INVESTMENT INCOME ................................ (420,252)
-----------
NET INCREASE IN NET ASSETS APPLICABLE
TO COMMON SHAREHOLDERS RESULTING
FROM OPERATIONS ........................................... $ 6,765,344
===========
See Notes to Financial Statements.
8
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS FOR THE YEAR
ENDED DECEMBER 31,
JUNE 30, 2002 2001(1)
------------- -------------
INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS:
OPERATIONS:
Net investment income ...................................................... $ 4,609,590 $ 9,020,770
Net realized gain (loss) on investments .................................... 378,163 (1,207,039)
Net change in unrealized appreciation (depreciation) on investments ........ 2,197,843 (2,914,437)
Dividends to preferred shareholders from net investment income ............. (420,252) (1,700,007)
------------- -------------
Net increase in net assets resulting from operations ..................... 6,765,344 3,199,287
------------- -------------
Dividends to Common Shareholders From Net Investment Income .................. (3,124,329) (6,248,628)
------------- -------------
------------- -------------
Total increase (decrease) ................................................ 3,641,015 (3,049,341)
------------- -------------
NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS
Beginning of period .......................................................... 103,783,196 106,832,537
------------- -------------
End of period (including undistributed net investment income of $1,878,044 and
$813,035, respectively) .................................................... $ 107,424,211 $ 103,783,196
============= =============
----------
(1) Prior year amounts have been restated to conform to the current period's
presentation under the provisions of EITF D-98 (Note 1).
See Notes to Financial Statements.
9
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
YEAR ENDED FOR THE PERIOD
DECEMBER 31,(2) AUGUST 25, 1999(1)
SIX MONTHS ENDED --------------------- THROUGH
JUNE 30, 2002(3) 2001(3) 2000 DECEMBER 31, 1999(2)
----------------- ------ ------- --------------------
PER COMMON SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period(4) ................. $ 14.33 $ 14.75 $ 13.39 $ 14.33
-------- -------- -------- --------
Investment operations:
Net investment income ................................. 0.64 1.25 1.22 0.30
Net realized and unrealized gain (loss) on investments 0.35 (0.58) 1.41 (0.79)
Dividends to preferred shareholders:
Net investment income ................................. (0.06) (0.23) (0.35) (0.06)
In excess of net investment income .................... -- -- (0.01) --
-------- -------- -------- --------
Net increase (decrease) from investment operations ...... 0.93 0.44 2.27 (0.55)
-------- -------- -------- --------
Dividends to common shareholders:
Net investment income ................................. (0.43) (0.86) (0.88) (0.23)
In excess of net investment income .................... -- -- (0.03) --
-------- -------- -------- --------
Total dividends ......................................... (0.43) (0.86) (0.91) (0.23)
-------- -------- -------- --------
Capital charges with respect to issuance of:
Common shares ......................................... -- -- -- (0.03)
Preferred shares ...................................... -- -- -- (0.13)
-------- -------- -------- --------
Total capital charges ................................... -- -- -- (0.16)
-------- -------- -------- --------
Net asset value, end of period(4) ....................... $ 14.83 $ 14.33 $ 14.75 $ 13.39
======== ======== ======== ========
Market value, end of period(4) .......................... $ 14.05 $ 13.58 $13.6875 $ 12.50
======== ======== ======== ========
TOTAL INVESTMENT RETURN(5) .............................. 6.68% 5.32% 17.44% (15.17)%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS(6):
Expenses after expense offsets .......................... 0.95%(7) 0.91% 0.90% 0.94%(7)
Expenses before expense offsets ......................... 1.36%(7) 1.31% 1.30% 1.35%(7)
Net investment income before preferred share dividends .. 8.77%(7) 8.40% 8.86% 6.24%(7)
Preferred share dividends ............................... 0.80%(7) 1.58% 2.60% 1.16%(7)
Net investment income available to common shareholders .. 7.97%(7) 6.82% 6.26% 5.08%(7)
SUPPLEMENTAL DATA:
Average net assets of common shareholders (000) ......... $105,949 $107,381 $100,171 $98,300
Portfolio turnover ...................................... 8% 4% 44% 4%
Net assets of common shareholders, end of period (000) .. $107,424 $103,783 $106,833 $96,971
Preferred shares outstanding (000) ...................... $ 62,000 $ 62,000 $ 62,000 $62,000
Asset coverage per preferred share, end of period ....... $ 68,320 $ 66,855 $ 68,092 $64,109
----------
(1) Commencement of investment operations. This information includes the initial
investments by BlackRock Advisors, Inc. (Note 1) Net assets value
immediately after the closing of the public offering was $14.30.
