BLK SUBSIDIARY INC, N-30D, 2000-08-30

BLK SUBSIDIARY INC
N-30D, 2000-08-30

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--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 2000
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--108.1%
MORTGAGE PASS-THROUGHS--1.4%
Federal Home Loan Mortgage Corp.,
$ 1,283@ 6.50%, 4/01/28 - 4/01/29 ............... $ 1,212,348
326 Federal Housing Administration,
Ponds at Punaluu,
7.625%, 4/01/37 ........................ 325,825
Federal National Mortgage
Association,
10,312@ 6.50%, 6/01/23 - 4/01/29 ............... 9,792,007
3,079@ 7.00%, 2/01/24 - 11/01/28 .............. 2,988,136
------------
14,318,316
------------

AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--1.2%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
93 Ser. 1563, Class 1563-S,
10/15/07 ............................. 85,378
88 Ser. 1663, Class 1663-A,
7/15/23 .............................. 85,397
244 Ser. 1686, Class 1686-PK,
4/15/23 .............................. 241,748
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
4,094 Trust 1994-81, Class 81-PE,
6/25/18 .............................. 4,079,665
5,611 Trust 1996-T6, Class T6-C,
2/26/01 .............................. 5,557,430
1,386 Trust 1996-T6, Class T6-D,
2/26/01 .............................. 1,376,547
------------
11,426,165
------------
NON-AGENCY MULTIPLE CLASS
MORTGAGE PASS-THROUGHS--0.1%
AAA 170 Collateralized Mortgage Securities Corp.,
Ser. F, Class F4-A, 11/01/15 ........... 174,588
Aaa 1,000 Structured Asset Mortgage
Investments Inc.,
Ser. 1998-12, Class 12-A1,
2/25/29 .............................. 986,250
------------
1,160,838
------------
ADJUSTABLE & INVERSE
FLOATING RATE MORTGAGES--1.5%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
1,367 Ser. 1454, Class 1454-FB,
4/15/20 .............................. 1,387,029
356 Ser. 1563, Class 1563-SB,
8/15/08 .............................. 348,589
603 Ser. 1592, Class 1592-NE,
12/15/22 ............................. 550,061
876 Ser. 1606, Class 1606-SB,
11/15/08 ............................. 839,073
1,481 Ser. 1617, Class 1617-EB,
9/15/23 .............................. 1,448,239
1,827 Ser. 1671, Class 1671-KB,
2/15/24 .............................. 1,761,346
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
2,247 Trust 1992-155, Class 155-SA,
10/25/05 ............................. 2,248,781
1,500 Trust 1993-G17, Class G17-SH,
4/25/23 .............................. 625,320
230 Trust 1993-117, Class 117-S,
7/25/08 .............................. 220,529
1,719 Trust 1993-178, Class 178-SC,
9/25/23 .............................. 1,799,487
1,859 Trust 1993-196, Class 196-SM,
10/25/08 ............................. 1,585,512
1,111 Trust 1993-214, Class 214-SO,
12/25/08 ............................. 1,076,374
1,408 Trust 1998-38, Class 38-S,
1/18/12 .............................. 1,399,671
------------
15,290,011
------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--0.2%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
3,404 Ser. G3, Class G3-S, 4/25/19 ........... 53,443
3,689 Ser. G32, Class G32-PT,
2/25/19 .............................. 134,857
27 Ser. 113, Class 113-N,
5/15/21 .............................. 802,844
10 Ser. 1388, Class 1388-G,
5/15/06 .............................. 93,134
4 Ser. 1404, Class 1404-E,
1/15/06 .............................. 25,335
6,268 Ser. 1621, Class 1621-SJ,
10/15/20 ............................. 96,589
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
4 Trust 1991-29, Class 29-J,
4/25/21 .............................. 123,705
10 Trust 1991-80, Class 80-Q,
7/25/21 .............................. 297,561
1,890 Trust 1993-141, Class 141-PW,
6/25/18 .............................. 67,653
24,764 Trust 1998-3, Class 3-SC,
2/18/28 .............................. 263,114
------------
1,958,235
------------

See Notes to Financial Statements.

