- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
January 31, 1997
Dear Trust Shareholder:
The domestic fixed income markets over the past twelve months were once
again greatly influenced by interest rate volatility. Significant swings in the
pace of U.S. economic growth influenced the bond market's performance, as every
release of economic data led to market participant speculation regarding the
direction of Federal Reserve monetary policy.
Despite strong growth and rising wage pressures, the Fed's decision not to
raise interest rates at their two most recent policy meetings has markedly
increased the stakes in the bond market. The rationale behind the Fed's decision
not to raise interest rates appears to focus on the benign inflation data
released during the third quarter. Should economic growth slow and inflation
remain benign, the Fed will be proven correct in their inaction and the market
would be expected to rally significantly. On the other hand, signs of a stronger
economy could result in weaker bond prices as the likelihood of a Fed tightening
would increase.
BlackRock maintains a positive view on the bond market. On balance, the
outlook for moderate inflation remains intact, suggesting that further declines
in interest rates are likely. In addition to this favorable fundamental
backdrop, foreign demand for U.S. bonds has increased due to the renewed
attractiveness of the U.S. bond market on a global basis.
This annual report is designed to help you stay informed about your
investment and represents our ongoing commitment to improving our communication
with you. We hope you find this report useful now and in the future. We
appreciate your confidence and look forward to helping 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, 1997
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock 2001
Term Trust Inc. ("the Trust") for the six months ended December 31, 1996. 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 "BLK". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about June 30, 2001 while providing high current
income. Although there can be no guarantee, BlackRock is confident that the
Trust can achieve its investment objectives. The Trust seeks these objectives 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 the time of purchase
or be issued or guaranteed by the U.S. Government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
12/31/96 6/30/96 CHANGE HIGH LOW
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK PRICE $7.875 $7.625 3.28% $8.00 $7.375
- ---------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $8.91 $8.68 2.65% $8.98 $8.60
- ---------------------------------------------------------------------------------------------
</TABLE>
THE FIXED INCOME MARKETS
After a torrid second quarter, the pace of economic growth slowed over the
past six months. Largely softer economic data and continued moderation in the
broad inflation measures during the third quarter allowed the Fed to leave short
term interest rates unchanged at their August and September policy meetings. The
Treasury market started the fourth quarter on a positive note due to the
combination of the Federal Reserve's inaction with respect to interest rates and
the weaker September non-farm payroll number. In addition to the favorable
economic news, a stronger dollar, large foreign buying of U.S. Treasuries and
balanced budget hopes following the November elections also supported the market
early in the fourth quarter. However, Alan Greenspan's mention of "irrational
exuberance in the financial markets" on December 4th rattled the Treasury
market, leading to a monthlong rise in rates. A resilient housing market and
strong consumer confidence contributed to the market decline in late December.
The market for mortgage-backed securities (MBS) modestly outperformed the
broader investment grade bond market for the six months ended December 31, as
the supply and demand technical conditions remained positive throughout the
period. Strong demand from the mortgage agencies (Fannie Mae and Freddie Mac)
helped support MBS prices even as mortgage rates fell and refinancing activity
increased during October and November. For the period, the MBS market as
measured by the LEHMAN BROTHERS MORTGAGE INDEX posted a 4.99% total return
versus the 4.90% return of the LEHMAN BROTHERS AGGREGATE INDEX.
2
<PAGE>
Corporate bond returns exceeded those of Treasuries and mortgage
securities during the fourth quarter, underscoring a strong year for corporates
as they outperformed Treasuries during every month in 1996. The demand for
yield, a strong fundamental credit environment and the increased participation
of foreign investors were the major influences which drove corporate bond prices
higher and yields spreads to Treasuries narrower. BlackRock enters 1997 cautious
on the corporate sector. Despite the sound credit environment of 1996 and
positive credit momentum going into the new year, corporate bond spreads versus
Treasuries are fairly narrow.
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 June 30, 1996 asset
composition.
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
- --------------------------------------------------------------------------------
COMPOSITION DECEMBER 31, 1996 JUNE 30, 1996
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 24% 24%
- --------------------------------------------------------------------------------
Corporate Bonds 19% 15%
- --------------------------------------------------------------------------------
Taxable Zero Coupon Bonds 18% 18%
- --------------------------------------------------------------------------------
U.S. Treasury Securities 9% 10%
- --------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 8% 8%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 7% 7%
- --------------------------------------------------------------------------------
Adjustable Rate Mortgages 5% 9%
- --------------------------------------------------------------------------------
Asset-Backed Securities 5% 3%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 3% 3%
- --------------------------------------------------------------------------------
Municipal Bonds 2% 1%
- --------------------------------------------------------------------------------
CMO Residuals 0% 1%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 0% 1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
--------------------------------------------
CREDIT RATING DECEMBER 31, 1996 JUNE 30, 1996
- --------------------------------------------------------------------------------
AAA or equivalent 1% 1%
- --------------------------------------------------------------------------------
AA or equivalent 9% 11%
- --------------------------------------------------------------------------------
A or equivalent 59% 54%
- --------------------------------------------------------------------------------
BBB or equivalent 31% 34%
- --------------------------------------------------------------------------------
As we have discussed in the Trust's recent reports, we have been seeking
to achieve the Trust's primary investment objective of returning $10 per share
to investors on or about its termination date by emphasizing the purchase of
investment grade corporate bonds with maturity dates on or shortly before the
Trust's scheduled termination date. As of year-end, 19% of the Trust's assets
were invested in corporates, an increase of 4% since June 30, 1996 and 11% since
December 31, 1995. To a lesser degree, the Trust has also been buying commercial
mortgage-backed securities (CMBS), which are securities backed by commercial (as
opposed to the more traditional residential) mortgage loans. CMBS deals are
typically issued in several pieces, or tranches, which carry different maturity
dates and credit ratings. Whenever possible, we have bought tranches which fit
the Trust's maturity profile.
3
<PAGE>
To fund the purchase of finite, or "bullet", maturity securities such as
corporates and CMBS, we have been selling bonds whose maturities may extend
beyond the Trust's termination date (we consider these bonds to have "tail
risk"). In our efforts to eliminate these bonds from the portfolio, a particular
focus has been placed on reducing mortgage-backed securities (MBS), whose actual
maturity dates may fluctuate depending on interest rate movements. Additionally,
MBS offer less predictable cash flows than corporates, which typically pay
semi-annually. We believe that the strategy of reducing the Trust's "tail risk"
will enhance the Trust's ability to return its initial offering price upon
termination. Additionally, the Trust's increased corporate holdings may help
produce a more stable income stream.
We appreciate your continued confidence and look forward to managing The
BlackRock 2001 Term Trust Inc. in the coming years to realize its investment
objectives. Please feel free to contact the mutual fund specialists at
BlackRock's marketing center at (800) 227-7BFM (7236) if you have any questions
that are not answered in this report. Additionally, you can reach us via e-mail
at [email protected].