(2) Prior year amounts have been restated to conform to the current period's
presentation under the provisions of EITF D-98 (Note 1).
(3) As required January 1, 2001, the Trust adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on debt securities. The effect of this accounting policy
change had no impact on the total net assets of the Trust. Per share, ratios
and supplemental data for periods prior to 2001 have not been restated to
reflect this change.
(4) Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
(5) 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 period 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. Total
investment returns for less than a full year are not annualized. Past
performance is not a guarantee of future results.
(6) Ratios are calculated on the basis of income and expenses applicable to both
the common and preferred shares relative to the average net assets of the
common shareholders.
(7) Annualized
The information above represents the unaudited operating performance for a
common share outstanding, total investment return, ratios to average net assets
and other supplemental data for each period indicated. This information has been
determined based upon financial information provided in the financial statements
and market value data for the Trust's common shares.
See Notes to Financial Statements.
10
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC
MUNICIPAL TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
The BlackRock Strategic Municipal Trust (the "Trust") was organized as a
Delaware business trust on June 17, 1999, and is registered as a diversified,
closed-end management investment company under the Investment Company Act of
1940. The Trust's investment objectives are to provide current income that is
exempt from regular Federal income tax and to invest in municipal bonds that
over time will perform better than the broader municipal bond market. The
ability of issuers of debt securities held by the Trust to meet their
obligations may be affected by economic developments in certain states, a
specific industry or region. No assurance can be given that the Trust's
investment objectives will be achieved.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: Municipal securities (including commitments to purchase
such securities on a "when-issued" basis) are valued on the basis of prices
provided by dealers or pricing services selected under the supervision of the
Trust's Trustees. In determining the value of a particular security, pricing
services may use certain information with respect to transactions in such
securities, quotations from bond dealers, market transactions in comparable
securities and various relationships between securities. Short-term investments
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 Trustees.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on trade date. Realized and unrealized gains and losses are calculated
on the identified cost basis. The Trust also records interest income on an
accrual basis and amortizes premium and accretes discount to interest income on
securities purchased using the interest method.
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 meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute sufficient net income to shareholders. For this
reason and because substantially all of the Trust's gross income consists of
tax-exempt interest, no Federal income tax provision is required.
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.
Dividends and distributions to preferred shareholders are accrued and determined
as described in Note 4.
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 these
estimates.
DEFERRED COMPENSATION PLAN: Under a deferred compensation plan approved by the
Board of Trustees on February 24, 2000, non-interested Trustees may elect to
defer receipt of all or a portion of their annual compensation.
Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock Trusts selected by the Trustees.
This has the same economic effect for the Trustees as if the Trustees 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 Trustees in order to match its deferred compensation obligations.
11
CHANGE IN FINANCIAL STATEMENT CLASSIFICATION FOR AMPS: In accordance with the
provisions of EITF D-98, "Classification and Measurement of Redeemable
Securities," effective for the current period, the Trust has reclassified its
Auction Market Preferred Shares ("AMPS") outside of permanent equity in the net
assets section of the Statement of Assets and Liabilities. In addition,
distributions to AMPS shareholders are now classified as a component of net
assets resulting from operations on the Statement of Operations and Changes in
Net Assets and as a component of the investment operations in the Financial
Highlights. Prior year amounts presented have been restated to conform to this
period's presentation. This change has no impact on the net assets applicable to
common shares of the Trust.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Advisors, Inc.
(the "Advisor"), a wholly owned subsidiary of BlackRock, Inc., which in turn is
an indirect majority owned subsidiary of PNC Financial Services Group, Inc. The
investment management agreement covers both investment advisory and
administration services.
