- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
SEMI-ANNUAL REPORT
DECEMBER 31, 1998
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--140.8%
MORTGAGE PASS-THROUGHS--15.5%
$ 1,466 Federal Home Loan Mortgage Corp.,
6.50%, 04/01/28-09/01/28 ................ $ 1,476,147
5,940 Federal Housing Administration,
Massachusetts St. Housing
Finance Agency, Series A,
6.85%, 10/01/20 ......................... 6,206,825
Federal National Mortgage
Association,
140,000 6.50%, (TBA) ............................ 140,918,750
13,947 ++ 7.00%, 05/01/24-11/01/28 ................ 14,226,433
------------
162,828,155
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--7.8%
AAA 291 Collateralized Mortgage
Securities Corp.,
Series F, Class F-4A,
11/01/15 ................................ 303,696
Federal Home Loan Mortgage
Corp., Multiclass
Mortgage Participation
Certificates,
12,107 Series G-30, Class G-30-J,
02/25/23 (I)............................. 1,781,609
10,034 Series G-32, Class G-32-PT,
02/25/19 (I)............................. 986,323
16,677 Series 1261, Class 1261-H,
08/15/19 ................................ 16,711,324
1,045 Series 1360, Class 1360-PT,
12/15/17 (ARM)........................... 1,046,097
475 Series 1563, Class 1563-SB,
08/15/08 (ARM).......................... 474,973
1,268 Series 1606, Class 1606-SB,
11/15/08 (ARM) ......................... 1,307,123
195 Series 1663, Class 1663-A,
07/15/23 (ARM) ......................... 196,570
4,579 Series 1671, Class 1671-KD,
02/15/24 (ARM) ......................... 4,597,481
657 Series 1686, Class 1686-PK,
04/15/23 ............................... 649,492
5,071 Series 1970, Class 1970-PN,
06/15/15 (I) ........................... 193,969
Federal National Mortgage
Association, REMIC
Pass-Through Certificates,
15,000 Trust 1992-43,
Class 43-E, 04/25/22 ...................... 15,581,700
1,500 Trust 1993-G17, Class 17-SH,
04/25/23 (ARM) .......................... 1,401,810
354 Trust 1993-117, Class 117-S,
07/25/08 (ARM) .......................... 341,810
6,104 Trust 1993-141, Class 141-PW,
06/25/18 (I) ............................ 429,230
4,217 Trust 1993-178, Class 178-SC,
09/25/23 (ARM) .......................... 4,322,823
3,216 Trust 1993-196, Class 196-SM,
10/25/08 (ARM) .......................... 2,991,629
3,038 Trust 1993-214, Class 214-SO,
12/25/08 (ARM) .......................... 3,007,713
6,777 Trust 1994-54, Class 54-B,
11/25/23 (P). . ......................... 6,397,668
9,351 Trust 1996-T6, Class T6-C,
02/26/01 . .............................. 9,368,060
2,329 Trust 1996-T6, Class T6-D,
02/26/01 . .............................. 2,346,555
3,838 Trust 1998-38, Class 38-S,
01/08/12 (P). . . ....................... 4,064,205
26,750 Trust 1998-48, Class 48-J,
11/25/27 (I) ............................ 3,092,988
5,859 Government National Mortgage
Association, REMIC,
Trust 1994-1, Class 1-PL,
06/16/24 (I) . . ........................ 978,957
------------
82,573,805
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES--12.9%
BBB 10,000 CBA Mortgage Corp.,
Series 1993-C1, Class D,
7.76%, 12/25/03 ........................... 9,900,000
AA+ 3,444 Central Life Assurance Co.,
Series 1994-1, Class A2,
8.90%, 12/31/20 ........................... 3,531,020
AAA 125,391 Credit Suisse First Boston Mortgage,
Series 1997, Class C-1,
04/20/22 (I/O)#. .......................... 12,468,678
DLJ Mortgage Acceptance Corp.,
Series 1998-3, Class 1A,
AAA 24,532 6.75%, 09/19/28 .......................... 24,605,264
AAA 24,723 6.50%, 09/19/28 .......................... 24,669,160
Merrill Lynch Mortgage Investments Inc.,
AAA 38,322 Series 1996-2, Class 2C,
11/21/28 (I/O) ........................... 2,916,064
AAA 67,756 Series 1997-2, Class 2C,
12/10/29 (I/O) ........................... 4,959,806
AAA 48,442 Series 1998-2, Class 2C,
02/15/30 (I/O) ........................... 3,944,267
See Notes to Financial Statements.
