- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
July 31, 1997
Dear Trust Shareholder:
After experiencing higher interest rates in the face of a resilient stock
market and stronger economic growth for the first few months of 1997, bond
investors were comforted by more moderate economic data released during the
second quarter which allowed the bond market to recapture some of its losses.
Our outlook for the bond market is cautiously optimistic. Over the short
term, we believe that the recent rally may continue, since inflation news has
been positive and U.S. securities appear cheap relative to their global
counterparts. Additionally, Fed Chairman Greenspan appears to be comfortable
allowing the economy to expand in the absence of rising inflationary pressures.
Thus, we do not foresee another tightening in the immediate future in the
absence of a visible inflation shock. However, recent wage increases, the
buoyant stock market and record levels of consumer confidence could lead to
stronger consumer spending and overall economic growth in the third quarter.
Therefore, an uninterrupted decline in yields is by no means a certainty.
This report provides the Trust's portfolio managers an opportunity to
provide you with detailed market commentary and to review the major investment
themes of the portfolio over the past twelve months. We hope that you find this
report informative and look forward to serving your financial needs in the
future.
Sincerely,
/s/Laurence D. Fink /s/Ralph L. Schlosstein
- ------------------------ ---------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1997
Dear Shareholder:
We are pleased to present the annual report for The BlackRock 2001 Term
Trust Inc. ("the Trust") for the fiscal year ended June 30, 1997. 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 monthly
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
"BBB" by Standard & Poor's or "Baa" by Moody's at the time of purchase, be
issued or guaranteed by the U.S. government or its agencies or be determined by
BlackRock to be of equivalent credit quality.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
-----------------------------------------------
6/30/97 6/30/96 CHANGE HIGH LOW
-----------------------------------------------
STOCK PRICE $8.125 $7.625 6.56% $8.188 $7.375
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.10 $8.68 4.84% $9.13 $8.60
- --------------------------------------------------------------------------------
5-YEAR U.S. TREASURY NOTE 6.39% 6.47% -8 bp 6.85% 5.83%
- --------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
Largely softer economic data and continued moderation in the broad
inflation measures during the beginning of the period allowed the Fed to leave
short term interest rates unchanged at the August and September policy meetings.
This allowed the Treasury market to start the fourth quarter on a positive note;
however, Alan Greenspan's mention of "irrational exuberance" in the financial
markets on December 4th rattled the Treasury market, leading to a month long
rise in rates. A resilient housing market and strong consumer confidence
contributed to the market decline in late December.
Stronger economic data and accompanying inflation fears caused U.S.
Treasury yields to rise in early 1997. Although inflationary measures such as
commodity, producer and consumer prices remained relatively stable, labor
markets continued to strengthen. After expanding at a blistering pace of 5.9%
during the first quarter, the U.S. economy's growth rate slowed to a more
moderate 2-2.5% during the second quarter of 1997. Signs of an economic slowdown
were prevalent in a broad range of industrial and consumer indicators, including
lower factory orders, decreased consumer spending, and higher inventories. In
addition, inflationary forces remained benign according to year-over-year
comparisons for the consumer and producer indices. These indicators caused the
Federal Reserve to maintain interest rate levels at their May 20th and July 2nd
policy meetings and remain in a holding pattern for more definite signs of
inflation.
2
<PAGE>
The market for mortgage-backed securities (MBS) significantly outperformed
the broader investment grade bond market for the twelve months ended June 30,
1997. Strong investor demand for higher yielding "spread product", which offer a
yield premium over comparable maturity Treasury securities, boosted prices in
the mortgage sector. For the period, the MBS market as measured by the LEHMAN
BROTHERS MORTGAGE INDEX posted a 9.09% total return versus the 8.16% return of
the LEHMAN BROTHERS AGGREGATE INDEX. In the corporate bond market, strong
fundamentals created by steady economic growth, low inflation, and rising
corporate profits drove the sector to outperform comparable maturity Treasuries.
For the twelve months ended June 30, 1997, the Lehman Brothers Corporate Index
returned 8.79%, significantly outpacing Treasuries.
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.
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COMPOSITION JUNE 30, 1997 JUNE 30, 1996
- --------------------------------------------------------------------------------
U.S. Treasury Securities 27% 10%
- --------------------------------------------------------------------------------
Corporate Bonds 16% 15%
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Taxable Zero Coupon Bonds 14% 18%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 13% 24%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 8% 7%
- --------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 8% 8%
- --------------------------------------------------------------------------------
Asset-Backed Securities 5% 3%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 4% 3%
- --------------------------------------------------------------------------------
Adjustable Rate Mortgages 2% 9%
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Money Market Instruments 2% 0%
- --------------------------------------------------------------------------------
Municipal Bonds 1% 1%
- --------------------------------------------------------------------------------
CMO Residuals 0% 1%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 0% 1%
================================================================================
================================================================================
RATING % OF CORPORATES
- --------------------------------------------------------------------------------
CREDIT RATING JUNE 30, 1997 JUNE 30, 1996
- --------------------------------------------------------------------------------
AAA or equivalent 1% 1%
- --------------------------------------------------------------------------------
AA or equivalent 9% 11%
- --------------------------------------------------------------------------------
A or equivalent 55% 54%
- --------------------------------------------------------------------------------
BBB or equivalent 30% 34%
- --------------------------------------------------------------------------------
N/R 5% --
================================================================================
3
<PAGE>
In seeking the primary investment objective of returning the initial offer
price on or about June 30, 2001, the Trust continued to emphasize securities
offering both attractive yield spreads over Treasury securities and a maturity
date matching the Trust's termination date of June 30, 2001. To that end, the
Trust remained primarily invested in investment grade corporate bonds, U.S.
Treasury securities and well-structured mortgage-backed securities (MBS). Over
the period, the Trust significantly reduced its MBS allocation, with a
particular emphasis on the sale of residential mortgage pass-through securities.
While these bonds typically offer significant yield spreads over Treasuries,
their maturity dates may fluctuate due to changes in interest rates. Therefore,
the Trust took advantage of strong mortgage pass-through performance over the
past year and reallocated those assets into securities with finite maturity
dates. The largest increases were seen in the Trust's Treasury, corporate bond
and asset-backed security allocations. In exchange for some give-up in yield,
each of these asset classes offer more predictable maturity dates and cash flows
than mortgage pass-throughs.
We look forward to managing the Trust to benefit from the opportunities
available in the fixed income markets and to meet its investment objectives. We
thank you for your investment in the BlackRock 2001 Term Trust Inc. Please feel
free to contact our marketing center at (800) 227-7BFM (7236) if you have
specific questions which were not addressed in this report.
