- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
January 31, 2000
Dear Shareholder:
After easing monetary policy three times during the fourth quarter of
1998, the Federal Reserve reversed its trend by raising the Fed funds target
rate 75 basis points (to 5.50%) over the course of 1999 in response to robust
GDP, low unemployment and rising equity prices. U.S. Treasury yields rose
significantly during the past twelve months, with the yield of the 30-year
Treasury rising above 6.00% for the first time since May 1998.
Despite the rise in Treasury yields, continued strong economic growth may
spur the Federal Reserve to proactively fight perceived inflation through
continued monetary policy tightening in 2000. Until the inflation picture
becomes clearer, we expect interest rates to remain largely range-bound.
Accordingly, we will continue to seek the most attractive relative value
opportunities and utilize our proprietary risk management systems to help the
Trust to achieve its investment objectives.
This report contains a summary of market conditions during the semi-annual
period and a review of portfolio strategy by your Trust's managers in addition
to the Trust's audited financial statements and a detailed portfolio list of the
portfolio's holdings. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
January 31, 2000
Dear Shareholder:
We are pleased to present the consolidated semi-annual report for The
BlackRock 2001 Term Trust Inc. ("the Trust") for the six months ended December
31, 1999. We would like to take this opportunity to review the Trust's stock
price and net asset value (NAV) performance, summarize market developments and
discuss recent portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BTM". The
Trust's primary investment objective is to return $10 per share (its initial
offering price) to shareholders on or about June 30, 2001. Although there can be
no guarantee, BlackRock believes that the Trust can achieve its investment
objective. The Trust will seek to achieve its objective by investing in
investment grade fixed income securities, including corporate debt securities,
mortgage-backed securities backed by U.S. Government agencies (such as Fannie
Mae, Freddie Mac or Ginnie Mae), asset-backed securities and commercial
mortgage-backed securities. All of the Trust's assets must be rated "BBB" by
Standard & Poor's or "Baa" by Moody's at time of purchase or be issued or
guaranteed by the U.S. government or its agencies.
The table below summarizes the performance of the Trust's stock price and
NAV (the market value of its assets per share) over the period:
--------------------------------------------------
12/31/99 6/30/99 CHANGE HIGH LOW
- --------------------------------------------------------------------------------
STOCK PRICE $8.875 $9.00 (1.39)% $9.062 $8.8125
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.25 $9.39 (1.49)% $9.39 $9.25
- --------------------------------------------------------------------------------
5-YEAR U.S. TREASURY NOTE 6.34% 5.65% 12.21% 6.34% 5.51%
- --------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
Despite the complete reversal of last year's 0.75% easing by the Federal
Reserve, the expansion of the U.S. economy continues intact. At the end of 1999,
the labor markets remain tight, economic growth remains strong and inflation
pressures appear restrained by offsetting gains in productivity. However, the
factors that should eventually lead to higher interest rates also remain intact:
higher equity and commodity prices, a confident consumer, labor markets that
continue to tighten and a global recovery that will boost U.S. exports and
reduce the trade deficit. Along with consumer confidence, consumer credit
continues to advance as evidenced in remarkably strong holiday sales.
Although the Federal Open Market Committee took no action at their
December meeting, this should not be interpreted to mean that the threat of
inflationary forces has dissipated. We expect that continued above-trend
economic strength, tight labor markets and the need to drain the excess
liquidity that the Fed provided the financial markets in the months leading up
to Y2K will warrant additional Fed tightening in 2000. Despite our outlook for
additional Fed moves we believe that the market has adequately priced in the
degree of tightening necessary to successfully engineer an economic slow down
later this year.
Treasury yields increased significantly during the six month period,
continuing their year-long slide in price. Over the course of the semi-annual
period the yield of the 30-year Treasury has increased by nearly 51 basis points
(0.51%). The
2
<PAGE>
yield of the 5-Year Treasury posted a net increase of 69 basis points (0.69%),
beginning the period at 5.65% and closing on December 31, 1999 at 6.34%. Bond
prices, which move inversely to their yields, have continued to be punished as
the market reacted to strength of the economy and uncertainty of future Fed
action. During the fourth quarter, the short and intermediate sections of the
yield curve underperformed the long end of the curve. As we move into 2000, we
anticipate a continued flattening of the yield curve as a result of an active
Federal Reserve and potential Treasury repurchases of long maturity debt.
