N-30D 1 c22541_n30d.htm ANNUAL REPORT c22541_n30d

The

Pennsylvania 
Strategic 
Municipal Trust

Annual Report 
December 31, 2001

THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST

ANNUAL REPORT TO SHAREHOLDERS

REPORT OF INVESTMENT ADVISOR

     January 31, 2002 

Dear Shareholder: Economic activity slowed significantly during the year, continuing the downturn that began in March 2000. The September 11 attacks on the World Trade Center and the Pentagon accelerated this decline by injecting fear and further uncertainty into an already weak economy. In response to the dramatic slowdown in the U.S. economy, the Federal Reserve Board aggressively lowered interest rates over the year. The Federal Open Market Committee (“FOMC”) cut interest rates eleven times in 2001, reducing interest rates by 4.75%, bringing the current Federal Funds rate to 1.75%, its lowest level since September 1961.

     The weakening U.S. economic environment and the accompanying Federal Reserve activity have had a positive effect on the fixed income markets. Virtually all sectors of the domestic fixed income market posted positive returns over the year. As short-term interest rates declined faster than long-term interest rates over the year, the yield curve reached historically steep levels, making it a very attractive environment for leveraged bond funds. Because these funds borrow at short-term rates and invest in longer-term securities, the amount they earn grows as the difference between short-term and long-term rates increases. Furthermore, economic indicators continue to suggest that inflation should remain benign, which should support high-quality fixed income securities, especially those with longer maturities.

     While still relatively weak, economic activity in the second half of the fourth quarter started to recover, leading many consumers and investors to be hopeful of a V-shaped economic recovery. While we concur that some level of recovery is underway, we are more cautious than the consensus with regard to the magnitude and timing of the recovery. Our view is that any recovery this year will be moderate, as corporate profits will remain under pressure as a result of lower capital spending, excess capacity and lack of pricing power. Continued pressure on profits will likely lead to additional job cuts, which will create an even more difficult environment for consumers, given their already high level of debt. Given our outlook, we expect a period of prolonged lower interest rates and have positioned the portfolios to take advantage of these low rates. These low short-term rates, coupled with little movement on the long end of the municipal yield curve over the year, have the yield curve at its steepest levels in a decade. As such, we find longer maturities between the 15-year and 20-year part of the curve the most attractive as we can use these maturities to best take advantage of the steepness of the curve. In addition, we expect higher quality and higher coupon securities to perform well as retail investors continue to spark demand for these products in 2002 as they did in 2001.

     This annual report contains a summary of market conditions during the annual period and a review of portfolio strategy by your Trust’s managers in addition to the Trust’s audited financial statements and a listing of the Portfolio’s holdings. Continued thanks for your confidence in BlackRock. We appreciate the opportunity to help you achieve your long-term investment goals.

Sincerely,  
   
Laurence D. Fink Ralph L. Schlosstein
Chairman President

 

 

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     January 31, 2002 

Dear Shareholder: 

We are pleased to present the audited annual report for the BlackRock Pennsylvania Strategic Municipal Trust (the “Trust”) for the fiscal year ended December 31, 2001. We would like to take this opportunity to review the Trust’s share price and net asset value (NAV) change, summarize developments in the fixed income markets and discuss recent portfolio management activity.

     The Trust is a non-diversified closed-end bond fund whose shares are traded on the American Stock Exchange under the symbol “BPS”. The Trust’s investment objectives are to provide current income exempt from Federal and Pennsylvania income taxes and to invest in municipal bonds that over time will perform better than the broader Pennsylvania municipal bond market. The Trust seeks to achieve these objectives by investing 80% of its total assets in investment grade (rated “AAA” to “BBB” 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 that are unrated but deemed to be of comparable quality by the Advisor) Pennsylvania tax-exempt general obligation and revenue bonds issued by city, county and state municipalities.

The table below summarizes the changes in the Trust’s share price and net asset value:

 
  12/31/01   12/31/00   Change     High     Low  
 
 
 
 
 
   Share Price $ 14.03   $ 13.125   6.90 % $ 15.03   $ 13.125  
 
 
 
 
 
   Net Asset Value (NAV) $ 14.65   $ 14.62   0.21 % $ 15.55   $ 14.41  
 
 
 
 
 
