- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
January 31, 2000
Dear Shareholder:
After easing monetary policy three times during the fourth quarter of 1998,
the Federal Reserve reversed its trend by raising the Fed funds target rate 75
basis points (to 5.50%) over the course of 1999 in response to robust GDP, low
unemployment and rising equity prices. U.S. Treasury yields rose significantly
during the past twelve months, with the yield of the 30-year Treasury rising
above 6.00% for the first time since May 1998.
Despite the rise in Treasury yields, continued strong economic growth may
spur the Federal Reserve to proactively fight perceived inflation through
continued monetary policy tightening in 2000. Until the inflation picture
becomes clearer, we expect interest rates to remain largely range-bound.
Accordingly, we will continue to seek the most attractive relative value
opportunities and utilize our proprietary risk management systems to help the
Trust to achieve its investment objectives.
This report contains a summary of market conditions during the annual
period and a review of portfolio strategy by your Trust's managers in addition
to the Trust's audited financial statements and a detailed portfolio 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>
January 31, 2000
Dear Shareholder:
We are pleased to present the consolidated annual report for The BlackRock
Strategic Term Trust Inc. ("the Trust") for the year ended December 31, 1999. 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 believes 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 (the market value of its assets per share) over the period:
12/31/99 12/31/98 CHANGE HIGH LOW
------- -------- ----- ------ -----
STOCK PRICE $8.8125 $ 9.1875 (4.08)% $ 9.31 $8.75
NET ASSET VALUE (NAV) $ 9.37 $ 10.08 (7.04)% $10.14 $9.37
5-YEAR U.S. TREASURY NOTE 6.34% 4.54% 39.65% 6.34% 4.46%
THE FIXED INCOME MARKETS
Despite the complete reversal of last year's 0.75% easing by the Federal
Reserve, the expansion of the U.S. economy continues intact. At the end of 1999,
the labor markets remain tight, economic growth remains strong and inflation
pressures appear restrained by offsetting gains in productivity. However, the
factors that should eventually lead to higher interest rates also remain intact:
higher equity and commodity prices, a confident consumer, labor markets that
continue to tighten and a global recovery that will boost U.S. exports and
reduce the trade deficit. Along with consumer confidence, consumer credit
continues to advance as evidenced in remarkably strong holiday sales.
Although the Federal Open Market Committee took no action at their December
meeting, this should not be interpreted to mean that the threat of inflationary
forces has dissipated. We expect that continued above-trend economic strength,
tight labor markets and the need to drain the excess liquidity that the Fed
provided the financial markets in the months leading up to Y2K will warrant
additional Fed tightening in 2000. Despite our outlook for additional Fed moves
we believe that the market has adequately priced in the degree of tightening
necessary to successfully engineer an economic slow down later this year.
Treasury yields increased significantly during 1999, continuing their
year-long slide in price. Over the course of the year the yield of the 30-year
Treasury has increased by nearly 139 basis points (1.39%). The yield of the
5-Year Treasury posted a net increase of 180 basis points (1.80%), beginning
1999 at 4.54% and closing on December 31, 1999 at 6.34%. Bond prices, which move
inversely to their yields, have continued to be punished as the market reacted
to strength of the economy
2
<PAGE>
and uncertainty of future Fed action. During the fourth quarter, the short and
intermediate sections of the yield curve underperformed the long end of the
curve. As we move into 2000, 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.
A combination of shrinking supply, and a decline in prepayment rates in
response to a reduction in refinancing activity, allowed mortgage securities to
outperform the broader investment grade market. Falling bond prices kept
mortgages rates near 8%, which has significantly affected refinancing activity
reducing an important source of new mortgage origination. for the period ending
december 31st the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a 1.86% TOTAL
RETURN VERSUS -0.82% for the LEHMAN BROTHERS AGGREGATE INDEX. As the origination
of new mortgages continues to decline, the outlook for the mortgage sector is
favorable. Despite the rich valuations of mortgages, a likely shortage of
yield-oriented products will draw investors to the mortgage sector as they
execute their investment plans in 2000.
Investment grade corporate securities underperformed the broader investment
grade bond market, as corporates measured by the MERRILL LYNCH U.S. CORPORATE
MASTER INDEX returned -1.87%, as compared to the LEHMAN BROTHERS AGGREGATE
INDEX'S -0.82%. 1999 was marked by a large supply of corporate bonds due to M&A
activity and issuers rushing to market ahead of Y2K. While we believe M&A
activity will follow through in 2000, higher rates combined with the increased
issuance in 1999 should result in a more moderate supply picture in 2000.
Despite a very buoyant economic environment, credit parameters have not been
improving in the investment grade corporate bond universe raising concerns about
vulnerability to a down turn. As a result, we have generally implemented an "up
in credit" strategy in portfolios.
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, 1998 asset
composition.
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THE BLACKROCK STRATEGIC TERM TRUST INC.