A combination of shrinking supply, and a decline in prepayment rates in
response to a reduction in refinancing activity, allowed mortgage securities to
outperform the broader investment grade market. Falling bond prices kept
mortgages rates near 8%, which has significantly affected refinancing activity
reducing an important source of new mortgage origination. For the six month
period ending December 31st the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted
a 1.32% total return versus 0.56% for the LEHMAN BROTHERS AGGREGATE INDEX. As
the origination of new mortgages continues to decline, the outlook for the
mortgage sector is favorable. Despite the rich valuations of mortgages, a likely
shortage of yield-oriented products will draw investors to the mortgage sector
as they execute their investment plans in 2000.
Investment grade corporate securities underperformed the broader
investment grade bond market during the semi-annual period, as corporates
measured by the MERRILL LYNCH U.S. CORPORATE MASTER INDEX returned 0.37%, as
compared to the LEHMAN BROTHERS AGGREGATE INDEX'S 0.56%. 1999 was marked by a
large supply of corporate bonds due to M&A activity and issuers rushing to
market ahead of Y2K. While we believe M&A activity will follow through in 2000,
higher rates combined with the increased issuance in 1999 should result in a
more moderate supply picture in 2000. Despite a very buoyant economic
environment, credit parameters have not been improving in the investment grade
corporate bond universe raising concerns about vulnerability to a down turn. As
a result, we have generally implemented an "up in credit" strategy in
portfolios.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and June 30, 1999 asset
composition.
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
- --------------------------------------------------------------------------------
COMPOSITION DECEMBER 31, 1999 JUNE 30, 1999
- --------------------------------------------------------------------------------
U.S. Government Securities 24% 25%
- --------------------------------------------------------------------------------
Corporate Bonds 23% 20%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 16% 15%
- --------------------------------------------------------------------------------
Asset-Backed Securities 9% 7%
- --------------------------------------------------------------------------------
Zero Coupon Bonds 8% 12%
- --------------------------------------------------------------------------------
Stripped Money Market Instruments 7% 6%
- --------------------------------------------------------------------------------
Interest-Only Mortgage-Backed Securities 3% 4%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 3% 2%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 2% 3%
- --------------------------------------------------------------------------------
Principal-Only Mortgage-Backed Securities 2% 3%
- --------------------------------------------------------------------------------
Taxable Municipal Bonds 2% 2%
- --------------------------------------------------------------------------------
Adjustable &Inverse Floating Rate Mortgages 1% 1%
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
- --------------------------------------------------------------------------------
CREDIT RATING DECEMBER 31, 1999 JUNE 30, 1999
- --------------------------------------------------------------------------------
AAA or equivalent 1% 1%
- --------------------------------------------------------------------------------
AA or equivalent 20% 20%
- --------------------------------------------------------------------------------
A or equivalent 42% 39%
- --------------------------------------------------------------------------------
BBB or equivalent 32% 37%
- --------------------------------------------------------------------------------
BB or equivalent 2% 0%
- --------------------------------------------------------------------------------
N/R 3% 3%
- --------------------------------------------------------------------------------
In accordance with the Trust's primary investment objective of returning
the initial offer price upon maturity, the Trust's portfolio management activity
focused on adding securities which offer attractive yield spreads over Treasury
securities and an emphasis on bonds with maturity dates approximating 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.
Consistent with the Trust's primary investment objective, as the Trust
approaches its maturity date, the cash flows are invested into shorter maturity
securities. This results in a natural reduction of the amount of net investment
income generated by the Trust. Therefore, after an evaluation of the current and
anticipated level of the Trust's net investment income, the Board of Directors
voted to reduce the Trust's monthly dividend from $0.0333 ($0.40 annualized) to
$0.025 ($0.30 annualized) effective with the December 31, 1999 dividend payment.
During the reporting period, the most significant additions have been in
the corporate bond sector and in asset-backed securities. To finance these
purchases, the Trust sold zero coupon bonds, U.S. Treasuries, interest-only
securities and principal-only securities, as their maturity dates may extend
past the Trust's termination date in a rising interest rate environment. The
Trust sold these securities to reduce positions that extend past the end of the
Trust and increase current cash flows to the Trust.
As a result of an internal reorganization, effective January 1, 2000,
BlackRock Advisors, Inc. has replaced BlackRock Financial Management Inc., a
wholly-owned subsidiary of BlackRock Advisors, Inc. as the Advisor of the Trust.
The investment management and other personnel responsible for providing services
to the Trust did not change as a result of the reorganization. We look forward
to managing the Trust to benefit from the opportunities available in the fixed
income markets and to meet its investment objectives. We thank you for your
investment in The BlackRock 2001 Term Trust Inc. Please feel free to contact our
marketing center at (800) 227-7BFM (7236) if you have specific questions which
were not addressed in this report.