The Fixed Income Markets                            

     Investor hopes for a soft landing quickly turned to fears of a recession as the U.S. economy rapidly deteriorated over the year. Prior to the events of September 11 our economic outlook envisioned an extended period of sluggish growth, with the risk of a more severe deterioration if consumer confidence and spending declined by any considerable degree. Economic data prior to the attacks suggests that the scenario of a more severe contraction may have been in the works. Year-over-year industrial production was down 4.8% in August, the largest yearly decline since 1982. The unemployment rate had drifted up to 4.9% from a low of 3.9% in October of last year, and the four-week average of initial jobless claims rose to its highest level in nearly a decade. Consumer confidence was starting to wane, and consumer credit outstanding had begun to decline. The events of September 11 undoubtedly further weakened consumer sentiment. The Conference Board’s consumer confidence index posted its biggest one-month decline since 1990. According to the minutes of the October 2, 2001 Federal Open Market Committee meeting, “The terrorist attacks have significantly heightened uncertainty in an economy that was already weak. Business and household spending as a consequence are being further dampened. Nonetheless, the long-term prospects for productivity growth and the economy remain favorable and should become evident once the unusual forces restraining demand abate.” During the year ended December 31, 2001, the Federal Reserve aggressively lowered the Federal Funds rate by a total of 4.75% bringing the current Fed Funds rate to 1.75%.

     Over the course of the year, the Treasury yield curve steepened significantly as the bond market rallied in response to the slowing U.S. economy and the aggressive interest rate cuts by the Federal Reserve. Treasury yields on the short-end of the yield curve, as measured by the 2-year Treasury, fell sharply from 5.09% on December 31, 2000 to 3.02% on December 31, 2001. During the same period, however, yields on longer-term bonds remained relatively unchanged with 10-year Treasuries decreasing 6 basis points and 30-year Treasuries increasing 1 basis point. Despite longer-term yields remaining relatively unchanged, there was an increase in volatility in the marketplace due to anticipated Fed easing and increased supply. On October 31, 2001, the U.S. Treasury announced plans to stop selling 30-year U.S. Treasuries maintaining that the government does “not need the 30-year bond to meet [its] current financing needs.” On the news that the Treasury would discontinue a program that issued a total of $600 billion in debt since its official inception in 1977, the 30-year bond price increased by more than 5% and yields, which react inversely to changes in price, fell over 36 basis points.

     For the annual period ended December 31, 2001, municipal bonds slightly underperformed the taxable domestic bond market on a tax-adjusted basis, returning 8.36% (as measured by the Lehman Municipal Index at a tax bracket of 38.6%) versus the Lehman Aggregate Index’s 8.44%. Strong demand for municipals due to turmoil in the equity markets and diversification into fixed income securities was met by $286 billion worth of new issuance, a 44% increase from last year. For the upcoming year, we anticipate new issue supply to continue at 2001’s pace as municipalities have increasing financing needs due to decreasing revenues and higher demand for expenditures due to the slowdown in the U.S. economy.

     The Commonwealth of Pennsylvania’s creditworthiness has steadily improved over the past decade. The Commonwealth’s population, with over 12 million residents concentrated around the cities of Pittsburgh and Philadelphia, has grown mod-

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estly. For the last ten years, the Commonwealth’s economy has been in transition from heavily based manufacturing employment to a more diversified economic foundation with trade and service work now accounting for more than 56% of jobs. The economic transition, combined with 0.7% average annual employment growth, has fueled the Commonwealth’s slow decline in its unemployment rate to a level of 5.1% in December 2001, which is below the national level of 5.8%.

     Pennsylvania’s prudent fiscal management, in response to a FY 1991 operating deficit, accompanied the transition in employment structure. Over the past decade, tax changes, fiscal controls and limited borrowing, together with the slowly growing economy, have resulted in positive financial operations. Today the undesignated General Fund surplus, when combined with the rainy day fund, is nearly $3 billion or approximately 8.7% of FY 2001 revenues. Pennsylvania expects modest revenue growth during 2002, reflecting the slowing economy and further tax reductions which continue to attract new industries while maintaining the current level of employment in the Commonwealth. The Commonwealth’s economy began to slow last March and the new administration now project a $600 million revenue shortfall in FY 2002. Expenditure cuts and tapping the $1.1 billion “rainy day fund”, if necessary, are expected to close this gap. The Commonwealth’s sound financial position merits its stable “Aa2/AA” ratings.

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 and coupons.

     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 37% of total assets.

The following charts show the Trust’s asset composition and credit quality allocations:

  Sector Breakdown      
 
 
Sector December 31, 2001   December 31, 2000  
 
 
Education 21 % 20 %
 
 
Transportation 16 % 16 %
 
 
Hospital 15 % 15 %
 
 
Housing 12 % 12 %
 
 
Water & Sewer 12 % 12 %
 
 
City, County & State 4 % 4 %
 
 
Industrial & Pollution Control 4 % 3 %
 
 
Student Loan 4 % 4 %
 
 
Utility/Power 3 % —  
 
 
Sales Tax —   5 %
 
 
Other 9 % 9 %
         
         
Credit Rating* December 31, 2001   December 31, 2000  
 
 
AAA/Aaa 60 % 57 %
 
 
AA/Aa 15 % 16 %
 
 
A/A 9 % 9 %
 
 
BBB/Baa —   2 %
 
 
BB/Ba 5 % 5 %
 
 
Not Rated 11 % 11 %

* Using the higher of Standard & Poor’s, Moody’s or Fitch’s rating.