1
<PAGE>

COMMERCIAL MORTGAGE-BACKED
SECURITIES--1.1%
AAA 5,200 PaineWebber Mortgage
Acceptance Corp. IV,
Ser. 1995-M1, Class A,
6.70%, 1/15/07 ** ...................... 5,092,724
Resolution Trust Corp.,
AA 3,168 Ser. 1994-C1, Class C,
8.00%, 6/25/26 ....................... 3,164,441
A 2,885 Ser. 1994-C2, Class D,
8.00%, 4/25/25 ....................... 2,856,608
------------
11,113,773
------------

ASSET-BACKED SECURITIES--13.8%
BBB+ 1,758 Amresco Securitized Interest,
Ser. 1996-1, Class A,
8.10%, 4/26/26 ** ...................... 1,265,495
Broad Index Secured Trust Offering,
Baa2 10,000 6.58%, 3/26/01 ......................... 9,881,866
Baa2 10,000 8.42%, 9/09/01** ....................... 9,965,625
AAA 6,000@ Chase Credit Card Master Trust,
Ser. 1997-2, Class A,
6.30%, 4/15/03 ......................... 5,994,360
AAA 3,182 Chase Manhattan Grantor Trust,
Ser. 1996-B, Class A,
6.61%, 9/15/02 ......................... 3,173,552
AAA 35,000@ Citibank Credit Card Trust,
Ser. 1996-1, Class A,
Zero Coupon, 2/07/03 ................... 33,512,500
NR 5,874+ Global Rated Eligible Asset Trust,
Ser. 1998-A, Class A-1,
7.33%, 3/15/06 **/*** .................. 1,762,130
AAA 35,000 Honda Auto Lease Trust,
Ser. 1999-A, Class A-3,
6.10%, 1/15/02 ......................... 34,721,094
AAA 7,000 IMC Home Equity Loan Trust,
Ser. 1998-3, Class A-9,
5.35%, 6/20/01 ......................... 430,938
AAA 25,000 MBNA Master Credit Card Trust II,
Ser. 1996-D Class A,
6.80%, 9/15/03 ......................... 25,023,250
A 5,587 Newcourt Equipment Trust,
Ser. 1998-1, Class B,
5.97%, 4/20/05 ......................... 5,524,449
Structured Mortgage Asset
Residential Trust, @@/***
NR 9,989+ Ser. 1997-2, 8.24%, 3/15/06 ............ 2,197,641
NR 11,016+ Ser. 1997-3, 8.57%, 4/15/06 ............ 2,423,565
------------
135,876,465
------------

U.S GOVERNMENT SECURITIES--22.2%
U.S. Treasury Bonds,
31,754 3.625%, 4/15/28 (TIPS) ................. 30,265,468
15,000@ 6.125%, 11/15/27 ....................... 14,967,150
U.S. Treasury Notes,
50,000@ 4.50%, 9/30/00 ......................... 49,789,000
25,000@ 5.50%, 7/31/01 ......................... 24,746,000
100,000@ 5.75%, 6/30/01 ......................... 99,266,000
------------
219,033,618
------------

TAXABLE ZERO COUPON BONDS--7.6%
6,785 Coupon Treasury Receipt,
2/15/01 ................................ 6,546,877
Government Trust Certificates,
35,925 Ser. 1-D, 11/15/00 ..................... 35,117,765
34,630 Ser. 2-F, 11/15/00 ..................... 33,851,864
------------
75,516,506
------------

TAXABLE MUNICIPAL BONDS--3.1%
AAA 1,000 Kern County California
Pension Obligation,
6.27%, 8/15/01 ......................... 991,210
AAA 2,035 Long Beach California
Pension Obligation,
6.45%, 9/01/01 ......................... 2,020,369
AAA 6,000 Los Angeles County California
Pension Obligation,
Ser. D, 6.38%, 6/30/01 ................. 5,959,560
NR 4,970 Massachusetts Housing Fin. Agency,
Ser. 1991-B,
6.85%, 10/01/20 ........................ 4,637,805
New York City G.O., Ser. I,
A- 5,000 6.40%, 3/15/01 ......................... 4,975,100
A- 2,155 7.24%, 4/15/01 ......................... 2,154,181
A- 2,845 7.24%, 4/15/01, ETM .................... 2,847,219
A 1,000 New York State Environmental
Facility Auth., Ser. A,
6.62%, 3/15/01 ......................... 994,280

See Notes to Financial Statements.