1
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED
SECURITIES--(CONT'D)
Morgan Stanley Capital Inc.,
AAA $115,967 Series 1998, Class X,
02/15/18 (I/O). ......................... $ 7,315,563
AAA 100,367 Series 1998, Class C,
04/15/23 (I/O) ........................... 4,524,418
AAA 5,200 PaineWebber Mortgage
Acceptance Corp.,
Series 1995-M1, Class A,
6.70%, 01/15/07# ......................... 5,305,460
Resolution Trust Corp.,
AA 8,050 Series 1994-C1, Class C,
8.00%, 06/25/26 .......................... 8,115,406
A 5,490 Series 1994-C2, Class D,
8.00%, 04/25/25 .......................... 5,503,375
AA 4,503 Salomon Brothers Mortgage
Acceptance Corp.,
Series 1997-TZH,
Class A1, 7.15%, 03/25/25# ................ 4,659,717
AAA 12,800 Structured Asset Securities Corp.,
Series 1996-CFL, Class
B, 6.30%, 02/25/28 ........................ 12,890,424
------------
135,308,622
------------
CORPORATE BONDS--28.6%
BANKING AND FINANCE--16.0%
BBB 10,000 AT&T Corporation,
5.74%, 06/30/01 ........................... 9,686,582
A3 1,300 Amsouth Bancorporation,
6.75%, 11/01/25 ........................... 1,340,056
A- 5,000 Aristar Inc.,
7.25%, 06/15/01 ........................... 5,174,100
Associates Corp.,
AA- 5,000 6.68%, 07/25/00 ........................... 5,093,100
AA- 5,000 7.46%, 03/28/00 ........................... 5,117,450
BBB- 9,000 Capital One Bank Medium Term,
6.26%, 05/07/01 ........................... 8,986,666
A- 15,000 Donaldson, Lufkin & Jenrette,
5.625%, 02/15/16 .......................... 14,964,450
A+ 6,750 Goldman Sachs Group LP,
6.20%, 12/15/00# .......................... 6,838,155
A3 5,000 Great Western Financial Corp.,
6.375%, 07/01/00 . ........................ 5,053,500
Lehman Brothers Inc.
A 8,000 6.75%, 09/24/01 . ......................... 8,068,991
A 10,000 7.25%, 04/15/03 . ......................... 10,236,462
A1 5,700 Meridian Bancorp Inc.,
6.625%, 06/15/00 .......................... 5,783,231
AA- 10,715 Merrill Lynch & Co. Inc.,
5.75%, 11/12/02 ........................... 10,677,704
Aa3 3,800 Morgan Stanley Inc.,
5.75%, 02/15/01 ........................... 3,825,194
Aa2 10,000 NationsBank Corp.,
7.00%, 09/15/01 ........................... 10,390,400
A+ 5,000 Prudential Funding Corp.,
6.00%, 05/11/01# .......................... 5,059,769
Aa3 12,500 Salomon Inc.,
6.625%, 11/30/00 .......................... 12,742,000
Salomon Smith Barney Holdings Inc.,
Aa3 13,000 5.875%, 02/01/01 .......................... 13,093,600
Aa3 3,600 7.00%, 05/15/00 ........................... 3,670,524
Aa3 1,925 Security Pacific Corp.,
11.00%, 03/01/01 .......................... 2,137,184
A- 15,000 Transamerica Finance Corp.,
6.75%, 06/01/00 ........................... 15,192,150
A2 5,000 Union Planters National Bank,
6.76%, 10/30/01 ........................... 5,150,125
------------
168,281,393
------------
INDUSTRIAL--3.9%
BBB 7,500 Erac Usa Finance Co.,
7.00%, 06/15/00# .......................... 7,533,618
A1 10,000 Ford Motor Credit Co.,
6.18%, 12/27/01 ........................... 10,204,300
BBB- 6,000 RJR Nabisco Brands Inc.,
8.00%, 07/15/01 ........................... 6,026,100
Sears Roebuck & Co.,
A2 4,250 6.50%, 06/15/00 ........................... 4,315,153
A2 5,000 7.29%, 04/24/00 ........................... 5,105,598
Baa1 3,500 Tenneco Credit Corp.,
8.075%, 10/01/02 .......................... 3,649,415
BBB+ 4,550 WMX Technologies Inc.,
7.125%, 06/15/01 .......................... 4,677,575
------------
41,511,759
------------
UTILITIES--1.4%
BBB 9,000 Pacificorp Holdings Inc.,
6.75%, 04/01/01# .......................... 9,179,550
BBB+ 5,000 Potomac Capital Corp.,
6.73%, 08/09/99# .......................... 5,022,600
------------
14,202,150
------------
YANKEE--7.3%
African Development Bank,
Aa1 5,000 7.75%, 12/15/01 ........................... 5,302,048
Aaa 3,350 8.625%, 05/01/01 .......................... 3,585,748
BBB- 3,000 Colombia (Republic of),
8.00%, 06/14/01 ........................... 2,865,000
BBB- 15,000 Empresa Electric Guacolda,
7.60%, 04/30/01# .......................... 14,379,954
A 4,000 Household Finance Corp.,
7.45%, 04/01/00 ........................... 4,079,960
A+ 18,000 Quebec (Province of),
9.125%, 08/22/01 .......................... 19,425,600
BBB- 12,000 Transpatadora de Gas,
10.25%, 04/25/01 .......................... 12,240,000
N/R 15,000 US Remittance Master Trust,
7.57%, 01/01/01# .......................... 14,957,813
------------
76,836,123
------------
See Notes to Financial Statements.