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     We look forward to continuing to manage the Trust to benefit from the opportunities available in the fixed income markets and to meet its investment objectives. We thank you for your investment in The BlackRock Pennsylvania Strategic Municipal Trust Inc. Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you have specific questions which were not addressed in this report.

Sincerely,  
   
Robert S. Kapito Kevin M. Klingert
Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager

 

The BlackRock Pennsylvania Strategic Municipal Trust

Symbol on American Stock Exchange: BPS 

Initial Offering Date: August 25, 1999 

Closing Share Price as of 12/31/01: $14.03 

Net Asset Value as of 12/31/01: $14.65 

Yield on Closing Share Price as of 12/31/01 ($14.03)1: 5.82% 

Current Monthly Distribution per Share2: $ 0.0681 

Current Annualized Distribution per Share2: $ 0.8172

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.

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 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.

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The BlackRock Pennsylvania Strategic Municipal Trust

Portfolio of Investments December 31, 2001

    Principal     Option Call      
   Rating*   Amount     Provisions†     Value  
(Unaudited)   (000)   Description (Unaudited)     (Note 1)  
 
 
 
 
                   
        LONG-TERM INVESTMENTS—156.7%          
      AAA $ 2,150 †† Allegheny Cnty. Port Auth. Spec. Rev., 6.125%, 3/01/09, MBIA N/A   $ 2,408,086  
      AAA   1,800   Allegheny Cnty. San. Auth. Swr. Rev., 5.375%, 12/01/24, MBIA 12/07 @ 102     1,805,130  
      NR   1,250   Dauphin Cnty. Gen. Auth. Rev., Hotel & Conf. Ctr., Hyatt Regency,          
        6.20%, 1/01/19 1/09 @ 102     1,137,988  
      Aaa   2,500   Delaware Cnty. Hlth. Facs. Auth. Rev., Mercy Hlth. Corp. Proj.,          
        6.00%, 12/15/26 12/06 @ 102     2,679,650  
      AAA   1,250   Delaware Cnty. Ind. Dev. Auth. Rev., Wtr. Facs., 6.00%, 6/01/29, FGIC 6/09 @ 101     1,325,400  
        Lehigh Cnty. Gen. Purp. Auth. Rev., Kidspeace Oblig. Grp.,          
      Ba2   1,250   6.00%, 11/01/23 11/08 @ 102     1,127,288  
      Ba2   1,250   6.20%, 11/01/14 11/09 @ 102     1,190,412  
      A-   1,250   Montgomery Cnty. Ind. Dev. Auth., Retirement Cmnty. Rev., 5.25%, 11/15/28 11/08 @ 101     1,105,225  
      NR   4,000   MuniMae TE Bond Subsidiary, LLC, Ser. A, 6.875%, 6/30/09 6/09 @ 100     4,121,200  
        Pennsylvania Econ. Dev. Fin. Auth. Exempt Facs. Rev., Amtrak Proj., Ser. A,          
      A3   1,000   6.25%, 11/01/31 5/11 @ 101     988,050  
      A3   1,000   6.375%, 11/01/41 5/11 @ 101     995,230  
        Pennsylvania Hsg. Fin. Agcy. Rev., Sngl. Fam. Mtge.,          
      AA+   1,240   Ser. 60A, 5.85%, 10/01/27 4/07 @ 101.5     1,254,446  
      AA+   3,200   Ser. 68A, 6.10%, 4/01/21 10/09 @ 100     3,268,832  
      AAA   1,750   Pennsylvania St. Higher Ed. Assoc. Agcy. Std. Loan Rev.,          
        7.437%, 3/01/20, MBIA 4/02 @ 100     1,769,127  
        Pennsylvania St. Higher Ed. Facs. Auth. Rev.,          
      AA-   1,250   Lafayette Coll. Proj., 6.00%, 5/01/30 5/10 @ 100     1,329,975  
      AA   850   Philadelphia Univ., 6.10%, 6/01/30 6/10 @ 100     887,510  
      A   1,000   Univ. of Pennsylvania Hlth. Svcs., Ser. A, 5.75%, 1/01/22 1/06 @ 101     982,330  
      AAA   1,250   Philadelphia Pkg. Auth. Rev., Arpt., 5.625%, 9/01/18, FSA 9/09 @ 101     1,297,900  
      AAA   1,250   Philadelphia Arpt. Sys. Rev., Ser. B, 5.40%, 6/15/27, FGIC 6/07 @ 102     1,218,013  
      AAA   1,510   Philadelphia Gas Wks. Rev., Third Ser., 5.50%, 8/01/18, FSA 8/11 @ 100     1,547,599  
        Philadelphia Sch. Dist. G.O.,          
      AAA   1,190   Ser. B, 5.50%, 9/01/25, AMBAC 9/05 @ 101     1,189,560  
      AAA   2,800   Ser. C, 5.50%, 3/01/24, MBIA 3/10 @ 100     2,847,824  
      AAA   3,050   Ser. C, 5.75%, 3/01/29, MBIA 3/10 @ 100     3,178,984  
      AAA   2,350   Philadelphia Wtr. & Wst. Wtr. Rev., 5.00%, 6/15/16, FSA 6/03 @ 100     2,351,551  
      AAA   2,250   Southeastern Trans. Auth. Spec. Rev., 5.375%, 3/01/17, FGIC 3/07 @ 102     2,285,100  
      AAA   1,750   Washington Cnty. Auth. Rev., Cap. Fdg. & Equip. Proj.,          
        6.15%, 12/01/29, AMBAC No Opt. Call     1,991,115  
               