Sincerely,
/s/ Robert S. Kapito /s/ Michael P. Lustig
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
4
<PAGE>
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THE BLACKROCK 2001 TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BTM
- --------------------------------------------------------------------------------
Initial Offering Date: July 23, 1992
- --------------------------------------------------------------------------------
Closing Stock Price as of 12/31/99: $8.875
- --------------------------------------------------------------------------------
Net Asset Value as of 12/31/99: $9.25
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 12/31/99 ($8.875)(1): 3.38%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.025
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $0.30
- --------------------------------------------------------------------------------
- ----------
(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.
5
<PAGE>
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THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--117.2%
MORTGAGE PASS-THROUGHS--17.9%
Federal Home Loan Mortgage Corp.,
$22,248 6.50%, 9/01/25 - 7/01/29 .............. $ 20,975,283
355 7.50%, 7/01/13 - 10/01/13 ............. 351,053
7,781 8.144%, 12/01/01,
7 Year Multifamily .................. 7,773,885
4,724 8.50%, 2/01/08 ........................ 4,808,287
326 Federal Housing Administration,
Ponds at Punaluu,
7.625%, 4/01/37 ....................... 325,842
Federal National Mortgage
Association,
147,662@ 6.50%, 6/01/23 - 6/01/29 .............. 139,007,648
25,833@ 7.00%, 10/01/22 - 9/01/29 ............. 25,017,718
4,491 7.50%, 9/01/07 - 7/01/23 .............. 4,418,220
10,067 7.695%, 5/01/01,
7 Year Multifamily .................. 10,081,401
11,023 7.79%, 2/01/01,
7 Year Multifamily .................. 11,064,211
3,698 8.00%, 3/01/01,
7 Year Multifamily .................. 3,716,465
3,396 8.50%, 11/01/03 - 9/01/10,
15 Year Multifamily ................. 3,464,316
Government National Mortgage
Association,
4,379 8.00%, 1/15/23 - 6/15/24 .............. 4,422,863
--------
235,427,192
--------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--3.3%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
2,139 Series 1454, Class 1454-FB,
4/15/20 ............................. 2,041,138
93 Series 1563, Class 1563-S,
10/15/07 ............................ 87,425
95 Series 1663, Class 1663-A,
7/15/23 ............................. 92,122
389 Series 1686, Class 1686-PK,
4/15/23 ............................. 384,376
2,355 Series 1944, Class 1944-HA,
1/15/25 ............................. 2,392,231
3,644 Series 1990, Class 1990-B,
9/15/24 ............................. 3,754,758
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,349 Trust 269, Class 269-1,
8/01/22 ............................. 1,408,016
4,402 Trust 1990-144, Class 144-W,
12/25/20 ............................ 4,539,695
10,061 Trust 1992-43, Class 43-E,
4/25/22 ............................. 10,004,833
2,050 Trust 1993-71, Class 71-PG,
7/25/07 ............................. 2,029,090
2,212@ Trust 1993-M2, Class M2-H,
11/25/03 ............................ 2,178,548
6,375 Trust 1994-81, Class 81-PE,
6/25/18 ............................. 6,368,843
6,162 Trust 1996-T6, Class T6-C,
2/26/01 ............................. 6,093,663
1,541 Trust 1996-T6, Class T6-D,
2/26/01 ............................. 1,518,857
--------------
42,893,595
--------------
NON-AGENCY MULTIPLE CLASS
MORTGAGE PASS-THROUGHS
AA 190 Collateralized Mortgage Securities Corp.,
Series F, Class F4-A, 11/01/15 ...... 194,558
--------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES--1.3%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
23 Series 1512, Class 1512-LA,
5/15/08 ............................. 21,615
356 Series 1563, Class 1563-SB,
8/15/08 ............................. 347,922
603 Series 1592, Class 1592-NE,
12/15/22 ............................ 554,732
1,066 Series 1606, Class 1606-SB,
11/15/08 ............................ 1,036,684
2,229 Series 1671, Class 1671-KB,
2/15/24 ............................. 2,181,561
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
3,717 Trust 1992-155, Class 155-SA,
10/25/05 ............................ 3,759,285
200 Trust 1993-99, Class 99-SB,
7/25/23 ............................. 197,920
230 Trust 1993-117, Class 117-S,
7/25/08 ............................. 220,624
1,719 Trust 1993-178, Class 178-SC,
9/25/23 ............................. 1,643,465
2,247 Trust 1993-196, Class 196-SM,
10/25/08 ............................ 1,938,944
1,544 Trust 1993-214, Class 214-SO,
12/25/08 ............................ 1,494,963
1,500 Trust 1993-G17, Class G17-SH,
4/25/23 ............................. 911,250
571 Trust 1994-42, Class 42-SM,
1/25/24 ............................. 560,240
2,406 Trust 1998-38, Class 38-S,
1/18/12 ............................. 2,416,713
--------------
17,285,918
--------------
See Notes to Consolidated Financial Statements.