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
- -------------------- ---------------------
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Principal and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BLK
- --------------------------------------------------------------------------------
Initial Offering Date: July 23, 1992
- --------------------------------------------------------------------------------
Closing Stock Price as of 12/31/96: $7.875
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/96: $8.91
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/96 ($7.875) 1: 5.08%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.0333
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.40
- --------------------------------------------------------------------------------
- ----------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 Distribution not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--149.4%
MORTGAGE PASS-THROUGHS--32.8%
Federal Home Loan Mortgage
Corporation,
$ 1,945@ 6.50%, 12/01/99 - 10/01/25 ....... $ 1,859,199
3,509 7.50%, 07/01/13 - 11/01/23 ....... 3,512,364
18,136 8.00%, 07/01/08 - 03/01/23 ....... 18,547,410
24,464 8.144%, 12/01/01,
7 Year Multifamily ............. 25,504,154
23,607 8.50%, 02/01/08 - 09/01/24 ....... 24,528,633
10,331 8.60%, 05/01/02,
7 Year Multifamily ............. 10,821,699
Federal National Mortgage
Association,
8,007 6.125%, Series 1993-M2,
Class M2-H, 11/25/03,
Multifamily ..................... 7,961,696
88,000@ 7.00%, 12/01/99, 7 Year ........... 88,357,280
23,686@ 7.00%, 01/01/99 - 07/01/27 ........ 23,160,838
9,064 7.50%, 09/01/07 ................... 9,189,930
6,557 7.66%, 01/01/01,
7 Year Multifamily .............. 6,748,259
10,627 7.695%, 05/01/01,
Multifamily ..................... 10,812,917
18,000 7.778%, 07/01/01,
7 Year Multifamily .............. 18,705,217
11,389 7.79%, 02/01/01,
7 Year Multifamily .............. 11,757,361
15,129 8.00%, 03/01/01,
7 Year Multifamily .............. 15,703,486
11,438 8.00%, 03/01/01 - 12/01/23 ........ 11,731,630
3,732 8.49%, 04/01/01
7 Year Multifamily .............. 3,909,508
9,792 8.50%, 11/01/03 - 09/01/10,
15 Year ......................... 10,188,567
2,455 8.69%, 04/01/01,
7 Year Multifamily .............. 2,574,721
Government National
Mortgage Association,
22,631@ 7.00%, 12/15/99 - 09/15/24 ....... 22,140,887
9,634 8.00%, 01/15/23 - 06/15/24 ....... 9,827,061
7,532 8.50%, 05/15/18 - 06/15/23 ....... 7,805,273
47,989 9.00%, 04/15/16 - 11/15/17 ....... 51,482,586
17,028 9.50%, 03/15/16 - 12/15/17 ....... 18,462,106
------------
415,292,782
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--15.4%
AAA 531 Collateralized Mortgage
Securities Corporation,
Series F, Class F-4A,
11/01/15 ......................... 548,073
Federal Home Loan Mortgage
Corporation, Multiclass
Mortgage Participation
Certificates,
4,076 Series G-29, Class G-29-IA,
06/25/20 (I) ................... 488,212
23,558 Series G-30, Class G-30-J,
02/25/19 (I) ................... 3,777,489
23,082 Series G-32, Class G-32-PT,
02/25/19 (I) ................... 3,038,523
3,714 Series 269, Class 269-I,
08/01/22 ....................... 3,944,068
30,437 Series 1261, Class 1261-H,
08/15/19 ....................... 30,867,727
4,700 Series 1378, Class 1378-DA,
01/15/18 ....................... 1,446,843
62 Series 1388, Class 1388-G,
05/15/06 ....................... 1,109,315
62,440 Series 1546, Class 1546-SF,
12/15/21 (I) ................... 3,070,198
40,725 Series 1605, Class 1605-S,
08/15/06 (ARM) ................. 1,323,573
2,425 Series 1606, Class 1606-Sb,
11/15/08 (ARM) ................. 2,391,875
18,780 Series 1621, Class 1621-SJ,
10/15/20 (ARM) ................. 978,626
8,947 Series 1628, Class 1628-SJ,
12/15/23 (ARM) ................. 8,167,922
7,340 Series 1629, Class 1629-MS,
11/15/21 ....................... 6,679,236
28,404 Series 1640, Class 1640-SD,
12/15/00 (ARM) ................. 783,666
143,000 Series 1809, Class 1809-SC,
12/15/23 (ARM) ................. 14,389,375
Federal National Mortgage
Association, REMIC
Pass-Through Certificates,
6,034 Trust 1990-144, Class 144-W,
12/25/20 ...................... 6,619,929
86 Trust 1991-163, Class 163-SA,
12/25/21 (ARM) ................ 909,305
15,000 Trust 1992-43, Class 43-SE,
04/25/22 (ARM) ................ 14,962,950
2,930 Trust G1992-50, Class 50-S,
08/25/22 (ARM) ................ 591,520
10,000 Trust 1992-122, Class 122-PJ,
06/25/19 ...................... 10,283,000
1,800 Trust 1992-184, Class 184-SA,
06/25/22 (ARM) ................ 1,950,416
1,500 Trust G1993-17,Class 17-SH,
04/25/23 (ARM) ................ 940,620
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONT'D)
$ 64,749 Trust G1993-31,Class 31-PS,
08/25/18 (ARM) ................. $ 2,364,645
1,735 Trust 1993-58,Class 58-C,
04/25/23 (ARM) ................. 1,237,169
9,019 Trust 1993-68, Class 68-PJ,
11/25/06 (I) ................... 938,788
2,050 Trust 1993-71, Class 71-PG,
07/25/06 ....................... 2,018,656
1,617 Trust 1993-99, Class 99-SB,
07/25/23 (ARM) ................. 1,547,794
2,110 Trust 1993-117, Class 117-S,
07/25/08 (ARM) ................. 1,968,522
1,585 Trust 1993-121, Class 121-SE,
02/25/23 (ARM) ................. 1,218,368
15,350 Trust 1993-152, Class 152-D,
08/25/23 (P) ................... 12,989,938
9,012 Trust 1993-196, Class 196-SM,
10/25/08 (ARM) ................. 7,644,910
75,626 Trust 1993-202, Class 202-SL,
11/25/23 (ARM) ................. 3,970,359
7,141 Trust 1993-214, Class 214-SO,
12/25/08 (ARM) ................. 6,202,009
35,119 Trust 1993-240, Class 240-PS,
09/25/12 (ARM) ................. 1,130,381
2,857 Trust 1994-42, Class 42-SM,
01/25/24 (ARM) ................. 2,774,935
7,992 Trust 1994-46, Class 46-B,
11/25/23 (P) ................... 7,429,895
2,396 Trust 1994-53, Class 53-DA,
11/25/23 (P) ................... 1,888,906
7,300 Trust 1996-24, Class 24-SB,
10/25/08 (ARM) ................. 1,478,250
9,471 Trust 1996-40, Class 40-SG,
03/25/09 (ARM) ................. 1,917,800
12,640 Trust 1996-T6, Class T6-C,
02/26/01 ....................... 12,482,321
3,458 Trust 1996-T6, Class T6-D,
02/26/01 ....................... 3,459,953
4,989 Government National Mortgage
Association, Trust 1994-1,
Class 1-PL, 06/16/24 (I) ....... 867,705
------------
