--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
--------------------------------------------------------------------------------
July 31, 2000
Dear Shareholder:
In the first half of the year, fears of an open-ended tightening policy by
the Federal Reserve peaked in May, which resulted in a subsequent relief in the
market as the U.S. economy seemed to decelerate significantly. During the
period, the Federal Reserve tightened short-term rates by 1.00% in an attempt to
engineer a "soft landing" for the U.S. economy. In the first six months of the
new millennium we have witnessed unprecedented volatility in both the Treasury
yield curve and the spread sectors. The Treasury curve inverted sharply in the
first quarter, but as weak economic data emerged in the second quarter, market
participants embraced an economic "soft landing" scenario causing the yield
curve to steepen. The downward revision in growth expectations allowed spread
sectors to rally in the month of June, but year-to-date their performance still
trails Treasuries.
While fears of a hawkish Federal Reserve and consequent risks of a "hard
landing" may not materialize immediately, the risks are skewed in that
direction. A longer period of subdued financial market performance is necessary
to enable the labor markets to build up slack, which is an important
pre-condition for the Fed to achieve its goal. Given the likelihood of a
re-emergence of risk aversion in the capital markets as well as a continual
increase in the "scarcity premium" of Treasury securities, we are less inclined
to be aggressive with respect to spread assets. We are also focusing on the use
of high quality spread assets to increase the income or "carry" so that a total
return advantage over Treasuries is achieved despite further spread widening.
This report contains a summary of market conditions during the semi-annual
period and a review of portfolio strategy by your Trust's managers in addition
to the Trust's unaudited financial statements and a detailed list of the
portfolio's holdings. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 2000
Dear Shareholder:
We are pleased to present the consolidated unaudited semi-annual report for
The BlackRock Strategic Term Trust Inc. ("the Trust") for the six months ending
June 30, 2000. We would like to take this opportunity to review the Trust's
stock price and net asset value (NAV) performance, summarize market developments
and discuss recent portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BGT". The
Trust's primary investment objective is to return $10 per share (its initial
offering price) to shareholders on or about December 31, 2002. Although there
can be no guarantee, BlackRock is confident that the Trust can achieve its
investment objective. The Trust will seek to achieve its objective by investing
in investment grade fixed income securities, including corporate debt
securities, mortgage-backed securities backed by U.S. Government agencies (such
as Fannie Mae, Freddie Mac or Ginnie Mae), asset-backed securities and
commercial mortgage-backed securities. All of the Trust's assets must be rated
at least "BBB" by Standard & Poor's or "Baa" by Moody's at time of purchase or
be issued or guaranteed by the U.S. Government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
------------------------------------------------
6/30/00 12/31/99 CHANGE HIGH LOW
--------------------------------------------------------------------------------
STOCK PRICE $8.8125 $8.8125 -- $8.88 $8.56
--------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.30 $9.37 (0.75)% $9.37 $9.22
--------------------------------------------------------------------------------
5-YEAR U.S. TREASURY NOTE 6.18% 6.34% (2.52)% 6.81% 6.07%
--------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
The economy entered 2000 with a tremendous amount of strength and momentum,
labor markets were very tight, and the opinion was that the best news on
inflation was behind us. Despite this, throughout the period, the view was that
the Federal Reserve would maintain a gradual process of slowing the economy
until a more pronounced pick-up in inflation was evident. In March, the Federal
Reserve raised both the overnight rate and the discount rate 0.25% to 6.0% and
5.5%, respectively. Despite the sell-off in the equity market in April, in May
concerns about an overheating economy due to an increased shortage of labor and
rising oil prices led the Federal Reserve to raise rates another 0.50% to 6.5%.
Recent economic data indicates that the U.S. economy started to slow in the
second quarter. Consumer spending, manufacturing, and labor activity all point
to a softer economy. The real question is whether this slowdown is the start of
something bigger (soft or hard landing) or simply a natural pause from well
above-trend growth. Goldman Sachs' financial conditions index shows that
conditions are as accommodative now as they were last June, prior to the 175
basis points of Fed tightening. This suggests that growth is likely to
reaccelerate later in the year and bring the Fed back into play.
Treasury yields decreased in the first half of 2000. Over the course of the
year so far, the yield of the 10-year Treasury has decreased by 42 basis points
(0.42%). The yield of the 5-Year Treasury posted a net decrease of 16 basis
points (0.16%). Bond prices, which move inversely to their yields, have risen in
expectation of a slowing economy due to higher short-term interest rates. We
anticipate a continued flattening of the yield curve as a result of an active
Federal Reserve and potential Treasury repurchases of long maturity debt.
Mortgages posted positive returns during the first half of the year but
trailed the broader market, which was led by the strong rally in the Treasury
market. As measured by the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a
3.67% total return versus 3.99% for the LEHMAN BROTHERS AGGREGATE INDEX.
Strength in the housing market has continued unabated,
2
<PAGE>
leading to more supply than expected, but in comparison to other spread sectors,
mortgages benefited from greater liquidity and higher credit quality. On a
relative valuation basis mortgages appear cheap, although uncertainty was
increased in the market by Treasury Undersecretary Gensler's testimony
concerning a bill seeking to end the quasi-governmental status of FNMA and
FHLMC. GNMAs performed well during the first quarter as a Treasury substitute,
since it is the only other asset class backed by the full faith and credit of
the U.S. Government.
Investment grade corporate securities encountered difficulty as fixed
income investors sought the credit quality and liquidity of Treasuries. For the
first half of the year, corporates as measured by MERRILL LYNCH U.S. CORPORATE
MASTER INDEX returned 2.22%, under performing the LEHMAN BROTHERS AGGREGATE
INDEX'S 3.99%. Supply has been manageable year to date with $8.5 billion in new
issuance versus $110 billion in 1999, and $101 billion in 1998. Fundamentally
the corporate market appears healthy, with companies reporting strong earnings
in the first half of the year. The negatives in the corporate market are from
stock market volatility, poor liquidity, increased leverage and deteriorating
credit quality, which has increased uncertainty in the market. With the
uncertainty of future fed action in the market, lower current yields could cloud
the supply picture and lead to an acceleration in issuance.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and December 31, 1999 asset
composition.