 

See Notes to Financial Statements.

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  Value  
   Description (Note 1)  
   
       
Total Investments—156.7% (cost $44,629,709) $ 46,283,525  
Other assets in excess of liabilities—2.5%   746,992  
Liquidation value of preferred shares—(59.2)%   (17,500,000 )
   
 
       
Net Assets Applicable to Common Shareholders—100% $ 29,530,517  
 
 
*
  		 Using the higher of Standard & Poor’s, Moody’s or Fitch’s rating.
†
  		 Option call provisions: date (month/year) and price of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates.
††
  		 This bond is prerefunded. See glossary for definition.
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.
  KEY TO ABBREVIATIONS  
       
AMBAC — American Municipal Bond Assurance Corporation G.O. — General Obligation
FGIC — Financial Guaranty Insurance Company MBIA — Municipal Bond Insurance Association
FSA — Financial Security Assurance    

See Notes to Financial Statements.

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The BlackRock Pennsylvania 
Strategic Municipal Trust

Statement of Assets and Liabilities

December 31, 2001

Assets      
Investments, at value (cost $44,629,709) (Note 1) $   46,283,525  
Cash     406,457  
Interest receivable     539,562  
Other assets     8,857  
     
 
      47,238,401  
     
 
Liabilities        
Dividends payable—common shares     137,255  
Dividends payable—preferred shares     4,315  
Investment advisory fee payable (Note 2)     27,311  
Other accrued expenses     39,003  
     
 
      207,884  
     
 
Net Investment Assets $   47,030,517  
     
 
Net investment assets were comprised of:        
   Common shares of beneficial interest:        
      Par value (Note 4) $   2,015  
      Paid in capital in excess of par     28,362,834  
   Preferred shares (Note 4)     17,500,000  
     
 
      45,864,849  
         
   Undistributed net investment income (Note 1)     62,386  
   Accumulated net realized loss (Note 1)     (550,534 )
   Net unrealized appreciation (Note 1)     1,653,816  
     
 
Net investment assets, December 31, 2001 $   47,030,517  
   
 
Net assets applicable to common shareholders $   29,530,517  
   
 
Net asset value per common share of        
   beneficial interest:        
   ($29,530,517 ÷ 2,015,492 common shares        
   of beneficial interest issued and outstanding)   $ 14.65  
   
 

The BlackRock Pennsylvania 
Strategic Municipal Trust

Statement of Operations

Year Ended December 31, 2001

Net Investment Income    
Income    
   Interest (Note 1) $ 2,702,107  
 
 
Expenses      
   Investment advisory   285,240  
   Auction agent   57,165  
   Reports to shareholders   33,424  
   Independent accountants   24,914  
   Transfer agent   20,578  
   Custodian   19.552  
   Trustees   13,045  
   Legal   10,704  
   Miscellaneous   3,692  
   
 
   Total expenses   468,314  
   Less fees waived by Advisor (Note 2)   (118,850 )
   Less fees paid indirectly (Note 2)   (14,662 )
   
 
   Net expenses   334,802  
   
 
Net investment income   2,367,305  
   
 
       
Realized and Unrealized Gain (Loss)      
on Investments      
Net realized loss on investments   (411,479 )
Net change in unrealized appreciation      
   on investments   245,417  
   
 
Net loss on investments   (166,062 )
   
 
       
Net Increase in Net Investment      
Assets Resulting from Operations $ 2,201,243  
 
 

See Notes to Financial Statements.