2
<PAGE>

--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (CONTINUED)
A $ 3,345 New York State Housing Fin. Agency,
Ser. B, 7.14%, 9/15/02 ................. $ 3,318,374
A 2,000 New York State Urban
Dev. Corp., Ser. B,
6.90%, 4/01/01 ......................... 1,991,740
AAA 1,000 St. Josephs Health Systems California,
Ser. A, 7.02%, 7/01/01 ................. 998,110
------------
30,887,948
------------
CORPORATE BONDS--43.2%
FINANCE & BANKING--25.1%
A3 1,300@ Amsouth Bancorp.,
6.75%, 11/01/25 ........................ 1,224,938
A- 5,000 Aristar, Inc.,
7.25%, 6/15/01 ......................... 4,962,200
Aa3 5,000 Associates Corp.,
6.68%, 7/25/00 ......................... 5,000,400
AT&T Corp.,
A+ 10,000 5.74%, 6/30/01 ......................... 9,820,200
A+ 11,600 6.25%, 5/15/01 ......................... 11,465,440
Baa2 9,000 Capital One Bank,
6.26%, 5/07/01 ......................... 8,856,180
Case Credit Corp.,
BBB 2,150 5.85%, 2/20/01 ......................... 2,131,746
BBB 10,400 5.91%, 2/19/01 ......................... 10,315,760
BBB 11,200 6.24%, 11/06/00 ........................ 11,166,288
Comdisco Inc.,
BBB+ 5,000 5.75%, 2/15/01 ......................... 4,940,100
BBB+ 21,000 6.10%, 6/05/01 ......................... 20,718,600
BBB+ 10,000 6.68%, 6/29/01 ......................... 9,920,000
A- 15,000 Donaldson, Lufkin & Jenrette,
5.625%, 2/15/16 ........................ 14,807,550
BBB- 10,000 Franchise Finance Corp.,
7.00%, 11/30/00 ........................ 9,965,700
A+ 6,750 Goldman Sachs Group,
6.20%, 12/15/00 ** ..................... 6,723,810
A3 5,000 Great Western Financial Corp.,
6.375%, 7/01/00 ........................ 4,999,900
Lehman Brothers Holdings, Inc.,
A 8,000 6.75%, 9/24/01 ......................... 7,912,382
A 10,000 7.25%, 4/15/03 ......................... 9,822,662
AA- 10,715 Merrill Lynch & Co., Inc.,
5.75%, 11/04/02 ........................ 10,373,350
AA- 3,800 Morgan Stanley Dean Witter
Discover, Inc.,
5.75%, 2/15/01 ......................... 3,767,662
Aa2 10,000 Nations Bank Corp.,
7.00%, 9/15/01 ......................... 9,962,200
BBB+ 10,000 PaineWebber Group Inc.,
5.81%, 6/08/01 ......................... 9,813,719
A3 10,000 Popular Inc., 6.20%, 4/30/01 ............. 9,873,100
A+ 5,000 Prudential Funding Corp.,
6.00%, 5/11/01** ....................... 4,948,900
BBB+ 6,590 Ryder Systems Inc.,
9.25%, 5/15/01 ......................... 6,638,395
Salomon Smith Barney Holdings Inc.,
Aa3 13,000 5.875%, 2/01/01 ........................ 12,900,030
Aa3 12,500 6.625%, 11/30/00 ....................... 12,479,125
Aa3 1,925 Security Pacific Corp.,
11.00%, 3/01/01 ........................ 1,969,083
BB 5,500 Trinet Corporate Realty Trust,
7.30%, 5/15/01 ......................... 5,374,655
A2 5,000 Union Planters National Bank,
6.76%, 10/30/01 ........................ 4,961,250
------------
247,815,325
------------
INDUSTRIALS--8.7%
BBB 10,000 Amerco Inc., 7.49%, 9/18/01 .............. 10,063,400
A+ 10,000 Ford Motor Credit Co.,
6.18%, 12/27/01 ........................ 9,854,500
BBB+ 14,505 ICI Wilmington Inc.,
8.75%, 5/01/01 ......................... 14,568,387
BBB 16,000 Phillips Petroleum Co.,
9.00%, 6/01/01 ......................... 16,222,880
Baa1 15,000 TRW Inc., 6.45%, 6/15/01 ................. 14,814,876
A+ 11,380 TTX Co., 5.75%, 3/23/01** ................ 11,266,200
A- 1,500 Tyco International Group,
6.125%, 6/15/01 ........................ 1,479,001
BBB+ 2,800 Westinghouse Electric Corp.,
8.875%, 6/01/01 ........................ 2,837,212
Baa1 4,550 WMX Technologies Inc.,
7.125%, 6/15/01 ........................ 4,475,107
------------
85,581,563
------------