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
--------------------------------------------------------------------------------
COMPOSITION JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------
Zero Coupon Bonds 30% 27%
--------------------------------------------------------------------------------
Corporate Bonds 19% 19%
--------------------------------------------------------------------------------
Mortgage Pass-Throughs 9% 9%
--------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 7% 10%
--------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 7% 9%
--------------------------------------------------------------------------------
Asset-Backed Securities 6% 7%
--------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 6% 5%
--------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 6% 3%
--------------------------------------------------------------------------------
Taxable Municipal Bonds 5% 5%
--------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 2% 4%
--------------------------------------------------------------------------------
U.S. Government & Agency Securities 2% 1%
--------------------------------------------------------------------------------
CMO Residuals 1% 1%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
RATING % OF CORPORATES
--------------------------------------------------------------------------------
CREDIT RATING JUNE 30, 2000 DECEMBER 31, 1999
--------------------------------------------------------------------------------
AAA or Equivalent -- 3%
--------------------------------------------------------------------------------
AA or Equivalent 15% 22%
--------------------------------------------------------------------------------
A or Equivalent 34% 35%
--------------------------------------------------------------------------------
BBB or Equivalent 49% 40%
--------------------------------------------------------------------------------
Not Rated 2% --
--------------------------------------------------------------------------------
3
<PAGE>
In accordance with the Trust's primary investment objective of returning
the initial offer price upon maturity, the Trust's portfolio management activity
focused on adding securities which offer attractive yield spreads over Treasury
securities and an emphasis on maturity dates approximating the Trust's
termination date of December 31, 2002. Additionally, the Trust has been active
in reducing positions in bonds which have maturity dates or potential cash flows
after the Trust's termination date. During the reporting period, the most
significant additions have been in zero-coupon bonds and adjustable & inverse
floating rate mortgages. Additionally, the Trust maintained its significant
weighting in investment grade corporate bonds. To finance these purchases, the
Trust sold commercial mortgage backed securities and agency multiple-class
mortgage pass-throughs.
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment in the BlackRock Strategic Term Trust Inc. Please
feel free to contact our marketing center at (800) 227-7BFM (7236) if you have
specific questions which were not addressed in this report.
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
--------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BGT
--------------------------------------------------------------------------------
Initial Offering Date: December 28, 1990
--------------------------------------------------------------------------------
Closing Stock Price as of 6/30/00: $8.8125
--------------------------------------------------------------------------------
Net Asset Value as of 6/30/00: $9.30
--------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/00 ($8.8125)(1): 5.39%
--------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.0396
--------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $0.4752
--------------------------------------------------------------------------------
----------
(1) Yield on Closing Stock Price is calculated by dividing the current
annualized distribution per share by the closing stock price per share.
(2) Distribution not constant and is subject to change.
4
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED PORTFOLIO OF INVESTMENTS
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--123.3%
MORTGAGE PASS-THROUGHS--11.5%
Federal Home Loan Mortgage Corp.,
$15,071@ 6.50%, 11/01/25-01/01/28 ................... $ 14,226,589
318 7.50%, 11/01/10, 15 Year ................... 316,737
202 8.00%, 02/01/13 ............................ 203,221
338 9.00%, 11/01/05, 15 Year ................... 343,276
Federal National Mortgage Association,
40,646@ 6.50%, 05/01/26-02/01/30 ................... 38,364,579
5,443 7.25%, 01/01/23, Proj. 797 ................. 5,348,312
2,489 7.50%, 02/01/02-06/01/08,
15 Year .................................. 2,481,198
43 Government National Mortgage
Association,
9.00%, 03/15/20 ............................ 44,150
------------
61,328,062
------------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--9.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
7,327@ Series 90, Class 90-G,
10/15/20 ................................. 7,411,313
2,519 Series 1488, Class 1488-F,
09/15/06 ................................. 2,490,191
1,419 Series 1488, Class 1488-PF,
09/15/06 ................................. 1,416,481
142 Series 1590, Class 1590-K,
10/15/23 ................................. 141,155
2,000 Series 1601, Class 1601-PG,
12/15/06 ................................. 1,973,620
3,033 Series 1613, Class 1613-G,
05/15/06 ................................. 2,990,574
10,000 Series 1686, Class 1686-PG,
11/15/23 ................................. 9,771,800
5,765 Series 1797, Class 1797-A,
07/15/08 ................................. 5,638,553
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
7,313 Trust 1992-145, Class 145-K,
07/25/02 ................................. 7,244,348
5,492@ Trust 1992-156, Class 156-H,
04/25/06 ................................. 5,405,869
600 Trust 1993-71, Class 71-PG,
07/25/07 ................................. 593,562
2,205 Trust 1994-40, Class 40-H,
10/25/20 ................................. 2,158,100
958 Government National Mortgage
Association,
Trust 1996-3, Class 3-C,
09/20/20 ................................. 975,535
------------
48,211,101
------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES--7.3%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
5,149 Series 1594, Class 1594-S,
10/15/08 ................................. 4,710,885
404 Series 1603, Class 1603-MB,
10/15/23 ................................. 395,515
1,478 Series 1619, Class 1619-FH,