6
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--3.9%
AAA $123,720 Credit Suisse First Boston Mortgage
Securities Corp., Series 1997-C1,
Class AX, 6/20/29** ................. $ 10,198,406
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
5,257 Series G-3, Class G-3-S,
4/25/19 ............................. 133,637
956 Series G-29, Class G-29-IA,
6/25/20 ............................. 66,031
5,725 Series G-32, Class G-32-PT,
2/25/19 ............................. 282,627
1,431 Series G-32, Class G-32-TT,
2/25/19 ............................. 70,657
30 Series 113, Class 113-N,
5/15/21 ............................. 897,006
11 Series 1185, Class 1185-C,
12/15/06 ............................ 142,284
14 Series 1283, Class 1283-X,
6/15/22 ............................. 394,115
3 Series 1378, Class 1378-DA,
1/15/18 ............................. 3,081
13 Series 1388, Class 1388-G,
5/15/06 ............................. 145,152
7 Series 1404, Class 1404-E,
1/15/06 ............................. 54,605
5,276 Series 1422, Class 1422-IB,
11/15/07 ............................ 595,711
7,396 Series 1605, Class 1605-S,
8/15/06 ............................. 67,306
1,647 Series 1617, Class 1617-EB,
9/15/23 ............................. 1,618,873
8,289 Series 1621, Class 1621-SJ,
10/15/20 ............................ 169,753
7,943 Series 1640, Class 1640-SD,
12/15/00 ............................ 36,778
5,416 Series 1849, Class 1849-El,
12/15/08 ............................ 759,154
30,750 Series 1954, Class 1954-MD,
3/15/16 ............................. 2,561,775
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
4 Trust 1991-29, Class 29-J,
4/25/21 ............................. 134,372
12 Trust 1991-80, Class 80-Q,
7/25/21 ............................. 329,783
12 Trust 1991-G46, Class G46-K,
12/25/09 ............................ 298,844
24,199 Trust 1993-G31, Class G31-PS,
8/25/18 ............................. 375,083
1,532 Trust 1993-68, Class 68-PJ,
11/25/06 ............................ 79,043
7,008 Trust 1993-82, Class 82-SA,
5/25/23 ............................. 182,343
3,253 Trust 1993-141, Class 141-PW,
6/25/18 ............................. 148,217
34,040 Trust 1993-202, Class 202-SL,
11/25/23 ............................ 1,066,126
11,627 Trust 1993-240, Class 240-PS,
9/25/12 ............................. 166,619
7,300 Trust 1996-24, Class 24-SB,
10/25/08 ............................ 1,372,911
9,471 Trust 1996-40, Class 40-SG,
3/25/09 ............................. 2,843,932
1,321 Trust 1996-54, Class 54-SM,
9/25/23 ............................. 250,766
47,013 Trust 1997-35, Class 35-SB,
3/25/09 ............................. 676,255
23,700 Trust 1997-50, Class 50-HK,
8/25/27 ............................. 7,458,767
12,720 Trust 1998-3, Class 3-SC,
2/18/28 ............................. 178,879
Merrill Lynch Mortgage Investors, Inc.,
AAA 66,932 Series 1997-C2, Class IO,
12/10/29 ............................ 4,345,512
AAA 47,653 Series 1998-C2, Class IO,
2/15/30 ............................. 3,411,739
AAA 26 Merrill Lynch Trust,
Series 43, Class 43-F, 8/27/15 ...... 121,136
Morgan Stanley Capital Inc.,
AAA 112,525 Series 1998-HF1, Class HF1-X,
2/15/18 ............................. 6,046,776
AAA 98,995 Series 1998-WF2, Class WF2-X,
4/15/23 ............................. 3,870,200
--------------
51,554,254
--------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--2.8%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
383 Series 1338, Class 1338-Q,
8/15/07 ............................. 323,903
4,714 Series 1662, Class 1662-PO,
1/15/09 ............................. 3,739,055
134 Series 1664, Class 1664-C,
11/15/23 ............................ 132,411
2,165 Series 1721, Class 1721-OC,
5/15/24 ............................. 1,158,968
3,289 Series 1870, Class 1870-PA,
8/15/01 ............................. 3,130,187
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,514 Trust 3, Class 1, 2/01/17 ............. 1,217,466
1,602 Trust 5, Class 1, 9/01/07 ............. 1,334,710
637 Trust 60, Class 1, 1/01/19 ............ 506,341
179 Trust 1991-G44, Class G44-H,
11/25/21 ............................ 174,402
355 Trust 1991-167, Class 167-B,
10/25/17 ............................ 273,061
See Notes to Consolidated Financial Statements.