2
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--11.8%
N/R $ 3,977@ Amresco Securitized Interest,
Series 1996-1, Class A,
8.10%, 04/26/26# .......................... $ 3,855,071
AAA 22,687 Brazos Student Finance Corp.,
Series 1998-A, Class A,
06/01/06 .................................. 22,456,323
Broad Index Secured Trust Offering,
Baa2 10,000 6.58%, 03/26/01# .......................... 9,889,518
Baa2 10,000 7.14%, 09/09/01 ........................... 9,885,000
AAA 13,266 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 09/15/06 ........................... 13,382,364
AAA 35,000@ Citibank Credit Card Trust,
Series 1996-1, Class A,
5.79%, 02/07/03 ........................... 31,281,250
N/R 6,028 Global Rated Eligible Asset,
Series 1998-1, Class A,
7.33%, 09/05/07#/## ....................... 4,184,940
AAA 1,394 NationsBank Auto Grantor Trust,
Series 1995-A, Class A,
5.85%, 06/15/02 ........................... 1,396,626
A 10,000 Newcourt Equipment Trust,
Series 1998-1, Class B,
5.97%, 04/20/05 ........................... 9,934,375
AAA 5,750 Standard Credit Card Master Trust,
Series 1995-3, Class A,
7.85%, 02/07/02 ........................... 5,935,082
Structured Mortgage Asset,
Residential Trust, #/##
N/R 10,059 Series 1997-2,
8.24%, 03/15/06 ........................... 6,085,609
N/R 11,017 Series 1997-3,
8.57%, 04/15/06 ........................... 6,095,543
------------
124,381,701
------------
STRIPPED MORTGAGE-BACKED
SECURITIES -- 3.9%
AAA 2,082 Bear Stearns Secured Investments,
12/01/18 (P/O) ............................ 2,657,353
Collateralized Mortgage Securities Corp.,
AAA 1,042 Series 1990-5, Class 5-L,
09/20/20 (I/O) ............................ 31,603
AAA 2,691 Series 1991-9, Class M,
11/20/21 (I/O) ............................ 411,730
Federal Home Loan Mortgage Corp.,
13,971 Series G-3, Class G-3-S,
04/25/19 (I/O) ............................ 595,706
4,565 Series 113, Class 113-M,
05/15/21 (I/O) ........................... 1,074,979
10,774 Series 181, Class 181-F,
08/15/21 (I/O) ............................ 1,469,118
899 Series 1125, Class 1125-F,
08/15/21 (I/O) ............................ 234,081
572 Series 1338, Class 1338-Q,
08/15/07 (P/O) ............................ 509,273
4,700 Series 1360, Class 1360-PT,
12/15/17 (I/O) .......................... 304,521
4,700 Series 1378, Class 1378-DA,
01/15/18 (I/O) ......................... 605,651
2,230 Series 1388, Class 1388-G,
05/15/06 (I/O) ......................... 340,156
2,668 Series 1404, Class 1404-E,
01/15/06 (I/O) ......................... 248,687
12,824 Series 1621, Class 1621-SJ,
10/15/20 (I/O) ......................... 438,442
5,868 Series 1662, Class 1662-PO,
01/15/09 (P/O) ......................... 4,861,679
30,859 Series 2056, Class 2056-IB,
04/15/21 (I/O) ......................... 3,548,785
Federal National Mortgage Association,
2,090 Trust 5, Class 1,
09/25/07 (P/O) .......................... 1,802,022
1,452 Trust 25, Class 2,
02/25/13 (I/O) .......................... 139,704
945 Trust 60, Class 1,
01/01/19 (P/O) .......................... 793,916
1,200 Trust 1990-76, Class 76-N,
07/25/20 (I/O) .......................... 30,568
1,500 Trust 1990-106, Class 106-K,
09/25/20 (I/O) .......................... 240,094
387 Trust 1991-G44, Class G44-H,
11/25/21 (P/O) .......................... 368,284
660 Trust 1991-29, Class 29-J,
04/25/21 (I/O) .......................... 204,991
1,900 Trust 1991-80, Class 80-Q,
07/25/21 (I/O) .......................... 570,300
9,875 Trust 1992-G45, Class G45-2,
08/25/22 (I/O) .......................... 2,226,743
29 Trust 1993-152, Class 152-D,
08/25/23 (P/O) .......................... 28,828
1,162 Trust 1993-222, Class 222-B,
07/25/22 (P/O) .......................... 1,144,198
16,999 Trust 1993-257, Class 257-A,
06/25/23 (P/O) .......................... 15,910,852
37,338 Trust 1997-37, Class 37-SX,
08/18/18 (I/O) .......................... 374,067
4,657 Merrill Lynch Trust,
Series 43, Class F,
08/27/15 (I/O) ........................... 461,050
-----------
41,627,381
-----------
U.S. GOVERNMENT AND
AGENCY SECURITIES--35.3%
U.S. Treasury Bonds,
71,000 3.625%, 04/15/28 (CPI) .................... 69,826,604
35,000+ 6.125%, 11/15/27 .......................... 39,177,950
U.S. Treasury Notes,
150,000+ 4.50%, 09/30/00 ........................... 149,671,500