11/15/23 ................................. 1,477,209
1,290 Series 1637, Class 1637-LF,
12/15/23 ................................. 1,248,917
7,540 Series 1640, Class 1640-SE,
10/15/07 ................................. 7,151,373
1,206 Series 1684, Class 1684-OB,
03/15/24 ................................. 1,191,389
2,118 Series 1712, Class 1712-S,
08/15/08 ................................. 2,070,686
1,061 Series 2020, Class 2020-SB,
09/15/23 ................................. 1,034,009
1,860 Series 2068, Class 2068-SE,
06/15/27 ................................. 1,815,936
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,469 Trust G93-17, Class 17-SH,
04/25/23 ................................. 612,246
2,000 Trust 1992-155, Class 155-SB,
12/25/06 ................................. 1,793,760
9,318 Trust 1993-61, Class 61-FC,
11/25/18 ................................. 9,239,162
213 Trust 1993-117, Class 117-SA,
07/25/08 ................................. 219,096
1,259 Trust 1993-170, Class 170-SA,
09/25/08 ................................. 1,239,622
735 Trust 1993-179, Class 179-SG,
10/25/23 ................................. 699,508
3,001 Trust 1993-185, Class 185-SG,
04/25/19 ................................. 2,769,340
703 Trust 1993-185, Class 185-SH,
04/25/19 ................................. 703,923
890 Trust 1993-225, Class 225-SB,
07/25/23 ................................. 798,199
------------
39,170,775
------------
INTEREST ONLY MORTGAGE-
BACKED SECURITIES--9.0%
AAA 89,939 CS First Boston Mortgage Securities,
Series 1997-C1, Class AX,
04/20/22** ............................... 7,229,590
See Notes to Consolidated Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-
BACKED SECURITIES--(CONTINUED)
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
$ 7,341 Series G4, Class 4-S,
11/25/22 ................................. $ 247,773
6,414 Series G25, Class 25-S,
8/25/06 .................................. 72,347
938 Series G39, Class 39-J,
03/25/24 ................................. 123,408
14 Series 186, Class 186-J,
08/15/21 ................................. 23,568
19 Series 1215, Class 1215-P,
06/15/06 ................................. 100,474
1 Series 1375, Class 1375-H,
12/15/05 ................................. 4,032
1,156 Series 1379, Class 1379-FB,
08/15/18 ................................. 18,166
14,196 Series 1386, Class 1386-S,
10/15/07 ................................. 1,126,803
20 Series 1434, Class 1434-LA,
03/15/19 ................................. 144,926
5,369 Series 1472, Class 1472-S,
05/15/06 ................................. 124,616
11,867 Series 1496, Class 1496-GA,
03/15/19 ................................. 882,336
6,232 Series 1551, Class 1551-J,
07/15/08 ................................. 103,320
3,996 Series 1590, Class 1590-JC,
01/15/19 ................................. 155,795
2,430 Series 1626, Class 1626-PV,
12/15/08 ................................. 140,608
2,067 Series 1662, Class 1662-P,
11/15/07 ................................. 160,696
5,751 Series 1682, Class 1682-SB,
09/15/23 ................................. 195,416
54,484 Series 1954, Class 1954-BA,
04/15/21 ................................. 165,085
33,636 Series 1954, Class 1954-BB,
04/15/21 ................................. 234,780
15,273 Series 1954, Class 1954-LL,
05/15/21 ................................. 108,895
15,273 Series 1954, Class 1954-LM,
05/15/21 ................................. 108,895
13,186 Series 1954, Class 1954-MD,
03/15/16 ................................. 944,769
9,400 Series 2049, Class 2049-PK,
06/15/14 ................................. 414,183
21,712 Series 2054, Class 2054-PL,
10/15/19 ................................. 2,444,111
3,009 Series 2075, Class 2075-ID,
11/15/14 ................................. 113,773
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
22@ Trust G93-25, Class 25-N,
12/25/19 ................................. 326,376
5,060 Trust G93-26, Class 26-PT,
12/25/17 ................................. 374,404
10,551 Trust G93-31, Class 31-PS,
08/25/18 ................................. 117,219
12 Trust 1991-49, Class 49-G,
05/25/06 ................................. 231,943
1,142 Trust 1992-82, Class 82-IO,
05/25/22 ................................. 289,360
19@ Trust 1992-108, Class 108-L,
07/25/07 ................................. 392,536
989 Trust 1992-208, Class 208-S,
11/25/07 ................................. 102,155
10,076 Trust 1993-121, Class 121-PH,
01/25/19 ................................. 657,252
5,631 Trust 1993-141, Class 141-PJ,
06/25/19 ................................. 377,055
6,317 Trust 1993-154, Class 154-EA,
10/25/06 ................................. 338,107
3,196 Trust 1993-226, Class 226-SB,
05/25/19 ................................. 57,696
1,318 Trust 1993-245, Class 245-JA,
03/25/19 ................................. 25,675
1,758 Trust 1994-42, Class 42-SO,
03/25/23 ................................. 163,333
20,598 Trust 1996-15, Class 15-SG,
08/25/08 ................................. 1,142,572
12,937 Trust 1996-20, Class 20-SB,
10/25/08 ................................. 2,506,476
4,484 Trust 1996-24, Class 24-SB,
10/25/08 ................................. 705,114
8,499 Trust 1996-24, Class 24-SJ,
01/25/22 ................................. 1,827,296
543 Trust 1996-54, Class 54-SM,
09/25/23 ................................. 115,475
1,169 Trust 1997-35, Class 35-PK,
09/18/21 ................................. 98,079
26,744 Trust 1997-35, Class 35-SB,
03/25/09 ................................. 303,403
24,000 Trust 1997-44, Class 44-SC,
06/25/08 ................................. 1,734,624
13,141 Trust 1997-50, Class 50-HJ,
12/25/17 ................................. 553,102
31,192 Trust 1997-90, Class 90-L,
10/25/19 ................................. 2,238,832
2,891 Trust 1998-44, Class 44-IC,
01/18/14 ................................. 268,148
Government National Mortgage
Association,
1,099 Series 1997-16, Class 16-PR,
12/20/20 ................................. 48,621
11,882@ Series 1998-26, Class 26-IO,
10/20/18 ................................. 1,323,570
Merrill Lynch Mortgage Investors Inc.,
AAA 103,843 Series 1997-C2, Class IO,
12/10/29 ................................. 6,557,555
AAA 71,661 Series 1998-C2, Class IO,
02/15/30 ................................. 4,890,815
AAA 93,834 Morgan Stanley Capital I,
Series 1998-HF1, Class X,
02/15/18 ................................. 4,787,959
N/R 717 Salomon Brothers
Mortgage Securities VI,
Series 1987-3, Class B,
10/23/17 ................................. 179,467
------------
48,122,584
------------
See Notes to Consolidated Financial Statements.