The investment advisory fee paid to the Advisor is computed weekly and
payable monthly at an annual rate of 0.60% of the Trust's average weekly managed
assets. "Managed assets" means the total assets of the Trust (including any
assets attributable to any preferred shares that may be outstanding) minus the
sum of accrued liabilities (other than debt representing financial leverage).
The Advisor has undertaken to waive fees and expenses as follows: through year
ended 12/31/04 by 0.25%, for year ended 12/31/05 by 0.20%, for year ended
12/31/06 by 0.15%, for year ended 12/31/07 by 0.10% and for year ended 12/31/08
by 0.05%. Pursuant to the agreement the Advisor waived fees of $208,211 during
the six months ended June 30, 2002. The total dollar amounts paid to the Advisor
by the Trust under the Investment Advisory Agreement for the six months ended
June 30, 2002 and the years ended December 31, 2001, 2000 and period ended
December 31, 1999 were $291,496, $591,820, $570,718 and $157,597, respectively.
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio, pays the compensation of officers of the Trust who are
affiliated persons of the Advisor, and 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.
Pursuant to the terms of the custody agreement, the Trust receives earnings
credits from its custodian when positive cash balances are maintained, which are
used to offset custody fees. The earnings credits for the six months ended June
30, 2002, were approximately $2,864.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 2002, aggregated $12,407,949 and $12,567,943,
respectively.
The Federal income tax basis of the Trust's investments at June 30, 2002 was
$164,018,347 and, accordingly, net unrealized appreciation was $5,702,279 (gross
unrealized appreciation--$8,698,727, gross unrealized depreciation--$2,996,448).
For Federal income tax purposes, the Trust had a capital loss carryforward at
June 30, 2002, of approximately $3,110,000, of which approximately $130,000 will
expire in 2008 and $2,980,000 which will expire in 2009. Accordingly, no capital
gain distribution is expected to be paid to shareholders until net gains have
been realized in excess of such amount.
NOTE 4. CAPITAL
There are an unlimited number of $.001 par value of common shares of beneficial
interest authorized. The Trust may classify or reclassify any unissued common
shares into one or more series of preferred shares. Of the 7,242,261 common
shares outstanding at June 30, 2002, the Advisor owned 6,981 shares. As of June
30, 2002, there were 2,480 shares of preferred shares Series W7 outstanding.
Dividends on Series W7 are cumulative at a rate which is reset every 7 days
based on the results of an auction. Dividend rates ranged from 1.15% to 1.60%
during the six months ended June 30, 2002.
The Trust may not declare dividends or make other distributions on common
shares or purchase any such shares if, at the time of the declaration,
distribution or purchase, asset coverage with respect to the outstanding
preferred shares would be less than 200%.
The preferred shares are redeemable at the option of the Trust, in whole or
in part, on any dividend payment date at $25,000 per share plus any accumulated
or unpaid dividends whether or not declared. The preferred shares are also
subject to mandatory redemption at $25,000 per share plus any accumulated or
unpaid dividends, whether or not declared, if certain requirements relating to
the composition of the assets and lia-
12
bilities of the Trust as set forth in the Declaration of Trust are not
satisfied.
The holders of preferred shares have voting rights equal to the holders of
common shares (one vote per share) and will vote together with holders of common
shares as a single class. However, holders of preferred shares are also entitled
to elect two of the Trust's Trustees. In addition, the Investment Company Act of
1940 requires that along with approval by shareholders that might otherwise be
required, the approval of the holders of a majority of any outstanding preferred
shares voting separately as a class would be required to (a) adopt any plan of
reorganization that would adversely affect the preferred shares and (b) take any
action requiring a vote of security holders, including, among other things,
changes in the Trust's subclassification as a closed-end investment company or
changes in its fundamental investment restrictions.
NOTE 5. DIVIDENDS
Subsequent to June 30, 2002, the Board of Trustees of the Trust declared a
dividend from undistributed earnings of $0.075233 per common share payable
August 1, 2002 to shareholders of record on July 15, 2002. For the period July
1, 2002 to July 31, 2002, dividends declared on preferred shares totaled
$71,300.