Sincerely,
/s/Robert S. Kapaito /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 6/30/97: $8.125
- --------------------------------------------------------------------------------
Net Asset Value as of 6/30/97: $9.10
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/97 ($8.125)(1): 4.92%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.03333
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $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.
(3)Rate effective with July 1996 payment.
4
<PAGE>
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THE BLACKROCK 2001 TERM TRUST INC.
PORTFOLIO OF INVESTMENTS
JUNE 30, 1997
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--147.7%
MORTGAGE PASS-THROUGHS--19.9%
Federal Home Loan Mortgage
Corporation,
$ 1,934@ 6.50%, 09/01/25 - 01/01/99 .................. $ 1,853,405
3,254 7.50%, 11/01/23 ............................. 3,265,745
17,128 8.00%, 09/01/11 - 02/01/23 .................. 17,544,861
25,389 8.144%, 12/01/01,
7 Year Multifamily ........................ 26,119,314
15,762 8.50%, 06/01/11 - 04/01/19 .................. 16,310,880
10,220 8.60%, 05/01/02,
7 Year Multifamily ........................ 10,731,149
Federal National Mortgage
Association,
23,303@ 7.00%, 10/01/22 - 01/01/19 .................. 22,834,476
8,398 7.50%, 09/01/07 - 07/01/23 .................. 8,490,468
6,523 7.66%, 01/01/01,
7 Year Multifamily ........................ 6,612,452
10,543 7.695%, 05/01/01,
7 Year Multifamily ........................ 10,687,743
18,000 7.778%, 07/01/01,
7 Year Multifamily ........................ 18,574,581
11,334 7.79%, 02/01/01,
7 Year Multifamily ........................ 11,509,797
10,607 8.00%, 10/01/09 - 01/01/23 .................. 10,886,891
15,059 8.00%, 03/01/01,
7 Year Multifamily ........................ 15,318,348
3,716 8.49%, 04/01/01,
7 Year Multifamily ........................ 3,788,445
8,826 8.50%, 11/01/03 - 05/01/10 .................. 9,157,021
15 Year
2,445 8.69%, 04/01/01,
7 Year Multifamily ........................ 2,563,540
Federal Housing
Administration,
6,140 Massachusetts Housing
Finance Agency, Series 1991-B,
Class B, 6.85%, 10/01/20 .................... 5,619,942
Government National
Mortgage Association,
21,824 7.00%, 01/01/99 - 06/15/24 .................. 21,432,389
9,197 8.00%, 01/15/23 ............................. 9,409,497
6,875 8.50%, 06/15/21 ............................. 7,143,966
15,453 9.50%, 06/15/17 - 10/15/17 .................. 16,721,137
--------------
256,576,047
--------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS -- 13.5%
AAA 467 Collateralized Mortgage
Securities Corporation,
Series F, Class F-4A,
11/01/15 .................................... 503,054
Federal Home Loan Mortgage
Corporation, Multiclass
Mortgage Participation
Certificates,
3,310 Series G-29, Class G-29-IA,
06/25/20 (I) .............................. $ 373,478
20,264 Series G-30, Class G-30-J,
02/25/23 (I) .............................. 3,130,161
19,480 Series G-32, Class G-32-PT,
02/25/19 (I) .............................. 2,434,966
31,675 Series 1261, Class 1261-H,
08/15/19 .................................. 32,065,860
4,700 Series 1378, Class 1378-DA,
01/15/18 (I) .............................. 1,274,983
4,897 Series 1388, Class 1388-G,
05/15/06 (I) .............................. 845,110
3,126 Series 1606, Class 1606-SB,
11/15/08 (ARM) ............................ 2,920,952
8,947 Series 1628, Class 1628-SJ,
12/15/23 (ARM) ............................ 8,183,132
7,340 Series 1629, Class 1629-MS,
11/15/21 .................................. 7,062,962
58,191 Series 1954, Class 1954-MD,
03/15/16 (I) .............................. 8,328,592
Federal National Mortgage
Association, REMIC
Pass-Through Certificates,
7,740 6.125%, Series 1993-ML,
Class M2-H, 11/25/03,
Multifamily ............................... 7,606,110
3,377 Trust 269, Class 269-1,
08/01/22 .................................. 3,587,624
6,326 Trust 1990-144, Class 144-W,
12/25/20 .................................. 6,837,168
15,000 Trust 1992-43, Class 43-E,
04/25/22 .................................. 14,974,200
10,000 Trust 1992-122, Class 122-PJ,
06/25/19 .................................. 10,238,000
1,800 Trust 1992-184, Class 184-SA,
06/25/22 (ARM) ............................ 1,776,490
1,500 Trust G1993-17, Class 17-SH,
04/25/23 (ARM) ............................ 898,125
6,737 Trust 1993-68, Class 68-PJ,
11/25/06 (I) .............................. 686,939
2,050 Trust 1993-71, Class 71-PG,
07/25/07 .................................. 2,018,533
1,369 Trust 1993-99, Class 99-SB,
07/25/23 (ARM) ............................ 1,368,203
1,942 Trust 1993-117, Class 117-S,
07/25/08 (ARM) ............................ 1,790,724
See Notes to Financial Statements.