6
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--7.2%
AAA $ 1,390@ Collateralized Mortgage Obligation,
Trust 26, Class A,
04/23/17 ................................. $ 1,146,371
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
97 Series 1373, Class 1373-B,
09/15/22 ................................. 95,216
2,269 Series 1597, Class 1597-H,
07/15/23 ................................. 1,275,812
2,229 Series 1662, Class 1662-PO,
01/15/09 ................................. 1,789,499
1,047 Series 1813, Class 1813-K,
02/15/24 ................................. 956,739
2,933 Series 1844, Class 1844-PC,
03/15/24 ................................. 2,478,413
971 Series 2009, Class 2009-A,
12/15/22 ................................. 687,766
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
476 Trust 225, Class 1,
06/01/23 ................................. 380,178
2,584 Trust 1992-40, Class 40-C,
02/25/19 ................................. 2,451,460
2,594 Trust 1993-67, Class 67-B,
12/25/21 ................................. 2,477,630
2,617 Trust 1993-92, Class 92-G,
05/25/23 ................................. 1,387,266
2,926 Trust 1993-113, Class 113-B,
07/25/23 ................................. 2,550,525
13,602 Trust 1993-205, Class 205-EB,
09/25/23 ................................. 12,305,360
386 Trust 1993-213, Class 213-H,
09/25/23 ................................. 381,930
1,133 Trust 1993-237, Class 237-C,
11/25/23 ................................. 1,057,931
1,000 Trust 1994-8, Class 8-D,
11/25/23 ................................. 900,620
3,053 Trust 1994-26, Class 26-G,
01/25/24 ................................. 2,447,456
550 Trust 1994-54, Class 54-E,
11/25/23 ................................. 494,786
2,245 Trust 1994-87, Class 87-E,
03/25/09 ................................. 1,732,667
1,523 Trust 1997-19, Class 19-C,
09/25/23 ................................. 1,047,779
706 Trust 1997-19, Class 19-H,
10/25/22 ................................. 485,661
------------
38,531,065
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--2.0%
AA 2,290 Merrill Lynch Mortgage Investors, Inc.,
Series 1995-C1, Class C,
7.52%, 05/25/15 .......................... 2,280,045
AAA 2,000 Paine Webber Mortgage
Acceptance Corp.,
Series 1995-M1, Class A,
6.70%, 01/15/07** ........................ 1,958,740
AA 1,574 Resolution Trust Corp.,
Series 1994-CI, Class C,
8.00%, 06/25/26 .......................... 1,572,393
A+ 4,500 TVO Southwest,
Series 1994-MF1, Class A2,
9.37%, 11/18/04** ........................ 4,585,464
N/R 699 Vendee Mortgage Trust,
Series 1995-1C, Class 3E,
8.00%, 07/15/18 .......................... 702,824
------------
11,099,466
------------
ASSET-BACKED SECURITIES--7.6%
Broad Index Secured Trust Offering,**
Baa2 5,000 Series 1998-1A, Class A,
6.58%, 03/26/01 .......................... 4,940,933
Baa2 5,000 Series 1998-4A, Class B2,
8.42%, 09/09/01 .......................... 4,982,813
AAA 20,545 Chase Credit Card Master Trust,
Series 1997-5, Class 5-A,
6.194%, 08/15/05 ......................... 20,180,788
N/R 2,937 Global Rated Eligible Asset Trust,
Series 1998-A,
7.33%, 09/15/07**/*** .................... 881,069
AAA 3,400 NPF Trust VI, Inc.,
Series 1999-1, Class A,
6.25%, 02/01/03** ........................ 3,317,125
Structured Mortgage Asset
Residential Trust, @@/***
N/R 4,077 Series 1997-2, Class 2,
8.24%, 03/15/06 .......................... 896,996
N/R 4,496 Series 1997-3,
8.57%, 04/15/06 .......................... 989,210
A1 4,500 Student Loan Marketing Association,
Trust 1995-1, Class CTFS,
10/25/09 ................................. 4,421,250
------------
40,610,184
------------
U.S. GOVERNMENT SECURITIES--3.0%
United States Treasury Notes,
4,800@ 5.50%, 05/15/09 ............................ 4,592,976
1,145 6.125%, 08/15/07 ........................... 1,137,306
10,000@ United States Treasury Bond,
6.125%, 08/15/29 ........................... 10,100,000
------------
15,830,282
------------
ZERO COUPON BONDS--36.5%
Financing Corp (FICO Strips),
18,000 03/07/02 ................................... 15,530,040
29,300 12/27/02 ................................... 24,109,505
Government Trust Certificates (Israel),
19,432 05/15/02 ................................... 17,161,747
25,000 11/15/02 ................................... 21,425,750
10,000 Government Trust Certificates (Jordan),
05/15/02 ................................... 8,880,100
U.S. Treasury Strips,
51,200@ 10/31/02 ................................... 44,186,112
74,550@ 11/30/02 ................................... 63,997,448
------------
195,290,702
------------
See Notes to Consolidated Financial Statements.
7
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS--6.6%
AAA 1,000 Kern County California,
Pension Obligation,
6.39%, 08/15/02 .......................... $ 984,090
AAA 3,510 Long Beach California,
Pension Obligation,
6.56%, 09/01/02 .......................... 3,464,686
AAA 5,000 Los Angeles County California,
Pension Obligation,
6.54%, 06/30/02 .......................... 4,938,900
AAA 8,000 New Jersey Economic Development
Auth., Zero Coupon,
02/15/03 ................................. 6,622,080
New York City G.O.,
A- 5,000 6.54%, 03/15/02 ............................ 4,944,500
A- 5,000 7.125%, 08/15/02 ........................... 4,988,400
A- 5,000 7.34%, 04/15/02 ............................ 5,007,400
A 1,235 New York St. Environ. Fac. Auth.,
6.73%, 09/15/02 ............................ 1,215,117
AAA 1,950 San Francisco California
International Airport,
6.35%, 05/01/02 .......................... 1,921,628
AA- 1,000 St. Josephs Health System California,
Rev., 7.13%, 07/01/02 ...................... 996,150
------------
35,082,951
------------
CORPORATE BONDS--23.4%
FINANCE & BANKING--9.6%
A3 4,900 Ahmanson HF & Co.,
8.25%, 10/01/02 ............................ 4,927,097
A3 1,700 Amsouth Bancorp.,
6.75%, 11/01/25 ............................ 1,601,842
A- 5,000 Bombardier Capital Inc.,
7.30%, 12/15/02** .......................... 4,955,000
A+ 5,000 Goldman Sachs Group,
6.25%, 02/01/03** .......................... 4,806,135
Lehman Brothers Holdings Inc.,
A 5,000 6.625%, 12/27/02 ........................... 4,871,450
A 875 6.75%, 09/24/01 ............................ 865,417
A 5,000 7.25%, 04/15/03 ............................ 4,911,331
AA- 1,665 Merrill Lynch & Co. Inc.,
5.75%, 11/04/02 ............................ 1,611,911
Nationsbank Corp.,
Aa2 5,000 6.65%, 04/09/02 ............................ 4,938,450
Aa2 5,000 7.00%, 09/15/01 ............................ 4,981,100
Paine Webber Group Inc.,
BBB+ 2,190 7.875%, 02/15/03 ........................... 2,172,830
BBB+ 7,790 8.25%, 05/01/02 ............................ 7,825,912
Aa3 3,000 Salomon Smith Barney Holdings Inc.,
5.875%, 02/01/01 ........................... 2,976,930
------------
51,445,405
------------
INDUSTRIALS--4.0%
A 1,000 Bass America Inc.,
8.125%, 03/31/02 ........................... 1,006,270
A+ 1,000 Ford Motor Credit Co.,
8.00%, 06/15/02 ............................ 1,010,310
Baa2 5,425 Jones Apparel Group Inc.,
6.25%, 10/01/01 ............................ 5,284,018
Baa1 5,000 Norfolk Southern Corp.,
6.95%, 05/01/02 ............................ 4,930,750
Baa2 5,265 Raytheon Co.,
6.45%, 08/15/02 ............................ 5,138,008
AA- 4,000 TCI Communications Inc.,
9.25%, 04/15/02 ............................ 4,140,280
------------
21,509,636
------------
UTILITIES--3.1%
A3 5,000@ Columbia Energy Group,
