---------
The BlackRock
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2001 Term Trust Inc.
=================================================
Consolidated
Semi-Annual Report
December 31, 1998
[GRAPHIC OMITTED]
<PAGE>
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THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
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January 31, 1999
Dear Shareholders:
Over the past twelve months, U.S. Treasury securities have experienced a
strong rally, as investors sought a safe haven from global market turmoil and
the Federal Reserve continued to cut interest rates. Other segments of the fixed
income market have lagged behind Treasuries, but still produced generally
positive returns since our last report. We anticipate that the Federal Reserve
will remain prepared to combat any signs of a credit crunch through interest
rate cuts, and given the unstable economic situation in Brazil, the Fed likely
will retain an easing bias.
Despite previous worries of a second half slowdown in 1998, the U.S.
economy continues to expand rapidly, supported by strong consumer spending. This
momentum, however, may not continue as briskly into the new year, based on
weaker corporate profits and a loosening of the labor markets. Already, major
corporations have warned of slower profit growth and announced major layoffs.
This report contains detailed market and portfolio strategy by your
Trust's managers in addition to the Trust's unaudited financial statements and a
detailed list of the portfolio's holdings. We thank you for your continued
investment in the Trust and look forward to serving your investment needs in the
future.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
January 31, 1999
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock 2001
Term Trust Inc. ("the Trust") for the six months ended December 31, 1998. We
would like to take this opportunity to review the Trust's stock price and net
asset value (NAV) performance, summarize market developments and discuss recent
portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BLK". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about June 30, 2001 while providing high current
income. Although there can be no guarantee, BlackRock is confident that the
Trust can achieve its investment objectives. The Trust seeks these objectives by
investing in investment grade fixed income securities, including corporate debt
securities, mortgage-backed securities backed by U.S. Government agencies (such
as Fannie Mae, Freddie Mac or Ginnie Mae), asset-backed securities and
commercial mortgage-backed securities. All of the Trust's assets must be rated
at least "BBB" by Standard & Poor's or "Baa" by Moody's at time of purchase or
be issued or guaranteed by the U.S. Government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV (the market value of its assets per share) over the period:
<TABLE>
<CAPTION>
----------------------------------------------------------------
12/31/98 6/30/98 Change High Low
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<S> <C> <C> <C> <C> <C>
Stock Price $ 9.00 $8.8125 2.13% $9.0625 $8.7500
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Net Asset Value (NAV) $ 9.61 $ 9.51 1.05% $ 9.73 $ 9.51
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5-Year U.S. Treasury Note 4.54% 5.47% (17.00%) 5.47% 3.97%
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</TABLE>
The Fixed Income Markets
After a bullish first half of the year, the second half of 1998 witnessed
virtually unparalleled market turbulence. Although consumers continued their
spending domestically, demand for U.S. goods abroad faltered, as the strong
dollar and overseas weakness, especially in Asia, drove prices for U.S. goods
higher relative to foreign goods.
Toward year-end, U.S. GDP growth rebounded; however, the instability in
global financial markets began to rattle investor confidence. The devaluation of
the Russian ruble and the fear of a possible devaluation of the Brazilian
currency caused a flight-to-quality to U.S. Treasuries. Corporate yield spreads
across all credits to Treasuries widened dramatically as a result of the
sell-off. This dramatic shift of investor sentiment culminated in the near
collapse of a prominent hedge fund.
The Treasury market rally pushed Treasury yields to historic levels below
the 5% barrier. In response to the financial fragility in the third quarter of
1998, the Fed eased interest rates on September 29, 1998 by 25bps and again on
October 15, in an unusual between-meetings move. On November 17, the Fed eased
interest rates again by 25bps.
2
<PAGE>
These rate cuts seem to have had their desired effect on the US
economy--which finished the year with a 3.5% growth rate. Growth in 1999,
however, may decrease significantly and further easing of interest rates by the
Federal Reserve is possible as the Western economies will need to provide
support for the global economy. With economic growth and labor markets expected
to soften during the first half of 1999 we expect inflation to remain under
control.
The global instability which resulted in a flight-to-quality to US
Treasuries caused mortgages to severely underperform Treasuries. However, as
these markets have regained some stability, investors have begun to regain
confidence in the international markets. Consequently, we believe that current
spreads in the corporate, and mortgage markets will provide the basis for
outperforming 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, 1998 asset
composition.
<TABLE>
<CAPTION>
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The BlackRock 2001 Term Trust Inc.
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Composition December 31, 1998 June 30, 1998
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<S> <C> <C>
U.S. Treasury Securities 22% 16%
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Corporate Bonds 18% 19%
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Mortgage Pass-Throughs 13% 8%
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Taxable Zero Coupon Bonds 11% 17%
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Asset-Backed Securities 7% 9%
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Money Market Instruments 6% 7%
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Commercial Mortgage-Backed Securities 6% 5%
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Agency Multiple Class Mortgage Pass-Throughs 5% 8%
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Principal-Only Mortgage-Backed Securities 4% 6%
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Interest-Only Mortgage-Backed Securities 3% 2%
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Municipal Bonds 2% 2%
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Interest-Only Commercial Mortgage-Backed Securities 2% --
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Adjustable Rate Mortgages 1% 1%
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<CAPTION>
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Rating % of Corporates
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Credit Rating December 31, 1998 June 30, 1998
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<S> <C> <C>
AAA or equivalent 1% 2%
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AA or equivalent 24% 14%
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A or equivalent 42% 62%
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BBB or equivalent 28% 22%
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N/R 5% --
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</TABLE>
3
<PAGE>
In accordance with the Trust's primary investment objective of returning
the initial offer price upon maturity, the Trust's portfolio management activity
focused on adding securities which offered both attractive yield spreads over
Treasury securities and a maturity date matching the Trust's termination date of
June 30, 2001. Additionally, the Trust has been active in reducing positions in
bonds which have maturity dates or potential cash flows after the Trust's
termination date.
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets as well as to
maintain the Trust's ability 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. You can also reach us via
e-mail at [email protected]
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
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The BlackRock 2001 Term Trust Inc.
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Symbol on New York Stock Exchange: BLK
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Initial Offering Date: July 23, 1992
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Closing Stock Price as of 12/31/98: $ 9.00
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Net Asset Value as of 12/31/98: $ 9.61
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Yield on Closing Stock Price as of 12/31/98 ($9.00)(1): 4.44%
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Current Monthly Distribution per Share(2): $0.0333
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Current Annualized Distribution per Share(2): $ 0.40
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- ----------
(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 is not constant and is subject to change.
4
<PAGE>
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The BlackRock 2001 Term Trust Inc.