5
<PAGE>
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONT'D)
$ 2,140 Trust 1993-121, Class 121-SE,
02/25/23 (ARM) ............................ $ 1,708,471
15,350 Trust 1993-152, Class 152-D,
08/25/23 (P) .............................. 13,207,754
8,330 Trust 1993-196, Class 196-SM,
10/25/08 (ARM) ............................ 7,058,643
6,786 Trust 1993-214, Class 214-SO,
12/25/08 (ARM) ............................ 6,110,913
2,774 Trust 1994-42, Class 42-SM,
01/25/24 (ARM) ............................ 2,664,513
6,889 Trust 1994-46, Class 46-B,
11/25/23 (P) .............................. 6,469,865
2,396 Trust 1994-53, Class 53-DA,
11/25/23 (P) .............................. 1,967,206
12,127 Trust 1996-T6, Class T6-C,
02/26/01 .................................. 11,952,499
3,326 Trust 1996-T6, Class T6-D,
02/26/01 .................................. 3,322,130
8,495 Government National Mortgage
Association, REMIC,
Trust 1994-1, Class 1-PL,
06/16/24 (I) ................................ 1,510,253
--------------
174,877,613
--------------
COMMERCIAL MORTGAGE BACKED
SECURITIES -- 6.1%
BBB 10,000 CBA Mortgage Corporation,
Series 1993-C1, Class D,
12/25/03 .................................... 10,108,995
AAA 127,570 CS First Boston Mortgage Corp.,
Series 1997-C1, Class AX,
06/20/29# ................................... 14,650,567
AA 2,000 KPAC, Series 1994-C1,
Class B, 02/01/06 ........................... 2,002,134
AAA 5,200 PaineWebber Mortgage Acceptance
Corp. Series 1995-M1, Class A,
01/15/07# ................................... 5,172,077
BBB+ 6,000 Phoenix Real Estate
Incorporated, Series 1993-1,
Class C, 11/25/23 ........................... 6,075,000
Resolution Trust Corporation,
AA- 6,444 Series 1992-C6, Class B,
07/25/24 .................................. 6,471,746
AA 8,050 Series 1994-C1, Class C,
06/25/26 .................................. 8,187,102
A 5,619 Series 1994-C2, Class D,
04/25/25 .................................. 5,742,021
BBB 3,000 Series 1995-C1, Class D,
02/25/27 .................................. 2,904,844
AA 5,000 Salomon Brothers, Series 1997-TZH,
Class A1, 03/25/25 .......................... 5,062,500
AAA 12,800 Structured Asset Securities
Corporation, Series 1996-CFL,
Class B, 02/25/28 ........................... 12,528,570
--------------
78,905,556
--------------
CORPORATE BONDS -- 23.1%
BANKING AND FINANCE -- 10.3%
A3 1,300 Amsouth Bancorporation,
6.75%, 11/01/25 ............................. 1,273,245
A- 5,000 Aristar Incorporated,
7.25%, 06/15/01 ............................. 5,080,650
Associates Corporation,
AA- 5,000 6.68%, 07/25/00 ............................. 5,011,050
AA- 5,000 7.46%, 03/28/00 ............................. 5,109,700
A- 15,000 Donaldson, Lufkin & Jenrette,
5.625%, 02/15/16 ............................ 14,440,350
A+ 6,750 Goldman Sachs Group LP,
6.20%, 12/15/00# ............................ 6,642,540
BBB+ 5,000 Great Western Financial
Corporation,
6.375%, 07/01/00 ............................ 4,957,600
A 7,000 Household Finance Corporation,
6.65%, 05/26/98 ............................. 7,042,140
A1 5,700 Meridian Bancorp Incorporated,
6.625%, 06/15/00 ............................ 5,703,843
Merrill Lynch & Co. Incorporated,
AA- 7,200 6.00%, 01/15/01 ............................. 7,049,160
AA- 5,800 6.00%, 03/01/01 ............................. 5,671,704
A+ 3,800 Morgan Stanley Incorporated,
5.75%, 02/15/01 ............................. 3,684,572
A+ 10,000 Nationsbank Corporation,
7.00%, 09/15/01 ............................. 10,088,300
BBB 12,500 Salomon Incorporated,
6.625%, 11/30/00 ............................ 12,402,500
A 1,925 Security Pacific Corporation,
11.00%, 03/01/01 ............................ 2,190,727
Smith Barney Holdings
Incorporated,
A 13,000 5.875%, 02/01/01 ............................ 12,643,020
A 3,600 7.00%, 05/15/00 ............................. 3,636,025
A 15,000 Transamerica Finance
Corporation,
6.75%, 06/01/00 ............................. 15,040,350
BBB+ 5,000 Union Planters National Bank,
6.76%, 10/30/01 ............................. 4,982,449
--------------
132,649,925
--------------
INDUSTRIAL -- 5.6%
BBB 7,500 Erac Usa Finance Company,
7.00%, 06/15/00# ............................ 7,553,578
A+ 10,000 Ford Motor Credit,
6.18%, 12/27/01 ............................. 9,751,853
A- 20,600 General Motors Acceptance
Corporation,
6.125%, 09/18/98 ............................ 20,575,356
A- 7,000 Hospital Corporation,
Zero Coupon, 06/01/01 ....................... 5,387,309
See Notes to Financial Statements.
6
<PAGE>
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS--(CONT'D)
INDUSTRIAL
RJR Nabisco Brands
Incorporated,
BBB $ 9,000 8.00%, 01/15/00 ............................. $ 9,274,410
BBB- 6,000 8.00%, 07/15/01 ............................. 6,042,060
Sears Roebuck & Company,
A- 4,250 6.50%, 06/15/00 ............................. 4,236,528
A- 5,000 7.29%, 04/24/00 ............................. 5,073,226
BBB 3,500 Tenneco Credit Corporation,
8.075%, 10/01/02 ............................ 3,673,110
--------------
71,567,430
--------------
UTILITIES -- 1.1%
BBB 9,000 Pacificorp Holdings,
6.75%, 04/01/01# ............................ 8,885,700
BBB+ 5,000 Potomac Capital Corporation,
6.90%, 08/09/00# ............................ 5,013,571
--------------
13,899,271
--------------
YANKEE -- 5.9%
African Development,
Aa1 5,000 7.75%, 12/15/01 ............................. 5,207,037
Aaa 3,350 8.625%, 05/01/01 ............................ 3,576,081
BBB- 15,000 Empresa Electric Guacolda,
7.60%, 04/30/01# ............................ 15,207,662