6.61%, 11/28/02 ............................ 4,861,650
BBB 2,850 Telecom de Puerto Rico,
6.15%, 05/15/02 ............................ 2,766,469
BBB- 5,000 Valero Energy,
6.75%, 12/15/02** .......................... 4,839,528
A 4,000 360 Communications,
7.125%, 03/01/03 ........................... 3,952,520
------------
16,420,167
------------
YANKEE--6.7%
N/R 2,310 Banamex Remittance Master Trust,
Ser. 1996-1, 7.57%, 01/01/01** ............. 2,300,934
A 5,000 Corporacion Andina de Fomento,
7.10%, 02/01/03 ............................ 4,883,250
BBB- 3,500 Empresa Elec. Guacolda SA,
7.95%, 04/30/03** .......................... 3,353,041
BBB+ 1,650 Empresa Elec. Pehuenche,
7.30%, 05/01/03 ............................ 1,597,776
BBB 2,000 Korea Development Bank,
6.50%, 11/15/02 ............................ 1,934,020
BBB+ 10,000 Republic of Argentina,
Zero Coupon, 04/15/01 ...................... 9,275,000
BBB- 5,000 Telecom Argentina,
9.75%, 07/12/01** .......................... 5,000,000
BBB- 5,000 Transpatadora de Gas Tragas,
10.25%, 04/25/01 ........................... 5,025,000
BBB+ 2,357 YPF Sociedad Anonima,
7.50%, 10/26/02 ............................ 2,321,863
------------
35,690,884
------------
Total corporate bonds ........................ 125,066,092
------------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS*** --0.2%
Federal Home Loan Mortgage Corp.,
10 Series 1016, Class 1016-R,
11/15/20 ................................. 9,700
Federal National Mortgage Association,
REMIC,
1 Trust 1991-9, Class 9-R,
02/25/06 ................................. 75,000
1 Trust 1991-9, Class 9-RL,
02/25/06 ................................. 1,000
1 Trust 1991-48, Class 48-R,
05/25/06 ................................. 265,000
1 Trust 1991-48, Class 48-RL,
05/25/06 ................................. 1,000
6 Trust 1991-50, Class 50-R,
05/25/06 ................................. 550,260
------------
901,960
------------
See Notes to Consolidated Financial Statements.
8
<PAGE>
--------------------------------------------------------------------------------
NOTIONAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
CALL OPTIONS PURCHASED
$85,000 Interest Rate Swap,
5.60% over 3 Month LIBOR,
expires 08/07/00 ......................... $ 9
------------
Total long-term investments
(cost $676,140,533) ...................... 659,245,233
PRINCIPAL
AMOUNT
(000)
---------
SHORT-TERM INVESTMENTS--0.6%
DISCOUNT NOTE
$3,369 Student Loan Marketing Association,
6.57%, 07/03/00
(amortized cost $3,368,770) .............. 3,368,770
------------
Total investments before
investments sold short--123.9%
(cost $679,509,303) ...................... 662,614,003
INVESTMENTS SOLD SHORT--(1.4%)
(7,500) U.S. Treasury Note,
6.00%, 08/15/09
(proceeds received $7,355,859) ........... (7,440,225)
------------
Total investments net of
investments sold
short--122.5%
(cost $672,153,444) ..................... 655,173,778
------------
Liabilities in excess of other
assets--(22.5%) .......................... (120,247,995)
------------
NET ASSETS --100% ......................... $534,925,783
============
----------
* 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 0.69% of net assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
@@ Security is restricted as to public resale. The securities were acquired in
1997 and have an aggregate current cost of $2,771,263.
--------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
CMO -- Collateralized Mortgage Obligation.
G.O. -- General Obligation.
LIBOR -- London InterBank Offer Rate.
REMIC -- Real Estate Mortgage Investment Conduit.
--------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
9
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENT OF
ASSETS AND LIABILITIES
JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $679,509,303)
(Note 1) ................................................. $662,614,003
Cash ....................................................... 5,821
Deposit with broker as collateral
for investments sold short (Note 1) ..................... 7,612,500
Interest receivable ........................................ 5,990,823
Other assets ............................................... 24,646
------------
676,247,793
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 132,451,125
Investment sold short, at value
(proceeds $7,355,859) (Note 1) ........................... 7,440,225
Interest payable ........................................... 493,474
Investment advisory fee payable (Note 2) ................... 174,497
Administration fee payable (Note 2) ........................ 38,289
Accrued expenses and other liabilities ..................... 724,400
------------
141,322,010
------------
NET ASSETS ................................................. $534,925,783
============
Net assets were comprised of:
Common stock, at par (Note 5) ............................ $ 575,106
Paid-in capital in excess of par ......................... 533,510,933
------------
534,086,039
Undistributed net investment income ........................ 43,313,974
Accumulated net realized loss .............................. (25,270,388)
Net unrealized depreciation ................................ (17,203,842)
------------
Net assets, June 30, 2000 .................................. $534,925,783
============
Net asset value per share:
($534,925,783 / 57,510,639 shares of
common stock issued and outstanding) ..................... $ 9.30
============
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium
amortization of $7,121,368 and
interest expense of $4,498,394) ............................ $14,283,130
-----------
Operating expenses
Investment advisory .......................................... 1,203,357
Administration ............................................... 267,413
Legal ........................................................ 97,000
Custodian .................................................... 82,000
Reports to shareholders ...................................... 49,000
Transfer agent ............................................... 40,000
Directors .................................................... 36,000
Registration ................................................. 24,000
Independent accountants ...................................... 21,000
Miscellaneous ................................................ 84,922
-----------
Total operating expenses ................................... 1,904,692
-----------
Net investment income before excise tax ........................ 12,378,438
Excise tax ................................................... 463,637
-----------
Net investment income .......................................... 11,914,801
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized loss on:
Investments .................................................. (1,024,929)
Futures ...................................................... (7,943,162)
-----------
(8,968,091)
-----------
Change in net unrealized appreciation (depreciation) on:
Investments .................................................. 4,795,369
Futures ...................................................... (28,176)
Short sales .................................................. (174,600)
-----------
4,592,593
-----------
Net loss on investments ........................................ (4,375,498)
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................................................ $ 7,539,303
===========
See Notes to Consolidated Financial Statements.