194,793,765
------------
COMMERCIAL MORTGAGE BACKED
SECURITIES--4.1%
BBB 10,000 CBA Mortgage Corporation,
Series 1993-C1,Class D,
12/25/03 ....................... 10,101,422
AA 2,000 KPAC, Series 1994-C1,
Class B, 02/01/06 .............. 2,006,346
AAA 5,200 PaineWebber Mortgage
Acceptance Corp., Series 1995-
M1,Class 1, 01/15/07 ........... 5,190,695
BBB+ 6,000 Phoenix Real Estate
Incorported, Series 1993-1,
11/25/23 ..................... 6,091,875
Resolution Trust Corporation,
AA- 6,771 Series 1992-C6, Class B,
07/25/24 ..................... 6,805,060
A 5,684 Series 1994-C2, Class D,
02/25/25 ..................... 5,796,004
BBB 3,000 Series 1995-C1, Class D,
02/25/27 ..................... 2,877,188
AAA 12,800 Structured Asset Securities
Corporation, Series 1996-1,
02/25/28 12,477,773
------------
51,346,363
------------
CORPORATE BONDS--25.2%
BANKING AND FINANCE--13.3%
A3 1,300 Amsouth Bancorporation,
6.75%, 11/01/25 ................ 1,264,563
A- 5,000 Aristar Incorporated,
7.25%, 06/15/01 ................ 5,108,844
Associates Corporation,
AA- 5,000 6.68%, 07/25/00 ................ 5,145,145
AA- 5,000 7.46%, 03/28/00 ................ 5,028,382
AA- 1,000 7.875%, 09/30/01 ............... 1,049,993
A- 15,000 Donaldson, Lufkin &Jenrette,
5.625%, 02/15/16 ............... 14,456,100
BBB 7,500 Eras Usa Finance Company,
7.00%, 06/15/00 ................ 7,592,868
BBB 5,000 Fireman's Corporation,
8.875%, 10/15/01 ............... 5,359,600
A+ 6,750 Goldman, Sachs Group LP,
6.20%, 12/15/00 ................ 6,604,065
BBB+ 5,000 Great WesternFinancial
Corporation,
6.375%, 07/01/00 ............... 4,962,429
Household Finance
Corporation,
A 7,000 6.65%, 05/26/98 ................ 7,059,710
A 4,000 7.45%, 04/01/00 ................ 4,097,240
A1 5,700 MeridianBancorp Incorporated,
6.625%, 06/15/00 ............... 5,719,429
Merrill Lynch &Co. Incorporated,
A+ 7,200 6.00%, 01/15/01 ................ 7,061,472
A+ 5,800 6.00%, 03/01/01 ................ 5,673,132
A+ 3,800 Morgan Stanley Incorporated,
5.75%, 02/15/01 ................ 3,682,999
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
BANKING AND FINANCE--(CONT'D)
A+ $ 10,000 Nationsbank Corporation,
7.00%, 09/15/01 ................ $ 10,131,100
BBB+ 5,000 Potomac Capital Corporation
6.73%, 08/09/99 ................ 4,996,121
BBB+ 12,500 Salomon Incorporated,
6.625%, 11/30/00 ............... 12,426,625
A- 4,000 Sanwa Business Credit,
7.25%, 09/15/01 ................ 4,079,767
A 1,925 Security Pacific Corporation,
11.00%, 03/01/01 ............... 2,228,338
Smith Barney Holdings Incorporated,
A2 13,000 6.625%, 06/01/00 ............... 13,030,810
A2 3,600 7.00%, 05/15/00 ................ 3,650,089
BBB- 6,880 Terra Nova Insurance United
Kingdom Holdings PLC,
10.75%, 07/01/05 ............... 7,791,600
A 15,000 Transamerica Finance Corporation,
6.75%, 06/01/00 ................ 15,097,599
BBB+ 5,000 Union Planters National Bank,
6.76%, 10/30/01 ................ 4,999,284
------------
168,297,304
------------
CORPORATE BONDS--
INDUSTRIAL-- 4.6%
A+ 10,000 Ford Motor Credit,
6.18%, 12/27/01 ................ 9,782,028
A- 20,600 General Motors Acceptance
Corporation,
6.125%, 09/18/98 ............... 20,591,051
RJR Nabisco Brands Incorporated,
BBB 9,000 8.00%, 01/15/00 ................ 9,334,710
BBB- 6,000 8.00%, 07/15/01 ................ 6,029,882
Sears Roebuck & Company,
A2 4,250 6.50%, 06/15/00 ................ 4,252,210
A2 5,000 7.29%, 04/24/00 ................ 5,102,173
Baa2 3,500 Tenneco Credit Corporation,
7.875%, 10/01/02 ............... 3,638,630
------------
58,730,684
------------
CORPORATE BONDS--
UTILITIES--0.7%
BBB 9,000 Pacificorp Holdings,
6.75%, 04/01/01 ................ 8,970,847
------------
CORPORATE BONDS--
YANKEE -- 6.6%
African Development,
AA1 5,000 7.75%, 12/15/01 ................ 5,256,575
Aaa 3,350 8.625%, 05/01/01 ............... 3,617,733
BBB- 8,000 Columbia (Republic of),
8.00%, 06/14/01 ................ 8,130,234
BBB- 15,000 Empresa Electric Guacolda,
7.60%, 04/30/01 ................ 15,184,537
AA 14,000 Italy (Republic of),
Zero Coupon, 01/10/01 .......... 10,832,500
A3 6,500 Slovenia (Republic of),
7.00%, 08/06/01 ................ 6,571,691
A+ 18,000 Quebec (Province of),
9.125%, 08/22/01 ............... 19,617,336
A- 15,000 US Remittance Master,
7.57%, 01/01/01 ................ 14,889,844
------------
84,100,450
------------
ASSET-BACKED SECURITIES--6.3%
AAA 10,200 Amresco Securitized Interest,
Series 1996-1, Class A,
8.10%, 04/26/26 ................ 10,216,163
AAA 36,032 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 09/15/02 ................ 36,279,934
AAA 35,000 Citibank Credit Card Trust,
Series 1996-I, Class A,
5.79%, 02/07/03 ................ 26,927,950
AAA 6,043 Nationsbank Auto Grantor Trust
Series 1995-A, Class A,
5.85%, 06/15/02 ................ 6,031,778
------------
79,455,825
------------
STRIPPED MORTGAGE-BACKED
SECURITIES--11.1%
Aaa 65 CMO Mortgage Investors Trust,
Collateralized Mortgage
Obligations, Trust 7, Series P,
09/22/21 (I/O) ................. 1,027,988
Collateralized Mortgage Securities
Corporation,
AAA 225 Series 1990-3, Class R,
05/25/20 (I/O) ................. 481,288
AAA 19 Series 1990-5, Class 5-L,
09/20/20 (I/O) ................. 29,281
AAA 49 Series 1991-9, Class M,
11/20/21 (I/O) ................. 829,926
Federal Home Loan Mortgage
Corporation,
80 Series G-002, Class G-002-N,
03/25/22 (I/O) ................. 3,860,000
66 Series 113, Class 113-N,
05/15/21 (I/O) ................. 1,932,153
135 Series 181, Class 181-F,
08/15/21 (I/O) ................. 2,740,500
77 Series 1018, Class 1018-I,
11/15/20 (I/O) ................. 2,566,100
17 Series 1125, Class 1125-F,
08/15/21 (I/O) ................. 515,698
50 Series 1185, Class 1185-C,
12/15/06 ....................... 1,023,007
23 Series 1189, Class 1189-I,
01/15/22 (I/O) ................. 693,390
23 Series 1190, Class 1190-V,
01/15/22 (I/O) ................. 878,414
39 Series 1274, Class 1274-Y,
05/15/22 (I/O) ................. 1,157,879
40 Series 1283, Class 1283-X,
06/15/22 (I/O) ................. 1,207,495
1,012 Series 1338, Class 1338-Q,
08/15/07 (P/O) ................. 838,068
68 Series 1404, Class 1404-E,
01/15/06 (I/O) ................. 1,144,845
30 Series 1418, Class 1418-K,
06/15/22 (I/O) ................. 2,037,000