- --------------------------------------------------------------------------------
COMPOSITION DECEMBER 31, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
Zero CouponBonds 27% 24%
- --------------------------------------------------------------------------------
Corporate Bonds 19% 17%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 10% 9%
- --------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 9% 8%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 9% 8%
- --------------------------------------------------------------------------------
Asset-Backed Securities 7% 6%
- --------------------------------------------------------------------------------
Taxable Municipal Bonds 5% 4%
- --------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 5% 4%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 4% 5%
- --------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 3% 4%
- --------------------------------------------------------------------------------
U.S. Government Securities 1% 10%
- --------------------------------------------------------------------------------
CMO Residuals 1% 1%
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
- --------------------------------------------------------------------------------
CREDIT RATING DECEMBER 31, 1999 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
AAAor Equivalent 3% 5%
- --------------------------------------------------------------------------------
AAor Equivalent 22% 22%
- --------------------------------------------------------------------------------
Aor Equivalent 35% 34%
- --------------------------------------------------------------------------------
BBBor Equivalent 40% 39%
- --------------------------------------------------------------------------------
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 the corporate sector. Additionally, the Trust maintained
its significant weighting in investment grade corporate bonds and
well-structured mortgage securities such as commercial mortgage-backed
securities. To finance these purchases, the Trust sold U.S. Government
securities in an effort to increase yield.
As a result of an internal reorganization, effective January 1, 2000,
BlackRock Advisors, Inc. has replaced BlackRock Financial Management Inc., a
wholly-owned subsidiary of BlackRock Advisors, Inc. as the Advisor of the Trust.
The investment management and other personnel responsible for providing services
to the Trust did not change as a result of the reorganization. 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 12/31/99: $8.8125
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/99: $9.37
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/99 ($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>
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THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
================================================================================
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--130.1%
MORTGAGE PASS-THROUGHS--11.8%
Federal Home Loan Mortgage Corp.,
$15,771 6.50%, 11/01/25-01/01/28 .............. $ 14,873,573
347 7.50%, 11/01/10, 15 Year .............. 349,785
218 8.00%, 02/01/13 ....................... 220,723
444 9.00%, 11/01/05, 15 Year .............. 451,281
Federal National Mortgage Association,
41,938@ 6.50%, 05/01/26-07/01/29 .............. 39,521,059
5,494 7.25%, 01/01/23, Project 797 .......... 5,402,632
2,809 7.50%, 02/01/02-06/01/08,
15 Year ............................. 2,826,252
45 Government National Mortgage
Association,
9.00%, 03/15/20 ..................... 47,658
--------------
63,692,963
--------------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--13.2%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
8,169@ Series 90, Class 90-G,
10/15/20 ............................ 8,279,567
2,883 Series 1488, Class 1488-F,
09/15/06 ............................ 2,853,911
1,625 Series 1488, Class 1488-PF,
09/15/06 ............................ 1,628,071
158 Series 1590, Class 1590-K,
10/15/23 ............................ 156,950
1,400 Series 1601, Class 1601-PG,
12/15/06 ............................ 1,379,549
6,310 Series 1613, Class 1613-G,
05/15/06 ............................ 6,161,980
10,000 Series 1686, Class 1686-PG,
11/15/23 ............................ 9,718,700
5,765@ Series 1797, Class 1797-A,
07/15/08 ............................ 5,643,972
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
13,414@ Trust 1992-43, Class 43-E,
04/25/22 ............................ 13,339,777
8,895@ Trust 1992-145, Class 145-K,
07/25/02 ............................ 8,792,393
9,854@ Trust 1992-156, Class 156-H,
04/25/06 ............................ 9,639,837
500 Trust 1993-71, Class 71-PG,
07/25/07 ............................ 494,900
2,205 Trust 1994-40, Class 40-H,
10/25/20 ............................ 2,159,533
1,162 Government National Mortgage
Association,
Trust 1996-3, Class 3-C,
09/20/20 ............................ 1,186,924
--------------
71,436,064
--------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES--4.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
468 Series 1603, Class 1603-MB,
10/15/23 ............................ 459,665
1,525 Series 1619, Class 1619-FH,
11/15/23 ............................ 1,536,728
1,290 Series 1637, Class 1637-LF,
12/15/23 ............................ 1,247,356
1,206 Series 1684, Class 1684-OB,
03/15/24 ............................ 1,162,006
2,118 Series 1712, Class 1712-S,
08/15/08 ............................ 2,068,695
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,469 Trust G93-17, Class 17-SH,
04/25/23 ............................ 892,198
2,000 Trust 1992-155, Class 155-SB,
12/25/06 ............................ 1,836,960
10,000@ Trust 1993-61, Class 61-FC,
11/25/18 ............................ 9,200,000
213 Trust 1993-117, Class 117-SA,
07/25/08 ............................ 219,177
1,259@ Trust 1993-170, Class 170-SA,
09/25/08 ............................ 1,244,910
703@ Trust 1993-185, Class 185-SH,
04/25/19 ............................ 708,990
890 Trust 1993-225, Class 225-SB,
07/25/23 ............................ 807,961
141 Trust 1997-7, Class 7-WC,
04/25/22 ............................ 6,889
--------------
21,391,535
--------------
INTEREST ONLY MORTGAGE-
BACKED SECURITIES--11.4%
AAA 90,777 CS First Boston Mortgage Securities,
Series 1997-C1, Class AX,
04/20/22** .......................... 7,482,834
See Notes to Consolidated Financial Statements.