UTILITIES--2.3%
AA- 5,000 Duke Energy Corp.,
5.875%, 6/01/01 ........................ 4,941,550
BBB- 4,000 El Paso Electric Co.,
7.75%, 5/01/01 ......................... 3,993,560
BBB 9,000 Pacificorp Holdings Inc.,
6.75%, 4/01/01** ....................... 8,955,900
BBB+ 5,000 Potomac Capital Investment Corp.,
6.90%, 8/09/00** ....................... 5,000,000
------------
22,891,010
------------

YANKEE--7.1%
Aaa 3,350 African Development Bank,
8.625%, 5/01/01 ........................ 3,392,578
NR 4,619 Banamex Remittance Master Trust,
Ser. 1996, 7.57%, 1/01/01 ** ........... 4,601,868
BBB- 15,000 Empresa Electric Guacolda SA,
7.60%, 4/30/01 ** ...................... 14,752,500
A+ 18,000 Province of Quebec,
9.125%, 8/22/01 ........................ 18,299,044
BBB 15,000 Republic of Argentina,
Zero Coupon, 4/15/01 ................... 13,912,500
BB+ 3,000 Republic of Colombia,
8.00%, 6/14/01 ......................... 2,910,000
BBB- 12,000 Transpatadora de Gas,
10.25%, 4/25/01 ........................ 12,060,000
------------
69,928,490
------------
Total corporate bonds .................... 426,216,388
------------

See Notes to Financial Statements.

3
<PAGE>

Total long-term investments
(cost $1,068,985,226) .................. 1,068,017,515
-------------

PRINCIPAL
AMOUNT
(000)
--------
SHORT-TERM INVESTMENTS--12.8%
COMMERCIAL PAPER--8.0%
A-1+ 50,000 Bayerische Landesbank,
6.85%, 5/15/01 ......................... 50,005,698
P-2 15,000 Edison Mission Energy,
6.92%, 2/15/01 ** ...................... 14,339,717
P-2 15,000 Williams Holdings of Delaware Inc.,
7.05%, 3/09/01 ......................... 14,262,687
-------------
78,608,102
-------------
DISCOUNT NOTES--4.8%
1,160 Federal Home Loan Bank,
6.57%, 7/03/00 ......................... 1,159,577
46,505 Student Loan Marketing Association,
6.57%, 7/03/00 ......................... 46,488,026
-------------
47,647,603
-------------
Total short-term investments
(amortized cost $126,255,705) ........... 126,255,705
-------------

Total investments before
investments sold short--120.9%
(cost $1,195,240,931) .................. 1,194,273,220
-------------

INVESTMENTS SOLD SHORT--(20.7%)
(32,500) U.S. Treasury Bonds,
6.125%, 8/15/29 ........................ (32,825,000)
(173,500) U.S. Treasury Notes,
6.00%, 8/15/09 ......................... (172,117,205)
------------
(proceeds received $197,660,469) ......... (204,942,205)
------------
Total investments, net of
investments sold short--100.2%
(cost $997,580,462) .................... 989,331,015

Liabilities in excess of
other assets--(0.2%) ................... (1,657,785)
------------
NET ASSETS--100% ......................... $987,673,230
============

----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
*** Illiquid securities representing 0.65% of net assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
@@ Securities are restricted as to public resale. The securities were
acquired in 1997 and have an aggregate current cost of $6,758,867.
+ Security is fair valued. (Note 1)

--------------------------------------------------------------------------------
KEY TO ABBREVIATIONS

CMT -- Constant Maturity Treasury.
ETM -- Escrowed to Maturity.
G.O. -- General Obligation.
LIBOR -- London InterBank Offer Rate.
REMIC -- Real Estate Mortgage Investment Conduit.
TIPS -- Treasury Inflation Protection Security.
--------------------------------------------------------------------------------

See Notes to Financial Statements.