Consolidated Portfolio of Investments
December 31, 1998 (Unaudited)
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<TABLE>
<CAPTION>
=======================================================================================================
Principal
Amount Value
Rating* (000) Description (Note 1))
=======================--------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS -- 126.1%
Mortgage Pass-Throughs -- 18.5%
Federal Home Loan Mortgage Corp.,
$ 1,797 6.50%, 10/01/25 - 09/01/28........................... $ 1,809,979
453 7.50%, 07/01/13 - 11/01/23........................... 465,148
7,926 8.144%, 12/01/01,
7 Year, Multifamily............................... 7,916,045
8,221 8.50%, 06/01/11 - 09/01/24........................... 8,592,057
9,856 8.60%, 05/01/02,
7 Year, Multifamily............................... 10,231,487
5,940 Federal Housing Administration,
Massachusetts St. Housing
Finance Agency, Series A,
6.85%, 10/01/20...................................... 6,206,825
Federal National Mortgage
Association,
4,934 6.125%, 11/25/03, Multifamily........................ 4,969,784
140,000 6.50%, (TBA)......................................... 140,918,750
20,672++ 7.00%, 12/01/99-11/01/28............................. 21,086,366
5,977 7.50%, 09/01/07 - 07/01/23........................... 6,154,908
10,269 7.695%, 05/01/01,
7 Year, Multifamily............................... 10,408,269
11,155 7.79%, 02/01/01,
7 Year, Multifamily............................... 11,302,533
3,741 8.00%, 03/01/01,
7 Year, Multifamily............................... 3,796,024
3,666 8.49%, 04/01/01,
7 Year, Multifamily............................... 3,726,177
5,065 8.50%, 06/01/06 - 09/01/09,
15 Year, Multifamily.............................. 5,280,614
2,412 8.69%, 04/01/01,
7 Year, Multifamily............................... 2,478,892
Government National
Mortgage Association,
6,170 8.00%, 01/15/23 - 06/15/24........................... 6,413,419
--------------
251,757,277
--------------
Multiple Class Mortgage
Pass-Throughs -- 8.0%
AAA 291 Collateralized Mortgage
Securities Corp.,
Series F, Class F-4A,
11/01/15 ............................................ 303,696
Federal Home Loan Mortgage
Corp., Multiclass
Mortgage Participation
Certificates,
1,581 Series G-29, Class G-29-IA,
06/25/20 (I)......................................... 150,885
12,107 Series G-30, Class G-30-J,
02/25/23 (I)......................................... 1,781,609
10,034 Series G-32, Class G-32-PT,
02/25/19 (I)......................................... 986,323
2,492 Series G-32, Class G-32-TT,
02/25/19 (I)......................................... 195,361
16,677 Series 1261, Class 1261-H,
08/15/19 ............................................ 16,711,324
1,045 Series 1360, Class 1360-PT,
12/15/17 (ARM)....................................... 1,046,097
475 Series 1563, Class 1563-SB,
08/15/08 (ARM)....................................... 474,973
1,268 Series 1606, Class 1606-SB,
11/15/08 (ARM)....................................... 1,307,123
195 Series 1663, Class 1663-A,
07/15/23 (ARM)....................................... 196,570
4,579 Series 1671, Class 1671-KD,
02/15/24 (ARM) ...................................... 4,597,481
657 Series 1686, Class 1686-PK,
04/15/23 ............................................ 649,492
41,274 Series 1954, Class 1954-MD,
03/15/16 (I)......................................... 4,410,544
5,071 Series 1970, Class 1970-PN,
06/15/15 (I)......................................... 193,969
Federal National Mortgage
Association, REMIC
Pass-Through Certificates,
2,088 Trust 269, Class 269-1,
08/01/22 . . . . . . . . . . . . . . . . ............ 2,197,847
7,291 Trust 1990-144, Class 144-W,
12/25/20............................................. 7,639,493
15,000 Trust 1992-43, Class 43-E,
04/25/22............................................. 15,581,700
1,519 Trust 1992-122, Class 122-PJ,
06/25/19............................................. 1,515,822
1,500 Trust 1993-G17, Class 17-SH,
04/25/23 (ARM)....................................... 1,401,810
3,207 Trust 1993-68, Class 68-PJ,
11/25/06 (I)......................................... 205,543
2,050 Trust 1993-71, Class 71-PG,
07/25/07............................................. 2,069,372
480 Trust 1993-99, Class 99-SB,
07/25/23 (ARM)....................................... 481,234
354 Trust 1993-117, Class 117-S,
07/25/08 (ARM)....................................... 341,810
6,104 Trust 1993-141, Class 141-PW,
06/25/18 (I)......................................... 429,230
4,217 Trust 1993-178, Class 178-SC,
09/25/23 (ARM)....................................... 4,322,823
3,216 Trust 1993-196, Class 196-SM,
10/25/08 (ARM)....................................... 2,991,629
3,038 Trust 1993-214, Class 214-SO,
12/25/08 (ARM)....................................... 3,007,713
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Principal
Amount Value
Rating* (000) Description (Note 1))
=======================--------------------------------------------------------------------------------
<S> <C> <C> <C>
Multiple Class Mortgage
Pass-Throughs
Federal National Mortgage
Association, REMIC
Pass-Through Certificates, (cont'd)
$ 1,150 Trust 1994-42, Class 42-SM,
01/25/24 (ARM)....................................... $ 1,154,957
6,777 Trust 1994-54, Class 54-B,
11/25/23 (P)......................................... 6,397,668
9,351 Trust 1996-T6, Class T6-C,
02/26/01............................................. 9,368,060
2,329 Trust 1996-T6, Class T6-D,
02/26/01............................................. 2,346,555
23,700 Trust 1997-50, Class 50-HK,
08/25/27 (I)......................................... 7,311,692
3,838 Trust 1998-38, Class 38-S,
01/08/12 (P)......................................... 4,064,205
26,750 Trust 1998-48, Class 48-J,
11/25/27 (I)......................................... 3,092,988
5,859 Government National Mortgage
Association, REMIC,
Trust 1994-1, Class 1-PL,
06/16/24 (I)......................................... 978,957
--------------
109,906,555
--------------
Commercial Mortgage Backed
Securities -- 9.9%
BBB 10,000 CBA Mortgage Corp.,
Series 1993-C1, Class D,
7.76%, 12/25/03...................................... 9,900,000