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The BlackRock Pennsylvania Strategic Municipal Trust

Statements of Changes in Net Investment Assets

  Year Ended December 31,  
  2001   2000  
 
 
 
Increase (Decrease) in Net Investment Assets        
Operations:        
   Net investment income $ 2,367,305   $ 2,371,501  
   Net realized loss on investments   (411,479 )   (131,361 )
   Net change in unrealized appreciation on investments 245,417     2,746,584  
 
 
 
      Net increase in net investment assets resulting from operations 2,201,243     4,986,724  
 
 
 
Dividends and Distributions:            
   To common shareholders from net investment income   (1,647,060 )   (1,655,305 )
   To common shareholders in excess of net investment income   —     (128,156 )
   To preferred shareholders from net investment income   (492,181 )   (673,506 )
   To preferred shareholders in excess of net investment income —     (52,144 )
 
 
 
      Total dividends (2,139,241 )   (2,509,111 )
 
 
Capital Share Transactions:            
   Common shares issued in connection with the reinvestment            
      of common dividends   —     6,985  
   Capital charge with respect to initial public offering of shares —     (10,744 )
 
 
 
      Net proceeds from capital share transactions —     (3,759 )
 
 
 
         Total increase 62,002     2,473,854  
 
 
 
Net Investment Assets            
Beginning of year 46,968,515     44,494,661  
 
 
 
End of year (including undistributed and distributions in excess of net investment income            
   of $62,386 and $180,300, respectively) $ 47,030,517   $ 46,968,515  
 
 
 

See Notes to Financial Statements.

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The BlackRock Pennsylvania Strategic Municipal Trust

Financial Highlights

            For the Period  
            August 25, 19991  
    Year Ended December 31,      
            through  
    2001   2000   December 31, 1999  
   
 
 
 
PER COMMON SHARE OPERATING PERFORMANCE:              
Net asset value, beginning of year2 $ 14.62 ) $ 13.40   $ 14.33 )
 
 
 
 
Investment operations:                    
   Net investment income3     1.17     1.18     0.27  
   Net realized and unrealized gain (loss) on investments3   (0.08 ) 1.29   (0.66 )
   
 
 
 
Net increase (decrease) from investment operations   1.09   2.47   (0.39 )
   
 
 
 
Dividends and distributions:                    
   Dividends from net investment income to:                    
      Common shareholders     (0.82 )   (0.82 )   (0.21 )
      Preferred shareholders     (0.24 )   (0.33 )   (0.06 )
   Distributions in excess of net investment income to:                    
      Common shareholders     —     (0.06 )   (0.02 )
      Preferred shareholders   —   (0.03 ) —  
   
 
 
 
   Total dividends and distributions   (1.06 ) (1.24 ) (0.29 )
   
 
 
 
Capital charge with respect to issuance of:                    
   Common shares     —     —     (0.03 )
   Preferred shares   —   (0.01 ) (0.22 )
   
 
 
 
Total capital charges   —   (0.01 ) (0.25 )
   
 
 
 
Net asset value, end of period2   $ 14.65 ) $ 14.62   $ 13.40  
   
 
 
 
Market value, end of period2   $ 14.03 ) $ 13.125   $ 13.375  
   
 
 
 
TOTAL INVESTMENT RETURN4     13.12 %   5.08 %   (9.43 )%
   
 
 
 
RATIOS TO AVERAGE NET ASSETS OF COMMON SHAREHOLDERS:5                    
Expenses after fee waiver     1.11 %   1.22 %   1.20 %6
Expenses before fee waiver     1.55 %   1.63 %   1.61 %6
Net investment income after fee waiver and before preferred share dividends3     7.86 %   8.49 %   5.63 %6
Preferred share dividends     1.63 %   2.60 %   1.17 %6
Net investment income available to common shareholders3     6.23 %   5.89 %   4.46 %6
SUPPLEMENTAL DATA:                    
Average net assets of common shareholders (000)   $ 30,122 ) $ 27,920   $ 26,882  
Portfolio turnover     16 %   28 %   1 %
Net assets of common shareholders, end of period (000)   $ 29,531 ) $ 29,469   $ 26,995  
Preferred stock outstanding (000)   $ 17,500 ) $ 17,500   $ 17,500  
Asset coverage per preferred share, end of period   $ 67,194 ) $ 67,112   $ 63,571  

1 Commencement of investment operations (Note 1). Net asset value immediately after the closing of the public offering was $14.30.

2 Net asset value and market value are published in Barron’s on Saturday and The Wall Street Journal on Monday.

3 As required, effective January 1, 2001, the Trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing market discount on debt securities. The effect of this accounting policy change had no impact on the total net assets of the Trust. The reclass of this change for the year ended December 31, 2001, to the net investment income from net realized and unrealized gain (loss) on investments was less than $0.005 per common share. The ratio of net investment income to average net assets on common shares increased from 6.20% to 6.23%, and net investment income after fee waiver and before preferred share dividends to average net assets on common shares increased from 7.83% to 7.86%. Per share, ratios and supplemental data for prior periods have not been restated to reflect this change.

4 Total investment return is calculated assuming a purchase of common shares 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. Past performance is not a guarantee of future results.

5 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.

6 Annualized.

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 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.