4
<PAGE>

--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
--------------------------------------------------------------------------------

ASSETS
Investments, at value
(cost $1,195,240,931) (Note 1) ......................... $ 1,194,273,220
Cash ..................................................... 3,791,359
Deposits with brokers as collateral
for investments sold short (Note 1) .................... 209,740,000
Receivable for investments sold .......................... 65,811,529
Interest receivable ...................................... 11,324,922
Unrealized appreciation on interest rate swaps
(Notes 1 & 3) .......................................... 3,500,170
Unrealized appreciation on credit default swaps
(Notes 1 & 3) .......................................... 8,059
---------------
1,488,449,259
---------------

LIABILITIES
Investments sold short, at value
(proceeds $197,660,469) (Note 1) ....................... 204,942,205
Reverse repurchase agreements (Note 4) ................... 175,789,892
Dividends payable ........................................ 54,018,839
Payable for investments purchased ........................ 41,736,667
Due to parent (Note 2) ................................... 20,606,913
Interest rate caps, at value
(amortized premium $746,744) (Note 1) .................. 3,658,066
Due to broker-variation margin ........................... 23,447
---------------
500,776,029
---------------
NET ASSETS ............................................... $ 987,673,230
===============
Net assets were comprised of:
Common stock, at par (Note 5) .......................... $ 1,420,106
Paid-in capital in excess of par ....................... 1,008,840,337
---------------
1,010,260,443

Undistributed net investment income .................... 18,803,058
Accumulated net realized loss .......................... (33,915,255)
Net unrealized depreciation ............................ (7,475,016)
---------------
Net assets, June 30, 2000 .............................. $ 987,673,230
===============
Net asset value per share:
($987,673,230 / 142,010,583 shares of
common stock issued and outstanding) ................... $6.95
=====

--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 2000
--------------------------------------------------------------------------------

NET INVESTMENT INCOME
Income
Interest earned (net of premium amortization
of $2,427,031 and interest expense
of $30,708,678) ........................................ $ 39,492,655
------------
Operating expenses
Investment advisory ...................................... 4,098,443
Administration ........................................... 1,024,611
Custodian ................................................ 234,000
Legal .................................................... 332,000
Independent accountants .................................. 99,000
Miscellaneous ............................................ 220,978
------------
Total operating expenses ............................... 6,009,032
------------
Net investment income before excise tax .................. 33,483,623
Excise tax ............................................. 2,042,768
------------
Net investment income .................................... 31,440,855
------------

REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on:
Investments .............................................. (28,296,907)
Futures .................................................. (9,067,866)
Interest rate caps ....................................... 923,902
Options written .......................................... 1,960,000
Short sales .............................................. (1,152,414)
Swaps .................................................... 6,281,583
------------
(29,351,702)
------------

Net change in unrealized appreciation
(depreciation) on:
Investments .............................................. 34,119,017
Futures .................................................. 1,925,484
Interest rate caps ....................................... (1,981,177)
Options written .......................................... (1,959,296)
Short sales .............................................. (6,331,239)
Swaps .................................................... 3,420,776
------------
29,193,565
------------
Net loss on investments .................................... (158,137)
------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 31,282,718
============

See Notes to Financial Statements.

5
<PAGE>

-------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2000
-------------------------------------------------------------------------

RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES

Net increase in net assets resulting from
operations .......................................... $ 31,282,718
------------
Decrease in investments ............................... 318,188,484
Net realized loss ..................................... 29,351,702
Decrease in unrealized depreciation ................... (29,193,565)
Increase in unrealized appreciation on
credit default swaps ................................ (8,059)
Increase in unrealized appreciation on
interest rate swaps ................................. (3,412,717)
Decrease in interest receivable ....................... 2,282,421
Increase in receivable for investments sold ........... (65,519,018)
Increase in deposits with brokers
for investments sold short .......................... (142,677,500)
Increase in payable for investments
purchased ........................................... 22,142,123
Decrease in call options written ...................... (704)
Increase in interest rate caps ........................ 2,855,419
Increase in payable for investments sold short ........ 138,457,645
Decrease in due to broker-variation margin ............ (1,196,724)
Increase in due to parent ............................. 8,040,891
------------
Total adjustments ................................... 279,310,398
------------
Net cash flows provided by operating
activities ............................................ $310,593,116
============

INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ......... $310,593,116

Cash flows used for financing activities--
Decrease in reverse repurchase agreements ............. (306,804,454)
------------
Net increase in cash .................................... 3,788,662
Cash at beginning of year ............................... 2,697
------------
Cash at end of year ..................................... $ 3,791,359
============