AA+ 3,444 Central Life Assurance Co.,
Series 1994-1, Class A2,
8.90%, 12/31/20...................................... 3,531,020
AAA 125,391 Credit Suisse First Boston Mortgage,
Series 1997, Class C-1,
04/20/22 (I/O)#...................................... 12,468,678
DLJ Mortgage Acceptance Corp.,
Series 1998-3, Class 1A,
AAA 24,532 6.75%, 06/19/28...................................... 24,605,264
AAA 24,723 6.50%, 09/19/28...................................... 24,669,160
Merrill Lynch Mortgage Investments Inc.,
AAA 38,322 Series 1996-2, Class 2C,
11/21/28 (I/O)....................................... 2,916,064
AAA 67,756 Series 1997-2, Class 2C,
12/10/29 (I/O)....................................... 4,959,806
AAA 48,442 Series 1998-2, Class 2C,
02/15/30 (I/O)....................................... 3,944,267
Morgan Stanley Capital Inc.,
AAA 115,967 Series 1998, Class X,
02/15/18 (I/O)....................................... 7,315,563
AAA 100,367 Series 1998, Class C,
04/15/23 (I/O)....................................... 4,524,418
AAA 5,200 PaineWebber Mortgage
Acceptance Corp.,
Series 1995-M1, Class A,
6.70%, 01/15/07#..................................... 5,305,460
Resolution Trust Corp.,
AA 8,050 Series 1994-C1, Class C,
8.00%, 06/25/26................................... 8,115,406
A 5,490 Series 1994-C2, Class D,
8.00%, 04/25/25................................... 5,503,375
AA 4,503 Salomon Brothers Mortgage
Acceptance Corp.,
Series 1997-TZH,
Class A1, 7.15%, 03/25/25#........................... 4,659,717
AAA 12,800 Structured Asset Securities
Corp., Series 1996-CFL,
Class B, 6.30%, 02/25/28............................. 12,890,424
--------------
135,308,622
--------------
Corporate Bonds -- 22.1%
Banking and Finance -- 12.3%
BBB 10,000 AT&T Corporation,
5.74%, 06/30/01...................................... 9,686,582
A3 1,300 Amsouth Bancorporation,
6.75%, 11/01/25...................................... 1,340,056
A- 5,000 Aristar Inc.,
7.25%, 06/15/01...................................... 5,174,100
Associates Corp.,
AA- 5,000 6.68%, 07/25/00...................................... 5,093,100
AA- 5,000 7.46%, 03/28/00...................................... 5,117,450
BBB- 9,000 Capital One Bank Medium Term,
6.26%, 05/07/01...................................... 8,986,666
A- 15,000 Donaldson, Lufkin & Jenrette,
5.625%, 02/15/16 .................................... 14,964,450
A+ 6,750 Goldman Sachs Group LP,
6.20%, 12/15/00#..................................... 6,838,155
A3 5,000 Great Western Financial Corp.,
6.375%, 07/01/00 .................................... 5,053,500
Lehman Brothers Inc.,
A 8,000 6.75%, 09/24/01...................................... 8,068,991
A 10,000 7.25%, 04/15/03...................................... 10,236,462
A1 5,700 Meridian Bancorp Inc.,
6.625%, 06/15/00..................................... 5,783,231
AA- 10,715 Merrill Lynch & Co. Inc.,
5.75%, 11/12/02 ..................................... 10,677,704
Aa3 3,800 Morgan Stanley Inc.,
5.75%, 02/15/01...................................... 3,825,194
Aa2 10,000 NationsBank Corp.,
7.00%, 09/15/01 ..................................... 10,390,400
A+ 5,000 Prudential Funding Corp.,
6.00%, 05/11/01#..................................... 5,059,769
Aa3 12,500 Salomon Inc.,
6.625%, 11/30/00..................................... 12,742,000
Salomon Smith Barney Holdings Inc.,
Aa3 13,000 5.875%, 02/01/01..................................... 13,093,600
Aa3 3,600 7.00%, 05/15/00 ..................................... 3,670,524
Aa3 1,925 Security Pacific Corp.,
11.00%, 03/01/01..................................... 2,137,184
A- 15,000 Transamerica Finance Corp.,
6.75%, 06/01/00...................................... 15,192,150
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Principal
Amount Value
Rating* (000) Description (Note 1))
=======================--------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Bonds (cont'd)
Banking and Finance
A2 $ 5,000 Union Planters National Bank,
6.76%, 10/30/01...................................... $ 5,150,125
--------------
168,281,393
--------------
Industrial -- 3.1%
BBB 7,500 Erac Usa Finance Co.,
7.00%, 06/15/00#..................................... 7,533,618
A1 10,000 Ford Motor Credit Co.,
6.18%, 12/27/01...................................... 10,204,300
BBB- 6,000 RJR Nabisco Brands Inc.,
8.00%, 07/15/01...................................... 6,026,100
Sears Roebuck & Co.,
A2 4,250 6.50%, 06/15/00...................................... 4,315,153
A2 5,000 7.29%, 04/24/00...................................... 5,105,598
Baa1 3,500 Tenneco Credit Corp.,
8.075%, 10/01/02..................................... 3,649,415
BBB+ 4,550 WMX Technologies Inc.,
7.125%, 06/15/01..................................... 4,677,575
--------------
41,511,759
--------------
Utilities -- 1.1%
BBB 9,000 Pacificorp Holdings Inc.,
6.75%, 04/01/01#..................................... 9,179,550
BBB+ 5,000 Potomac Capital Corp.,
6.73%, 08/09/99#..................................... 5,022,600
-----------
14,202,150
-----------
Yankee -- 5.6%
African Development Bank,
Aa1 5,000 7.75%, 12/15/01...................................... 5,302,048
Aaa 3,350 8.625%, 05/01/01..................................... 3,585,748
BBB- 3,000 Colombia (Republic of),
8.00%, 06/14/01...................................... 2,865,000
BBB- 15,000 Empresa Electric Guacolda,
7.60%, 04/30/01#..................................... 14,379,954
A 4,000 Household Finance Corp.,
7.45%, 04/01/00...................................... 4,079,960
A+ 18,000 Quebec (Province of),
9.125%, 08/22/01..................................... 19,425,600
BBB- 12,000 Transpatadora de Gas,
10.25%, 04/25/01..................................... 12,240,000
N/R 15,000 US Remittance Master Trust,
7.57%, 01/01/01#..................................... 14,957,813
--------------
76,836,123
--------------
Asset-Backed Securities -- 9.1%
N/R 3,977@ Amresco Securitized Interest,
Series 1996-1, Class A,
8.10%, 04/26/26#..................................... 3,855,071
Aaa 22,687 Brazos Student Finance Corp.,
Series 1998-A, Class A,
06/01/06 ............................................ 22,456,323