5
<PAGE>
================================================================================
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--(CONTINUED)
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
$ 3 Series G2, Class 2-M,
07/25/18 ............................ $ 28
8,718 Series G4, Class 4-S,
11/25/22 ............................ 356,886
8,475 Series G25, Class 25-S,
08/25/06 ............................ 136,023
1,191 Series G39, Class 39-J,
03/25/24 ............................ 173,253
165 Series 186, Class 186-J,
08/15/21 ............................ 27,539
2,716 Series 1215, Class 1215-P,
06/15/06 ............................ 181,925
119 Series 1375, Class 1375-H,
12/15/05 ............................ 8,762
2,145 Series 1379, Class 1379-FB,
08/15/18 ............................ 42,593
15,962 Series 1386, Class 1386-S,
10/15/07 ............................ 1,496,411
2,817 Series 1434, Class 1434-LA,
03/15/19 ............................ 220,849
7,550 Series 1472, Class 1472-S,
05/15/06 ............................ 249,373
14,378 Series 1496, Class 1496-GA,
03/15/19 ............................ 1,220,871
8,200 Series 1551, Class 1551-J,
07/15/08 ............................ 175,898
4,513 Series 1590, Class 1590-JC,
01/15/19 ............................ 201,029
3,160 Series 1626, Class 1626-PV,
12/15/08 ............................ 214,249
2,067 Series 1662, Class 1662-P,
11/15/07 ............................ 213,897
6,617 Series 1682, Class 1682-SB,
09/15/23 ............................ 263,601
68,049 Series 1954, Class 1954-BA,
04/15/21 ............................ 778,478
42,011 Series 1954, Class 1954-BB,
04/15/21 ............................ 335,246
18,796 Series 1954, Class 1954-LL,
05/15/21 ............................ 153,751
18,796 Series 1954, Class 1954-LM,
05/15/21 ............................ 153,751
15,766 Series 1954, Class 1954-MD,
03/15/16 ............................ 1,313,464
12,525 Series 2049, Class 2049-PK,
06/15/14 ............................ 758,108
22,670 Series 2054, Class 2054-PL,
10/15/19 ............................ 2,998,400
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
3,006 Trust G93-25, Class 25-N,
12/25/19 ............................ 454,385
7,016 Trust G93-26, Class 26-PT,
12/25/17 ............................ 540,212
13,438 Trust G93-31, Class 31-PS,
08/25/18 ............................ 208,295
1,413 Trust 1991-49, Class 49-G,
05/25/06 ............................ 288,858
1,249 Trust 1992-82, Class 82-IO,
05/25/22 ............................ 310,373
2,096 Trust 1992-108, Class 108-L,
07/25/07 ............................ 460,634
1,322 Trust 1992-208, Class 208-S,
11/25/07 ............................ 166,864
13,521 Trust 1993-121, Class 121-PH,
01/25/19 ............................ 999,891
7,982 Trust 1993-141, Class 141-PJ,
06/25/19 ............................ 557,399
3,495 Trust 1993-226, Class 226-SB,
05/25/19 ............................ 80,426
2,368 Trust 1993-245, Class 245-JA,
03/25/19 ............................ 81,840
1,946 Trust 1994-42, Class 42-SO,
03/25/23 ............................ 199,484
20,598 Trust 1996-15, Class 15-SG,
08/25/08 ............................ 1,694,393
12,937 Trust 1996-20, Class 20-SB,
10/25/08 ............................ 3,179,586
4,484@ Trust 1996-24, Class 24-SB,
10/25/08 ............................ 843,365
8,499 Trust 1996-24, Class 24-SJ,
01/25/22 ............................ 2,276,471
543 Trust 1996-54, Class 54-SM,
09/25/23 ............................ 103,012
1,412 Trust 1997-35, Class 35-PK,
09/18/21 ............................ 122,092
30,736 Trust 1997-35, Class 35-SB,
03/25/09 ............................ 442,116
24,000@ Trust 1997-44, Class 44-SC,
06/25/08 ............................ 1,396,680
17,813 Trust 1997-50, Class 50-HJ,
12/25/17 ............................ 938,753
37,370 Trust 1997-90, Class 90-L,
10/25/19 ............................ 2,989,576
2,891 Trust 1998-44, Class 44, IC,
01/18/14 ............................ 323,946
AAA 115,827 First Union Lehman Brothers
Bank of America,
Series 1998-C2, Class IO,
05/18/28 ............................ 4,464,331
See Notes to Consolidated Financial Statements.