A 4,000 Household Finance Corporation,
7.45%, 04/01/00 ............................. 4,078,160
A3 6,500 Slovenia (Republic of),
7.00%, 08/06/01# ............................ 6,535,339
A+ 18,000 Quebec (Province of),
9.125%, 08/22/01 ............................ 19,359,746
BBB- 6,880 Terra Nova Insurance United
Kingdom Holdings PLC,
10.75%, 07/01/05 ............................ 7,636,800
NR 15,000 US Remittance Master,
Zero Coupon, 01/01/01 ....................... 14,859,000
--------------
76,459,825
--------------
OTHER -- 0.2%
BBB- 3,000 Colombia (Republic of),
8.00%, 06/14/01 ............................. 3,048,069
--------------
ASSET-BACKED SECURITIES -- 7.7%
AAA 8,074 Amresco Securitized Interest,
Series 1996-1, Class A,
8.10%, 04/26/26# ............................ 8,066,746
AAA 29,653 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 09/15/02 ............................. 29,763,917
AAA 35,000 Citibank Credit Card Trust,
Series 1996-1, Class A,
5.79%, 02/07/03 ............................. 27,650,000
AAA 4,359 Nationsbank Auto Grantor Trust,
Series 1995-A, Class A,
5.85%, 06/15/02 ............................. 4,354,434
AAA 5,750 Standard Credit Card Master Trust,
Series 1995-3, Class A,
7.85%, 02/07/02 ............................. 5,935,035
Structured Mortgage Asset,
AAA 11,951 Series 1997-2,
8.24%, 03/15/06 ............................. 11,890,858
AAA 12,156 Series 1997-3,
8.72%, 04/15/06 ............................. 12,216,649
--------------
99,877,639
--------------
STRIPPED MORTGAGE-BACKED
SECURITIES -- 11.1%
Aaa 5,800 CMO Mortgage Investors Trust,
Collateralized Mortgage
Obligations, Trust 7, Class P,
09/22/21 (I/O) .............................. 2,015,975
Collateralized Mortgage Securities
Corporation,
AAA 1,800 Series 1990-5, Class 5-L,
09/20/20 (I/O) ............................ 46,242
AAA 4,500 Series 1991-9, Class 9-M,
11/20/21 (I/O) ............................ 752,355
Federal Home Loan Mortgage
Corporation,
25,277 Series G-3, Class G-3-S,
04/25/19 (I/O) ............................ 1,174,101
6,000 Series 113, Class 113-M,
05/15/21 (I/O) ............................ 1,820,648
13,500 Series 181, Class 181-F,
08/15/21 (I/O) ............................ 2,683,287
1,600 Series 1125, Class 1125-F,
08/15/21 (I/O) ............................ 482,410
4,200 Series 1185, Class 1185-C,
12/15/06 (I/O) ............................ 828,537
2,200 Series 1189, Class 1189-I,
01/15/22 (I/O) ............................ 755,470
3,600 Series 1274, Class 1274-Y,
05/15/22 (I/O) ............................ 1,257,755
3,700 Series 1283, Class 1283-X,
06/15/22 (I/O) ............................ 1,319,432
918 Series 1338, Class 1338-Q,
08/15/07 (P/O) ............................ 759,963
4,700 Series 1360, Class 1360-PT,
12/15/17 (I/O) ............................ 1,321,927
5,700 Series 1404, Class 1404-E,
01/15/06 (I/O) ............................ 860,211
7,669 Series 1422, Class 1422-IB,
11/15/07 (I/O) ............................ 1,480,312
25,779 Series 1506, Class 1506-SA,
01/15/05 (I/O) ............................ 452,929
57,040 Series 1546, Class 1546-SF,
12/15/21 (I/O) ............................ 2,434,452
33,915 Series 1605, Class 1605-S,
08/15/06 (I/O) ............................ 895,706
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
STRIPPED MORTGAGE-BACKED
SECURITIES -- (CONT'D)
$18,780 Series 1621, Class 1621-SJ,
10/15/20 (I/O) ............................ $ 772,234
28,404 Series 1640, Class 1640-SD,
12/15/00 (I/O) ............................ 657,553
7,584 Series 1662, Class 1662-PO,
01/15/09 (P/O) ............................ 5,846,319
1,536 Series 1664, Class 1664-C,
11/15/23 (P/O) ............................ 1,304,602
42,760 Series 1696, Class 1696-B,
11/15/23 (P/O) ............................ 15,563,705
3,271 Series 1721, Class 1721-OC,
05/15/24 (P/O) ............................ 1,448,453
52,664 Series 1790, Class 1790-D,
11/15/23 (I/O) ............................ 1,094,427
143,000 Series 1809, Class 1809-SC,
12/15/23 (I/O) ............................ 14,568,125
5,416 Series 1849, Class 1849-EL,
12/15/08 (I/O) ............................ 1,100,037
8,903 Series 1870, Class 1870-PA,
08/15/01 (P/O) ............................ 7,300,692
3,706 Series 1900, Class 1900-SD,
01/15/23 (I/O) ............................ 1,017,858
23,793 Series 1950, Class 1950-SA,
10/15/22 (I/O) ............................ 669,188
Federal National Mortgage
Association,
3,664 Trust 3, Class 1, 02/01/17 (P/O) ............ 2,764,899
2,909 Trust 5, Class 1, 09/01/07 (P/O) ............ 2,189,914
15,209 Trust 25, Class 2,
02/01/13 (I/O) ............................ 1,680,844
1,557 Trust 60, Class 1,
01/01/19 (P/O) ............................ 1,171,639
2,000 Trust 1990-76, Class 76-N,
07/25/20 (I/O) ............................ 63,277
2,600 Trust 1990-106, Class 106-K,
09/25/20 (I/O) ............................ 777,435
1,200 Trust 1991-29, Class 29-J,
04/25/21 (I/O) ............................ 450,411
2,500 Trust 1991-G46, Class G46-K,
12/15/09 (I/O) ............................ 781,019
3,500 Trust 1991-80, Class 80-Q,
07/25/21 (I/O) ............................ 1,170,356
924 Trust 1991-167, Class 167-B,
10/25/17 (P/O) ............................ 500,048
1,365 Trust 1991-167, Class 167-E,
10/25/17 (P/O) ............................ 459,021
30 Trust G1992-5, Class 5-E,
01/25/22 (I/O) ............................ 1,612,338
14,248 Trust 1992-G45, Class G45-2,
08/25/22 (I/O) ............................ 4,524,170
18 Trust 1992-48, Class 48-J,