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
STRIPPED MORTGAGE-BACKED
SECURITIES--(CONT'D)
Federal Home Loan Mortgage
Corporation,
$ 7,350 Series 1422, Class 1422-IB,
11/15/07 (I/O) ................. $ 1,451,711
15,048 Series 1432, Class 1432-JA,
12/15/06 (I/O) ................. 1,659,940
32,598 Series 1506, Class 1506-SA,
01/15/05 (ARM) (I/O) ........... 896,438
8,068 Series 1662, Class 1662-PO,
01/15/09 (P/O) ................. 6,091,158
42,760 Series 1696, Class 1696-A,
11/15/23 (P/O) ................. 17,919,020
3,271 Series 1721, Class 1721-OC,
05/15/24 (P/O) ................. 1,407,565
52,664 Series 1790, Class 1790-D,
11/15/23 (ARM) (I/O) ........... 1,349,519
5,416 Series 1849, Class 1849-EL,
12/15/08 (ARM) (I/O) ........... 1,045,882
3,706 Series 1900, Class 1900-SD,
01/15/23 (ARM) (I/O) ........... 1,061,861
Federal National Mortgage
Association,
2,963 Trust 2, Class 2,
02/01/17 (I/O) ................. 881,181
4,071 Trust 3, Class 1,
02/01/17 (P/O) ................. 3,098,863
3,170 Trust 5, Class 1,
09/01/17 (P/O) ................. 2,362,626
16,731 Trust 25, Class 2,
02/10/13 (I/O) ................. 1,751,520
2,048 Trust 34, Class 2,
05/01/18 (I/O) ................. 629,254
1,074 Trust 58, Class 2,
12/01/18 (I/O) ................. 328,983
1,682 Trust 60, Class 1,
01/01/19 (P/O) ................. 1,328,019
54,886 Trust 226, Class 2,
06/01/23 (I/O) ................. 15,487,831
22 Trust 1990-76, Class 76-N,
07/25/20 (I/O) ................. 68,095
28 Trust 1990-106, Class 106-K
09/25/20 (I/O) ................. 856,977
36 Trust 1991-17, Class 17-H,
03/25/21 (I/O) ................. 1,305,120
13 Trust 1991-29, Class 29-J,
04/25/21 (I/O) ................. 459,414
28 Trust 1991-G46, Class G46-K,
12/15/09 (I/O) ................. 839,598
38 Trust 1991-80, Class 80-Q,
07/25/21 (I/O) ................. 1,147,614
2,289 Trust 1991-167, Class 167-B,
10/25/17 (P/O) ................. 898,546
30 Trust G1992-5, Class 5-E,
01/25/22 (I/O) ................. 1,597,413
70 Trust 1992-44, Class 44-L,
04/25/07 (I/O) ................. 2,335,199
15,117 Trust 1992-G45, Class G45 -B,
08/25/22 (I/O) ................. 4,322,636
22 Trust 1992-48, Class 48-J,
04/25/07 (I/O) ................. 821,056
109 Trust 1993-20, Class 20-PT,
02/25/19 (I/O) ................. 2,302,883
1,270 Trust 1993-32, Class 32-C,
09/25/23 (P/O) ................. 1,081,581
5,369 Trust 1993-48, Class 48-B,
04/25/08 (P/O) ................. 4,317,828
4,030 Trust 1993-128, Class 128-B,
07/25/23 (P/O) ................. 3,677,360
8,586 Trust 1993-150, Class 150-B,
09/25/20 (P/O) ................. 8,054,014
2,255 Trust 1993-151, Class 151-E,
05/25/23 (P/O) ................. 2,061,971
11,509 Trust 1994-8, Class 8-G,
11/25/23 (P/O) ................. 7,554,176
4,703 Trust 1994-53, Class 53-EA,
11/25/23 (P/O) ................. 2,646,859
19,313 Trust 1994-61, Class 61-DB,
03/25/24 (P/O) ................. 12,263,928
------------
140,326,671
------------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS**--0.2%
AAA 10 Fleet Mortgage Securities, Inc.,
Series 1989-3, Class R,
09/01/19# ...................... 689,000
AAA 10,000 Residential Resources
Incorporated, Mortgage
Collateral Bond, Series 9,
Class R, 10/01/18# ............. 1,628,178
AAA 499 Shearson Lehman Brothers,
Series F, Class R, 02/20/18# ... 324,311
AAA 10,000 Smith Barney Mortgage Capital
Trust, Series 10, Class R,
10/01/19# ...................... 191,218
------------
2,832,707
------------
U.S. GOVERNMENT SECURITY--27.4%
U.S. Treasury Bonds,
55,000+ 6.500%, 11/15/26 ................. 53,977,550
102,350+ 6.875%, 08/15/25 ................. 104,365,272
U.S. Treasury Notes,
86,420++ 6.000%, 08/15/99 ................. 86,406,172
50,000++ 6.250%, 10/31/01 ................. 50,047,000
3,000 6.375%, 09/30/01 ................. 3,017,821
48,000++ 6.500%, 10/15/06 ................. 48,262,560
------------
346,076,375
------------
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
TAXABLE ZERO COUPON BONDS--24.1%
Financing Corporation
(FICO Strips),
$ 5,311 02/08/01 ......................... $ 4,109,386
4,472 03/26/01 ......................... 3,431,500
1,660 04/05/01 ......................... 1,271,875
7,334 05/02/01 ......................... 5,588,948
2,513 05/11/01 ......................... 1,913,398
22,134 06/06/01 ......................... 16,779,564
2,360 10/05/01 ......................... 1,749,562
Government Trust Certificates,
2,500 11/15/99 ......................... 2,107,225
6,597 05/15/02 ......................... 4,735,195
4,000 11/15/02 ......................... 2,778,120
U.S. Treasury Receipt,
30,000 02/15/01 ......................... 23,337,600
308,000+ 05/15/01 ......................... 236,112,660
1,016 11/15/01 ......................... 754,959
-------------
304,669,992
-------------
MUNICIPAL BONDS--2.1%
AAA 1,000 Kern County California Pension
Obligation, 6.27%, 08/15/01 .... 990,330
AAA 2,035 Long Beach California Pension
Obligation, 6.45%, 09/01/01 .... 2,028,875
AAA 6,000 Los Angeles County
California Pension, Series D,
6.38%, 06/30/01 ................ 5,968,740
AAA 6,235 Massachusetts Housing
Finance Agency, Series 1991-B,
Class B, 6.85%, 10/01/20 ....... 5,857,471
BBB+ 5,000 New York City, G.O., Series 1,
6.40%, 03/15/01 ................ 4,941,800
Baa1 3,345 New York State Housing
Finance Agency, Series B,
7.14%, 03/15/02 ................ 3,379,654
Baa1 2,000 New York State Urban Development,
6.90%, 04/01/01 ................ 2,004,880
AA 1,000 St. Joseph's Health System
California, 7.02%, 07/01/01 .... 1,011,240
-------------
26,182,990
-------------
PUT OPTION PURCHASED--0.7%
5,500 U.S. Treasury 7.00%,
07/15/06 @ $102, Expires
07/02/97 ....................... 8,335,800
-------------
Total investments before
investments sold
short--149.4%
(cost $1,921,258,063) .......... $1,889,412,555
--------------
INVESTMENTS SOLD SHORT--(15.4%)
$ 193,000 U.S. Treasury Bonds,
6.750%, 08/15/26 (proceeds
$184,842,813) (194,447,500)
--------------
Total investments net of
investments sold
short--134.0% .................. 1,694,965,055
Liabilities in excess of other
assets--(34.0%) ................ (429,909,627)
--------------
NET ASSETS--100% ............... $1,265,055,428
==============
- ----------
* Using the higher of Standard & Poor's or Moody's rating.