7
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES (CONTINUED)
$ 1,986 Trust 1993-48, Class 48-B,
4/25/08 ............................. $ 1,671,968
321 Trust 1993-151, Class 151-E,
5/25/23 ............................. 281,660
9,734 Trust 1993-257, Class 257-A,
6/25/23 ............................. 9,246,274
6,873 Trust 1994-8, Class 8-G,
11/25/23 ............................ 6,193,232
4,703 Trust 1994-53, Class 53-EA,
11/25/23 ............................ 3,989,106
3,453 Trust 1994-54, Class 54-B,
11/25/23 ............................ 3,304,283
--------------
36,677,027
--------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--2.8%
BBB 4,148 CBA Mortgage Corp.,
Series 1993-C1, Class D,
6.67%, 12/25/03 ..................... 4,010,950
AAA 3,526 Mortgage Capital Funding, Inc.,
Series 1998-MC3, Class A1,
6.001%, 11/18/31 .................... 3,330,923
AAA 5,200 PaineWebber Mortgage Acceptance
Corp. IV, Series 1995-M1, Class A,
6.70%, 1/15/07** .................... 5,102,500
Resolution Trust Corp.,
AA 6,230 Series 1994-C1, Class C,
8.00%, 6/25/26 ...................... 6,221,812
A 5,435 Series 1994-C2, Class D,
8.00%, 4/25/25 ...................... 5,343,357
AAA 12,800 Structured Asset Securities Corp.,
Series 1996-CFL, Class B,
6.303%, 2/25/28 ..................... 12,736,000
--------------
36,745,542
--------------
ASSET-BACKED SECURITIES--10.8%
BBB 2,183 Amresco Securitized Interest,
Series 1996-1, Class A,
8.10%, 4/26/26** .................... 1,570,978
Aaa 21,096 Brazos Student Loan Financial Corp.,
Series 1998-A, Class A1,
6.46%, 6/01/06 ...................... 21,026,919
Broad Index Secured Trust Offering,
Baa2 10,000 6.58%, 3/26/01 ...................... 9,784,131
Baa2 10,000 7.149%, 9/09/01** ................... 9,981,250
AA 6,000 Chase Credit Card Master Trust,
Series 1997-2, Class A,
6.30%, 4/15/03 ...................... 5,992,500
AA 5,723 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ...................... 5,717,647
AA 35,000@ Citibank Credit Card Trust,
Series 1996-1, Class A,
Zero Coupon, 2/07/03 ................ 32,527,950
NR 5,892 Global Rated Eligible Asset Trust,
Series 1998-A, Class A-1,
7.33%, 3/15/06**/*** ................ 1,767,548
AA 35,000 Honda Auto Lease Trust,
Series 1999-A, Class A3,
6.10%, 1/15/02 ...................... 34,732,031
AA 7,000 IMC Home Equity Loan Trust,
Series 1998-3, Class A-9,
5.35%, 6/20/01 ...................... 476,321
A 8,150 Newcourt Equipment Trust,
Series 1998-1, Class B,
5.97%, 4/20/05 ...................... 8,030,243
AA 5,750@ Standard Credit Card Master Trust,
Series 1995-3, Class A,
7.85%, 2/07/02 ...................... 5,758,984
Structured Mortgage Asset
Residential Trust,@@/***
NR 9,989 Series 1997-2, 8.24%, 3/15/06
2,197,641
NR 11,016 Series 1997-3, 8.57%, 4/15/06 2,423,565
--------------
141,987,708
--------------
U.S. GOVERNMENT AND AGENCY
SECURITIES--27.9%
25,000 Federal Home Loan Bank,
5.075%, 4/28/00 ..................... 24,871,000
25,000 Federal National Mortgage Association,
5.00%, 5/04/00 MTN .................. 24,945,375
U.S. Treasury Bonds,
73,833@ 3.625%, 4/15/28 (TIPS) ................ 65,941,407
11,000 5.25%, 11/15/28 - 2/15/29 ............. 9,064,370
35,000@ 6.125%, 11/15/27 ...................... 32,571,700
U.S. Treasury Notes,
108,000@ 4.50%, 9/30/00 ........................ 106,767,720
3,050 5.375%, 1/31/00 ....................... 3,049,512
100,000@ 5.50%, 7/31/01 ........................ 98,922,000
--------------
366,133,084
--------------
ZERO COUPON BONDS--9.4%
U.S. Treasury Receipt,
7,600 8/15/00 ............................... 7,334,760
54,000 5/15/01 ............................... 49,710,240
Government Trust Certificates,