Broad Index Secured Trust Offering,
Baa2 10,000 6.58%, 03/26/01#..................................... 9,889,518
Baa2 10,000 7.14%, 09/09/01 ..................................... 9,885,000
AAA 13,266 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 09/15/06...................................... 13,382,364
AAA 35,000@ Citibank Credit Card Trust,
Series 1996-1, Class A,
5.79%, 02/07/03 ..................................... 31,281,250
N/R 6,028 Global Rated Eligible Asset,
Series 1998-1, Class A,
7.33%, 09/15/07#/##.................................. 4,184,940
AAA 1,394 NationsBank Auto Grantor Trust,
Series 1995-A, Class A,
5.85%, 06/15/02...................................... 1,396,626
A 10,000 Newcourt Equipment Trust,
Series 1998-1, Class B,
5.97%, 04/20/05...................................... 9,934,375
AAA 5,750 Standard Credit Card Master Trust,
Series 1995-3, Class A,
7.85%, 02/07/02 ..................................... 5,935,082
Structured Mortgage Asset,
Residential Trust,#/##
N/R 10,059 Series 1997-2,
8.24%, 03/15/06...................................... 6,085,609
N/R 11,017 Series 1997-3,
8.57%, 04/15/06...................................... 6,095,543
--------------
124,381,701
--------------
Stripped Mortgage-Backed
Securities -- 6.7%
AAA 2,082 Bear Stearns Secured Investments,
12/01/18 (P/O)....................................... 2,657,353
Collateralized Mortgage Securities Corp.,
AAA 1,042 Series 1990-5, Class 5-L,
09/20/20 (I/O)....................................... 31,603
AAA 2,691 Series 1991-9, Class M,
11/20/21 (I/O)....................................... 411,730
Federal Home Loan Mortgage Corp.,
13,971 Series G-3, Class G-3-S,
04/25/19 (I/O).................................... 595,706
4,565 Series 113, Class 113-M,
05/15/21 (I/O).................................... 1,074,979
10,774 Series 181, Class 181-F,
08/15/21 (I/O).................................... 1,469,118
899 Series 1125, Class 1125-F,
08/15/21 (I/O).................................... 234,081
19 Series 1185, Class 1185-C,
12/15/06 (I/O).................................... 297,716
22 Series 1283, Class 1283-X,
06/15/22 (I/O).................................... 625,667
572 Series 1338, Class 1338-Q,
08/15/07 (P/O).................................... 509,273
4,700 Series 1360, Class 1360-PT,
12/15/17 (I/O).................................... 304,521
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Principal
Amount Value
Rating* (000) Description (Note 1))
=======================--------------------------------------------------------------------------------
<S> <C> <C> <C>
Stripped Mortgage-Backed
Securities (cont'd)
$ 4,700 Series 1378, Class 1378-DA,
01/15/18 (I/O).................................... $ 605,651
2,230 Series 1388, Class 1388-G,
05/15/06 (I/O).................................... 340,156
2,668 Series 1404, Class 1404-E,
01/15/06 (I/O).................................... 248,687
6,094 Series 1422, Class 1422-IB,
11/15/07 (I/O).................................... 895,624
9,588 Series 1506, Class 1506-SA,
01/15/05 (I/O).................................... 111,217
16,652 Series 1605, Class 1605-S,
08/15/06 (I/O).................................... 373,670
12,824 Series 1621, Class 1621-SJ,
10/15/20 (I/O).................................... 438,442
18,072 Series 1640, Class 1640-SD,
12/15/00 (I/O).................................... 268,726
5,868 Series 1662, Class 1662-PO,
01/15/09 (P/O).................................... 4,861,679
864 Series 1664, Class 1664-C,
11/15/23 (P/O).................................... 841,766
3,271 Series 1721, Class 1721-OC,
05/15/24 (P/O).................................... 2,215,206
52,664 Series 1790, Class 1790-D,
11/15/23 (I/O).................................... 2,080,234
5,416 Series 1849, Class 1849-EL,
12/15/08 (I/O).................................... 1,045,205
5,044 Series 1870, Class 1870-PA,
08/15/01 (P/O).................................... 4,642,344
13,835 Series 1950, Class 1950-SA,
10/15/22 (I/O).................................... 152,188
30,859 Series 2056, Class 2056-IB,
04/15/21 (I/O).................................... 3,548,785
Federal National Mortgage Association,
2,338 Trust 3, Class 1, 02/01/17 (P/O)..................... 1,989,134
2,090 Trust 5, Class 1, 09/25/07 (P/O)..................... 1,802,022
1,452 Trust 25, Class 2,
02/25/13 (I/O).................................... 139,704
10,785 Trust 25, Class 2,
02/25/13 (I/O).................................... 1,037,729
945 Trust 60, Class 1,
01/01/19 (P/O).................................... 793,916
1,200 Trust 1990-76, Class 76-N,
07/25/20 (I/O).................................... 30,568
1,500 Trust 1990-106, Class 106-K,
09/25/20 (I/O).................................... 240,094
387 Trust 1991-G44, Class G44-H,
11/25/21 (P/O).................................... 368,284
1,650 Trust 1991-G46, Class G46-K,
12/25/09 (I/O).................................... 309,967
660 Trust 1991-29, Class 29-J,
04/25/21 (I/O).................................... 204,991
1,900 Trust 1991-80, Class 80-Q,
07/25/21 (I/O).................................... 570,300
646 Trust 1991-167, Class 167-B,
10/25/17 (P/O).................................... 537,220
1,365 Trust 1991-167, Class 167-E,
10/25/17 (P/O).................................... 757,688
2,671 Trust G1992-5, Class 5-E,
01/25/22 (I/O).................................... 769,091
9,875 Trust 1992-G45, Class G45-2,
08/25/22 (I/O).................................... 2,226,743
39 Trust 1992-18, Class 18-JA,
11/25/05 (I/O).................................... 2,480,528
29 Trust 1993-152, Class 152-D,
08/25/23 (P/O).................................... 28,828
35,041 Trust G1993-31, Class 31-PS,
08/25/18 (I/O).................................... 1,343,110
3,045 Trust 1993-48, Class 48-B,
04/25/08 (P/O).................................... 2,644,421
22,870 Trust 1993-82, Class 82-SA,
05/25/23 (I/O).................................... 856,921
780 Trust 1993-151, Class 151-E,
05/25/23 (P/O).................................... 751,493
43,588 Trust 1993-202, Class 202-SL,
11/25/23 (I/O).................................... 2,257,431
1,162 Trust 1993-222, Class 222-B,