13
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), common
shareholders are automatically enrolled 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 elect not to 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 acquire shares for the participants' accounts,
depending upon the circumstances described below, either (i) through receipt of
unissued but authorized shares from the Trust ("newly issued shares") or (ii) by
purchase of outstanding shares on the open market, on the New York Stock
Exchange or elsewhere ("open-market purchases"). If, on the dividend payment
date, the net asset value per share ("NAV") is equal to or less than the market
price per share plus estimated brokerage commissions (such condition being
referred to herein as "market premium"), the Plan Agent will invest the dividend
amount in newly issued shares on behalf of the participants. The number of newly
issued shares to be credited to each participant's account will be determined by
dividing the dollar amount of the dividend by the NAV on the date the shares are
issued. However, if the NAV is less than 95% of the market price on the payment
date, the dollar amount of the dividend will be divided by 95% of the market
price on the payment date. If, on the dividend payment date, the NAV is greater
than the market value per share plus estimated brokerage commissions (such
condition being referred to herein as "market discount"), the Plan Agent will
invest the dividend amount in shares acquired on behalf of the participants in
open-market purchases.
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 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. The automatic reinvestment of dividends and
distributions will not relieve participants of any Federal income tax that may
be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan. There is no
direct service charge to participants in the Plan; however, the Trust reserves
the right to amend the Plan to include a service charge payable by the
participants. All correspondence concerning the Plan should be directed to the
Plan Agent at (800) 699-1BFM or 150 Royall Street, Canton, MA 02021.
14
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders or to its charter or
by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
We are required by the Internal Revenue Code to advise you within 60 days
of the Trust's tax year end as to the federally tax-exempt interest dividends
received by you during such tax year. Accordingly, we are advising you that all
dividends paid by the Trust during the tax year ended June 30, 2002, were
federally tax-exempt interest dividends.
For purposes of preparing your annual federal income tax return, you
should report the amounts as reflected on the appropriate Form 1099-DIV or
substitute 1099 DIV.
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.
The Annual Meeting of Trust Shareholders was held May 23, 2002 to vote on the
following matter:
To elect three Trustees as follows:
TRUSTEES: CLASS TERM EXPIRING
------- ------ ----- --------
Frank J. Fabozzi .............. II 3 years 2005
Walter F. Mondale ............. II 3 years 2005
Ralph L. Schlosstein .......... II 3 years 2005
Trustees whose term of office continues beyond this meeting are Andrew F.
Brimmer, Richard E. Cavanagh, Kent Dixon, Laurence D. Fink* and James Clayburn
La Force, Jr.
Shareholders elected the three Trustees. The results of the voting were as
follows:
VOTES FOR** VOTES AGAINST** ABSTENTIONS**
---------- ------------- ------------
Frank J. Fabozzi .............. 2,159 -- 2
Walter F. Mondale ............. 7,038,564 -- 125,576
Ralph L. Schlosstein .......... 7,067,888 -- 96,252
----------
* Laurence D. Fink has resigned his positions as Trustee and Chairman of the
Board effective August 22, 2002. The Board of Trustees 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 Trustee of
the Board effective August 22, 2002.
** The votes represent common and preferred shareholders voting as a single
class except for Frank J. Fabozzi who was voted on and elected by the
preferred shareholders only.
Certain of the officers of the Trust listed on the cover of this 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, Kevin
M. Klingert--Director and Managing Director, Henry Gabbay--Managing Director and
Anne Ackerley--Managing Director.
15
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
INVESTMENT SUMMARY
--------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVES
The BlackRock Strategic Municipal Trust's investment objectives are to provide
current income that is exempt from regular Federal income tax and to invest in
municipal bonds that over time will perform better than the broader municipal
bond market.
WHO MANAGES THE TRUST?
Black Advisors, Inc. (The "Advisor") manages the Trust. The Advisor is a wholly
owned subsidiary of BlackRock, Inc. ("BlackRock"), which is one of the largest
publicly traded investment management firms in the United States with $250
billion of assets under management as of June 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,
including the BLACKROCK FUNDS and BLACKROCK PROVIDENT INSTITUTIONAL FUNDS. 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 a member of The PNC Financial Services Group (NYSE: PNC), and is
majority-owned by PNC and by BlackRock employees.
WHAT CAN THE TRUST INVEST IN?