-----------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
STATEMENTS OF CHANGES
IN NET ASSETS
-----------------------------------------------------------------------------
FOR THE YEARS ENDED
JUNE 30, JUNE 30,
2000 1999
--------------- --------------
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income ................ $ 31,440,855 $ 58,274,471
Net realized loss .................... (29,351,702) (3,150,890)
Net change in unrealized
appreciation/(depreciation) ........ 29,193,565 (34,561,917)
--------------- ---------------
Net increase
in net assets resulting
from operations .................... 31,282,718 20,561,664
Dividends from net
investment income .................... (54,018,839) (60,815,696)
--------------- ---------------
Total decrease ......................... (22,736,121) (40,254,032)

NET ASSETS
Beginning of year ..................... 1,010,409,351 1,050,663,383
--------------- ---------------
End of year (including
undistributed net
investment income
of $18,803,058 and
$37,414,069, respectively) ........... $ 987,673,230 $ 1,010,409,351
=============== ===============

See Notes to Financial Statements.

6
<PAGE>

--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 17, 1997*
YEAR ENDED JUNE 30, THROUGH
2000 1999 JUNE 30, 1998
------------ ------------ ---------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......................... $ 7.12 $ 7.40 $ 7.14
----------- ---------- ----------
Net investment income (net of interest expense of $0.22,
$0.14 and $0.12, respectively) ........................... 0.21 0.41 0.28
Net realized and unrealized loss ........................... --@ (0.26) (0.02)
----------- ---------- ----------
Net increase from investment operations ....................... 0.21 0.15 0.26
----------- ---------- ----------
Dividends from net investment income .......................... (0.38) (0.43) --
----------- ---------- ----------
Net asset value, end of period ................................ $ 6.95 $ 7.12 $ 7.40
=========== ========== ==========

TOTAL INVESTMENT RETURN+ 2.95% 2.03% 3.64%
=========== ========== ==========
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ............................................ 0.59% 0.56% 0.56%++
Operating expenses and interest expense ....................... 3.60% 2.38% 3.01%++
Operating expenses, interest expense and excise taxes ......... 3.80% 2.56% 3.10%++
Net investment income ......................................... 3.09% 5.47% 5.54%++

SUPPLEMENTAL DATA:
Average net assets (in thousands) ............................. $ 1,019,012 $1,065,302 $1,024,887
Portfolio turnover rate ....................................... 80% 148% 182%
Net assets, end of period (in thousands) ...................... $ 987,673 $1,010,409 $1,050,663
Reverse repurchase agreements outstanding,
end of period (in thousands) ............................... $ 175,790 $ 482,594 $51,665
Asset coverage+++ ............................................. $ 6,618 $ 3,094 $ 21,336
</TABLE>

-------------
* Commencement of investment operations.
@ Net realized and unrealized loss equal to $0.0011 per share.
+ 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. Total investment return for the period of
less than one full year has not been annualized.
++ Annualized.
+++ Per $1,000 of reverse repurchase agreement outstanding.

The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements.

See Notes to Financial Statements.

7
<PAGE>

--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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. ("BTM"), incorporated under the laws of the State of Maryland and as
such, a wholly-owned subsidiary of BTM. The Trust's investment objective is to
manage a portfolio of investment grade fixed income securities while providing
cash flow definition to BTM. 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, swaps, caps, floors and non-exchange traded options on the
basis of current market quotations provided by dealers or pricing services
approved by the Trust's Board of Directors. In determining the value of a
particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. In the absence of a last sale, options are valued at the average of
the quoted bid and asked prices as of the close of business. A futures contract
is valued at the last sale price as of the close of the commodities exchange on
which it trades. Short-term securities are valued at amortized cost. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervisionand responsibility of
the Trust's Board of Directors. At June 30, 2000 the Trust held three positions
that were valued at fair value which is significantly lower than their purchase
cost. Interest income in the Statement of Operations for the year ended June 30,
2000 includes a write down in the amount of $17,192,121. This write down
represents a reclassification of unrealized depreciation, and accordingly the
net asset value of the Trust was not affected.

REPURCHASE AGREEMENT: In connection with transactions in repurchase
agreements, the Trust's custodian takes possession of the underlying collateral
securities, the value of which at least equals the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Trust may be delayed or limited.

OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.

Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.