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The BlackRock Pennsylvania 
Strategic Municipal Trust

Notes to Financial Statements

Note 1. Organization & Accounting Policies

The BlackRock Pennsylvania Strategic Municipal Trust (the “Trust”) was organized in Delaware on June 30, 1999 as a non-diversified, closed-end management investment company. The Trust’s investment objectives are to provide current income that is exempt from regular Federal and Pennsylvania income taxes and to invest in municipal bonds that over time will perform better than the broader Pennsylvania 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 the state, 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 approved by the 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 securities are valued at amortized cost. Any securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the 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.

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. Therefore, no Federal income tax provision is required.

Dividends and Distributions: The Trust declares and pays dividends and distributions to common shareholders monthly, first from net investment income, then from 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 those 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 funds selected by the Trustees. This has the same economic effect as if the Trustees had invested the deferred amounts in such other BlackRock funds.

     The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Trust. The Trust may, however, elect to invest in common shares of those funds selected by the Trustees in order to match its deferred compensation obligations.

New Accounting Policies: As required, effective January 1, 2001, the Trust adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies, as revised, and began amortizing market discount on debt securities. Prior to January 1, 2001, the Trust amortized premiums and original issue discount on debt securities. The cumulative effect of this accounting policy change had no impact on the total net assets of the Trust. This resulted in a $14,622 increase to undistributed net investment income and a corresponding decrease in net unrealized appreciation, based on securities held by the Trust on January 1, 2001. The Statements of Changes in Net Investment Assets and the Financial Highlights of the Trust for prior periods have not been restated to reflect this change.

     The effect of this change for the year ended December 31, 2001, was to increase net investment income by $8,249; decrease net unrealized appreciation by $7,894 and increase net realized losses by $355.

10

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. 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 $118,850 during the year ended December 31, 2001.

     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, occupancy and certain clerical and accounting costs of the Trust. The Trust bears all other costs and expenses.

     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 year ended December 31, 2001 were $14,662.

Note 3. Portfolio Securities

Purchases and sales of investments, other than short-term investments, for the year ended December 31, 2001, aggregated $7,718,528 and $7,597,917, respectively.

     The Federal income tax basis of the Trust’s investments at December 31, 2001 was $44,608,228 and accordingly, net unrealized appreciation was $1,675,297 (gross unrealized appreciation—$1,965,896, gross unrealized depreciation—$290,599).

     For Federal income tax purposes, the Trust had a capital loss carryforward at June 30, 2001, of approximately $612,000, of which approximately $139,000 will expire in 2008 and $473,000 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 common shares of beneficial interest authorized. The Trust may classify or reclassify any unissued common shares of beneficial interest into one or more series of preferred shares. Of the 2,015,492 common shares of beneficial interest outstanding at December

31, 2001, the Advisor owned 6,981 shares. As of December 31, 2001, there were 700 shares of preferred shares Series W7 outstanding.

     During the year ended December 31, 2000 the Trust issued 511 common shares of beneficial interest under the terms of its Dividend Reinvestment Plan.

     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 1.40% to 4.30% during the year ended December 31, 2001.

     The Trust may not declare dividends or make other distributions to 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 liabilities 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 subclassifica-tion as a closed-end investment company or changes in its fundamental investment restrictions.

Note 5. Dividends Subsequent to December 31, 2001, the Board of Trustees of the Trust declared a dividend from undistributed earnings of $0.0681 per common share payable February 1, 2002, to shareholders of record on January 15, 2002.

     For the period January 1, 2002 through January 31, 2002, dividends declared on preferred shares totaled $20,013.

11

THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST

REPORT OF INDEPENDENT AUDITORS

The Shareholders and Board of Trustees of
The BlackRock Pennsylvania Strategic Municipal Trust:

     We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of The BlackRock Pennsylvania Strategic Municipal Trust (the “Trust”), as of December 31, 2001, and the related statement of operations for the year then ended, statements of changes in net investment assets for each of the two years in the period then ended, and financial highlights for the years ended December 31, 2001, 2000 and for the period from August 25, 1999 (commencement of investment operations) to December 31, 1999. These financial statements and the financial highlights are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

     We conducted our audit 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 financial statements. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of The BlackRock Pennsylvania Strategic Municipal Trust as of December 31, 2001, and the results of its operations, the changes in its net investment assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.

Boston, Massachusetts February 8, 2002

12

THE BLACKROCK PENNSYLVANIA 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 American 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 in connection with the reinvestment of dividends and distributions. 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.

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.

     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.