6
<PAGE>
================================================================================
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--(CONTINUED)
Government National Mortgage
Association,
$ 1,506 Series 1997-16, Class 16-PR,
12/20/20 ............................ $ 90,682
14,298 Series 1998-26, Class 26-IO,
10/20/18 ............................ 1,637,238
Merrill Lynch Mortgage Investors Inc.,
AAA 104,523 Series 1997-C2, Class IO,
12/10/29 ............................ 6,786,104
AAA 72,507 Series 1998-C2, Class IO,
02/15/30 ............................ 5,191,204
AAA 96,176 Morgan Stanley Capital I,
Series 1998-HF1, Class X,
02/15/18 ............................ 5,168,184
N/R 816 Salomon Brothers Mortgage Securities,
Series 1987-3, Class B,
10/23/17 ............................ 214,947
--------------
61,368,560
--------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--7.3%
AAA 1,580@ Collateralized Mortgage Obligation,
Trust 26, Class A,
04/23/17 ............................ 1,303,055
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
195 Series 1373, Class 1373-B,
09/15/22 ............................ 190,071
2,269 Series 1597, Class 1597-H,
07/15/23 ............................ 1,280,079
2,425 Series 1662, Class 1662-PO,
01/15/09 ............................ 1,923,498
1,096 Series 1813, Class 1813-K,
02/15/24 ............................ 975,842
2,933 Series 1844, Class 1844-PC,
03/15/24 ............................ 2,581,069
971 Series 2009, Class 2009-A,
12/15/22 ............................ 687,378
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
523 Trust 225, Class 1,
06/01/23 ............................ 415,659
3,629@ Trust 1993-67, Class 67-B,
12/25/21 ............................ 3,434,710
2,617 Trust 1993-92, Class 92-G,
05/25/23 ............................ 1,450,302
2,926 Trust 1993-113, Class 113-B,
07/25/23 ............................ 2,540,458
13,602 Trust 1993-205, Class 205-EB,
09/25/23 ............................ 12,590,183
392 Trust 1993-213, Class 213-H,
09/25/23 ............................ 369,699
1,225 Trust 1993-237, Class 237-C,
11/25/23 ............................ 1,117,531
1,000 Trust 1994-8, Class 8-D,
11/25/23 ............................ 897,500
3,053@ Trust 1994-26, Class 26-G,
01/25/24 ............................ 2,402,610
550 Trust 1994-54, Class 54-E,
11/25/23 ............................ 486,305
2,318 Trust 1994-87, Class 87-E,
03/25/09 ............................ 1,754,086
1,523 Trust 1997-19, Class 19-C,
09/25/23 ............................ 1,094,432
706 Trust 1997-19, Class 19-H,
10/25/22 ............................ 487,671
AAA 1,743 Prudential Bache CMO Trust,
Series 10, Class H,
04/01/19 ............................ 1,514,387
--------------
39,496,525
--------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--4.9%
AAA 2,178 Aetna Commercial Mortgage Trust,
Series 1995-C5, Class B,
6.74%, 12/26/30 ..................... 2,168,714
Aa1 4,000 FDIC Trust,
Series 1994-C1, Class IIF,
8.70%, 09/25/25 ..................... 4,135,143
AA- 2,290 Merrill Lynch Mortgage Investors, Inc.,
Series 1995-C1, Class C,
7.513%, 05/25/15 .................... 2,260,249
AAA 2,644 Mortgage Capital Funding Inc.,
Series 1998-MC3, Class A1,
6.00%, 11/18/31 ..................... 2,498,192
Paine Webber Mortgage
Acceptance Corp.,**
AAA 2,000 Series 1995-M1, Class A,
6.70%, 01/15/07 ..................... 1,962,500
A- 1,656 Series 1995-M1, Class D,
7.30%, 01/15/07 ..................... 1,638,157
A 3,095 Resolution Trust Corp.,
Series 1994-C1, Class C,
8.00%, 06/25/26 ..................... 3,091,584
AAA 3,925 Structured Asset Securities Corp.,
Series 1996-CFL, Class B,
6.30%, 02/25/28 ..................... 3,905,375
A 4,500 TVO Southwest,
Series 1994-MFI, Class A2,
9.37%, 11/18/04** ................... 4,574,832
--------------
26,234,746
--------------
ASSET-BACKED SECURITIES--9.2%
AAA 7,091 Brazos Student Loan Financial Corp.,
Series 1998-A, Class A1,
5.89%, 06/01/06 ..................... 7,067,872
See Notes to Consolidated Financial Statements.