13,575+ 6.125%, 08/15/07 .......................... 14,826,479
30,000 6.50%, 10/15/06 ........................... 33,276,600
See Notes to Financial Statements.
3
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND
AGENCY SECURITIES--(CONT'D)
$ 70,555 Government Trust Certificates,
Israel Trust, Zero Coupon,
11/15/00 .................................. $ 64,403,486
-------------
371,182,619
-------------
TAXABLE ZERO COUPON BONDS--11.3%
133,000+ U.S. Treasury Receipt,
05/15/01 .................................. 119,371,490
-------------
TAXABLE MUNICIPAL BONDS--2.6%
AAA 1,000 Kern County California Pension
Obligation, 6.27%, 08/15/01 ............... 1,024,740
AAA 2,035 Long Beach California Pension
Obligation, 6.45%, 09/01/01 ............... 2,095,073
AAA 6,000 Los Angeles County
California Pension Obligation,
Series D, 6.38%, 06/30/01 ................. 6,157,260
New York City, G.O., Series 1,
A- 5,000 6.40%, 03/15/01 . ......................... 5,091,200
A- 5,000 7.24%, 04/15/01 ........................... 5,183,100
Baa1 1,000 New York State Environmental
Facility Auth.,Series A,
6.62%, 03/15/01 ........................... 1,023,760
Baa1 3,345 New York State Housing
Finance Agency, Series B,
7.14%, 09/15/02 ........................... 3,513,153
Baa1 2,000 New York State Urban Development
Corp., Series B,
6.90%, 04/01/01 ........................... 2,060,060
AA 1,000 St. Joseph's Health System
California, Series A,
7.02%, 07/01/01 ........................... 1,037,910
-------------
27,186,256
-------------
STRIPPED MONEY MARKET
INSTRUMENTS--10.0%
AAA 65,000 Aim Prime Money Market Portfolio,
Zero Coupon, 01/02/01 ..................... 59,414,030
A 50,000 Goldman Sachs Money Market,
Zero Coupon, 01/02/01 ..................... 45,685,550
-------------
105,099,580
-------------
NOTIONAL
AMOUNT
(000)
-------
CALL OPTIONS PURCHASED--1.1%
Interest Rate Swap,
$200,000 5.60% over 3 month LIBOR,
expires 08/07/00 ........................ 6,808,020
103,000 5.85% over 3 month LIBOR,
expires 08/07/00 ........................ 4,493,365
-------------
11,301,385
-------------
Total long-term investments
(cost $1,480,743,049) .................... 1,481,692,419
-------------
SHORT-TERM INVESTMENT--2.6%
DISCOUNT NOTE--2.6%
27,200 Federal Home Loan
Mortgage Corp., 4.68%,
01/04/99 (cost $27,199,796) ............... $ 27,199,796
------------
Total investments before
call option written and
investments sold short -- 143.4%
(cost $1,507,942,845) ..................... 1,508,892,215
CALL OPTION WRITTEN--(0.7%)
$(320,000) Interest Rate Swap,
3 month LIBOR over 5.25%,
expires 08/10/99
(premium received $1,960,000) ............. (7,105,280)
------------
PRINCIPAL
AMOUNT
(000)
-------
INVESTMENTS SOLD SHORT--(5.4%)
$(10,000) U.S. Treasury Bonds,
5.50%, 08/15/28 ........................... (10,467,200)
U.S. Treasury Notes,
(19,800) 4.70%, 11/15/08 ........................... (19,954,638)
(25,000) 5.625%, 05/15/08 .......................... (26,675,750)
------------
Total investments sold short
(proceeds $57,055,239) ................... (57,097,588)
------------
Total investments net of
call option written and
investments sold short--137.3% .......... 1,444,689,347
Liabilities in excess of other
assets -- (37.3%) ....................... (392,638,321)
-------------
NET ASSETS-- 100% ........................... $1,052,051,026
==============
- ---------
* Using the higher of Standard & Poor's or Moody's rating.
# Security restricted as to resale
## Illiquid securities representing 1.08% of portfolio assets.
+ Partial principal amount pledged as collateral for reverse repurchase
agreements. See Note 4.
++ Includes mortgage dollar roll of $12,240,000, see Note 4.
@ Partial principal amount pledged as collateral for financial futures
transactions.
- -------------------------------------------------------------------------------
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
CPI -- Consumer Price Index.
G.O. -- General Obligation Bond.
I -- Denotes a CMOwith Interest only characteristics.
I/O -- Interest Only. LIBOR -- London InterBank Offer Rate.
P -- Denotes a CMO with Principal only characteristics.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
TBA -- To Be Allocated.
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
4
<PAGE>
- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $1,507,942,845)