Option selling and purchasing is used by the Trust to effectively "hedge"
positions, or collections of positions, so that changes in interest rates do not
change the duration of the portfolio unexpectedly. In general, the Trust uses
options to hedge a long or short position or an overall portfolio that is longer
or shorter than the benchmark security. A call option gives the purchaser of the
option the right (but not obligation) to buy, and obligates the seller to sell
(when the option is exercised), the underlying position at the exercise price at
any time or at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy

8
<PAGE>

the underlying position at the exercise price at any time or at a specified time
during the option period. Put options can be purchased to effectively hedge a
position or a portfolio against price declines if a portfolio is long. In the
same sense, call options can be purchased to hedge a portfolio that is shorter
than its benchmark against price changes. The Trust can also sell (or 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.

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.
Interest rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.

Credit default swaps involve the receipt or payment of fixed amounts at a
specified rate times the notional amount in exchange for the payment or receipt
of an amount only upon a credit event of the underlying security. See note 3 for
a summary of open swap agreements as of June 30, 2000.

During the term of the swap, changes in the value of the swap are recognized
as unrealized gains or losses by "marking-to-market" to reflect the market value
of the swap. When the swap is terminated, the Trust will record a realized gain
or loss equal to the difference between the proceeds from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.

The Trust is exposed to credit loss in the event of non- performance by the
other party to the swap. However, the Trust does not anticipate non-performance
by any counterparty.

SWAP OPTIONS: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are subsequently adjusted to
the current market value of the option written or purchased. Premiums received
or paid from writing or purchasing options which expire unexercised are treated
by the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.

The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the swap option
expires worthless and the premium paid for the swap option is considered the
loss. The main risk that is associated with the writing of a swap option is the
market risk of an unfavorable change in the value of the interest rate swap
underlying the written swap option.

Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.

FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.

Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.

The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transac-

9
<PAGE>

tions 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 securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is 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 security
lending during the year ended June 30, 2000.

The Trust did not engage in securities lending during the year ended June 30,
2000.

INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.

Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.

The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.

Transaction 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 subsequentlyadjusted to
the current market value of the interest rate cap purchased or sold. Changes in
the value of the interest rate cap are recognized as unrealized gains and
losses.

INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.

Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of the advantage by partially monetizing it as an up front payment
which the Trust receives.

The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.

Transaction fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.

SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust amortizes premium and accretes discount 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 substantially all of its taxable income to
shareholder. 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.

RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' State-

10
<PAGE>
ment of Position 93-2: Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions by
Investment Companies. The effect caused by applying this statement was to
decrease paid-in capital and increase undistributed net investment income by
$3,966,973 due to certain expenses not being deductible for tax purposes. Net
investment income, net realized gains and net assets were not affected by this
change.

ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

NOTE 2. AGREEMENTS

The Trust has an Investment Advisory Agreement with BlackRock Advisors, Inc.
(the "Advisor"), a wholly-owned subsidiary of BlackRockInc., which in turn is an
indirect majority-owned subsidiary of PNC Financial Services Group, Inc. The
Trust has an Administration Agreement with Mitchell Hutchins Asset Management
Inc. (the "Administrator"), a wholly-owned subsidiary of PaineWebber
Incorporated.

The Trust reimburses BTM 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 BTM.

NOTE 3. PORTFOLIO SECURITIES

Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the year ended June 30, 2000 aggregated $1,105,247,049 and
$1,506,232,854, respectively.

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 June 30, 2000, the Trust held
9.4% of its portfolio assets in restricted securities.

The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by affiliates such
as PNC Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities
Corp. succeeded to rights and duties of Sears) or mortgage related securities
containing loans or mortgages originated by PNC Bank or its affiliates,
including Midland Loan Services,Inc. It is possible under certain circumstances,
PNC Mortgage Securities Corp. or its affiliates, including Midland Loan
Services, Inc. could have interests that are in conflict with the holders of
these mortgage backed securities, and such holders could have rights against PNC
Mortgage Securities Corp. or its affiliates, including Midland Loan Securities,
Inc.

The federal income tax basis of the Trust's investments at June 30, 2000 was
substantially the same as the basis for financial reporting and accordingly, net
unrealized depreciation for federal income tax purposes was $967,711 (gross
unrealized appreciation -- $21,209,332; gross unrealized depreciation --
$22,177,043).

For federal income tax purposes, the Trust had a capital loss carryforward as
of September 30, 1999 of approximately $6,754,096 of which $3,440,382 will
expire in 2006 and $3,313,714 will expire in 2007. Accordingly, no capital gains
distribution is expected to be paid to shareholder until net gains have been
realized in excess of such amounts.