13

THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST

TRUSTEE INFORMATION

    Independent Trustees      
 
Name, address, age Andrew F. Brimmer Richard E. Cavanagh   Kent Dixon Frank J. Fabozzi
  P.O. Box 4546 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 New York, NY 10163-4546
  Age: 75 Age: 55   Age: 64 Age: 53
 
Current positions held          
with the Funds Lead Trustee Trustee   Trustee Trustee
 
Term of office and length 3 years2 / since 3 years2 / since   3 years2 / since 3 years2 / since
of time served inception3 inception3   inception3 inception3
 
Principal occupations President of Brimmer & President and Chief Executive Officer   Consultant/Investor. Former Consultant. Editor of
during the past five years Company, Inc., a Washington, of The Conference Board, Inc., a   President and Chief Executive THE JOURNAL OF
  D.C.-based economic and leading global business membership   Officer of Empire Federal PORTFOLIO MANAGE-
  financial consulting firm. organization, from 1995-present.   Savings Bank of America and MENT and Adjunct
    Former Executive Dean of the John   Banc PLUS Savings Associa- Professor of Finance
    F. Kennedy School of Government   tion, former Chairman of the at the School of
    at Harvard University from 1988-1995.   Board, President and Chief Management at Yale
    Acting Director, Harvard Center for   Executive Officer of Northeast University. Author and
    Business and Government (1991-1993).   Savings. editor of several books
    Formerly Partner (principal) of     on fixed income portfolio
    McKinsey & Company, Inc. (1980-     management. Visiting
    1988). Former Executive Director of     Professor of Finance and
    Federal Cash Management, White     Accounting at the Sloan
    House Office of Management and     School of Management,
    Budget (1977-1979). Co-author, THE     Massachusetts Institute
    WINNING PERFORMANCE (best     of Technology from
    selling management book published in     1986 to August 1992.
    13 national editions).      
 
Number of portfolios over-          
seen within the fund complex 294

294

 294 294
 
Other Directorships held Director of CarrAmerica Realty Trustee Emeritus, Wesleyan University,   Former Director of ISFA (the Director, Guardian
outside of the fund complex Corporation and Borg-Warner Auto- Trustee: Drucker Foundation, Airplanes   owner of INVEST, a national Mutual Funds Group.
  motive. Formerly member of the Group, Aircraft Finance Trust (AFT) and   securities brokerage service  
  Board of Governors of the Federal Educational Testing Service (ETS).   designed for banks and thrift  
  Reserve System. Formerly Director of Director, Arch Chemicals, Fremont   institutions).  
  AirBorne Express, BankAmerica Group and The Guardian Life Insurance      
  Corporation (Bank of America), Company of America.      
  Bell South Corporation, College Re-        
  tirement Equities Fund (Trustee),        
  Commodity Exchange, 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),        
  NMC Capital Management, Navistar        
  International Corporation, PHH Corp.        
  and UAL Corporation (United Airlines).        
 
For “Interested Trustee” Relationships, events or transactions by reason of which the trustee is an interested person as defined in Section 2(a)(19)(1940 Act)          
         
         
         
         
         
         

1 Interested Trustee as defined by Section 2(a)(19) of the Investment Company Act of 1940.

2 The Board of Trustees is classified into three classes of which one class is elected annually. Each Trustee serves a three year term concurrent with the class from which he is elected.

3 Commencement of investment operations 8/25/1999.

4 The fund complex currently consists of 29 separate closed-end funds, each with one investment portfolio.

14

THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST

TRUSTEE INFORMATION

Independent Trustees (continued)   Interested Trustees1
 
James Clayburn La Force, Jr. Walter F. Mondale   Laurence D. Fink1 Ralph L. Schlosstein1
P.O. Box 4546 P.O. Box 4546   345 Park Avenue 345 Park Avenue
New York, NY 10163-4546 New York, NY 10163-4546   New York, NY 10154 New York, NY 10154
Age: 73 Age: 74   Age: 49 Age: 51
 
Trustee Trustee   Chairman of the Board President and Trustee
 
3 years2 / since 3 years2 / since   3 years2 / since inception3 3 years2 / since inception3
inception3 inception3      
 
Dean Emeritus of The John E. Partner, Dorsey & Whitney,   Chairman and Chief Executive Officer of Director since 1999 and President of
Anderson Graduate School of a law firm (December   BlackRock, Inc. since its formation in 1998 BlackRock, Inc. since its formation in 1998
Management, University of 1996-present, September   and of BlackRock, Inc.’s predecessor and of BlackRock, Inc.’s predecessor
California since July 1, 1993. 1987-August 1993).   entities since 1988. Chairman of the entities since 1988. Member of the
Acting Dean of The School of Formerly U.S. Ambassador   Management Committee. Formerly, Management Committee and Investment
Business, Hong Kong University to Japan (1993-1996).   Managing Director of the First Boston Strategy Group of BlackRock, Inc.
of Science and Technology Formerly Vice President of   Corporation, Member of its Management Formerly, Managing Director of Lehman
1990-1993. From 1978 to Sep- the United States, U.S.   Committee, Co-head of its Taxable Fixed Brothers, Inc. and Co-head of its Mortgage
tember 1993, Dean of The John Senator and Attorney   Income Division and Head of its Mortgage and Savings Institutions Group. Currently,
E. Anderson Graduate School General of the State of   and Real Estate Products Group. Currently, President and Director of each of the
of Management, University of Minnesota. 1984   Chairman of the Board of each of the closed-end Trusts in which BlackRock
California. Democratic Nominee for   closed-end Trusts in which BlackRock Advisors, Inc. acts as investment advisor.
  President of the United   Advisors, Inc. acts as investment advisor.  
  States.      
 