(Note 1) .............................................. $ 1,508,892,215
Cash ..................................................... 15,812
Deposits with brokers as collateral for
investments sold short (Note 1) ....................... 57,334,250
Interest receivable ...................................... 12,164,662
Unrealized appreciation on interest rate swaps
(Notes 1 & 3) ......................................... 887,854
Receivable for investments sold .......................... 203,256
---------------
1,579,498,049
---------------
LIABILITIES
Reverse repurchase agreements (Note 4) ................... 262,093,500
Payable for investments purchased ........................ 155,195,718
Investments sold short, at value
(proceeds $57,055,239) (Note 1) ....................... 57,097,588
Income distribution payable .............................. 31,000,000
Interest rate caps, at value
(unamortized premium $1,035,412) (Note 1) ............. 5,535,775
Call option written, at value
(premium received $1,960,000) (Note 1) ................ 7,105,280
Due to broker-variation margin ........................... 158,338
Due to Parent (Note 2) ................................... 9,260,824
---------------
527,447,023
---------------
NET ASSETS ............................................... $ 1,052,051,026
===============
Net assets were comprised of:
Common stock, at par (Note 5) ......................... $ 1,420,106
Paid-in capital in excess of par ...................... 1,012,807,310
---------------
1,014,227,416
Undistributed net investment income ................... 36,603,454
Accumulated net realized gain ......................... 11,781,583
Net unrealized depreciation ........................... (10,561,427)
---------------
Net assets, December 31, 1998 ......................... $ 1,052,051,026
===============
Net asset value per share:
($1,052,051,026 / 142,010,583 shares of
common stock issued and outstanding) .................. $7.41
=======
- -------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of interest expense of
$7,248,604) $ 32,587,301
------------
Expenses
Investment advisory ....................................... 2,178,916
Administration ............................................ 544,729
Custodian ................................................. 107,000
Audit ..................................................... 59,000
Directors ................................................. 37,000
Legal ..................................................... 31,500
Miscellaneous ............................................. 31,000
------------
Total Expenses .......................................... 2,989,145
------------
Net investment income before excise tax ...................... 29,598,156
Excise tax ................................................ 1,949,996
------------
Net investment income ........................................ 27,648,160
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ................................................ 9,593,654
Short sales ................................................ (4,768,082)
Options ................................................... (90,792)
Swaps ..................................................... 2,740,107
Futures .................................................... 5,719,359
------------
13,194,246
------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ 297,867
Options written ............................................ (6,337,816)
Short sales ............................................... (42,349)
Swaps ..................................................... 1,778,637
Interest rate caps ........................................ (2,389,115)
Futures ................................................... (1,761,987)
------------
(8,454,763)
------------
Net gain on investments ...................................... 4,739,483
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... $ 32,387,643
============
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received, net of interest purchased .......... $ 37,305,912
Interest expense paid ................................. (7,248,604)
Purchase of short-term portfolio
investments net ..................................... (27,199,796)
Purchase of long-term portfolio investments ........... (1,494,029,110)
Proceeds from disposition of long-term