Details of open financial futures contract at June 30, 2000 were as follows:

VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 2000 APPRECIATION
--------- ---- ---------- -------- --------- ------------
Long position:
Sept.
150 30 Yr. T-Bond 2000 $14,424,038 $14,601,562 $177,524
========

Details of open interest rate caps at June 30, 2000 are as follows:

<TABLE>
<CAPTION>
NOTIONAL FIXED/ VALUE AT
AMOUNT FLOATING FLOATING TERMINATION AMORTIZED JUNE 30, UNREALIZED
(000) RATE RATE DATE COST 2000 DEPRECIATION
-------- --------- ------------- ------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sold:
(300,000) 3 Yr. CMT 3 month LIBOR 6/08/01 $(475,874) $(2,046,654) $(1,570,780)
(200,000) 3 Yr. CMT 3 month LIBOR 8/12/01 (270,870) (1,611,412) (1,340,542)
----------- -----------
$(3,658,066) $(2,911,322)
=========== ===========
</TABLE>
Details of the interest rate swap held at June 30, 2000 are as follows:

NOTIONAL
AMOUNT FIXED FLOATING TERMINATION UNREALIZED
(000) TYPE RATE RATE DATE APPRECIATION
--------- -------- ------- ------- ------- ------------
Purchased: Floating 3-month
$100,000 Rate 7.4659% LIBOR 2/14/10 $3,500,170
==========

Details of open credit default swap at June 30, 2000 are as follows:

NOTIONAL
AMOUNT UNREALIZED
(000) TERMS APPRECIATION
------- ----- ------------
Sold:
$(15,000) An agreement with Salomon Brothers International $8,059
Limited dated July 16, 1999 (trade date) to receive ======
1.68% per year times the notional amount. The fund
makes a payment only upon a credit event with respect
to News America Holdings, the referenced security in
the contract, of the notional amount. The scheduled
termination date is June 15, 2001.

11
<PAGE>

NOTE 4. BORROWINGS

REVERSE REPURCHASE AGREEMENTS: The Trust enters 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 establishes and maintains a segregated
account with the lender containing liquid high-grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.

The average daily balance of reverse repurchase agreements outstanding during
the year ended June 30, 2000, was approximately $400,608,260 at a weighted
average interest rate of approximately 5.38%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the year, was
$613,051,938 as of August 31, 1999 which was 32.62% of total assets.

DOLLAR ROLLS: The Trust enters 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 is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date.

The Trust did not enter into dollar rolls during the year ended June 30,
2000.

NOTE 5. CAPITAL

There are 200 million shares of $.01 par value common stock authorized. BTM
owned all of the 142,010,583 shares outstanding at June 30, 2000.

12
<PAGE>

--------------------------------------------------------------------------------
BLK SUBSIDIARY, INC.
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------

The Shareholder and Board of Directors of
BLK Subsidiary, Inc.

We have audited the accompanying statement of assets and liabilities of
BLK Subsidiary, Inc. (the "Trust"), a wholly-owned subsidiary of The BlackRock
2001 Term Trust Inc., including the portfolio of investments, as of June 30,
2000, and the related statements of operations and of cash flows for the year
then ended, the statements of changes in net assets for the two years then ended
and financial highlights for the period October 17, 1997 (commencement of
investment operations) to June 30, 1998 and for each of the years in the two
year period ended June 30, 2000. These financial statements and 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 audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at June 30, 2000, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of BLKSubsidiary, Inc.
as of June 30, 2000, and the results of its operations, its cash flows, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with accounting principles generally accepted in the
United States of America.

/s/ Deloitte & Touche, LLP

Deloitte & Touche, LLP
New York, New York
August 7, 2000

See Notes to Financial Statements.

13
<PAGE>
----------
BLACKROCK
----------
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein

OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY

INVESTMENT ADVISOR
BlackRock Advisors, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM

ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, NY 10019

CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM

INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434

LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036

LEGAL COUNSEL - INDEPENDENT DIRECTORS
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022

This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.

BLK SUBSIDIARY, INC.
c/o Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, NY 10019
call toll free (800) 227-7BFM

[RECYCLE LOGO] Printed on recycled paper 0\92477-10-8

DRAFT

BLK SUBSIDIARY, INC.
=======================
ANNUAL REPORT
JUNE 30, 2000

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