35,925 Series 1-D, 11/15/00 .................. 34,001,468
34,630 Series 2-F, 11/15/00 .................. 32,775,806
--------------
123,822,274
--------------
TAXABLE MUNICIPAL BONDS--2.4%
AAA 1,000 KERN COUNTY CALIFORNIA PENSION
Obligation, 6.27%, 8/15/01 .......... 990,750
AAA 2,035 Long Beach California
Pension Obligation,
6.45%, 9/01/01 ...................... 2,021,284
AAA 6,000 Los Angeles County California Pension
Obligation,
Series D, 6.38%, 6/30/01 ............ 5,958,240
NR 5,630 Massachusetts Housing Fin. Agency,
Series 1991-B, 6.85%, 10/01/20 ...... 5,151,957
New York City G.O.,
A- 5,000 Series 1, 6.40%, 3/15/01 ............ 4,964,950
A- 5,000 Series 1, 7.24%, 4/15/01 ............ 5,012,900
See Notes to Consolidated Financial Statements.
8
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
TAXABLE MUNICIPAL BONDS (CONTINUED)
Baa1 $ 1,000 New York State Environmental
Facility Auth., Series A,
6.62%, 3/15/01 ...................... $ 992,660
Baa1 3,345 New York State Housing Fin. Agency,
Series B, 7.14%, 3/15/02 ............ 3,324,395
Baa1 2,000 New York State Urban
Developement Corp.,
Series B, 6.90%, 4/01/01 ............ 1,991,300
AA 1,000 St. Josephs Health Systems California,
Series A, 7.02%, 7/01/01 ............ 1,000,130
--------------
31,408,566
--------------
CORPORATE BONDS--26.5%
FINANCE & BANKING--16.0%
A3 1,300@ Amsouth Bancorp.,
6.75%, 11/01/25 ..................... 1,243,632
A- 5,000 Aristar, Inc.,
7.25%, 6/15/01 ...................... 5,001,950
Associates Corp.,
AA- 5,000 6.68%, 7/25/00 ...................... 5,005,600
AA- 5,000 7.46%, 3/28/00 ...................... 5,014,400
A+ 10,000 AT&T Corp.,
5.74%, 6/30/01 ...................... 9,829,500
Baa2 9,000 Capital One Bank,
6.26%, 5/07/01 ...................... 8,849,790
A- 15,000 Donaldson, Lufkin & Jenrette,
5.625%, 2/15/16 ..................... 14,769,300
BBB- 10,000 Franchise Finance Corp.,
7.00%, 11/30/00 ..................... 9,882,400
A+ 6,750 Goldman Sachs Group,
6.20%, 12/15/00** ................... 6,701,602
A3 5,000 Great Western Financial Corp.,
6.375%, 7/01/00 ..................... 4,990,450
A 4,000 Household Financial Corp.,
7.45%, 4/01/00 ...................... 4,005,440
Lehman Brothers Holdings, Inc.,
A 8,000 6.75%, 9/24/01 ...................... 7,940,384
A 10,000 7.25%, 4/15/03 ...................... 9,924,052
A1 5,700 Meridian Bancorp Inc.,
6.625%, 6/15/00 ..................... 5,700,904
AA- 10,715 Merrill Lynch & Co., Inc.,
5.75%, 11/02/02 ..................... 10,342,518
Aa3 3,800 Morgan Stanley Dean Witter
Discover, Inc.,
5.75%, 2/15/01 ...................... 3,760,404
Aa2+ 10,000 Nations Bank Corp.,
7.00%, 9/15/01 ...................... 10,007,000
BBB+ 10,000 PaineWebber Group Inc.,
5.81%, 6/08/01 ...................... 9,789,440
A3 10,000 Popular Inc., 6.20%, 4/30/01 ........ 9,855,100
A+ 5,000 Prudential Funding Corp.,
6.00%, 5/11/01** .................... 4,944,250
BBB+ 6,590 Ryder Systems Inc.,
9.25%, 5/15/01 ...................... 6,718,813
Salomon Smith Barney Holdings Inc.,
Aa3 13,000 5.875%, 2/01/01 ..................... 12,855,050
Aa3 12,500 6.625%, 11/30/00 .................... 12,466,500
Aa3 3,600 7.00%, 5/15/00 ...................... 3,605,112
Aa3 1,925 Security Pacific Corp.,
11.00%, 3/01/01 ..................... 2,011,124
A- 15,000 Transamerica Finance Corp.,
6.75%, 6/01/00 ...................... 15,016,800
BB 5,500 Trinet Corporate Realty Trust,
7.30%, 5/15/01 ...................... 5,318,170
A2 5,000 Union Planters National Bank,
6.76%, 10/30/01 ..................... 4,972,050
--------------
210,521,735
--------------
INDUSTRIALS--3.4%
BBB 10,000 Amerco Inc.,
7.49%, 9/18/01 ...................... 10,073,500
BBB+ 7,500 Erac USA Finance Co.,