portfolio investments ............................... 1,280,550,724
---------------
Net cash flows used for operating activities .......... (210,620,874)
---------------
Cash flows provided by financing activities--
Increase in reverse repurchase agreements ............. 210,429,000
---------------
Net decrease in cash ..................................... (191,874)
Cash at beginning of period .............................. 207,686
---------------
Cash at end of period .................................... $ 15,812
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH FLOWS
USED FOR OPERATING ACTIVITIES
Net increase in net assets resulting
from operations .......................................... $ 32,387,643
---------------
Increase in investments .................................. (387,216,674)
Net realized gain ........................................ (13,194,246)
Increase in unrealized depreciation ...................... 8,454,763
Increase in interest receivable .......................... (1,746,350)
Increase in deposits with brokers ........................ (55,969,250)
Increase in unrealized appreciation on
interest rate swaps ................................... (1,778,637)
Decrease in receivable for investments sold .............. 1,980,213
Increase in options written .............................. 4,196,559
Increase in payable for investments purchased ............ 132,792,134
Increase in interest rate caps ........................... 2,389,115
Increase in broker-variation margin ...................... 5,440,923
Increase in payable for investments sold short ........... 57,097,588
Increase in due to Parent ................................ 4,545,345
---------------
Total adjustments ........................................ (243,008,517)
---------------
Net cash flows used for operating activities ............. $(210,620,874)
===============
- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE PERIOD
OCTOBER 17, 1997
FOR THE SIX (COMMENCEMENT
MONTHS ENDED OF OPERATIONS) TO
DECEMBER 31, 1998 JUNE 30, 1998
----------------- ----------------
INCREASE (DECREASE) IN
IN NET ASSETS
Operations:
Net investment income ............. $ 27,648,160 $ 39,955,294
Net realized gain (loss) .......... 13,194,246 (1,412,663)
Net change in unrealized
depreciation ................... (8,454,763) (2,106,664)
--------------- ---------------
Net increase in net assets
resulting from
operations ..................... 32,387,643 36,435,967
Dividends to Parent .................. (31,000,000) --
Transfer of assets
from BlackRock 2001
Term Trust Inc. in
exchange for
shares issued ...................... -- 1,014,227,416
--------------- ---------------
Total increase ....................... 1,387,643 1,050,663,383
NET ASSETS
Beginning of period .................. 1,050,663,383 --
--------------- ---------------
End of period ........................ $1,052,051,026 $1,050,663,383
=============== ===============
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS OCTOBER 17, 1997*
ENDED THROUGH
DECEMBER 31, 1998 JUNE 30, 1998
----------------- --------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 7.40 $ 7.14
---------- ----------
Net investment income (net of $0.05 and $0.12,
respectively, of interest expense) 0.20 0.28
Net realized and unrealized gain (loss) 0.03 (0.02)
---------- ----------
Net increase from investment operations 0.23 0.26
---------- ----------
Dividends from net investment income (0.22) --
---------- ----------
Net asset value, end of period $ 7.41 $ 7.40
========== ==========
TOTAL INVESTMENT RETURN+: 3.11% 3.64%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses** 0.55%++ 0.56%++
Net investment income 5.09%++ 5.54%++
SUPPLEMENTAL DATA:
Average net assets (in thousands) $1,077,616 $1,024,887
Portfolio turnover 100% 182%
Net assets, end of period (in thousands) $1,052,051 $1,050,663
Reverse repurchase agreements outstanding,
end of period (in thousands) $ 262,094 $ 51,665
Asset coverage+++ $ 5,014 $ 21,336
</TABLE>
- -------------
* Commencement of operations.
** The ratios of operating expenses, including interest expense, to average
net assets were 1.88%++ and 3.01%++, respectively, for the periods
indicated above. The ratios of operating expenses, including interest
expense and excise tax, to average net assets were 2.24%++ and 3.10%++,
respectively, for the periods indicated above.