      294 29 4 294 294
 
Director, Jacobs Engineering Director, Northwest Airlines   President, Treasurer and a Trustee of the Chairman and President of the BlackRock
Group, Inc., Payden & Rygel Corp., UnitedHealth Group.   BlackRock Funds, Chairman of the Board and Provident Institutional Funds and Director
Investment Trust, Provident     Director of Anthracite Capital, Inc., a Director of several of BlackRock’s alternative
Investment Counsel Funds,     of BlackRock’s offshore funds and several of investment vehicles. Currently, a Member
Timken Company, and Trust for     BlackRock’s alternative investment vehicles of the Visiting Board of Overseers of the John
Investment Managers.     and Chairman of the Board of Nomura F. Kennedy School of Government at Harvard
      BlackRock Asset Management Co., Ltd. University, the Financial Institutions Center
      Currently, Co-Chairman of the Board of Board of the Wharton School of the University
      Trustees of Mount Sinai-New York University of Pennsylvania, a Trustee of Trinity School in
      Medical Center and Health System and a New York City and a Trustee of New Visions
      Member of the Board of Phoenix House. for Public Education in New York City.
        Formerly, a Director of Pulte Corporation and
        a Member of Fannie Mae’s Advisory Council.
 
      Chairman and Chief Executive Officer of Director and President of the Advisor.
      the Advisor.  

15

THE BLACKROCK PENNSYLVANIA STRATEGIC MUNICIPAL TRUST

INVESTMENT SUMMARY

The Trust’s Investment Objectives

The BlackRock Pennsylvania Strategic Municipal Trust’s investment objectives are to provide current income that is exempt from regular Federal and Pennsylvania income taxes and to invest in municipal bonds that over time will perform better than the broader Pennsylvania municipal bond market.

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 of the largest publicly traded investment management firms in the United States with $239 billion of assets under management as of December 31, 2001. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of equity, fixed income, liquidity and alternative investment separate accounts and mutual funds, including BlackRock Funds and BlackRock Provident Institutional Funds. In addition, BlackRock provides risk management and investment system services to institutional investors under the BlackRock Solutions name. Clients are served from BlackRock’s headquarters in New York City, as well as offices in Wilmington, DE, San Francisco, Boston, Edinburgh, Tokyo, and Hong Kong. BlackRock is a member of The PNC Financial Services Group (NYSE: PNC), one of the largest diversified financial services organizations in the United States, and is majority-owned by PNC and by BlackRock employees.

What Can The Trust Invest In?

Under normal conditions, the Trust expects to continue to manage its assets so that at least 80% of its investments are rated at least investment grade (“BBB” by Standard & Poor’s or “Baa” by Moody’s Investor Services) and up to 20% of its assets are rated below investment grade (“Ba/BB” or “B”) or that are unrated but deemed to be of comparable quality by the Advisor. The Trust intends to invest primarily all of the assets in a portfolio of Pennsylvania Municipal Obligations, which include debt obligations issued by the State of Pennsylvania, its political subdivisions, agencies and instrumentalities and by other qualifying issuers that pay interest which, in the opinion of the bond counsel of the issuer, is exempt from Federal and Pennsylvania income taxes.

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 in Pennsylvania Municipal Obligations or other municipal bonds. 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 10-15 years, but the average maturity 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 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 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 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 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 stock. 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 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 and Pennsylvania income taxes and to invest in municipal bonds that over time will perform better than the broader Pennsylvania 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 stock, 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: BPS) 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 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 PENNSYLVANIA 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: Shareholders may have all dividends and distributions of capital gains automatically reinvested into additional shares of a Trust.

Market Price: Price per share of a security trading in the secondary market. For a closed-end fund, this is the price at which one share of the 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 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  
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  
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

Trustees
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
Officers
Ralph L. Schlosstein, President
Robert S. Kapito, Vice 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
One 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
Four Times Square
New York, NY 10036
Legal Counsel – Independent Trustees
Debevoise & Plimpton
919 Third Avenue
New York, NY 10022
   This report is for shareholder information. This is not
a prospectus intended for use in the purchase or sale of
Trust shares. Statements and other information con-
tained in this report are as dated and are subject to
change.
      The BlackRock Pennsylvania Strategic
               Municipal Trust
         c/o BlackRock Advisors, Inc.
            100 Bellevue Parkway
            Wilmington, DE 19809
               (800) 227-7BFM

 

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