7.00%, 6/15/00** .................... 7,510,441
A+ 10,000 Ford Motor Credit Co.,
6.18%, 12/27/01 ..................... 9,869,300
A- 2,505 ICI Wilmington Inc.,
8.75%, 5/01/01 ...................... 2,543,577
A2 702 Kern River Funding Corp.,
6.42%, 3/31/01** .................... 698,555
Sears Roebuck & Co.,
A- 4,250 6.50%, 6/15/00 ...................... 4,240,693
A- 5,000 7.29%, 4/24/00 ...................... 5,009,150
BBB 4,550 WMX Technologies Inc.,
7.125%, 6/15/01 ..................... 4,409,769
--------------
44,354,985
--------------
UTILITIES--1.1%
BBB 9,000 Pacificorp Holdings Inc.,
6.75%, 4/01/01 ** ................... 8,960,310
BBB+ 5,000 POTOMAC CAPITAL INVESTMENT CORP.,
6.73%, 8/09/00** .................... 5,000,000
--------------
13,960,310
--------------
YANKEE--6.0%
African Development Bank,
Aa1 5,000 7.75%, 12/15/01 ..................... 5,067,000
Aaa 3,350 8.625%, 5/01/01 ..................... 3,433,984
NR 8,405 Banamex Remittance Master Trust,
Series 1996, 7.57%, 1/01/01** ....... 8,363,271
BBB- 15,000 Empresa Electric Guacolda,
7.60%, 4/30/01** .................... 14,700,000
A+ 18,000 Province of Quebec,
9.125%, 8/22/01 ..................... 18,525,356
BBB 15,000 Republic of Argentina,
Zero Coupon, 4/15/01 ................ 13,305,000
BB+ 3,000 Republic of Colombia,
8.00%, 6/14/01 ...................... 2,970,000
BBB- 12,000 Transpatadora de Gas,
10.25%, 4/25/01 ..................... 12,090,000
--------------
78,454,611
--------------
Total corporate bonds ................. 347,291,641
--------------
See Notes to Consolidated Financial Statements.
9
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
STRIPPED MONEY MARKET
INSTRUMENTS--8.2%
AAA $65,000 Aim Prime Money Market Portfolio,
Zero Coupon, 1/02/01 ................ $ 61,193,730
AAA 50,000 Goldman Sachs Money
Market Portfolio,
Zero Coupon, 1/02/01 ................ 47,063,150
--------------
108,256,880
--------------
NOTIONAL
AMOUNT
(000)
--------
CALL OPTIONS PURCHASED
$200,000 Interest Rate Swap,
5.60% over 3 month LIBOR,
expires 8/07/00 ..................... 61,550
--------------
Total long-term investments
(cost $1,566,900,529) ............... 1,539,739,789
--------------
PRINCIPAL
AMOUNT
(000)
--------
SHORT-TERM INVESTMENT--1.6%
DISCOUNT NOTE
$20,630 Federal Farm Credit Bank,
5.56%, 1/18/00
(Amortized cost $20,617,315) ........ 20,617,315
--------------
Total investments before call options
written and investment
sold short -- 118.8%
(cost $1,587,517,844) ............... 1,560,357,104
--------------
NOTIONAL
AMOUNT
(000)
-------
CALL OPTIONS WRITTEN--(0.2%)
Interest Rate Swap,
$(300,000) 3 month LIBOR over 3 Year CMT,
expires 8/08/01 ..................... (1,457,841)
(200,000) 3 month LIBOR over 5 Year CMT,
expires 8/12/01 ..................... (863,734)
--------------
(premiums received $1,914,957) ...... (2,321,575)
PRINCIPAL
AMOUNT
(000)
--------
INVESTMENT SOLD SHORT--(3.4%)
$(47,500) U.S. Treasury Bonds,
6.125%, 8/15/29
(proceeds received $46,282,812) ..... (45,280,800)
--------------
Total investments, net of call options
written and investment sold
short--115.2%
(cost $1,539,320,075) ............... 1,512,754,729
Liabilities in excess of other
assets--(15.2)% (199,480,600)
--------------
NET ASSETS--100% .................... $1,313,274,129
==============
- ----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
*** Illiquid securities representing 0.42% of portfolio assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
@@ Security is restricted as to public resale. The securities were acquired
in 1997 and have an aggregate current cost of $7,351,917.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
CMT -- Constant Maturity Treasury.