+ This entity is not publicly traded and therefore total investment return is
calculated assuming a purchase of common stock at the current net asset
value on the first day and a sale at the current net asset value on the
last day of each period reported. Dividends are assumed, for purposes of
this calculation, to be reinvested. Total investment return for periods of
less than one full year are not annualized.
++ Annualized.
+++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the unaudited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the periods indicated. This
information has been determined based upon financial information provided in the
financial statements.
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
BLK Subsidiary, Inc. (the "Trust") was incorporated under the laws of the state
of Maryland on October 17, 1997, and is a diversified closed-end management
investment company. The Trust was incorporated solely for the purpose of
receiving all or a substantial portion of the assets of The BlackRock 2001 Term
Trust Inc. ("BLK"), incorporated under the laws of the State of Maryland and as
such, a wholly-owned subsidiary of BLK. The Trust's investment objective is to
manage a portfolio of investment grade fixed income securities while providing
cash flow definition to BLK. No assurance can be given that the Trust's
investment objective will be achieved.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair market value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors.
Short-term securities which mature in 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase is 60 days or less.
Short-term securities with a term to maturity greater than 60 days from the date
of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a
targeted duration. Duration is a measure of the price sensitivity of a security
or a portfolio to relative changes in interest rates. For instance, a duration
of "one" means that a portfolio's or a security's price would be expected to
change by approximately one percent with a one percent change in interest rates,
while a duration of five would imply that the price would move approximately
five percent in relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position
8
<PAGE>
at the exercise price at any time or at a specified time during the option
period. Put options can be purchased to effectively hedge a position or a
portfolio against price declines if a portfolio is long. In the same sense, call
options can be purchased to hedge a portfolio that is shorter than its benchmark
against price changes. The Trust can also sell (or write) covered call options
and put options to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) overtime.
During the term of the swap, changes in the value of the swap are recognized as
unrealized gains or losses by "marking-to-market" to reflect the market value of
the swap. When the swap is terminated, the Trust will record a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the swap. However, the Trust does not anticipate non-performance
by any counterparty.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of purchasing the right to buy a security, the purchaser of the swap
option has the right to enter into a previously agreed upon interest rate swap
agreement at any time before the expiration of the option. Premiums received or
paid from writing or purchasing options which expire unexercised are treated by
the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commissions, is also treated
as a realized gain or loss. If an option is exercised, the premium paid or
received is added to the proceeds from the sale or cost of the purchase in
determining whether the Trust has realized a gain or a loss on investment
transactions. The Trust, as writer of an option, bears the market risk of an
unfavorable change in the value of the swap contract underlying the written
option. Interest rate swap options may be used as part of an income producing
strategy reflecting the view of the Trust's management on the direction of
interest rates.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at the risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securi-
9
<PAGE>
ties owned. When the Trust makes a short sale, it may borrow the security sold
short and deliver it to the broker-dealer through which it made the short sale
as collateral for its obligation to deliver the security upon conclusion of the
sale. The Trust may have to pay a fee to borrow the particular securities and
may be obligated to pay over any payments received on such borrowed securities.
A gain, limited to the price at which the Trust sold the security short, or a
loss, unlimited as to dollar amount, will be recognized upon the termination of
a short sale if the market price is greater or less than the proceeds originally
received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the six months ended December 31, 1998.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized gains and losses are calculated on the
identified cost basis. Interest income is recorded on the accrual basis and the
Trust amortizes premium and accretes discount on securities purchased using the
interest method. Expenses are recorded on the accrued basis which may require
the use of certain estimates by management. TAXES: It is the Trust's intention
to continue to meet the requirements of the Internal Revenue Code applicable to
regulated investment companies and to distribute substantially all of its
taxable income to shareholders. Therefore, no federal income tax provision is
required. As part of its tax planning strategy, the Trust intends to retain a
portion of its taxable income and pay an excise tax on the undistributed amount.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the excess
, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short-term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short-term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate
swaps, except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. Owning
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The effect on
income involves protection from falling short term rates, which the Trust
experiences primarily in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
10
<PAGE>
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Adviser") a wholly-owned corporate subsidiary of PNC
Asset Management Group, Inc., the holding company for PNC's asset management
business, and an Administration Agreement with Mitchell Hutchins Asset
Management Inc. (the "Administrator"), a wholly-owned subsidiary of PaineWebber
Incorporated.