04/25/07 (I/O) ............................ 768,313
56,058 Trust G1993-31, Class 31-PS,
08/25/18 (I/O) ............................ 1,951,933
4,989 Trust 1993-48, Class 48-B,
04/25/08 (P/O) ............................ 3,972,790
3,215 Trust 1993-128, Class 128-B,
07/25/23 (P/O) ............................ 2,934,643
7,001 Trust 1993-150, Class 150-B,
09/25/20 (P/O) ............................ 6,624,617
2,247 Trust 1993-151, Class 151-E,
05/25/23 (P/O) ............................ 2,031,184
985 Trust 1993-194, Class 194-C,
09/25/23 (P/O) ............................ 860,781
68,296 Trust 1993-202, Class 202-SL,
11/25/23 (I/O) ............................ 3,033,707
30,772 Trust 1993-240, Class 240-PS,
09/25/12 (I/O) ............................ 819,460
11,509 Trust 1994-8, Class 8-G,
11/25/23 (P/O) ............................ 7,621,387
4,703 Trust 1994-53, Class 53-EA,
11/25/23 (P/O) ............................ 2,641,768
19,313 Trust 1994-61, Class 61-DB,
03/25/24 (P/O) ............................ 12,393,520
7,300 Trust 1996-24, Class 24-SB,
10/25/08 (I/O) ............................ 1,432,625
9,471 Trust 1996-40, Class 40-SG,
03/25/09 (I/O) ............................ 1,707,671
66,275 Trust 1997-37, Class 37-SX,
08/18/18 (I/O) ............................ 2,153,927
9,997 Merrill Lynch Trust,
Series 43, Class F, 08/27/15 (I/O) .......... 1,888,160
--------------
143,666,762
--------------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS**-- 0.2%
Collateralized Mortgage Securities
Corporation,
AAA 225 Series 1990-3, Class R,
05/25/20# ................................. 465,252
AAA 10 Fleet Mortgage Securities, Inc.,
Series 1989-3, Class R, 09/01/19 # .......... 628,027
AAA 10,000 Residential Resource
Incorporated, Mortgage
Collateral Bond, Series 9,
Class R, 10/01/18 # ......................... 1,337,138
AAA 499 Shearson Lehman Brothers,
Series F, Class R, 02/20/18 # ............... 194,433
AAA 10,000 Smith Barney Mortgage Capital Trust,
Series 10, Class R, 10/01/19# ............... 158,454
--------------
2,783,304
--------------
U.S. GOVERNMENT SECURITY -- 39.5%
U.S. Treasury Bonds,
50,000++ 6.625%, 02/15/27 ............................ 48,922,000
101,920+ 6.875%, 08/15/25 ............................ 102,302,200
U.S. Treasury Notes,
10,108+ 3.375%, 01/15/07 (TIPS) ..................... 9,865,192
3,700+ 6.125%, 12/31/01 ............................ 3,663,592
58,000 6.250%, 10/31/01 ............................ 57,727,980
125,000++ 6.250%, 06/30/02 ............................ 124,257,500
25,000 6.375%, 05/15/00 ............................ 25,087,891
40,325 6.375%, 09/30/01 ............................ 40,331,452
98,000++ 6.500%, 10/15/06 ............................ 97,586,440
--------------
509,744,247
--------------
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
TAXABLE ZERO COUPON BONDS -- 20.5%
Financing Corporation
(FICO Strips),
$ 5,311 02/08/01 .................................... $ 4,207,534
4,472 03/26/01 .................................... 3,512,488
1,660 04/05/01 .................................... 1,301,241
3,513 05/11/01 .................................... 2,735,960
22,134 06/06/01 .................................... 17,160,712
Government Trust Certificates,
2,500 11/15/99 .................................... 2,161,900
6,597 05/15/02 .................................... 4,837,976
4,000 11/15/02 .................................... 2,821,200
U.S. Treasury Receipt,
30,000++ 02/15/01 .................................. 23,926,500
257,000++ 05/15/01 .................................. 201,759,640
--------------
264,425,151
--------------
MUNICIPAL BONDS -- 2.0%
AAA 1,000 Kern County California Pension
Obligation, 6.27%, 08/15/01 . ............... 984,810
AAA 2,035 Long Beach California Pension
Obligation, 6.45%, 09/01/01 . ............... 2,019,086
AAA 6,000 Los Angeles County
California Pension, Series D,
6.38%, 06/30/01 ............................. 5,943,960
BBB+ 5,000 New York City, G.O., Series 1,
6.40%, 03/15/01 ............................. 4,926,850
BBB+ 5,000 New York City, G.O., Series 1,
7.24%, 04/15/01 ............................. 5,051,700
BBB 1,000 New York State Environmental Facility,
Series A, 6.62%, 03/15/01 ................... 992,780
BBB 3,345 New York State Housing
Finance Agency, Series B,
7.14%, 09/15/02 ............................. 3,353,229
BBB 2,000 New York State Urban Development,
Series B, 6.90%, 04/01/01 ................... 1,995,800
AA 1,000 St. Joseph's Health System California,
Series A, 7.02%, 07/01/01 ................... 1,006,190
--------------
26,274,405
--------------
MONEY MARKET INSTRUMENTS--4.0%
AAA 65,000 AIMPrime Portfolio
Principal Money Market Strip
Zero Coupon, 1/02/01 ........................ 52,324,285
--------------
- --------------------------------------------------------------------------------
RATING* VALUE
(UNAUDITED) CONTRACTS DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
PUT OPTION PURCHASED -- 0.1%
100,000 Interest Rate Swap,
3-month LIBOR over 8.5%,
Expires 6/15/01** ........................... $ 1,312,703
--------------
Total Investments - 147.7%
(cost $1,949,204,673) ....................... 1,908,392,232
Liabilities in excess of other
assets -- (47.7%) ........................... (615,507,787)
--------------
NET ASSETS -- 100% ............................ $1,292,884,445
==============
- ----------
* Using the higher of Standard & Poor's or Moody's rating.
** Illiquid securities representing 0.1% 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 $15,157,656, 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.