** Illiquid securities representing 0.15% of portfolio assets.
# Private placements restricted as to resale.
+ Partial principal amount pledged as collateral for reverse
repurchase agreements.
++ Entire principal amount pledged as collateral for reverse
repurchase agreements.
@ Includes mortgage dollar roll of $106,414,875, see Note 4.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM --Adjustable Rate Mortgage.
CMO --Collateralized Mortgage Obligation.
I --Denotes CMO with Interest Only Characteristics.
I/O --Interest Only.
P --Denotes CMO with Principal Only Characteristics.
P/O --Principal Only.
REMIC --Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value
(cost $1,921,258,063) (Note 1) ...................... $1,889,412,555
Deposits with brokers as collateral for
investments sold short (Note 1) ..................... 202,644,630
Receivable for investments sold ....................... 26,442,915
Interest receivable ................................... 19,940,918
Deferred organization expenses and
other assets ........................................ 128,702
--------------
2,138,569,720
--------------
LIABILITIES
Reverse repurchase agreements (Note 4) ................ 541,053,625
Investments sold short, at value
(proceeds $184,842,813) (Note 1) .................... 194,447,500
Payable for investments purchased ..................... 113,509,185
Bank overdraft ........................................ 224,238
Interest payable ...................................... 7,065,336
Swap options written, at value
(premiums received $10,150,000) ..................... 10,737,000
Unrealized depreciation on interest rate caps
(Notes 1 & 3) ....................................... 145,000
Dividends payable ..................................... 4,728,952
Due to broker-variation margin ........................ 5,083
Advisory fee payable (Note 2) ......................... 432,386
Administration fee payable (Note 2) ................... 108,096
Other accrued expenses ................................ 1,057,891
--------------
873,514,292
--------------
NET ASSETS ............................................ $1,265,055,428
==============
Net assets were comprised of:
Common stock, at par (Note 5) ....................... 1,420,106
Paid-in capital in excess of par .................... 1,338,223,236
--------------
1,339,643,342
Undistributed net investment income ................. 33,229,264
Accumulated net realized loss ....................... (65,634,983)
Net unrealized depreciation ......................... (42,182,195)
--------------
Net assets, December 31, 1996 ....................... $1,265,055,428
==============
Net asset value per share:
($1,265,055,428 / 142,010,583 shares of
common stock issued and outstanding) .................. $8.91
=====
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (including net amortization of premium
of $2,453,350 and net of interest expense
of $17,690,562) ................................... $ 48,627,199
--------------
Operating expenses
Investment advisory ................................. 2,519,536
Administration ...................................... 629,884
Custodian ........................................... 175,720
Reports to shareholders ............................. 194,556
Transfer agent ...................................... 70,382
Audit ...............................................
43,737
Directors ........................................... 36,951
Legal ............................................... 16,339
Miscellaneous ....................................... 275,560
--------------
Total operating expenses .......................... 3,962,665
--------------
Net investment income before excise tax ............. 44,664,534
Excise tax .......................................... 489,383
--------------
Net investment income ............................... 44,175,151
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ......................................... 4,272,901
Short sales ......................................... (223,501)
Futures ............................................. (9,955,477)
--------------
(5,906,077)
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments ......................................... 31,274,094
Short sales ......................................... (3,593,650)
Options ............................................. (587,000)
Futures ............................................. (6,539)
--------------
27,086,905
--------------
Net gain on investments ............................... 21,180,828
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................... $ 65,355,979
--------------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received, net of interest purchased ........ $ 64,030,386
Operating expenses and excise taxes paid ............ (3,628,929)
Interest expense paid ............................... (16,808,197)
Purchase of long-term portfolio investments ......... (1,528,044,120)
Sale of long-term portfolio investments ............. 1,325,121,003
Other ............................................... (21,804)
--------------
Net cash flows used for operating
activities ........................................ (159,351,661)
--------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements ........... 188,296,187
Dividends paid ...................................... (29,007,775)
--------------
Net cash flows provided by financing
activities ........................................ 159,288,412
--------------
Net decrease in cash .................................. (63,249)
Cash at beginning of period ........................... 63,249
--------------
Cash at end of period ................................. $ --
--------------
RECONCILIATION OF NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO NET
CASH FLOWS USED FOR OPERATING ACTIVITIES
Net increase in net assets resulting from
operations .......................................... $ 65,355,979
--------------
Increase in investments ............................... (147,658,295)
Net realized loss ..................................... 5,906,077
Decrease in unrealized depreciation ................... (27,086,905)
Decrease in unrealized depreciation on
interest rate cap ................................... (606,500)
Increase in interest receivable ....................... (2,287,375)
Increase in receivable for investments sold ........... (4,616,238)
Increase in broker-variation margin ................... 8,675
Increase in deposits with brokers ..................... (16,164,630)
Increase in deferred and prepaid assets ............... (21,804)
Decrease in payable for investments purchased ......... (56,849,671)
Increase in payable for securities
sold short .......................................... 12,226,540
Increase in payable for swap option ................... 10,737,000
Increase in interest payable .......................... 882,365
Increase in accrued expenses and other
liabilities ........................................... 823,121
--------------
Total adjustments ................................... (224,707,640)
--------------
Net cash flows used for operating
activities .......................................... $ (159,351,661)
==============
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income ........ $ 44,175,151 $ 82,042,926
Net realized loss
on investments, short
sales and futures .......... (5,906,077) (2,707,803)
Net change in unrealized
appreciation (depreciation)
on investments, short sales,
options and futures ........ 27,086,905 (21,017,940)
-------------- --------------
Net increase
in net assets resulting
from operations ............ 65,355,979 58,317,183
Dividends from net
investment income ............. (33,102,483) (63,904,500)
-------------- --------------
Net increase (decrease) ........ 32,253,496 (5,587,317)
NET ASSETS
Beginning of period ............ 1,232,801,932 1,238,389,249
------------- --------------
End of period .................. $1,265,055,428 $1,232,801,932
============== ==============
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ---------------------------
1996 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................ $ 8.68 $ 8.72 $ 8.32
---------- ---------- ----------
Net investment income (net of $0.12 $0.22, $0.27, $0.12 and
$0.04, respectively, of interest expense) ............... 0.31 0.58 0.61
Net realized and unrealized gain (loss) on investments,
short sales, options and futures ........................ 0.15 (0.17) 0.42