7
<PAGE>
================================================================================
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
ASSET-BACKED SECURITIES (CONTINUED)
Broad Index Secured Trust Offering,**
Baa2 $ 5,000 Series 1998-1A, Class A,
6.58%, 03/26/01 ..................... $ 4,892,066
Baa2 5,000 Series 1998-4A, Class B2,
7.64%, 09/09/01 ..................... 4,990,625
AAA 20,545 Chase Credit Card Master Trust,
Series 1997-5, Class 5-A,
6.194%, 08/15/05 .................... 20,103,154
N/R 2,946 Global Rated Eligible Asset Trust,
Series 1998-A,
0 7.33%, 09/15/07**/*** ............... 883,777
AAA 3,400 NPF Trust VI, Inc,
Series 1999-1, Class A,
6.25%, 02/01/03** ................... 3,324,031
AA 1,809 Pegasus Aviation Lease Securitization,
Series 1999-1A, Class A1,
6.30%, 03/25/29** ................... 1,741,072
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,
8.724%, 04/15/06 .................... 989,210
4,500 Student Loan Marketing Association,
Trust 1995-1, Class CTFS,
10/25/09 ............................ 4,412,109
-----------
49,300,912
-----------
U.S. GOVERNMENT SECURITIES--1.0%
United States Treasury Note,
4,800 5.50%, 05/15/09 ....................... 4,472,256
1,145 6.125%, 08/15/07 ...................... 1,116,375
-----------
5,588,631
-----------
ZERO COUPON BONDS--35.2%
Financing Corp (FICO Strips),
18,000 03/07/02 .............................. 15,372,720
29,300 12/27/02 .............................. 23,772,262
Government Trust Certificates (Israel),
19,432 05/15/02 .............................. 16,610,752
25,000 11/15/02 .............................. 20,652,500
10,000 Government Trust Certificates (Jordan),
05/15/02 .............................. 8,588,700
U.S. Treasury Strips,
51,200@ 10/31/02 .............................. 42,761,216
74,550@ 11/30/02 .............................. 61,873,518
-----------
189,631,668
-----------
TAXABLE MUNICIPAL BONDS--6.8%
AAA 1,000 Kern County California,
Pension Obligation,
6.39%, 08/15/02 ..................... 983,950
AAA 3,510 Long Beach California,
Pension Obligation,
6.56%, 09/01/02 ..................... 3,466,897
AAA $ 5,000 Los Angeles County California,
Pension Obligation,
6.54%, 06/30/02 ..................... $ 4,940,450
AAA 10,000 New Jersey Economic Development
Auth., Zero Coupon,
02/15/03 ............................ 8,034,300
New York City G.O.,
A- 5,000 6.54%, 03/15/02 ....................... 4,938,350
A- 5,000 7.125%, 08/15/02 ...................... 4,996,550
A- 5,000 7.34%, 04/15/02 ....................... 5,018,850
BBB 1,235 New York St. Environ. Fac. Auth.,
6.73%, 09/15/02 ....................... 1,215,228
AAA 1,950 San Francisco California
International Airport,
6.35%, 05/01/02 ..................... 1,920,165
AA 1,000 St. Josephs Health System California,
G.O., 7.13%, 07/01/02 ............... 998,420
-----------
36,513,160
-----------
CORPORATE BONDS--25.0%
FINANCE & BANKING--11.4%
A3 4,900 Ahmanson HF & Co.,
8.25%, 10/01/02 ....................... 4,985,260
A3 1,700 Amsouth Bancorp.,
6.75%, 11/01/25 ....................... 1,626,288
A+ 5,000 Goldman Sachs Group L P,
6.25%, 02/01/03** ..................... 4,854,370
Lehman Brothers Holdings Inc.,
A 5,000 6.625%, 12/27/02 ...................... 4,895,100
A 875 6.75%, 09/24/01 ....................... 868,479
A 5,000 7.25%, 04/15/03 ....................... 4,950,800
AA- 1,665 Merrill Lynch & Co. Inc.,
5.75%, 11/04/02 ....................... 1,608,207
Nationsbank Corp.,
Aa2 5,000 6.65%, 04/09/02 ....................... 4,957,350
Aa2 5,000 7.00%, 09/15/01 ....................... 5,003,500
Paine Webber Group Inc.,
BBB+ 2,190 7.875%, 02/15/03 ...................... 2,203,250
BBB+ 7,790 8.25%, 05/01/02 ....................... 7,930,220
Salomon Smith Barney Holdings Inc.,
Aa3 3,000 5.875%, 02/01/01 ...................... 2,966,550
Aa3 1,500 7.00%, 05/15/00 ....................... 1,502,130
Aa3 4,500 7.98%, 03/01/00 ....................... 4,510,710
A- 8,500 Transamerica Finance Corp.,
6.75%, 06/01/00 ....................... 8,509,520
-----------
61,371,734
-----------
INDUSTRIALS--4.0%
A 1,000 Bass America Inc.,
8.125%, 03/31/02 ...................... 1,017,940
A+ 1,000 Ford Motor Credit Co.,
8.00%, 06/15/02 ....................... 1,020,254
Baa2 5,425 Jones Apparel Group Inc.,
6.25%, 10/01/01 ....................... 5,280,468
BBB+ 5,000 Norfolk Southern Corp.,
6.95%, 05/01/02 ....................... 4,978,400
See Notes to Consolidated Financial Statements.