TIPS --Treasury Inflation Protection Securities.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
- --------------------------------------------------------------------------------
ASSETS
Investments, at value
(cost $1,949,204,673) (Note 1) ....................... $ 1,908,392,232
Cash ................................................... 389,380
Receivable for investments sold ........................ 1,816,037
Interest receivable .................................... 19,152,955
Unrealized appreciation on interest
rate swaps (Notes 1 &3) .............................. 113,307
Unrealized appreciation on interest
rate caps (Notes 1 & 3) .............................. 1,734,709
Due from broker-variation margin ....................... 800,085
Deferred organization expenses and
other assets ......................................... 92,427
---------------
1,932,491,132
---------------
LIABILITIES
Reverse repurchase agreements
(Note 4) ............................................. 595,783,375
Payable for investments purchased ...................... 41,421,056
Interest payable ....................................... 908,966
Dividends payable ...................................... 427,317
Advisory fee payable (Note 2) .......................... 425,101
Administration fee payable (Note 2) .................... 106,275
Other accounts payable and
accrued expenses ..................................... 534,597
---------------
639,606,687
---------------
NET ASSETS ............................................. 1,292,884,445
===============
Net assets were comprised of:
Common stock, at par (Note 5) ........................ 1,420,106
Paid-in capital in excess of par ..................... 1,337,370,873
---------------
1,338,790,979
Undistributed net investment income .................. 55,133,593
Accumulated net realized loss ........................ (62,193,430)
Net unrealized depreciation .......................... (38,846,697)
---------------
Net assets, June 30, 1997 ............................ $ 1,292,884,445
===============
Net asset value per share:
($1,292,884,445 divided by 142,010,583 shares of
common stock issued and outstanding) ................. $9.10
=====
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (including net amortization
of premium of $2,923,160 and net
of interest expense of $35,812,744) ...................... $ 97,643,978
-------------
Operating expenses
Investment advisory ........................................ 5,054,009
Administration ............................................. 1,263,503
Reports to shareholders .................................... 433,430
Custodian .................................................. 287,045
Transfer agent ............................................. 104,545
Audit ...................................................... 99,395
Directors .................................................. 84,352
Legal ...................................................... 49,663
Miscellaneous .............................................. 543,972
-------------
Total operating expenses ................................. 7,919,914
-------------
Net investment income before
excise tax ............................................... 89,724,064
Excise tax ................................................. 852,363
-------------
Net investment income ...................................... 88,871,701
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ................................................ 7,554,978
Short sales ................................................ 2,115,165
Futures .................................................... (16,269,723)
Options .................................................... 4,135,056
-------------
(2,464,524)
-------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................................ 25,177,473
Short sales ................................................ 6,011,038
Options .................................................... (877,297)
Futures .................................................... 111,189
-------------
30,422,403
-------------
Net gain on investments ...................................... 27,957,879
-------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................. $ 116,829,580
=============
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows used for operating activities:
Interest received, net of interest purchased ............... $130,577,825
Operating expenses and excise taxes paid ................... (8,705,794)
Interest expense paid ...................................... (41,086,749)
Purchase of long-term portfolio investments ................ (3,328,439,266)
Sale of long-term portfolio investments .................... 3,061,893,702
Other ...................................................... 14,471
--------------
Net cash flows used for operating
activities ............................................... (185,745,811)
--------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements .................. 243,025,937
Dividends paid ............................................. (56,953,995)
--------------
Net cash flows provided by financing
activities ............................................... 186,071,942
--------------
Net increase in cash ......................................... 326,131
Cash at beginning of year .................................... 63,249
--------------
Cash at end of year .......................................... $ 389,380
==============
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 $116,829,580
--------------
Increase in investments ...................................... (159,860,921)
Net realized loss ............................................ 2,464,524
Decrease in unrealized depreciation .......................... (30,422,403)
Increase in unrealized appreciation on
interest rate cap .......................................... (2,486,209)
Increase in unrealized appreciation on interest
rate swaps ................................................. (113,307)
Increase in interest receivable .............................. (1,499,412)
Decrease in receivable for investments sold .................. 20,010,640
Increase in broker-variation margin .......................... (796,493)
Decrease in deposits with brokers ............................ 186,480,000
Decrease in deferred and prepaid assets ...................... 14,471
Decrease in payable for investments purchased ................ (128,937,799)
Decrease in payable for securities
sold short ................................................. (182,220,960)
Decrease in interest payable ................................. (5,274,005)
Increase in accrued expenses and other
liabilities ................................................ 66,483
--------------
Total adjustments .......................................... (302,575,391)
--------------
Net cash flows used for operating
activities ................................................. $ (185,745,811)
==============
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30,
-----------------------------------
1997 1996
-------------- --------------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income .............. $ 88,871,701 $ 82,042,926
Net realized loss
on investments, short
sales, options and futures ....... (2,464,524) (2,707,803)
Net change in unrealized
appreciation (depreciation)
on investments, short sales,
options and futures .............. 30,422,403 (21,017,940)
-------------- --------------
Net increase
in net assets resulting
from operations .................. 116,829,580 58,317,183
Dividends from net
investment income .................. (56,747,067) (63,904,500)
-------------- --------------
Net increase (decrease) .............. 60,082,513 (5,587,317)
NET ASSETS
Beginning of year .................... 1,232,801,932 1,238,389,249
-------------- --------------
End of year .......................... $1,292,884,445 $1,232,801,932
============== ==============
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 28,
1992*
YEAR ENDED JUNE 30, TO
---------------------------------------------------------- JUNE 30,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ............ $ 8.68 $ 8.72 $ 8.32 $ 9.62 $ 9.45
---------- ---------- ---------- ---------- ----------
Net investment income (net of $0.25
$0.22, $0.27, $0.12 and $0.04,
respectively, of interest expense) .......... 0.62 0.58 0.61 0.64 0.66
Net realized and unrealized gain
(loss) on investments, short
sales, options and futures .................. 0.20 (0.17) 0.42 (1.23) 0.07
---------- ---------- ---------- ---------- ----------
Net increase (decrease) from
investment operations ......................... 0.82 0.41 1.03 (0.59) 0.73
---------- ---------- ---------- ---------- ----------
Dividends from net investment income ............ (0.40) (0.45) (0.63) (0.71) (0.54)
---------- ---------- ---------- ---------- ----------
Capital charge with respect to
issuance of shares ............................ -- -- -- -- (0.02)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period** ................ $9.10 $8.68 $8.72 $8.32 $9.62
========== ========== ========== ========== ==========
Market value, end of period** ................... $8.125 $7.625 $7.50 $8.00 $9.375#
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ........................ 12.07% 7.83% 1.61% (7.73)% 4.99%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses+++ ........................... 0.63% 0.64% 0.63% 0.67% 0.60%++
Net investment income ........................... 7.04% 6.57% 7.28% 6.97% 8.41%++
SUPPLEMENTAL DATA:
Average net assets (in thousands) ............... $1,261,766 $1,248,679 $1,181,411 $1,295,131 $1,327,571
Portfolio turnover .............................. 110% 216% 107% 91% 210%
Net assets, end of period
(in thousands) ................................ $1,292,884 $1,232,802 $1,238,389 $1,182,120 $1,366,284
Reverse repurchase agreements
outstanding, end of period
(in thousands) ................................ $ 595,783 $ 352,757 $ 489,335 $ 395,559 $ 498,618
Asset coverage@ ................................. $ 3,170 $ 4,495 $ 3,531 $ 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 3.47%, 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 3.53%, 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 audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements 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
- --------------------------------------------------------------------------------
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 Trustis 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 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase is 60 days or less.
Short-term securities with a term to maturity greater than 60 days from the date
of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells (or purchases) an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written (or purchased). Premiums received or paid from writing (or
purchasing) options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
13
<PAGE>
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: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are subsequently adjusted to
the current market value of the option written or purchased. Premiums received
or paid from writing or purchasing options which expire unexercised are treated
by the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio or as part of an income producing strategy reflecting the view of the
Trust's management in 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. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively hedge
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at 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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SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the year ended June 30, 1997.