10
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------
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 .............................................. $ 7,539,303
-----------
Decrease in investments ....................................... 41,245,857
Net realized loss ............................................. 8,968,091
Decrease in unrealized depreciation ............................ (4,592,593)
Increase in receivable for investments sold .................... (131,250)
Increase in receivable for variation margin .................... (250,008)
Decrease in interest receivable ................................ 146,777
Increase in payable for securities sold short .................. 174,600
Decrease in interest payable ................................... (167,876)
Increase in other assets ....................................... (24,646)
Decrease in accrued expenses and other liabilities ............. (1,143,239)
-----------
Total adjustments .......................................... 44,225,713
-----------
Net cash flows provided by operating activities ................ $51,765,016
===========
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ................ $51,765,016
-----------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements .................... (38,708,000)
Cash dividends paid .......................................... (13,658,662)
-----------
Net cash flows used for financing activities ................... (52,366,662)
-----------
Net decrease in cash ........................................... (601,646)
Cash at beginning of period .................................... 607,467
-----------
Cash at end of period .......................................... $ 5,821
===========
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 2000 1999
------------- ------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income .......................... $ 11,914,801 $ 38,150,947
Net realized loss .............................. (8,968,091) (18,621,986)
Net change in unrealized
appreciation (depreciation) .................. 4,592,593 (33,195,592)
------------ ------------
Net increase (decrease) in net
assets resulting from
operations ................................... 7,539,303 (13,666,631)
Dividends from net
investment income ............................ (11,382,218) (27,317,284)
------------ ------------
Total decrease ................................. (3,842,915) (40,983,915)
NET ASSETS
Beginning of period ............................ 538,768,698 579,752,613
------------ ------------
End of period (including
undistributed net investment
income of $43,313,974 and
$42,781,391, respectively) ................... $534,925,783 $538,768,698
============ ============
See Notes to Consolidated Financial Statements.
11
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .............. $ 9.37 $ 10.08 $ 9.54 $ 9.15 $ 9.32 $ 8.12
-------- -------- -------- -------- -------- --------
Net investment income (net of
interest expense of $0.08, $0.22,
$0.23, $0.18, $0.19 and $0.34,
respectively) ................................. 0.24 0.66 0.72 0.67 0.58 0.62
Net realized and unrealized gain (loss) ........... (0.11) (0.89) 0.30 0.20 (0.22) 1.14
-------- -------- -------- -------- -------- --------
Net increase (decrease) from
investment operations ............................. 0.13 (0.23) 1.02 0.87 0.36 1.76
-------- -------- -------- -------- -------- --------
Dividends from net investment income .............. (0.20) (0.48) (0.48) (0.48) (0.53) (0.56)
-------- -------- -------- -------- -------- --------
Net asset value, end of period* ................... $ 9.30 $ 9.37 $ 10.08 $ 9.54 $ 9.15 $ 9.32
======== ======== ======== ======== ======== ========
Market value, end of period* ...................... $ 8.81 $ 8.81 $ 9.19 $ 8.50 $ 8.00 $ 7.63
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ .......................... 2.29% 1.07% 14.02% 12.56% 11.79% 14.68%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ................................ 0.71%+++ 0.72% 0.75% 0.73% 0.74% 0.78%
Operating expenses and interest expense ........... 2.40%+++ 3.00% 3.12% 3.05% 3.87% 4.68%
Operating expenses, interest expense
and excise taxes .................................. 2.57%+++ 3.36% 3.19% 3.05% 3.87% 4.68%
Net investment income ............................. 4.47%+++ 6.84% 7.35% 6.84% 6.39% 7.13%
SUPPLEMENTAL DATA:
Average net assets (000) .......................... $534,826 $557,648 $563,470 $531,101 $518,963 $501,869
Portfolio turnover rate ........................... 10% 58% 61% 110% 107% 135%
Net assets, end of period (000) ................... $534,926 $538,769 $579,753 $548,516 $526,116 $535,741
Reverse repurchase agreements
outstanding,end of period (000) ................... $132,451 $171,159 $286,008 $212,244 $213,085 $232,396
Asset coverage++ .................................. $ 5,055 $ 4,148 $ 3,027 $ 3,584 $ 3,469 $ 3,305
</TABLE>
----------
* Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each year reported. Dividends are assumed
for purposes of this calculation to be reinvested at prices obtained under
the Trust's reinvestment plan. Total investment return does not reflect
brokerage commissions. Total investment return for the period of less than
one year has not been annualized.
++ Per $1,000 of reverse repurchase agreements outstanding.
+++ Annualized.
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 each period indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Consolidated Financial Statements.
12
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
The BlackRock Strategic Term Trust Inc., (the "Trust") a Maryland corporation,
is a diversified, closed-end management investment company. The Trust's primary
investment objective is to manage a portfolio of investment grade fixed income
securities that will return at least $10 per share to investors on or shortly
before December 31, 2002. The ability of issuers of debt securities held by the
Trust to meet their obligations may be affected by economic developments in a
specific industry or region. No assurance can be given that the Trust's
investment objective will be achieved.
On October 31, 1998, the Trust transferred a substantial portion of its
total assets to a 100% owned regulated investment company subsidiary called BGT
Subsidiary, Inc.These consolidated financial statements include the operations
of both the Trust and its wholly-owned subsidiary after eliminattion of all
intercompany transactions and balances.
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, interest rate 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 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 supervision and responsibility
of the Trust's Board of Directors.
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
13
<PAGE>
or at a specified time during the option period. A put option gives the holder
the right to sell and obligates the writer to buy the underlying position at the
exercise price at any time or at a specified time during the option period. Put
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. Interest 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 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 expires unexercised are treated
by the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy or 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 that 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 con-
14
<PAGE>
tracts 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 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 less or greater 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 period 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 INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis, and the Trust accretes discount and amortizes premium on
securities purchased using the interest method.