07/25/22 (P/O).................................... 1,144,198
19,025 Trust 1993-240, Class 240-PS,
09/25/12 (I/O).................................... 463,831
16,999 Trust 1993-257, Class 257-A,
06/25/23 (P/O).................................... 15,910,852
12,244 Trust 1994-8, Class 8-G,
11/25/23 (P/O).................................... 10,695,664
4,703 Trust 1994-53, Class 53-EA,
11/25/23 (P/O).................................... 4,016,853
7,300 Trust 1996-24, Class 24-SB,
10/25/08 (I/O).................................... 1,530,080
9,471 Trust 1996-40, Class 40-SG,
03/25/09 (I/O).................................... 1,969,889
5,121 Trust 1996-54, Class 54-SM,
09/25/23 (I/O).................................... 259,260
63,334 Trust 1997-35, Class 35-SB,
03/25/09 (I/O).................................... 1,859,848
37,338 Trust 1997-37, Class 37-SX,
08/18/18 (I/O).................................... 374,067
4,657 Merrill Lynch Trust,
Series 43, Class F,
08/27/15 (I/O).................................... 461,050
--------------
91,707,102
--------------
U.S. Government and
Agency Securities -- 27.8%
U.S. Treasury Bonds,
71,000 3.625%, 04/15/28 (CPI)............................... 69,826,604
35,000+ 6.125%, 11/15/27..................................... 39,177,950
U.S. Treasury Notes,
150,000+ 4.50%, 09/30/00...................................... 149,671,500
3,050 5.375%, 01/31/00..................................... 3,072,875
4,180 5.750%, 09/30/99..................................... 4,213,315
13,575+ 6.125%, 08/15/07..................................... 14,826,479
30,000 6.50%,10/15/06....................................... 33,276,600
</TABLE>
See Notes to Consolidated Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================
Principal
Amount Value
Rating* (000) Description (Note 1))
=======================--------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Government and
Agency Securities (cont'd)
$ 70,555 Government Trust Certificates,
Israel Trust, Zero Coupon,
11/15/00............................................. $ 64,403,486
--------------
378,468,809
--------------
Taxable Zero Coupon Bonds -- 13.5%
U.S. Treasury Receipt,
187,000 + 05/15/01............................................. 167,838,110
17,600 08/15/00............................................. 16,354,448
--------------
184,192,558
--------------
Taxable Municipal Bonds -- 2.0%
AAA 1,000 Kern County California Pension
Obligation, 6.27%, 08/15/01.......................... 1,024,740
AAA 2,035 Long Beach California Pension
Obligation, 6.45%, 09/01/01.......................... 2,095,073
AAA 6,000 Los Angeles County
California Pension Obligation,
Series D, 6.38%, 06/30/01............................ 6,157,260
New York City, G.O., Series 1,
A- 5,000 6.40%, 03/15/01...................................... 5,091,200
A- 5,000 7.24%, 04/15/01...................................... 5,183,100
Baa1 1,000 New York State Environmental
Facility Auth.,Series A,
6.62%, 03/15/01 ..................................... 1,023,760
Baa1 3,345 New York State Housing
Finance Agency, Series B,
7.14%, 09/15/02...................................... 3,513,153
Baa1 2,000 New York State Urban Development
Corp., Series B,
6.90%, 04/01/01..................................... 2,060,060
AA 1,000 St. Joseph's Health System
California, Series A,
7.02%, 07/01/01...................................... 1,037,910
--------------
27,186,256
--------------
Stripped Money Market
Instruments -- 7.7%
AAA 65,000 Aim Prime Money Market Portfolio,
Zero Coupon, 01/02/01................................ 59,414,030
A 50,000 Goldman Sachs Money Market,
Zero Coupon, 01/02/01................................ 45,685,550
--------------
105,099,580
--------------
<CAPTION>
Nominal
Amount
(000)
-------
<S> <C> <C> <C>
Call Options Purchased -- 0.8%
Interest Rate Swap,
$ 200,000 5.60% over 3 month LIBOR,
expires 08/07/00.................................. 6,808,020
103,000 5.85% over 3 month LIBOR,
expires 08/07/00.................................. 4,493,365
--------------
11,301,385
--------------
Total long-term investments
(cost $1,702,216,362)................................ 1,720,141,270
--------------
SHORT-TERM INVESTMENT -- 4.9%............................
Discount Note
$ 67,375 Federal Home Loan
Mortgage Corp., 4.68%,
01/04/99 (cost $67,374,725).......................... $ 67,374,725
--------------
Total investments before
call option written and
investments sold short - 131.0%
(cost $1,769,591,087)................................ 1,787,515,995
--------------
<CAPTION>
Nominal
Amount
(000)
-------
<S> <C> <C> <C>
Call Option Written -- (0.5%)
$ (320,000) Interest Rate Swap,
3 month LIBOR over 5.25%,
expires 08/10/99
(premium received $1,960,000)........................ (7,105,280)
--------------
<CAPTION>
Principal
Amount
(000)
---------
<S> <C> <C> <C>
Investments Sold Short -- (4.2%)
$ (10,000) U.S. Treasury Bonds,
5.50%, 08/15/28................................... (10,467,200)
U.S. Treasury Notes,
(19,800) 4.70%, 11/15/08...................................... (19,954,638)
(25,000) 5.625%, 05/15/08..................................... (26,675,750)
--------------
Total investments sold short
(proceeds $57,055,239) .............................. (57,097,588)
--------------
Total investments net of
call option written and
investments sold short -- 126.3%..................... 1,723,313,127
Liabilities in excess of other
assets -- (26.3%).................................... (359,191,577)
--------------
NET ASSETS -- 100%...................................... $1,364,121,550
==============
</TABLE>
- ----------
* Using the higher of Standard & Poor's or Moody's rating.
# Private placements restricted as to resale.
## Illiquid securities represent 0.92% of portfolio assets.
+ Partial principal amount pledged as collateral for reverse repurchase
agreements.
++ Includes mortgage dollar roll of $12,240,000, see Note 4.
@ Partial principal amount pledged as collateral for futures transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
CPI -- Consumer Price Index.
G.O. -- General Obligation Bond.
I -- Denotes a CMO with Interest Only characteristics.
I/O -- Interest Only.
LIBOR -- London InterBank Offer Rate.