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 between the proceeds from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the swap. However, the Trust does not anticipate non-performance
by any counterparty.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short-term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Owning
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The effect on
income involves protection from falling short term rates, which the Trust
experiences primarily in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized gains and losses are calculated on the
identified cost basis. Interest income is recorded on the accrual basis and the
Trust amortizes premium and accretes discount on securities purchased using the
interest method.
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.
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.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2:Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
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Return of Capital Distributions by Investment Companies. The effect caused by
applying this statement was to decrease paid-in capital and increase
undistributed net investment income by $852,363 due to certain expenses not
being deductible for tax purposes. Net investment income, net realized gains and
net assets were not affected by this change.
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 year ended June 30, 1997 aggregated $2,587,960,182 and
$2,000,890,020, respectively.
The Trust may invest up to 40% of its total assets in securities which are not
readily marketable, including those which are restricted as to disposition under
securities law ("restricted securities"). At June 30, 1997, the Trust held 0.1%
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 June 30, 1997 was
$1,949,769,575 and accordingly, net unrealized depreciation for federal income
tax purposes was $39,411,599 (gross unrealized appreciation--$18,334,984; gross
unrealized depreciation--$57,746,583).
For federal income tax purposes, the Trust had a capital loss carryforward as
of June 30, 1997 of approximately $61,510,800 of which $582,344 will expire in
2001, $22,753,973 will expire in 2002, $947,956 will expire in 2003, $34,764,750
will expire in 2004 and $2,461,777 will expire in 2005. Accordingly, no capital
gains distribution is expected to be paid to shareholders until net gains have
been realized in excess of such amount.
During the year ended June 30, 1997 the Trust entered into financial futures
contracts. Details of the open contracts at June 30, 1997 were as follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE JUNE 30, UNREALIZED
CONTRACTS TYPE DATE DATE 1997 APPRECIATION
- -------- ---- -------- --------- ---------- -------------
Short positions:
106 5 Yr. T-Note Sept. 1997 ($11,271,881) ($11,224,406) $ 47,475
190 30 Yr. T-Bond Sept. 1997 ($21,172,128) ($21,101,875) $ 70,253
--------
$117,728
========
During the year ended June 30, 1997 the Trust entered into interest rate
caps, interest rate swaps and swap option ("swaption") agreements. Details of
the open agreements as of June 30, 1997 are as follows:
The Trust sold short two interest rate cap agreements which settled on August
8 and August 12, 1996. Under the first agreement, the Trust received $3.6
million and will be required to pay to the counterparty an amount of interest
calculated as the excess of the 3 month LIBOR over the 3-year treasury constant
maturity ("Protected Rate") based on the notional amount of $300 million. Under
the second agreement, the Trust received $2.606 million and will be required to
pay to the counterparty an amount of interest calculated as the excess of the 3
month LIBORover the 5-year treasury constant maturity ("Protected Rate")based on
the notional amount of $200 million. Under both agreements, where the 3 month
LIBORis equal to or less than the respective Protected Rates no amount is
payable by the Trust. Both agreements terminate on June 15, 2001. At June 30,
1997, net unrealized appreciation was $1,599,532.
The Trust entered into an interest rate cap agreement which settled on
February 19, 1997. Under the agreement, the Trust paid $3,868,800 and will
receive from the counterparty an amount of interest calculated as the excess of
the 3 month LIBOR over 6.0% ("Protected Rate") based on the notional amount of
$120 million. Where the 3 month LIBOR is equal to or less than the Protected
16
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Rate no amount is receivable by the Trust. The agreement terminates on February
19, 2002. At June 30, 1997, the unrealized appreciation was $135,177.
The Trust entered into an interest rate swap agreement which settled on June
30, 1997 with a notional amount of $125 million. Under the agreement, the Trust
will pay interest to the counterparty on the notional amount at a rate of 6.31%
and will receive from the counterparty interest on the notional amount at the 3
month LIBOR rate less 0.275%. The agreement terminates on June 30, 2002. At June
30, 1997, the unrealized appreciation was $111,302.
The Trust entered into an interest rate swap agreement which settles on June
13, 2001 with a notional amount of $30,908,000. Under the agreement, the Trust
will pay interest to the counterparty on the notional amount at the 10 year
forward swap rate and will receive from the counterparty interest on the
notional amount at a rate of 7.235%. The agreement terminates on June 13, 2011.
At June 30, 1997, the unrealized appreciation was $2,005.
The Trust entered into a put swaption agreement which settled on February 7,
1997. The premium paid by the Trust was $2.19 million. The put swaption
agreement grants the Trust the right to enter into an interest rate swap
agreement which commences June 15, 2001 with a notional amount of $100 million
and which terminates on June 15, 2011. Under the interest rate agreement, the
Trust will pay interest to the counterparty on the notional amount at a rate of
8.5% and will receive from the counterparty interest on the notional amount at
the 10 year forward swap rate. The swaption agreement terminates on June 15,
2001. At June 30, 1997, the unrealized depreciation was $877,297.
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 year ended June 30, 1997, was approximately $512,858,140 at a weighted
average interest rate of approximately 5.24%. The maximum amount of reverse
repurchase agreements outstanding at any month end during the year ended June
30, 1997, was $595,783,375 as of June 30, 1997, which was 30.83% 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 year ended
June 30, 1997, was approximately $83,281,269. For the year ended June 30, 1997,
the maximum amount of dollar rolls outstanding at any month end was $123,195,249
as of the close of August 29, 1996, which was 6.37% 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 June 30, 1997, the Adviser owned 10,583
shares.
NOTE 6. DIVIDENDS
Subsequent to June 30, 1997, the Board of Directors of the Trust declared a
dividend from undistributed earnings of $0.03333 per share payable July 31,
1997, to shareholders of record on July 15, 1997.
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THE BLACKROCK 2001 TERM TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock 2001 Term Trust Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The BlackRock 2001 Term Trust Inc. as of June
30, 1997 and the related statements of operations and of cash flows for the year
then ended, the statement of changes in net assets for the two years then ended,
and financial highlights for each of the four years then ended and the period
August 28, 1992 (commencement of investment operations) to June 30, 1993. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1997 by correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights for the
respective stated periods present fairly, in all material respects, the
financial position of The BlackRock 2001 Term Trust Inc. at June 30, 1997, and
the results of its operations, its cash flows, the changes in its net assets and
its financial highlights for the periods in conformity with generally accepted
accounting principles.