---------- ---------- ----------
Net increase (decrease) from investment operations .......... 0.46 0.41 1.03
---------- ---------- ----------
Dividends from net investment income ........................ (0.23) (0.45) (0.63)
---------- ---------- ----------
Capital charge with respect to issuance of shares ........... -- -- --
---------- ---------- ----------
Net asset value, end of period** ............................ $ 8.91 $ 8.68 $ 8.72
========== ========== ==========
Market value, end of period** ............................... $ 7.875 $ 7.625 $ 7.50
========== ========== ==========
TOTAL INVESTMENT RETURN+ .................................... 6.40% 7.83% 1.61%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses+++ ....................................... 0.63%++ 0.64% 0.63%
Net investment income ....................................... 7.01%++ 6.57% 7.28%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................... $1,249,700 $1,248,679 $1,181,411
Portfolio turnover .......................................... 67% 216% 107%
Net assets, end of period (in thousands) .................... $1,265,055 $1,232,802 $1,238,389
Reverse repurchase agreements outstanding, end of period
(in thousands) ............................................ $ 541,054 $ 352,757 $ 489,335
Asset coverage@ ............................................. $ 3,338 $ 4,495 $ 3,531
</TABLE>
<TABLE>
<CAPTION>
AUGUST 28,
YEAR 1992*
ENDED TO
JUNE 30, JUNE 30,
1994 1993
-------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........................ $ 9.62 $ 9.45
---------- ----------
Net investment income (net of $0.12 $0.22, $0.27, $0.12 and
$0.04, respectively, of interest expense) ............... 0.64 0.66
Net realized and unrealized gain (loss) on investments,
short sales, options and futures ........................ (1.23) 0.07
---------- ----------
Net increase (decrease) from investment operations .......... (0.59) 0.73
---------- ----------
Dividends from net investment income ........................ (0.71) (0.54)
---------- ----------
Capital charge with respect to issuance of shares ........... -- (0.02)
---------- ----------
Net asset value, end of period** ............................ $ 8.32 $ 9.62
========== ==========
Market value, end of period** ............................... $ 8.00 $ 9.375#
========== ==========
TOTAL INVESTMENT RETURN+ .................................... (7.73)% 4.99%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses+++ ....................................... 0.67% 0.60%++
Net investment income ....................................... 6.97% 8.41%++
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................... $1,295,131 $1,327,571
Portfolio turnover .......................................... 91% 210%
Net assets, end of period (in thousands) .................... $1,182,120 $1,366,284
Reverse repurchase agreements outstanding, end of period
(in thousands) ............................................ $ 395,559 $ 498,618
Asset coverage@ ............................................. $ 3,988 $ 3,740
</TABLE>
- ----------
* Commencement of investment operations.
** Net asset value and market value published in THE WALL STREET JOURNAL each
Monday.
# Net asset value immediately after the closing of the first public
offering was $9.44.
+ 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 the periods reported. Dividends and
distributions, if any, are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. Total
investment return for periods of less than one full year are not
annualized.
++ Annualized.
+++ The ratios of operating expenses, including interest expense, to average
net assets were 3.44%, 3.17%, 3.89%, 1.98%, and 0.97% for the periods
indicated above, respectively. The ratios of operating expenses, including
interest expense and excise taxes, to average net assets were 3.51%, 3.17%,
3.89%, 1.99% and 1.01% for the periods indicated above, respectively.
@ Per $1,000 of reverse repurchase agreements outstanding.
The information above represents the unaudited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the periods indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION
AND ACCOUNTING
POLICIES
The BlackRock 2001 Term Trust Inc. (the "Trust"), a Maryland corporation,
is a diversified, closed-end management investment company. The investment
objective of the Trust is to manage a portfolio of investment grade fixed income
securities that will return $10 per share (the initial public offering price per
share) to investors on or about June 30, 2001 while providing high monthly
income. 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.
The following is a summary of significant accounting policies followed by
the Trust:
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed, and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on applicable exchanges. In the absence of a last sale, options are valued at
the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair market value as determined in good faith
under procedures established by and under the general supervision and
responsibility of the Trust's Board of Directors.
Short-term securities which mature in more than 60 days are valued at
current market quotations. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their term to maturity from date of purchase
was 60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity from date of purchase exceeded 60
days.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells (or purchases) an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written (or purchased). Premiums received or paid from writing (or
purchasing) options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at any time or at a
specified time
13
<PAGE>
during the option period. A put option gives the holder the right to sell and
obligates the writer to buy the underlying position at the exercise price at any
time or at a specified time during the option period. Put options can be
purchased to effectively hedge a position or a portfolio against price declines
if a portfolio is long. In the same sense, call options can be purchased to
hedge a portfolio that is shorter than its benchmark against price changes. The
Trust can also sell (or write) covered call options and put options to hedge
portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
SWAP OPTIONS: The swap option is similar to an option on securities except that
instead of purchasing the right to buy a security, the purchaser of the swap
option has the right to enter into a previously agreed upon interest rate swap
agreement at any time before the expiration of the option. Premiums received
from writing options are recorded as liabilities, and are subsequently adjusted
to the current value of the options written. Premiums received from writing
options which expire are treated as realized gains.Premiums received from
writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. The Trust, as writer of an option, bears the market risk of an unfavorable
change in the value of the swap contract underlying the written option. Written
interest rate swap options may be used as part of an income producing strategy
reflecting the view of the Trust's management on the direction of interest
rates.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy 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 a 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. 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 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. Futures
contracts can be sold to effectively shorten an otherwise longer duration
portfolio. In the same sense, futures contracts can be purchased to lengthen a
portfolio that is shorter than its duration target. Thus, by buying or selling
futures contracts, the Trust can effectively hedge more volatile positions so
that changes in interest rates do not change the duration of the portfolio
unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at risk of
not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
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<PAGE>
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the six months ended ended December 31, 1996.
INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating
rate of interest on a notional principal amount and receives a fixed rate of
interest on the same notional principal amount for a specified period of time.