P -- Denotes a CMO with Principal Only characteristics.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
TBA -- To be allocated.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Consolidated Statement of
Assets and Liabilities
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Assets
Investments, at value
(cost $1,769,591,087) (Note 1) ........................ $ 1,787,515,995
Cash .................................................... 37,947
Deposits with brokers as collateral
for investments sold short (Note 1) ................... 57,334,250
Interest receivable ..................................... 13,966,496
Unrealized appreciation on interest rate swaps
(Notes 1 & 3) ......................................... 887,854
Receivable for investments sold ......................... 203,256
---------------
1,859,945,798
---------------
Liabilities
Reverse repurchase agreements (Note 4) .................. 262,093,500
Payable for investments purchased ....................... 155,195,718
Investments sold short, at value
(proceeds $57,055,239) (Note 1) ....................... 57,097,588
Call option written, at value
(premium received $1,960,000) (Note 1) ................ 7,105,280
Interest rate caps, at value
(unamortized premium $1,035,412) (Note 1) ............. 5,535,775
Dividends payable ....................................... 4,728,953
Investment advisory fee payable (Note 2) ................ 467,609
Due to broker-variation margin .......................... 158,338
Administration fee payable (Note 2) ..................... 116,902
Other accrued expenses .................................. 3,324,585
---------------
495,824,248
---------------
$ 1,364,121,550
===============
Net Assets Net assets were comprised of:
Common stock, at par (Note 5) ......................... 1,420,106
Paid-in capital in excess of par ...................... 1,335,382,179
---------------
1,336,802,285
Undistributed net investment income ................... 80,956,067
Accumulated net realized loss ......................... (60,050,913)
Net unrealized appreciation ........................... 6,414,111
---------------
Net assets, December 31, 1998 ......................... $ 1,364,121,550
===============
Net asset value per share:
($1,364,121,550 / 142,010,583 shares of
common stock issued and outstanding) .................. $ 9.61
===============
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Consolidated Statement of Operations
For the Six Months Ended
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Net Investment Income
Income
Interest (net of premium amortization
of $351,689 and interest expense
of $7,717,152) ........................................... $ 41,446,341
------------
Expenses
Investment advisory ........................................ 2,759,929
Administration ............................................. 695,829
Custodian .................................................. 135,500
Reports to shareholders .................................... 118,500
Audit ...................................................... 75,000
Transfer agent ............................................. 50,500
Directors .................................................. 47,000
Legal ...................................................... 40,000
Miscellaneous .............................................. 120,445
------------
Total operating expenses ................................. 4,042,703
------------
Net investment income before excise tax .................... 37,403,638
Excise tax ................................................. 2,889,840
------------
Net investment income ...................................... 34,513,798
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 3)
Net realized gain (loss) on:
Investments ................................................ 9,819,532
Short sales ................................................ (4,768,082)
Options .................................................... (90,792)
Swaps ...................................................... 2,740,107
Futures .................................................... 5,719,359
------------
13,420,124
------------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ 6,882,696
Short sales ................................................ (42,349)
Options written ............................................ (6,337,816)
Interest rate caps ......................................... (2,389,115)
Swaps ...................................................... 1,778,637
Futures .................................................... (1,761,987)
------------
(1,869,934)
------------
Net gain on investments ...................................... 11,550,190
------------
Net Increase in Net Assets
Resulting from Operations .................................. $ 46,063,988
============
See Notes to Consolidated Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Consolidated Statement of Cash Flows
For the Six Months Ended
December 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Increase (Decrease) in Cash
Cash flows provided by operating activities:
Interest received, net of interest purchased .......... $ 47,316,191
Operating expenses and excise taxes paid .............. (4,118,439)
Interest expense paid ................................. (7,717,152)
Purchases of short-term portfolio investments ......... (62,544,725)
Purchases of long-term portfolio investments .......... (1,484,548,461)
Proceeds from disposition of long-term
portfolio investments .............................. 1,366,439,958
Other ................................................. 81,829
---------------
Net cash flows used for operating
activities .......................................... (145,090,799)
---------------
Cash flows provided by financing activities:
Increase in reverse repurchase agreements ........... 173,617,125
Cash dividends paid ................................. (28,701,029)
---------------
Net cash flows provided by financing
activities .......................................... 144,916,096
---------------
Net decrease in cash .................................... (174,703)
Cash at beginning of period ............................. 212,650
---------------
Cash at end of period ................................... $ 37,947
===============
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 ............................................ $ 46,063,988
---------------
Increase in investments ................................. (327,153,562)
Net realized gain ....................................... (13,420,124)
Decrease in unrealized appreciation ..................... 1,869,934
Increase in unrealized appreciation on
interest rate swaps ................................... (1,778,637)
Increase in interest receivable ......................... (1,495,613)
Decrease in receivable for investments sold ............. 1,980,213
Increase in deposits with brokers ....................... (55,969,250)
Decrease in other assets ................................ 81,829
Increase in payable for investments purchased ........... 132,792,134
Increase in written options ............................. 4,196,559
Increase in interest rate caps .......................... 2,389,115
Increase in payable for investments sold short .......... 57,097,588
Increase in broker-variation margin ..................... 5,440,923
Increase in accrued expenses and other
liabilities ........................................... 2,814,104
---------------
Total adjustments ..................................... (191,154,787)
---------------
Net cash flows used for operating
activities ............................................ $ (145,090,799)
===============
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Consolidated Statements of Changes
in Net Assets (Unaudited)
- --------------------------------------------------------------------------------
Six Months Year
Ended Ended
December 31, June 30,
1998 1998
--------------- ---------------
Increase (Decrease) in
Net Assets
Operations:
Net investment income .......... $ 34,513,798 $ 79,169,447
Net realized gain (loss) ....... 13,420,124 (11,277,607)
Net change in unrealized
appreciation ................. (1,869,934) 47,130,742
--------------- ---------------
Net increase
in net assets resulting
from operations ................ 46,063,988 115,022,582
Dividends from net
investment income .............. (33,102,443) (56,747,022)
--------------- ---------------
Total increase ................... 12,961,545 58,275,560
Net Assets
Beginning of period .............. 1,351,160,005 1,292,884,445
--------------- ---------------
End of period .................... $ 1,364,121,550 $ 1,351,160,005
=============== ===============
See Notes to Consolidated Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Consolidated Financial Highlights (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended June 30,
December 31, --------------------------------------------------------------------
1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ..... $ 9.51 $ 9.10 $ 8.68 $ 8.72 $ 8.32 $ 9.62
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (net of $0.08,
$0.21, $0.25, $0.22, $0.27 and
$0.12 respectively, of interest
expense) ............................. 0.24 0.56 0.62 0.58 0.61 0.64
Net realized and unrealized gain (loss) 0.09 0.25 0.20 (0.17) 0.42 (1.23)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) from investment
operations ............................. 0.33 0.81 0.82 0.41 1.03 (0.59)
---------- ---------- ---------- ---------- ---------- ----------
Dividends from net investment income ..... (0.23) (0.40) (0.40) (0.45) (0.63) (0.71)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period* .......... $ 9.61 $ 9.51 $ 9.10 $ 8.68 $ 8.72 $ 8.32
========== ========== ========== ========== ========== ==========
Market value, end of period* ............. $ 9.00 $ 8.81 $ 8.13 $ 7.63 $ 7.50 $ 8.00
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ................. 4.80% 13.59% 12.07% 7.83% 1.61% (7.73)%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................... 0.59%++ 0.59% 0.63% 0.64% 0.63% 0.67%
Net investment income .................... 5.02%++ 5.96% 7.04% 6.57% 7.28% 6.97%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........ $1,364,950 $1,327,288 $1,261,766 $1,248,679 $1,181,411 $1,295,131
Portfolio turnover ....................... 88% 307% 110% 216% 107% 91%
Net assets, end of period (in thousands) . $1,364,122 $1,351,160 $1,292,884 $1,232,802 $1,238,389 $1,182,120
Reverse repurchase agreements outstanding,
end of period (in thousands) ........... $ 262,094 $ 88,476 $ 595,783 $ 352,757 $ 489,335 $ 395,559
Asset coverage+++ ........................ $ 6,205 $ 16,271 $ 3,170 $ 4,495 $ 3,531 $ 3,988
</TABLE>
- ----------
* Net asset value and market value are published in The Wall Street Journal
each Monday.