The Trust reimburses the 2001 Term Trust for its pro-rata share of applicable
expenses, including investment advisory and administrative fees, in an amount
equal to the proportionate amount of net assets which are held by the Trust
relative to the net assets of the 2001 Term Trust.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the six months ended December 31, 1998 aggregated
$1,681,212,100 and $1,326,709,723, respectively.
During the period ended June 30, 1998, the Trust received investments valued
at $1,014,227,416 in exchange for common shares of the Trust.
The Trust may invest up to 40% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At December 31, 1998, the Trust
held 1.08% of its portfolio assets in illiquid securities all of which were
restricted as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates, including Midland Loan
Services,Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Securities, Inc.
The federal income tax basis of the Trust's investments at December 31, 1998
was substantially the same as the basis for financial reporting and accordingly,
net unrealized depreciation for federal income tax purposes was $10,561,427
(gross unrealized appreciation--$53,560,540; gross unrealized
depreciation--$64,121,967).
Details of open financial futures contracts at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE DECEMBER 31, APPRECIATION
CONTRACTS TYPE DATE DATE 1998 (DEPRECIATION)
- ---------- ----- ---------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
SHORT POSITION:
(106) 5 Yr. T-Note Mar. 1999 $(12,131,833) $(12,014,438) $ 117,395
Long position
1,280 30 Yr. T-Bond Mar. 1999 166,388,054 163,560,000 (2,828,054)
-----------
$(2,710,659)
===========
</TABLE>
Details of open caps at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION UNAMORTIZED DECEMBER 31, UNREALIZED
(000) RATE RATE DATE COST 1998 DEPRECIATION
------- ----- -------------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Purchased:
$120,000 6.00% 3 month LIBOR 02/19/02 $2,044,567 $ 681,720 $(1,362,847)
Sold:
(300,000) 3 Yr. CMT 3 month LIBOR0 8/08/01 (1,959,301) (3,814,821) (1,855,520)
(200,000) 3 Yr. CMT 3 month LIBOR0 8/12/01 (1,120,678) (2,402,674) (1,281,996)
----------- -----------
$(5,535,775) $(4,500,363)
=========== ===========
</TABLE>
Details of open interest rate swaps at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL FIXED/ UNREALIZED
AMOUNT FLOATING FLOATING TERMINATION APPRECIATION
(000) TYPE RATE RATE DATE (DEPRECIATION)
------- ----- ----- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Purchased:
$509,250 Interest Rate 6.37% 2 Yr. Forward 07/27/00 $18,519,844
85,000 Floating Rate 3 Mo.T-Bill 3 Mo.LIBOR 09/10/03 (408,000)
+80.25 bps
80,000 Floating Rate 3 Mo.T-Bill 3 Mo.LIBOR 09/10/03 (306,661)
+81.75 bps
50,000 Basis 3 Mo.T-Bill 3 Mo.LIBOR 09/18/03 (145,000)
Sold:
(350,000) INTEREST RATE 6.42% 3 YR. FORWARD 07/27/01 (16,772,329)
-----------
$ 887,854
===========
</TABLE>
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS:
The Trust may enter into reverse repurchase agreements with qualified,
third party broker-dealers as determined by and under the direction of the
Trust's Board of Directors. Interest on the value of the reverse repurchase
agreements issued and outstanding will be based upon competitive market rates at
the time of issuance. At the time the Trust enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with the lender
the value of which at least equals the principal amount of the reverse
repurchase transaction, including accrued interest.
The average daily balance of reverse repurchase agreements outstanding during
the six months ended December 31, 1998, was approximately $285,774,013 at a
weighted average interest rate of approximately 4.27%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during
11
<PAGE>
the six months ended December 31, 1998, was $320,730,000 as of September 30,
1998, which was 18.08% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities.The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The average monthly balance of dollar rolls outstanding during the six months
ended December 31, 1998, was approximately $12,846,620. For the six months ended
December 31, 1998, the maximum amount of dollar rolls outstanding at any month
end was $14,590,875 as of the close of August 31, 1998, which was 0.97% of total
assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. BLK
owned all of the 142,010,583 shares outstanding at December 31, 1998.
<PAGE>
BlackRock
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
The accompanying financial statements as of December 31, 1998 were not
audited and accordingly, no opinion is expressed on them.
BLK SUBSIDIARY, INC.
c/o Mitchell Hutchins Asset Management Inc.
32nd Floor
1285 Avenue of the Americas
New York, NY 10019
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