Alternatively, an investor may pay a fixed rate and receive a floating rate.
Rate swaps were conceived as asset/liability management tools. In more complex
swaps, the notional principal amount may decline (or amortize) over time.
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 bewteen 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 mortgage swap. However, the Trust does not anticipate
non-performance by any counterparty.
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 rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short-term rates. 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. Owning interest rate caps reduces the
portfolio's duration, making it less sensitive to changes in interest rates from
a market value perspective. The effect on income involves protection from rising
short term rates, which the Trust experiences primarily in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
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 rate.
Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. 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. Owning interest rate floors
reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from falling short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust amortizes premium and accretes discount on
securities purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. As part of its tax planning
strategy, the Trust intends to retain a portion of its taxable income and pay an
excise tax on the undistributed amount.
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, are distributed annually.
15
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Dividends and distributions are recorded on the ex-dividend date.
DEFERRED ORGANIZATION EXPENSES: A total of $75,000 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced operations.
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 "Adviser") a wholly-owned corporate subsidiary of PNC
Asset Management Group, Inc., the holding company for PNC's asset management
business, and an Administration Agreement with Mitchell Hutchins Asset
Management Inc. (the "Administrator"), a wholly-owned subsidiary of PaineWebber
Incorporated.
The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of 0.40% of the Trust's average weekly net
assets. The administration fee paid to the Administrator is also computed weekly
and payable monthly at an annual rate of 0.10% of the Trust's average weekly net
assets.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. The Administrator 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 short-term
investments and dollar rolls, for the six months ended December 31, 1996
aggregated $1,331,127,526 and $1,204,978,280, respectively.
The Trust may invest up to 40% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At December 31, 1996, the Trust
held 0.15% of its portfolio assets in illiquid securities all of which were
restricted as to resale.
The portfolio may from time to time purchase in the secondary market
certain mortgage pass-through securities packaged or master serviced by PNC
Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp.
succeeded to rights and duties of Sears) or mortgage related securities
containing loans or mortgages originated by PNC Bank or its affiliates. It is
possible under certain circumstances, PNC Mortgage Securities Corp. or its
affiliates 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.
The federal income tax basis of the Trust's investments at December 31,
1996 was the same as the basis for financial reporting and, accordingly, net
unrealized depreciation for federal income tax purposes was $42,182,195 (gross
unrealized appreciation -- $24,174,322; gross unrealized depreciation --
$66,356,517).
For federal income tax purposes, the Trust had a capital loss carryforward
at June 30, 1996 of approximately $59,730,000 which will expire in 2001.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amount.
The Trust entered into two interest rate caps which settled on April 3,
1996 with notional amounts of $500 million. Under one agreement, the Trust
receives the excess, if any, of 3-month LIBOR over the fixed rate of 8%. Under
the other agreement, the Trust pays the excess, if any, of 3-month LIBOR over
the fixed rate of 7%. The agreements terminate on April 15, 1999. At December
31, 1996 net unrealized depreciation was $145,000.
The Trust sold a swap option ("swaption") which settled on October 18, 1996
with a notional amount of $500 million. Under this swaption, the Trust received
$5,925,000.The contract consists of an option for the purchaser to enter into a
swap agreement with the Trust. The swap would involve the Trust receiving a
variable rate of 3-month LIBOR and the Trust paying a fixed rate of 5.50%, both
based on the $500 million notional amount for a period of ten years. The option
expires on June 15, 2001.At December 31, 1996, unrealized depreciation was
$343,500.
The Trust sold a swap option ("swaption") which settled on October 31, 1996
with a notional amount of $500 million. Under this swaption, the Trust received
$4,225,000.The contract consists of an option for the purchaser to enter into a
swap agreement with the Trust. The swap would involve
16
<PAGE>
the Trust receiving a variable rate of 3-month LIBOR and the Trust paying a
fixed rate of 5.00%, both based on the $500 million notional amount for a period
of ten years. The option expires on June 15, 2001.At December 31, 1996,
unrealized depreciation was $243,500.
NOTE 4. BORROWINGS
REVERSE REPURCHASE
AGREEMENTS:
The Trust may enter into reverse repurchase agreements with qualified,
third party broker-dealers as determined by and under the direction of the
Trust's Board of Directors. Interest on the value of the reverse repurchase
agreements issued and outstanding will be based upon competitive market rates at
the time of issuance. At the time the Trust enters into a reverse repurchase
agreement, it will establish and maintain a segregated account with the lender
the value of which at least equals the principal amount of the reverse
repurchase transaction, including accrued interest.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended December 31, 1996, was approximately $469,527,027 at
a weighted average interest rate of approximately 5.22%. The maximum amount of
reverse repurchase agreements outstanding at any month end during the six months
ended December 31, 1996, was $541,053,625 as of December 31, 1996 which was
25.30% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities.The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The average monthly balance of dollar rolls outstanding during the six
months ended December 31, 1996, was approxi-mately $110,146,597. For the six
months ended December 31, 1996, the maximum amount of dollar rolls outstanding
at any month end was $159,700,020 as of November 30, 1996, which was 8.43% of
total assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of
the 142,010,583 common shares outstanding at December 31, 1996, the Adviser
owned 10,583 shares.
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NOTE 6. DIVIDENDS
Subsequent to December 31, 1996, the Board of Directors of the Trust
declared a dividend from undistributed earnings of $0.03333 per share payable
February 28, 1997, to shareholders of record on February 14, 1997.
NOTE 7. QUARTERLY DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND NET INCREASE (DECREASE)
UNREALIZED IN NET ASSETS
NET INVESTMENT GAIN (LOSS) RESULTING FROM
QUARTERLY TOTAL INCOME ON INVESTMENTS OPERATIONS
PERIOD INCOME AMOUNT PER SHARE AMOUNT PER SHARE AMOUNT PER SHARE
------ -------- ------------------- ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
July 1, 1994 to
September 30, 1994 $24,768,303 $24,587,197 $0.17 $(14,674,730) $(0.10) $9,912,467 $0.07
October 1, 1994 to
December 31, 1994 23,422,397 19,730,413 0.14 (21,121,487) (0.14) (1,391,074) 0.00
January 1, 1995 to
March 31, 1995 ... 21,633,042 19,861,828 0.14 50,559,812 0.35 70,421,640 0.49
April 1, 1995 to
June 30, 1995 .... 23,732,271 21,879,601 0.16 44,206,107 0.31 66,085,708 0.47
July 1, 1995 to
September 30, 1995 21,981,739 19,972,420 0.14 (808,514) (0.00) 19,163,906 0.14
October 1, 1995 to
December 31, 1995 26,163,094 24,186,764 0.17 34,412,851 0.24 58,599,615 0.41
Jaunary 1, 1996 to
March 31, 1996 ... 20,316,717 18,241,965 0.13 (42,252,690) (0.30) (24,010,725) (0.17)
April 1, 1996 to
June 30, 1996 .... 21,601,167 19,641,777 0.14 (15,077,390) (0.11) 4,564,387 0.03
July 1, 1996 to
September 30, 1996 24,064,658 22,089,356 0.16 3,293,978 0.02 25,383,334 0.18
October 1, 1996 to
December 31, 1996 24,562,541 22,085,795 0.15 17,886,850 0.13 39,972,645 0.28
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS PERIOD
AND END
QUARTERLY DISTRIBUTIONS SHARE PRICE NET ASSET
PERIOD AMOUNT PER SHARE HIGH LOW VALUE
-------- ---------------------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
July 1, 1994 to
September 30, 1994 $23,964,278 $0.17 $8 1/4 $7 3/8 $8.23
October 1, 1994 to
December 31, 1994 23,964,272 0.17 7 7/8 7 8.05
January 1, 1995 to
March 31, 1995 ... 20,415,369 0.14 7 5/8 7 1/4 8.40
April 1, 1995 to
June 30, 1995 .... 20,415,375 0.15 8 1/4 7 1/2 8.72
July 1, 1995 to
September 30, 1995 15,976,191 0.12 7 3/4 7 1/4 8.74
October 1, 1995 to
December 31, 1995 15,976,093 0.11 7 3/4 7 1/2 9.04
Jaunary 1, 1996 to
March 31, 1996 ... 15,976,105 0.11 7 3/4 7 3/8 8.76
April 1, 1996 to
June 30, 1996 .... 15,976,111 0.11 7 5/8 7 1/8 8.68
July 1, 1996 to
September 30, 1996 14,186,755 0.10 7 3/4 7 3/8 8.76
October 1, 1996 to
December 31, 1996 18,915,728 0.13 8 7 1/2 8.91
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
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THE BLACKROCK 2001 TERM TRUST INC.