/s/Deloitte & Touche LLP
- -----------------------------------
DELOITTE & TOUCHE LLP
New York, New York
August 1, 1997
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THE BLACKROCK 2001 TERM TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during the fiscal year ended June 30, 1997.
During the fiscal year ended June 30, 1997, the Trust paid dividends of
$0.40 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 1997 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 1997 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 1998.
- --------------------------------------------------------------------------------
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 and 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 distribution.
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 or BlackRock Financial Management,
Inc. at (800) 227-7BFM. The addresses are on the front of this report.
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THE BLACKROCK 2001 TERM TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders, or to its charter
or by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
The Annual Meeting of Trust Shareholders was held April 15, 1997 to vote
on the following matters:
(1) To elect four Directors to serve as follows:
DIRECTOR CLASS TERM EXPIRING
-------- ----- ---- --------
Richard E. Cavanagh ............. I 3 years 2000
James Grosfeld .................. I 3 years 2000
James Clayburn La Force, Jr ..... I 3 years 2000
Walter F. Mondale ............... II 1 year `998
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Kent Dixon, Laurence D. Fink, Frank J. Fabozzi, and Ralph L.
Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending June 30, 1997.
(3) Shareholder proposal to convert the Trust from closed-end to open-end.
Shareholders elected the four Directors and ratified the selection of
Deloitte & Touche LLP. The shareholders did not ratify the proposal to
convert the Trust from closed-end to open-end. The results of the voting
was as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
----------- ------------- -----------
Richard E. Cavanagh ........ 113,356,195 0 3,371,146
James Grosfeld ............. 113,334,443 0 3,392,898
James Clayburn La Force, Jr 113,320,376 0 3,406,965
Walter F. Mondale .......... 113,125,027 0 3,602,314
Ratification of Deloitte &
Touche LLP ............... 114,901,978 661,465 1,163,898
Proposal to convert Trust to
open-end ................. 23,035,358 28,933,927 2,915,427
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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 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.
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 $50 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 125 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") or determined by the Adviser to be of
equivalent credit quality. 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 2001. 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 Adviser
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.
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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 adviser.
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 andTrust Company. Investors who wish to hold shares in a
brokerage account should check with their financial adviser 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 (NYSE symbol: BLK) 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. Investing in these securities involves 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.
22
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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.
COLLATERALIZED Mortgage-backed securities which separate
MORTGAGE OBLIGATIONS (CMOS): mortgage pools into short-, medium-, and
long-term securities with different priorities
for receipt of principal and interest. Each
class is paid a fixed or floating rate of
interest at regular intervals. Also known as
multiple-class mortgage pass-throughs.
DISCOUNT: When a fund's net asset value is greater than
its stock price, the fund is said to be
trading at a discount.
DIVIDEND: Income generated by securities in a portfolio
and distributed to 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 SECURITIES (I/O): Mortgage securities that receive only the
interest 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 as well 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 SECURITIES (P/O): Mortgage securities that receive only the
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
REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase them
at a mutually agreed date and price. During
this time, the Trust continues to receive the
principal and interest payments from that
security. At the end of the term, the Trust
receives the same securities that were sold for
the same initial dollar amount plus interest on
the cash proceeds of the initial sale.
STRIPPED MORTGAGE BACKED Arrangements in which a pool of assets is
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.
24
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
TAXABLE TRUSTS
- --------------------------------------------------------------------------------
STOCK TERMINATION
PERPETUAL TRUSTS SYMBOL DATE
------ --------
The BlackRock Income Trust Inc. ............................ BKT N/A
The BlackRock North American Government Income Trust Inc. .. BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. ......................... BBT 12/98
The BlackRock 1999 Term Trust Inc. ......................... BNN 12/99
The BlackRock Target Term Trust Inc. ....................... BTT 12/00
The BlackRock 2001 Term Trust Inc. ......................... BLK 06/01
The BlackRock Strategic Term Trust Inc. .................... BGT 12/02
The BlackRock Investment Quality Term Trust Inc. ........... BQT 12/04
The BlackRock Advantage Term Trust Inc. .................... BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. .. BCT 12/09
TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------
STOCK TERMINATION
PERPETUAL TRUSTS SYMBOL DATE
------ --------
The BlackRock Investment Quality Municipal Trust Inc. ...... BKN N/A
The BlackRock California Investment Quality Municipal
Trust Inc. ............................................... RAA N/A
The BlackRock Florida Investment Quality Municipal Trust ... RFA N/A
The BlackRock New Jersey Investment Quality Municipal
Trust Inc. ............................................... RNJ N/A
The BlackRock New York Investment Quality Municipal
Trust Inc. ............................................... RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. ............. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. ....... BRM 12/08
The BlackRock California Insured Municipal 2008 Term
Trust Inc. ............................................... BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust .... BRF 12/08
The BlackRock New York Insured Municipal 2008 Term
Trust Inc. ............................................... BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. ............ BMT 12/10
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE CALL BLACKROCK AT
(800) 227-7BFM (7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
25
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCKFINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. (BlackRock) is a registered investment
adviser which specializes in managing high quality fixed income securities, both
taxable and tax exempt. BlackRock currently manages approximately $50 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 the American
Stock Exchange, several open-end funds and over 125 institutional clients in the
United States and overseas.
BlackRock was formed in April 1988 by fixed income professionals who sought
to create an asset management firm specializing in managing fixed income
securities for individuals and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities market, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolio of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors' needs
and has been responsible for several major innovations in closed-end funds.
BlackRock introduced the first closed-end mortgage fund, the first taxable and
tax-exempt closed-end funds to offer a finite term, the first closed-end fund to
achieve a AAAf rating by Standard & Poor's, and the first closed-end fund to
invest primarily in North American Government securities. BlackRock's closed-end
funds currently have dividend reinvestment plans which are designed to provide
an ongoing source of demand for the stock in the secondary market. BlackRock
manages a ladder of alternative investment vehicles, with each fund having
specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all our
shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
26
<PAGE>
==========
BLACKROCK
==========
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Frank Smith, 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 BLACKROCK 2001 TERM TRUST INC.
c/o Mitchell Hutchins Asset Management Inc.
32nd Floor
1285 Avenue of the Americas
New York, NY 10019
(800) 227-7BFM
{LOGO] Printed on recycled paper
THE BLACKROCK
2001 TERM TRUST INC.
====================
ANNUAL REPORT
JUNE 30, 1997