8
<PAGE>
================================================================================
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Baa2 $ 5,265 Raytheon Co.,
6.45%, 08/15/02 ..................... $ 5,129,479
AA- 4,000 TCI Communications Inc.,
9.25%, 04/15/02 ..................... 4,186,360
--------------
21,612,901
--------------
UTILITIES--1.7%
A3 5,000@ Columbia Energy Group,
6.610%, 11/28/02 .................... 4,883,550
A 4,000 360 Communications,
7.125%, 03/01/03 .................... 3,979,640
--------------
8,863,190
--------------
YANKEE BONDS--7.9%
Aa1 5,000@ African Development Bank,
7.75%, 12/15/01 ..................... 5,067,000
AAA 4,203 Banamex Remittance Master Trust,
Ser. 1996-1, 7.57%, 01/01/01** ...... 4,181,635
A 5,000 Corporacion Andina de Fomento,
7.10%, 02/01/03 ..................... 4,914,400
BBB- 3,500 Empresa Elec. Guacolda SA,
7.95%, 04/30/03** ................... 3,325,000
BBB+ 1,650 Empresa Elec. Pehuenche,
7.30%, 05/01/03 ..................... 1,590,050
BBB 2,000 Korea Development Bank,
6.50%, 11/15/02 ..................... 1,940,180
BBB+ 10,000 Republic of Argentina,
Zero coupon, 04/15/01 ............... 8,870,000
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 .................... 5,037,500
Baa1 2,811 YPF Sociedad Anonima,
7.50%, 10/26/02 ..................... 2,805,956
--------------
42,731,721
--------------
Total corporate bonds ................. 134,579,546
--------------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS***--0.3%
Federal Home Loan Mortgage Corp.,
10 Series 1016, Class 1016-R,
11/15/20 ............................ 26,000
Federal National Mortgage Association,
REMIC,
1 Trust 1991-9, Class 9-R,
02/25/06 ............................ 218,500
1 Trust 1991-9, Class 9-RL,
02/25/06 ............................ 1,000
1 Trust 1991-48, Class 48-R,
05/25/06 ............................ 726,750
1 Trust 1991-48, Class 48-RL,
05/25/06 ............................ 1,000
7 Trust 1991-50, Class 50-R,
05/25/06 ............................ 550,260
--------------
1,523,510
--------------
CALL OPTIONS PURCHASED
Interest Rate Swap,
$85,000 3 Month LIBOR over 5.60%,
expires 08/07/00 .................... $ 26,159
--------------
Total long-term investments
(cost $722,474,648) ................... 700,783,979
--------------
PRINCIPAL
AMOUNT
(000)
--------
SHORT-TERM INVESTMENTS--1.4%
DISCOUNT NOTE
$ 7,451 Federal Home Loan Bank,
1.50%, due 01/03/00
(amortized cost $7,451.379) ......... 7,451,379
--------------
Total investments before
investments sold short--131.5%
(cost $729,926,027) ................... 708,235,358
INVESTMENTS SOLD SHORT--(1.4%)
(7,500) U.S. Treasury Note,
6.00%, 08/15/09
(proceeds received $7,355,859) ........ (7,265,625)
--------------
Total investments net of
investments sold
short -130.1%
(cost $722,570,168) ................. 700,969,733
Liabilities in excess of cash and
other assets--(30.1%) ............... (162,201,035)
--------------
NET ASSETS--100% ...................... $ 538,768,698
==============
- ----------
* 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 0.80% of portfolio assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements financial futures contracts.
@@ Security is restricted as to public resale. The securities were acquired in
1997 and have an aggregate current cost of $3,011,959.
- --------------------------------------------------------------------------------
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
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $729,926,027)
(Note 1) .................................................. $708,235,358
Cash ........................................................ 607,467
Deposit with broker for investments
sold short (Note 1) ....................................... 7,481,250
Interest receivable ......................................... 6,137,600
------------
722,461,675
------------
LIABILITIES
Reverse repurchase agreement (Note 4) ....................... 171,159,125
Investment sold short, at value
(proceeds $7,355,859) (Note 1) ............................ 7,265,625
Dividend payable ............................................ 2,276,444
Interest payable ............................................ 661,350
Due to broker--variation margin ............................. 250,008
Advisory fee payable (Note 2) ............................... 191,143
Administration fee payable (Note 2) ......................... 41,988
Other liabilities ........................................... 1,847,294
------------
183,692,977
------------
Net Assets .................................................. $538,768,698
============
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 ....................... 42,781,391
Accumulated net realized loss ............................. (16,302,297)
Net unrealized depreciation ............................... (21,796,435)
------------
Net assets, December 31, 1999 ............................. $538,768,698
============
Net asset value per share:
($538,768,698 O 57,510,639 shares of
common stock issued and outstanding) ...................... $9.37
============
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of net premium amortization
of $1,637,034 and interest expense
of $12,718,231) ......................................... 44,181,081
------------
Expenses
Investment advisory ....................................... 2,509,195
Administration ............................................ 555,038
Custodian ................................................. 174,000
Reports to shareholders ................................... 148,000
Independent accountants ................................... 136,000
Directors ................................................. 84,000
Transfer agent ............................................ 82,000
Legal ..................................................... 78,000
Registration .............................................. 48,000
Miscellaneous ............................................. 185,164
------------
Total operating expenses ................................ 3,999,397
------------
Net investment income before excise tax ..................... 40,181,684
Excise tax ................................................ 2,030,737
------------
Net investment income ....................................... 38,150,947
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments ............................................... (19,827,835)
Futures ................................................... (6,879,611)
Short sales ............................................... 5,421,557
Swaps ..................................................... 1,830,903
Options written ........................................... 833,000
------------
(18,621,986)
------------
Change in net unrealized appreciation (depreciation) on:
Investments ............................................... (34,582,787)
Options written ........................................... 2,186,744
Futures ................................................... (418,694)
Short sales ............................................... 85,082
Swaps ..................................................... (465,937)
------------
(33,195,592)
------------
Net loss on investments ..................................... (51,817,578)
------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................... ($13,666,631)
============
See Notes to Consolidated Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
RECONCILIATION OF NET DECREASE IN
NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net decrease in net assets resulting
from operations ........................................... $(13,666,631)
------------
Decrease in investments ..................................... 149,963,692
Net realized loss .......................................... 18,621,986
Decrease in unrealized appreciation ........................ 33,195,592
Decrease in unrealized appreciation on interest rate swap ... 465,937
Decrease in receivable for investments sold ................. 38,141,709
Decrease in receivable for variation margin ................. 385,351
Decrease in interest receivable ............................. 2,147,957
Decrease in payable for investments purchased ............... (83,828,030)
Decrease in swap option written ............................. (3,019,744)
Increase in deposits with broker for short sales ............ (5,753,624)
Increase in payable for investments sold short 5,552,348
Decrease in interest payable ................................ (1,040,940)
Increase in accrued expenses and other liabilities .......... 1,073,427
-------------
Total adjustments ......................................... 155,905,661
------------
Net cash flows provided by operating activities ............. $142,239,030
============
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ............. $142,239,030
------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ................. (114,849,175)
Cash dividends paid ....................................... (27,317,284)
------------
Net cash flows used for financing activities ................ (142,166,459)
------------
Net increase in cash ...................................... 72,571
Cash at beginning of year ................................... 534,896
------------
Cash at end of year ......................................... $ 607,467
============
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1999 1998
------------ -----------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income ................ $38,150,947 $41,426,604
Net realized gain (loss) ............. (18,621,986) 7,649,729
Net change in unrealized
appreciation (depreciation) ........ (33,195,592) 9,477,287
----------- -----------
Net increase (decrease) in
net assets resulting from
operations ......................... (13,666,631) 58,553,620
Dividends from net
investment income .................. (27,317,284) (27,317,150)
----------- -----------
Total increase (decrease) ............ (40,983,915) 31,236,470
NET ASSETS
Beginning of year .................... 579,752,613 548,516,143
----------- -----------
End of year (including
undistributed net investment
income of $42,781,391 and
$29,916,991 respectively) .......... $538,768,698 $579,752,613
=========== ============
See Notes to Consolidated Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK STRATEGIC TERM TRUST INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
PER SHARE OPERATING PERFORMANCE:
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .............. $ 10.08 $ 9.54 $ 9.15 $ 9.32 $ 8.12
------- ------ ------ ------ ------
Net investment income (net of interest expense
of $0.22, $0.23, $0.18, $0.19 and $0.34,
respectively) ............................... 0.66 0.72 0.67 0.58 0.62
Net realized and unrealized gain (loss)......... (0.89) 0.30 0.20 (0.22) 1.14
------- ------ ------ ------ ------
Net increase (decrease) from
investment operations ...................... (0.23) 1.02 0.87 0.36 1.76
------- ------ ------ ------ ------
Dividends from net investment income ........... (0.48) (0.48) (0.48) (0.53) (0.56)
------- ------ ------ ------ ------
Net asset value, end of year* .................. $ 9.37 $10.08 $ 9.54 $ 9.15 $ 9.32
======= ====== ====== ====== ======
Per share market value, end of year* ........... $ 8.81 $ 9.19 $ 8.50 $ 8.00 $ 7.63
======= ====== ====== ====== ======
TOTAL INVESTMENT RETURN ......................... 1.07% 14.02% 12.56% 11.79% 14.68%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses .............................. 0.72% 0.75% 0.73% 0.74% 0.78%
Operating expenses and interest expense ......... 3.00% 3.12% 3.05% 3.87% 4.68%
Operating expenses, interest expense
and excise taxes ............................... 3.36% 3.19% 3.05% 3.87% 4.68%
Net Investment Income .......................... 6.84% 7.35% 6.84% 6.39% 7.13%
SUPPLEMENTAL DATA:
Average net assets (000) ....................... $557,648 $563,470 $531,101 $518,963 $501,869
Portfolio turnover rate ........................ 58% 61% 110% 107% 135%
Net assets, end of year (000) .................. $538,769 $579,753 $548,516 $526,116 $535,741
Reverse repurchase agreements
outstanding, end of year (000) .............. $171,159 $286,008 $212,244 $213,085 $232,396
Asset coverage ++ .............................. $ 4,148 $ 3,027 $ 3,584 $ 3,469 $ 3,305
</TABLE>
- -----------------
* NET ASSET VALUE AND MARKET VALUE ARE PUBLISHED IN BARRON'S EACH SATURDAY
AND THE WALL STREET JOURNAL each 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 dividend reinvestment plan. Total investment return does not
reflect brokerage commissions.
++ 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 years 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 TERMTRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. 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.
Short-term securities having a remaining maturity of 60 days or less are
valued at amortized cost which approximates market value.
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
urchasing 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
roceeds 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
ositions, 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 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 ortfolio is long. In the same sense, call
options can be purchased to hedge a ortfolio 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 ositions.
13
<PAGE>
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.
The Trust did not engage in securities lending during the year ending
December 31, 1999.
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. remiums 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
ortfolio 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
urchased to lengthen a portfolio that is shorter than its duration target. Thus,
by buying or selling futures contracts, the Trust can effectively hedge ositions
so that changes in interest rates do not change the duration of the ortfolio
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 urchase against fluctuations in value caused by changes in prevailing
market interest rates. Should interest rates move unexpectedly, the Trust may
not achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying 14 # 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
14
<PAGE>
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 articular 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 year ended
December 31, 1999.
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
ortfolio 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
rotection from rising short term rates, which the Trust experiences primarily in
the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is 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 ortfolio 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.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
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.