FEDERAL INCOME TAXES: It is the Trust's intention to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient taxable income to shareholders. Therefore, no federal
income tax provision is required. As part of the tax planning strategy, the
Trust may retain a portion of its taxable income and pay an excise tax on the
undistributed amounts.
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DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards, may be distributed annually.
Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
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 financialstatements 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"), which is a wholly-owned subsidiary of BlackRock, Inc., which in turn
is an indirect majority-owned subsidiary of PNC Financial Services Group, Inc.
The Trust has an Administration Agreement with Morgan Stanley Dean Witter
Advisors Inc. ("MSDWA"), formerly Dean Witter InterCapital, Inc.
The investment advisory fee paid to the Advisor is computed weekly and
payable monthly at an annual rate of 0.45%. The administration fee paid to MSDWA
is also computed weekly and payable monthly at an annual rate of 0.10% .
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Advisor. MSDWA pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than for short-term
investments, for the period ended June 30, 2000, aggregated $64,360,331 and
$72,284,262, respectively.
The Trust may invest up to 60% of its portfolio 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 10.3% of its net assets in securities 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 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
Services, 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
$16,895,300 (gross unrealized appreciation--$14,012,119; gross unrealized
depreciation--$30,907,419).
For federal income tax purposes, the Trust has a capital loss carryforward
as of December 31, 1999 of approximately $7,236,000 of which $2,195,000 expires
in 2001 and $5,041,000 expires at the termination of the Trust.
Details of open financial futures contract at June 30, 2000 are as follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 2000 DEPRECIATION
--- ------ ---------- ------------- ------------- ----------
Short position:
30 Yr.
500 T-Bond Sept. 2000 $(36,825,824) $(37,050,000) $(224,176)
=========
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 June 30, 2000 was $150,381,515 at a weighted average
interest rate of approximately 5.98%. The maximum amount of reverse repurchase
agreements outstanding at any month-end during the period was $165,805,715 as of
February 29, 2000 which was 23.2% of total assets.
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DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The Trust did not engage in dollar rolls during the period ended June 30,
2000.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of the
shares outstanding at June 30, 2000, the Advisor owned 10,724 shares.
NOTE 6. DIVIDENDS
Subsequent to June 30, 2000, the Board of Directors of the Trust declared
dividends from undistributed earnings of $0.0396 per share payable July 31, 2000
to shareholders of record on July 14, 2000.
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THE BLACKROCK STRATEGIC TERM TRUST INC.
DIVIDENDS REINVESTMENT PLAN
--------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
reinvested by Morgan Stanley Dean Witter Trust FSB(the "Agent") in Trust shares
pursuant to the Plan. Shareholders who do not participate in the Plan will
receive all distributions in cash paid by check in United States dollars mailed
directly to the shareholders of record (or if the shares are held in street or
other nominee name, then to the nominee) by the transfer agent, as dividend
disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market on the New York
Stock Exchange or elsewhere for the participants' accounts. The Trust will not
issue any new shares under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, staate or local income tax that
may be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan as applied to
any dividend or distribution paid subsequent to written notice of the change
sent to all shareholders of the Trust at least 90 days before the record date
for the dividend or distribution. The Plan also may be amended or terminated by
the Plan Agent upon at least 90 days' written notice to all shareholders of the
Trust. All correspondence concerning the Plan should be directed to the Plan
Agent at (800) 576-3143 or BlackRock Financial Management at (800) 227-7BFM. The
addresses are on the front of this report.
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THE BLACKROCK STRATEGIC TERM TRUST INC.
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
ANNUAL MEETING OF TRUST SHAREHOLDERS. There have been no material changes
in the Trust's investment objectives or policies that have not been approved by
the shareholders or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust. There have been no changes in the
persons who are primarily responsible for the day-to-day management of the
Trust's Portfolio.
The Annual Meeting of Shareholders was held May 18, 2000 to vote on the
following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
-------- ---- ----- -------
Andrew F. Brimmer .................. III 3 years 2003
Kent Dixon ......................... III 3 years 2003
Laurence D. Fink ................... III 3 years 2003
Directors whose term of office continues beyond this meeting are
Richard E. Cavanagh, Frank J. Fabozzi, James Clayburn La Force, Jr.,
Walter F. Mondale and Ralph L. Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December 31, 2000.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
-------- ----------- ----------
Andrew F. Brimmer ............... 35,191,110 -- 7,222,923
Kent Dixon ...................... 35,251,774 -- 7,162,259
Laurence D. Fink ................ 35,212,340 -- 7,201,693
Ratification of
Deloitte & Touche LLP ......... 41,898,117 209,874 306,042
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THE BLACKROCK STRATEGIC TERM TRUST INC.
INVESTMENT SUMMARY
--------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock Strategic Term Trust Inc.'s primary investment objective is to
manage a portfolio of investment grade fixed income securities that will return
at least $10 per share (the initial public offering price per share) to
investors on or shortly before December 31, 2002.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. (the "Advisor") is an SEC-registered investment
advisor. As of June 30, 2000, the Advisor and its affiliates (together,
"BlackRock") managed $177 billion on behalf of taxable and tax-exempt clients
worldwide. Strategies include fixed income, equity and cash any may incorporate
both domestic and international securities. Domestic fixed income strategies
utilize the government, mortgage, corporate and municipal bond sectors.BlackRock
manages twenty-two closed-end funds that are traded on either the New York or
American stock exchanges, and a $28 billion family of open-end funds. BlackRock
manages over 629 accounts, domiciled in the United States and overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
WHAT IS THE ADVISOR'S INVESTMENT STRATEGY?
The Advisor will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The Advisor will implement a conservative strategy that will seek
to closely match the maturity of the assets of the portfolio with the future
return of the initial investment at the end of 2002. At the Trust's termination,
the Advisor expects that the value of the securities which have matured,
combined with the value of the securities that are sold will be sufficient to
return the initial offering price to investors. On a continuous basis, the Trust
will seek its objective by actively managing its assets in relation to market
conditions, interest rate changes and, importantly, the remaining term to
maturity of the Trust.