Under normal conditions, the Trust will invest at least 80% of its total assets
in securities that, at the time of investment, are investment grade quality.
Investment grade quality securities are securities rated within the four highest
grades ("Baa" or "BBB" or better by Moody's Investor Service, Inc. ("Moody's"),
Standard & Poors Corporation ("S&P") or Fitch IBCA, Inc. ("Fitch")), or
securities that are unrated but deemed to be of comparable quality by the
Advisor. The Trust may invest up to 20% of its total net assets in securities
that are rated, at the time of investment, "Ba/BB" or "B" or that are unrated
but deemed to be of comparable quality by the Advisor.
WHAT IS THE ADVISOR'S INVESTMENT STRATEGY?
The Advisor will manage the assets of the Trust, in accordance with the Trust's
investment objectives and policies, to seek to achieve its objectives by
investing substantially all of its assets in municipal debt securities that pay
interest that is exempt from regular Federal income tax. As such, the Advisor
actively manages the assets in relation to market conditions and interest rate
changes. Depending on yield and portfolio allocation considerations, the Advisor
may choose to invest a portion of the Trust's assets in securities which pay
interest that is subject to AMT (alternative minimum tax). The Trust intends to
invest primarily in long-term bonds and expects bonds in its portfolio to
maintain an average portfolio maturity of at least 15 years, but the average may
be shortened or lengthened from time to time depending on market conditions.
Under current market conditions the use of leverage increases the income earned
by the Trust. The Trust employs leverage primarily through the issuance of
preferred shares. Preferred shareholders will receive dividends based on
short-term rates in exchange for allowing the Trust to borrow additional assets.
These assets will be invested in longer-term assets which typically offer higher
interest rates and the difference between the cost of the dividends paid to
preferred shareholders and the interest earned on the longer-term securities
will provide higher income levels for common shareholders in most interest rate
environments. The Trust issued preferred shares to leverage the portfolio. See
"Leverage Considerations in the Trust" below.
16
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's common shares are traded on the New York Stock Exchange, which
provides investors with liquidity on a daily basis. Orders to buy or sell shares
of the Trust must be placed through a registered broker or financial advisor.
The Trust pays monthly dividends which are typically paid on the first business
day of the month. For shares held in the shareholder's name, dividends may be
reinvested in additional shares of the Trust through its transfer agent,
EquiServe Trust Company, N.A. Investors who wish to hold shares in a brokerage
account should check with their financial advisor to determine whether their
brokerage firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
The Trust employs leverage primarily through the issuance of preferred shares.
Leverage permits the Trust to borrow money at short-term rates and reinvest that
money in longer-term assets, which typically offer higher interest rates. The
difference between the cost of the borrowed funds and the income earned on the
proceeds that are invested in longer-term assets is the benefit to the Trust
from leverage.
Leverage increases the duration (or price sensitivity of the net assets with
respect to changes in interest rates) of the Trust, which can improve the
performance of the Trust in a declining interest rate environment, but can cause
net assets to decline faster in a rapidly rising interest 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 THE TRUST
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
INVESTMENT OBJECTIVES. Although the objectives of the Trust are to provide
current income that is exempt from regular Federal income tax and to invest in
municipal bonds that over time will perform better than the broader municipal
bond market, there can be no assurance that these objectives will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to vary over time as fixed income market conditions change. Future dividends may
be higher or lower than the dividend the Trust is currently paying.
LEVERAGE. The Trust utilizes leverage through the issuance of preferred shares,
which involves special risks. The Trust's net asset value and market value may
be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BSD) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MUNICIPAL OBLIGATIONS. The value of municipal debt securities generally varies
inversely with changes in prevailing market interest rates. Depending on the
amount of call protection that the securities in the Trust have, the Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
HIGH YIELD RISK. The Trust may invest in high yield bonds, which involves
additional risks, including credit risk. The value of high yield, lower quality
bonds is affected by the creditworthiness of the issuers of the securities and
by general economic and specific industry conditions. Issuers of high yield
bonds are not as strong financially as those with higher credit ratings. The
Trust's investment in lower grade securities will expose the Trust to greater
risk than if the Trust owned only higher grade securities.
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.