TAX INFORMATION
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We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during the calendar year ended December 31,
1996.
During the calendar year ended December 31, 1996, the Trust paid dividends
of $0.4581 per share from net investment income. For federal income tax
purposes, the aggregate of any dividends and short-term capital gains
distributions you received are reportable in your 1996 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.
For the purpose of preparing your 1996 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 1997.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the "Plan Agent")
in Trust shares pursuant to the Plan. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in United States
dollars mailed directly to the shareholders of record (or if the shares are held
in street or other nominee name, then to the nominee) by the transfer agent as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividend or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, 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) 699-1BFM. The addresses are on the front of
this report.
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ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no other material changes in the Trust's investment
objectives or policies that have not been approved by the shareholders, or to
its charter or by-laws, or in the principal risk factors associated with
investment in the Trust. There have been no changes in the persons who are
primarily responsible for the day-to-day management of the Trust's portfolio.
19
<PAGE>
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THE BLACKROCK 2001 TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to manage a portfolio of invesment 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 June 30, 2001
while providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is the investment advisor for
the Trust. BlackRock is a registered investment advisor specializing in fixed
income securities. Currently, BlackRock manages approximately $43 billion of
assets across the government, mortgage, corporate and municipal sectors. These
assets are managed on behalf of institutional and individual investors in 21
closed-end funds traded either on the New York Stock Exchange or American Stock
Exchange, several open-end funds and separate accounts for more than 100 clients
in the U.S. and overseas. BlackRock is a subsidiary of PNC Asset Management
Group, Inc. which is a division of PNC Bank, N.A., one of nation's largest
banking organizations.
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 ADVISER'S INVESTMENT STRATEGY?
The Adviser 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 Trust 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 1998. At the Trust's termination,
BlackRock 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 addition to seeking the return of the initial offering price, the Advisor
also seeks to provide high monthly income to investors. The portfolio managers
will attempt to achieve this objective by investing in securities that provide
competitive income. In addition, leverage will be used (in an amount up to
331/3% of total assets) to enhance the income of the portfolio. In order to
maintain competitive yields as the Trust approaches maturity and depending on
market conditions, the Adviser will attempt to purchase securities with call
protection or maturities as close to the Trust's maturity date as possible.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates. Since the Trust's primary goal is to return the initial offering price at
maturity, any cash that the Trust receives prior to its maturity date (i.e. cash
from early and regularly scheduled payments of principal on mortgage-backed
securities) will be reinvested in securities with maturities which coincide with
the remaining term of the Trust. Since shorter-term securities typically yield
less than longer-term securities, this strategy will likely result in a decline
in the Trust's income over time. However, the Adviser will attempt to maintain a
yield which is competitive with a comparable maturity Treasury at the same point
on the yield curve (i.e. if the Trust has three years left until its maturity,
the Adviser will attempt to maintain a yield at a spread over a 3-year
Treasury). 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.
20
<PAGE>
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank &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. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets.
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 rate environment. BlackRock'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 BlackRock consider that reduction
to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
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 movement on the 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 less than 10% of its total assets in
non-U.S. dollar-denominated securities which involve special risks such as
currency, political and economic risks, although under current market conditions
does not do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
21
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THE BLACKROCK 2001 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. One of the advantages of a
closed-end fund is the diversification it provides
through its multiple holdings.
COLLATERALIZED Mortgage-backed securities which separate mortgage
MORTGAGE OBLIGATIONS (CMOS): 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.
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: This is income generated by securities in a
portfolio and distributed to shareholders after
the deduction of expenses. This Trust declares and
pays dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all dividends and
distributions of 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.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA (Federal
National Mortgage Association) and FHLMC (Federal
Home Loan Mortgage Corporation).
INTEREST-ONLY Mortgage securities that receive only the interest
SECURITIES (I/O): cash flows from an underlying pool of mortgage
loans or underlying pass-through securities. Also
known as STRIP.
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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 aswell as the interest
earned on the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae,
Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus any
liabilities including accrued expenses, divided by
the total number of outstanding shares. It is the
underlying value of a single share on a given day.
Net asset value for the Trust is calculated weekly
and published in Barron's on Saturday and The Wall
Street Journal each Monday.
PRINCIPAL-ONLY Mortgage securities that receive only the
SECURITIES (P/O): principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as STRIP.
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, Fannie
Mae REMICs are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that generally
represent the excess cash flow from the mortgage
assets underlying the CMO after payment of
principal and interest on the other CMO securities
and related administrative expenses.
REVERSE In a reverse repurchase agreement, the Trust sells
REPURCHASE AGREEMENTS: securities and agrees to repurchase them at a
mutually agreed date and price. During this time,
the Trust continues to receive the principal and
interest payments from that security. At the end
of the term, the Trust receives the same
securities that were sold for the same initial
dollar amount plus interest on the cash proceeds
of the initial sale.
STRIPPED MORTGAGE BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive different
proportions of the interest and principal
distributions from underlying mortgage-backed
securities. IO's and PO's are examples of strips.
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DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares.
The accompanying financial statements as ofDecember 31, 1996 were not audited
and accordingly, no opinion is expressed on them.
THE BLACKROCK 2001 TERM TRUST INC.
c/o Mitchell Hutchins Asset Management Inc.
15th Floor
1285 Avenue of the Americas
New York, NY 10019
(800) 227-7BFM
THE BLACKROCK
2001 TERM TRUST INC.
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SEMI-ANNUAL REPORT
DECEMBER 31, 1996
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