In order to maintain competitive yields as the Trust approaches maturity and
depending on market conditions, the Advisor will attempt to purchase securities
with call protection or maturities as close to the Trust's maturity date as
possible. Securities with call protection should provide the portfolio with some
degree of protection against reinvestment risk during times of lower prevailing
interest rates. Since the Trust's primary goal is to return the initial offering
price at maturity, any cash that the Trust receives prior to its maturity date
(i.e. cash from early and regularly scheduled payments of principal on
mortgage-backed securities) will be reinvested in securities with maturities
which coincide with the remaining term of the Trust. Since shorter-term
securities typically yield less than longer-term securities, this strategy will
likely result in a decline in the Trust's income over time. It is important to
note that the Trust will be managed so as to preserve the integrity of the
return of the initial offering price.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the first business day of the
month. For shares held in the shareholder's name, dividends may be
20
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reinvested in additional shares of the fund through the Trust's transfer agent,
Dean Witter Trust Company. Investors who wish to hold shares in a brokerage
account should check with their financial advisor to determine whether their
brokerage firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN A TERM TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rising environment. The Advisor's portfolio managers continuously monitor and
regularly review the Trust's use of leverage and the Trust may reduce, or
unwind, the amount of leverage employed should the Advisor consider that
reduction to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IOclass is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a repaid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BGT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity,
therefore interim price movements on these securities are generally more
sensitive to interest rate movements than securities that make periodic coupon
payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S. SECURITIES. The Trust may invest up to 10% of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
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THE BLACKROCK STRATEGIC TERM TRUST INC.
GLOSSARY
--------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with interest rates that
adjust at periodic intervals at a fixed amount
relative to the market levels of interest rates as
reflected in specified indexes. ARMs are backed by
mortgage loans secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of receivables
such as automobile and credit card receivables.
CLOSED-END FUND: Investment vehicle which initially offers a fixed
number of shares and trades on a stock exchange.
The fund invests in a portfolio of securities in
accordance with its stated investment objectives
and policies.
COLLATERALIZED MORTGAGE
OBLIGATIONS (CMO): Mortgage-backed securities which separate mortgage
pools into short-, medium-, and long-term
securities with different priorities for receipt
of principal and interest. Each class is paid a
fixed or floating rate of interest at regular
intervals. Also known as multiple-class mortgage
pass-throughs.
COMMERCIAL MORTGAGE-
BACKED SECURITIES (CMBS): Mortgage-backed securities secured or backed by
mortgage loans on commercial properties.
DISCOUNT: When a fund's net asset value is greater than its
stock price the fund is said to be trading at a
discount.
DIVIDEND: Income generated by securities in a portfolio and
distributed to share-holders shareholders after
deduction of expenses. This Trust declares and
pays dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all distributions
of dividends and capital gains automatically
reinvested into additional shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a publicly
owned, federally chartered corporation that
facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FHLMC are not guaranteed by the U.S.
government, however; they are backed by FHLMC's
authority to borrow from the U.S. government. Also
known as Freddie Mac.
FNMA: Federal National Mortgage Association, a publicly
owned, federally chartered corporation that
facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FNMA are not guaranteed by the U.S. government,
however, they are backed by FNMA's authority to
borrow from the U.S. government. Also known as
Fannie Mae.
GNMA: Government National Mortgage Association, a U.S.
Government agency that facilitates a secondary
mortgage market by providing an agency that
guarantees timely payment of interest and
principal on mortgages. GNMA's obligations are
supported by the full faith and credit of the U.S.
Treasury. Also known as Ginnie Mae.
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GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and FHLMC.
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that receive
only the interest cash flows from an underlying
pool of mortgage loans or underlying pass-through
securities..
INVERSE-FLOATING RATE
MORTGAGES: Mortgage instruments with coupons that adjust at
periodic intervals according to a formula which
sets inversely with a market level interest rate
index.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund, this is
the price at which one share of the fund trades on
the stock exchange. If you were to buy or sell
shares, you would pay or receive the market price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which
the Trust sells mortgage-backed securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar
(although not the same) securities on a specified
future date. During the "roll" period, the Trust
does not receive principal and interest payments
on the securities, but is compensated for giving
up these payments by the difference in the current
sales price (for which the security is sold) and
lower price that the Trust pays for the similar
security at the end date as well as the interest
earned on the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by FNMA FHLMC,
GNMA or FHA
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus any
liabilities including accrued expenses, divided by
the total number of outstanding shares. It is the
underlying value of a single share on a given day.
Net asset value for the Trust is calculated weekly
and published in BARRON'S on Saturday and THE WALL
STREET JOURNAL on Monday.
PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the
principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities.
PROJECT LOANS: Mortgages for multi-family, low- to middle-income
housing.
PREMIUM: When a fund's stock price is greater than its net
asset value, the fund is said to be trading at a
premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as a
trust, corporation, partnership, or segregated
pool of assets that elects to be treated as a
REMIC for federal tax purposes. Generally, FNMA
REMICs are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that generally
represent the excess cash flow from the mortgage
assets underlying the CMO after payment of
principal and interest on the other CMO securities
and related administrative expenses.
REVERSE In a reverse repurchase agreement, the Trust sells
REPURCHASE AGREEMENTS: securities and agrees to repurchase them at a
mutually agreed date and price. During this time,
the Trust continues to receive the principal and
interest payments from that security. At the end
of the term, the Trust receives the same
securities that were sold for the same initial
dollar amount plus interest on the cash proceeds
of the initial sale.
STRIPPED MORTGAGE-BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive different
proportions of the interest and principal
distributions from underlying mortgage-backed
securities. IO's and PO's are examples of strips.
23
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---------
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
Morgan Stanley Dean Witter Advisors Inc.
Two World Trade Center
New York, NY 10048
(800) 869-6397
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
TRANSFER AGENT
Morgan Stanley Dean Witter Trust FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311-3977
(800) 869-6397
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
The accompanying financial statements as of June 30, 2000 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus
intended for use in the purchase or sale of any securities.
THE BLACKROCK STRATEGIC TERM TRUST INC.
c/o Morgan Stanley Dean Witter Advisors Inc.
71st Floor
Two World Trade Center
New York, NY 10048
Call toll free (800) 227-7BFM
[RECYCLE LOGO] Printed on recycled paper 9247P-10-8
---------
BlackRock
THE ---------
STRATEGIC TERM
TRUST INC.
---------------------------
CONSOLIDATED
SEMI-ANNUAL REPORT
JUNE 30, 2000
[Graphic omitted]