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.
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
rinciples.
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RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Public Accountants' Statement 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 $2,030,737 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 generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management Inc. (the "Advisor"), a wholly-owned subsidiary of BlackRockAdvisors,
Inc., which is a wholly-owned subsidiary of BlackRock, Inc., which in turn is an
indirect majority-owned subsidiary of PNCBank Corp. The Trust has an
Administration Agreement with MorganStanley Dean Witter Advisors Inc. ("MSDWA"),
formerly DeanWitter 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 year ended December 31, 1999, aggregated $457,302,706 and
$522,497,963, 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 December 31,
1999, the Trust held 9.0% of its portfolio 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 December 31,
1999 was substantially the same as the basis for financial reporting, and,
accordingly, net unrealized depreciation for federal income tax purposes was
$21,690,669 (gross unrealized appreciation--$11,089,559; gross unrealized
depreciation--$32,689,997).
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 contracts at December 31, 1999 are as
follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE DECEMBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 1999 DEPRECIATION
- -------- ----- -------- ------- ------------- ------------
Long position:
30 Yr.
500 T-Bond Mar. 2000 $45,664,750 $45,468,750 $(196,000)
=========
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS:
The Trust may enter into reverse repurchase agreements with qualified, third
arty 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 year ended December 31, 1999 was $257,901,313 at a weighted average interest
rate of
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approximately 4.94%. The maximum amount of reverse repurchase agreements
outstanding at any month-end during the year was $293,717,063 as of September
30, 1999 which was 29.4% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase rice
at the future date.
The average monthly balance of dollar rolls outstanding during the year
ended December 31, 1999 was approximately $3,750,000. The maximum amount of
dollar rolls outstanding at any month-end during the year was $45,393,750 as of
January 31, 1999 which was 4.9% of total assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of the
57,510,639 shares outstanding at December 31, 1999, the Advisor owned 10,724
shares.
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THE BLACKROCK STRATEGICTERM TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock Strategic Term Trust Inc.:
We have audited the accompanying consolidated statement of assets and
liabilities of The BlackRock Strategic Term Trust Inc., including the
consolidated portfolio of investments, as of December 31, 1999, and the related
consolidated statements of operations and of consolidated cash flows for the
year then ended, the consolidated statement of changes in net assets for each of
the two years in the period then ended and the consolidated financial highlights
for each of the five years in the period then ended. These consolidated
financial statements and consolidated financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements and
consolidated financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. Our procedures included
confirmation of securities owned at December 31, 1999, by correspondence with
the custodian and brokers; where replies were not received from brokers, we
erformed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and consolidated
financial highlights referred to above present fairly, in all material respects,
the consolidated financial position of The BlackRock Strategic Term Trust Inc.
as of December 31, 1999, and the results of its consolidated operations, its
consolidated cash flows, the changes in its consolidated net assets and its
consolidated financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
New York, New York
February 11, 2000
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THE BLACKROCK STRATEGIC TERM TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during the taxable year ended Decebmber 31,
1999.
During the fiscal year ended December 31, 1999, the Trust paid aggregate
dividends of $.475 per share to investors taxable as 1999 income to shareholders
of record from January 1 to December 31, 1999. For federal income tax purposes,
the dividends you received are reportable in your 1999 federal income tax
returns as ordinary income. Further, we wish to advise you that your income
dividends do not qualify for the dividends received deduction.
We are required by Massachusetts, Missouri, and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 8.60% of the dividends paid from
ordinary income in the fiscal year ended December 31, 1999 qualify for each of
these states, tax exclusion.
For the purpose fo preparing your 1999 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which was mailed to you in January 2000.
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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 FSB (the "Agent") in Trust shares pursuant to the
lan. 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
lan. 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 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
ayment 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
ro 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, state or local income tax that may
be payable on such dividend 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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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
olicies that have not been approved by the Shareholders or to its charter or
by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
We have transitioned into the Year 2000, and it is business as usual at
BlackRock.
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THE BLACKROCK STRATEGIC TERM TRUST INC.
INVESTMENT SUMMARY
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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. is an SEC-registered investment advisor. As of December
31, 1999, the Advisor and its affiliates (together, "BlackRock") managed $165
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 $27 billion family of open-end funds. BlackRock manages
over 580 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
ossible. 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
rice 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
ays 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
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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 aid 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 repayments) on the
related underlying mortgage assets, and a repaid rate of rincipal 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 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 ROVISIONS. 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.
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.
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.
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, THE NEW YORK
TIMES AND THE WALL STREET JOURNAL each 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
REPURCHASE AGREEMENTS: sells 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 separated
SECURITIES: 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.
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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) 729-8855
CUSTODIAN
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
TRANSFER AGENT
Morgan Stanley Dean Witter FSB
Harborside Financial Center -- Plaza Two
Jersey City, New Jersey 07311-3977
(800) 526-3143
INDEPENDENT AUDITORS
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
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
Printed on recycled paper
THE BLACKROCK
STRATEGIC TERM
TRUST INC.
- --------------------------------------------------------------------------------
CONSOLIDATED
ANNUAL REPORT
DECEMBER 31, 1999
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