# The ratios of operating expenses, including interest expense, to average
net assets were 1.71%++, 2.80%, 3.47%, 3.17%, 3.89% and 1.98%, for the
periods indicated above, respectively. The ratios of operating expenses,
including interest expense and excise taxes, to average net assets were
2.13%++, 2.95%, 3.53%, 3.17%, 3.89% and 1.99% for the periods indicated
above, respectively.
+ 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 a period of less than one year is not
annualized.
++ Annualized.
+++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the unaudited operating performance 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 Consolidated Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
The BlackRock 2001 Term Trust Inc.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
Note 1. Organization & Accounting Principles
The BlackRock 2001 Term Trust Inc. (the "Trust"), a Maryland corporation, is a
diversified, closed-end management investment company. The investment objective
of the Trust is to manage a portfolio of investment grade fixed income
securities that will return $10 per share (the initial public offering price per
share) to investors on or about June 30, 2001 while providing high monthly
income. The ability of issuers of debt securities held by the Trust to meet
their obligations may be affected by economic developments in a specific
industry or region. No assurance can be given that the Trust's investment
objective will be achieved.
On October 17, 1997, the Trust transferred a substantial portion of its
total assets to a 100% owned regulated investment company subsidiary called BLK
Subsidiary, Inc. These consolidated financial statements include the operations
of both the Trust and its wholly-owned subsidiary after elimination of all
intercompany transactions and balances.
The following is a summary of significant accounting policies followed by
the Trust:
Securities Valuation: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades 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 posi-
13
<PAGE>
tion or an overall portfolio that is longer or shorter than the benchmark
security. A call option gives the purchaser of the option the right (but not
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
price at any time or at a specified time during the option period. Put options
can be purchased to effectively hedge a position or a portfolio against price
declines if a 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 swap option
expires worthless and the premium paid for the swap option is considered the
loss. The main risk that is associated with the writing of a swap option is the
market risk of an unfavorable change in the value of the interest rate swap
underlying the written swap option.
Swap options may be used by the Trust to manage the duration of the
Trust's portfolio 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 and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at the risk
of not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
Short Sales: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on
14
<PAGE>
such borrowed securities. A gain, limited to the price at which the Trust sold
the security short, or a loss, unlimited as to dollar amount, will be recognized
upon the termination of a short sale if the market price is greater or less than
the proceeds originally received.
Securities Lending: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
Interest Rate Swaps: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. 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.
Transaction fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
Interest Rate Floors: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, 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.
Transaction fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
Securities Transactions and Net Investment Income: Security transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust amortizes premium and accretes discount on
securities purchased using the interest method. Expenses are recorded on the
accrued basis which may require the use of certain estimates by management.
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 at least
annually. Dividends and distributions are recorded on the ex-dividend date.
15
<PAGE>
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2. Agreements
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly-owned corporate subsidiary of
BlackRock Advisors Inc., an indirect majority-owned subsidiary of PNC Bank,
N.A., 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. The
Administrator pays occupancy and certain clerical and accounting costs of the
Trust. The Trust bears all other costs and expenses.
Note 3. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments
and dollar rolls, for the six months ended December 31, 1998 aggregated
$1,682,244,731 and $1,414,377,594, respectively.
The Trust may invest up to 40% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At December 31, 1998, the Trust
held 0.92% of its portfolio assets in illiquid securities all of which were
restricted as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Securities, Inc.
The federal income tax basis of the Trust's investments at December 31,
1998 was substantially the same as the basis for financial reporting and
accordingly, net unrealized appreciation for federal income tax purposes was
$6,414,111 (gross unrealized appreciation--$74,894,227; gross unrealized
depreciation--$68,480,116).
Details of open financial futures contracts at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration Trade December 31, Appreciation
Contracts Type Date Date 1998 (Depreciation)
- --------- ---- ---------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Short position:
(106) 5 Yr. T-Note Mar. 1999 $(12,131,833) $(12,014,438) $ 117,395
Long position
1,280 30 Yr. T-Bond Mar. 1999 166,388,054 163,560,000 (2,828,054)
-----------
$(2,710,659)
===========
</TABLE>
Details of open interest rate caps at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Notional Value at
Amount Fixed Floating Termination Unamortized December 31, Unrealized
(000) Rate Rate Date Cost 1998 Depreciation
------ ----- -------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Purchased:
$ 120,000 6.00% 3 month LIBOR 02/19/02 $ 2,044,567 $ 681,720 $(1,362,847)
Sold:
(300,000) 3 Yr. CMT 3 month LIBOR 08/08/01 (1,959,301) (3,814,821) (1,855,520)
(200,000) 3 Yr. CMT 3 month LIBOR 08/12/01 (1,120,678) (2,402,674) (1,281,996)
----------- -----------
$(5,535,775) $(4,500,363)
=========== ===========
</TABLE>
Details of open interest rate swaps at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Notional Fixed Unrealized
Amount Floating Floating Termination Appreciation
(000) Type Rate Rate Date (Depreciation)
- ----- ---- ---- ---- ----------- --------------
<S> <C> <C> <C> <C> <C>
Purchased:
$ 509,250 Interest Rate 6.37% 2 Yr. Forward 07/27/00 $ 18,519,844
85,000 Floating Rate 3 Mo. T-Bill 3 Mo. LIBOR 09/10/03 (408,000)
+80.25 bps
80,000 Floating Rate 3 Mo. T-Bill 3 Mo. LIBOR 09/10/03 (306,661)
+81.75 bps
50,000 Basis 3 Mo. T-Bill 3 Mo. LIBOR 09/18/03 (145,000)
Sold:
(350,000) Interest Rate 6.42% 3 Yr. Forward 07/27/01 (16,772,329)
------------
$ 887,854
============
</TABLE>
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<PAGE>
Note 4. Borrowings
Reverse Repurchase Agreements: The Trust enters into reverse repurchase
agreements with qualified, third party broker-dealers as determined by and under
the direction of the Trust's Board of Directors. Interest on the value of the
reverse repurchase agreements issued and outstanding will be based upon
competitive market rates at the time of issuance. At the time the Trust enters
into a reverse repurchase agreement, it establishes and maintains a segregated
account with the lender containing liquid high-grade securities having a value
not less than the repurchase price, including accrued interest, of the reverse
repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended December 31, 1998, was approximately $285,681,591 at
a weighted average interest rate of approximately 4.27%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the year, was
$320,730,000 as of September 30, 1998, which was 23.21% of total assets.