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 Trustees and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
ALTERNATIVE MINIMUM TAX (AMT). The Trust may invest in securities subject to
alternative minimum tax.
17
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
GLOSSARY
--------------------------------------------------------------------------------
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.
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 to
common shareholders on a monthly basis.
DIVIDEND REINVESTMENT: Common shareholders may have all dividends and
distributions of capital gains automatically reinvested
into additional shares of the trust.
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.
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 common shares. It is the underlying value
of a single common 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.
PREMIUM: When a Trust's market price is greater than its net asset
value, the Trust is said to be trading at a premium.
PREREFUNDED BONDS: These securities are collateralized by U.S. Government
securities which are held in escrow and are used to pay
principal and interest on the tax-exempt issue and to
retire the bond in full at the date indicated, typically
at a premium to par.
18
--------------------------------------------------------------------------------
BLACKROCK ADVISORS, INC.
SUMMARY OF CLOSED-END FUNDS
--------------------------------------------------------------------------------
TAXABLE TRUSTS
-----------------------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ --------
The BlackRock Income Trust Inc. BKT N/A
The BlackRock North American Government Income Trust Inc. BNA N/A
The BlackRock High Yield Trust BHY N/A
BlackRock Core Bond Trust BHK N/A
BlackRock Strategic Bond Trust BHD N/A
TERM TRUSTS
The BlackRock Strategic Term Trust Inc. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. BQT 12/04
The BlackRock Advantage Term Trust Inc. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT 12/09
TAX-EXEMPT TRUSTS
-----------------------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ --------
The BlackRock Investment Quality Municipal Trust Inc. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
The BlackRock Pennsylvania Strategic Municipal Trust BPS N/A
The BlackRock Strategic Municipal Trust BSD N/A
BlackRock California Municipal Income Trust BFZ N/A
BlackRock Municipal Income Trust BFK N/A
BlackRock New York Municipal Income Trust BNY N/A
BlackRock New Jersey Municipal Income Trust BNJ N/A
BlackRock Florida Municipal Income Trust BBF N/A
BlackRock New York Municipal Bond Trust BQH N/A
BlackRock Virginia Municipal Bond Trust BHV N/A
BlackRock Florida Municipal Bond Trust BIE N/A
BlackRock Municipal Bond Trust BBK N/A
BlackRock Maryland Municipal Bond Trust BZM N/A
BlackRock New Jersey Municipal Bond Trust BLJ N/A
BlackRock California Municipal Bond Trust BZA N/A
BlackRock California Municipal Income Trust II BCL N/A
BlackRock New York Municipal Income Trust II BFY N/A
BlackRock Municipal Income Trust II BLE N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
BlackRock California Municipal 2018 Term Trust BJZ 12/18
BlackRock New York Municipal 2018 Term Trust BLH 12/18
BlackRock Municipal 2018 Term Trust BPK 12/18
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO NOT HESITATE TO CALL BLACKROCK
AT (800) 227-7BFM (7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
19
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TRUSTEES
Ralph L. Schlosstein, CHAIRMAN*
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Robert S. Kapito*
James Clayburn La Force, Jr.
Walter F. Mondale
OFFICERS
Robert S. Kapito, PRESIDENT*
Kevin M. Klingert, VICE PRESIDENT
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
CUSTODIAN
State Street Bank and Trust Company
1 Heritage Drive
North Quincy, MA 02171
TRANSFER AGENT
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(800) 699-1BFM
AUCTION AGENT
Deutsche Bank
4 Albany Street
New York, NY 10006
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, NY 10036
LEGAL COUNSEL - INDEPENDENT TRUSTEES
Debevoise & Plimpton
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 2002 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
Statements and other information contained in this report are as dated and
are subject to change.
* Laurence D. Fink has resigned his positions as Trustee and Chairman of the
Board effective August 22, 2002. The Board of Trustees 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 Trustee of
the Board effective August 22, 2002.
THE BLACKROCK STRATEGIC MUNICIPAL TRUST
c/o BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
09248T-10-9
[LOGO] Printed on recycled paper 09248T-20-8
THE [BLACKROCK LOGO]
STRATEGIC
MUNICIPAL TRUST
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SEMI-ANNUAL REPORT
JUNE 30, 2002
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