Dollar Rolls: The Trust enters into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date.
The average monthly balance of dollar rolls outstanding during the six
months ended December 31, 1998, was approximately $12,846,620. For the six
months ended December 31, 1998 the maximum amount of dollar rolls outstanding at
any month end was $14,590,875 as of the close of August 31, 1998, which was
1.03% of total assets.
Note 5. Capital There are 200 million shares of $.01 par value common stock
authorized. Of the 142,010,583 common shares outstanding at December 31, 1998,
the Adviser owned 10,583 shares.
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<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
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
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 any new shares under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment 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 dividends or distributions.
The Trust reserves the right to amend or terminate the Plan as applied to
any dividend or distribution paid subsequent to written notice of the change
sent to all shareholders of the Trust at least 90 days before the record date
for the dividend or distribution. The Plan also may be amended or terminated by
the Plan Agent upon at least 90 days' written notice to all shareholders of the
Trust. All correspondence concerning the Plan should be directed to the Plan
Agent at (800) 699-1BFM or BlackRock Financial Management, Inc. at (800)
227-7BFM. The addresses are on the front of this report.
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<PAGE>
- --------------------------------------------------------------------------------
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.
Year 2000 Readiness Disclosure. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incur costs
of up to approximately five hundred thousand dollars to complete such evaluation
and to make any modifications to its systems as may be necessary to achieve Year
2000 compliance. The Adviser has advised the Trust that it has fully tested its
systems for Year 2000 compliance. The Trust may be required to bear a portion of
such cost incurred by the Adviser in this regard. The Adviser has advised the
Trust that it does not anticipate any material disruption in the operations of
the Trust as a result of any failure by the Adviser to achieve Year 2000
compliance. There can be no assurance that the costs will not exceed the amount
referred to above or that the Trust will not experience a disruption in
operations.
The Adviser has advised the Trust that it is in the process of evaluating
the Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it intends to communicate with such suppliers
to determine their Year 2000 compliance status and the extent to which the
Adviser or the Trust could be affected by any supplier's Year 2000 compliance
issues. To date, however, the Adviser has not received responses from all such
suppliers with respect to their Year 2000 compliance, and there can be no
assurance that the systems of such suppliers, who are beyond the Trust's
control, will be Year 2000 compliant. In the event that any of the Trust's
significant suppliers do not successfully and timely achieve Year 2000
compliance, the Trust's business or operations could be adversely affected. The
Adviser has advised the Trust that it is in the process of preparing a
contingency plan for Year 2000 compliance by its suppliers. There can be no
assurance that such contingency plan will be successful in preventing a
disruption of the Trust's operations.
The Trust is designating this disclosure as its Year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
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<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
The Trust's Investment Objective
The BlackRock 2001 Term Trust Inc.'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 an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $132
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
stock exchanges, and a $24 billion family of open-end equity and bond funds.
Current institutional clients number 425, domiciled in the United States and
overseas.
What Can the Trust Invest In?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB") 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.
How Are the Trust's Shares Purchased and Sold? Does the Trust Pay Dividends
Regularly?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be
20
<PAGE>
reinvested in additional shares of the Trust through the Trust's transfer agent,
State Street Bank & Trust Company. Investors who wish to hold shares in a
brokerage account should check with their financial advisor to determine whether
their brokerage firm offers dividend reinvestment services.
Leverage Considerations in a Term Trust
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly 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 interest of shareholders.
Special Considerations and Risk Factors Relevant to Term Trusts
The Trust is intended to be a long-term investment and is not a short-term
trading vehicle.
Return of Initial Investment. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
Dividend Considerations. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
Interest-Only Securities (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
Leverage. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
Market Price of Shares. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: 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 on certain U.S. mortgage-backed securities 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.
21
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- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
Adjustable Rate Mortgage-
Backed Securities (ARMs): Mortgage instruments with interest rates
that adjust at periodic intervals at a fixed
amount relative to the market levels of
interest rates as reflected in specified
indexes. ARMs are backed by mortgage loans
secured by real property.
Asset-Backed Securities: Securities backed by various types of
receivables such as automobile and credit
card receivables.
Closed-End Fund: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
Collateralized
Mortgage Obligations (CMOs): Mortgage-backed securities which separate
mortgage pools into short-, medium-, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
Commercial Mortgage
Backed Securities (CMBS): Mortgage-backed securities secured or backed
by mortgage loans on commercial properties.
Discount: When a fund's net asset value is greater
than its stock price, the fund is said to be
trading at a discount.
Dividend: Income generated by securities in a
portfolio and distributed to 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).
22
<PAGE>
Interest-Only
Securities (I/O): Mortgage securities including CMBS that
receive only the interest cash flows from an
underlying pool of mortgage loans or
underlying pass-through securities. Also
known as STRIP.
Inverse-Floating
Rate Mortgages: Mortgage instruments with coupons that
adjust at periodic intervals according to a
formula which sets inversely with a market
level interest rate index.
Market Price: Price per share of a security trading in the
secondary market. For a closed-end fund,
this is the price at which one share of the
fund trades on the stock exchange. If you
were to buy or sell shares, you would pay or
receive the market price.
Mortgage Dollar Rolls: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
Mortgage Pass-Throughs: Mortgage-backed securities issued by 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
Securities: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
23
<PAGE>
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BlackRock
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Directors
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
Officers
Ralph L. Schlosstein, President
Scott Amero, Vice President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Robert S. Kapito, Vice President
Richard M. Shea, Vice President/Tax
Henry Gabbay, Treasurer
James Kong, Assistant Treasurer
Karen H. Sabath, Secretary
Investment Adviser
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
Administrator
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, NY 10019
Custodian and Transfer Agent
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
Independent Auditors
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not
a prospectus intended for use in the purchase or sale of Trust shares.
The accompanying financial statements as of December 31,
1998 were not audited and accordingly, no opinion is expressed on them.
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
[RECYCLE LOGO] Printed on recycled paper 092477-10-8