G.O.-- General Obligation.
LIBOR-- London InterBank Offer Rate.
REMIC-- Real Estate Mortgage Investment Conduit.
TIPS-- Treasury Inflation Protection Security.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED STATEMENT OF
ASSETS AND LIABILITIES
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments at value
(cost $1,587,517,844) (Note 1) ............................ $1,560,357,104
Cash ........................................................ 913,740
Receivable for investments sold ............................. 79,755,134
Deposits with brokers as collateral
for investments sold short (Note 1) ....................... 46,659,011
Interest receivable ......................................... 15,119,133
Interest rate caps, at value
(amortized cost $1,652,609) (Note 1) ...................... 1,848,504
--------------
1,704,652,626
--------------
LIABILITIES
Reverse repurchase agreements (Note 4) ...................... 332,985,250
Investments sold short, at value
(proceeds $46,282,812) (Note 1) ........................... 45,280,800
Dividends payable ........................................... 3,550,265
Payable for investments purchased ........................... 2,831,989
Call options written, at value
(premium received $1,914,957) (Note 1) .................... 2,321,575
Investment advisory fee payable (Note 2) .................... 449,963
Due to broker-variation margin .............................. 375,006
Administration fee payable (Note 2) ......................... 112,491
Unrealized depreciation on credit default swaps
(Notes 1 & 3) ............................................. 11,042
Other accrued expenses ...................................... 3,460,116
--------------
391,378,497
--------------
$1,313,274,129
==============
NET ASSETS
Net assets were comprised of:
Common stock, at par (Note 5) ............................. $ 1,420,106
Paid-in capital in excess of par .......................... 1,332,574,500
--------------
1,333,994,606
Undistributed net investment income ....................... 81,719,291
Accumulated net realized loss ............................. (75,765,278)
Net unrealized depreciation ............................... (26,674,490)
--------------
Net assets, December 31, 1999 ............................. $1,313,274,129
==============
Net asset value per share:
($1,313,274,129 / 142,010,583 shares of
common stock issued and outstanding) ...................... $9.25
=====
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization
of $4,755,333 and interest expense
of $14,018,113) ......................................... $ 18,273,481
--------------
Operating expenses
Investment advisory ....................................... 2,675,165
Administration ............................................ 668,792
Custodian ................................................. 162,000
Reports to shareholders ................................... 127,000
Legal ..................................................... 127,000
Independent accountants ................................... 51,000
Transfer agent ............................................ 51,000
Directors ................................................. 40,000
Registration .............................................. 60,000
Miscellaneous ............................................. 146,015
--------------
Total operating expenses ................................ 4,107,972
--------------
Net investment income before excise tax ................... 14,165,509
Excise tax .............................................. 3,006,825
--------------
Net investment income ..................................... 11,158,684
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain (loss) on:
Investments ............................................... (474,995)
Short sales ............................................... 2,169,862
Options ................................................... 306,850
Swaps ..................................................... 3,261,750
Futures ................................................... (4,461,249)
--------------
802,218
--------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................................. (3,142,052)
Short sales ................................................. 1,952,509
Options written ............................................. (2,164,373)
Interest rate caps .......................................... 924,499
Swaps ....................................................... (98,495)
Futures ..................................................... 1,453,960
--------------
(1,073,952)
--------------
Net loss on investments ..................................... (271,734)
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................................... $ 10,886,950
==============
See Notes to Consolidated Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
DECEMBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from
operations .................................................. $ 10,886,950
--------------
Decrease in investments ..................................... 297,823,098
Net realized gain ........................................... (802,218)
Increase in unrealized depreciation ......................... 1,073,952
Increase in unrealized depreciation on
credit default rate swaps ................................... 11,042
Decrease in unrealized appreciation on
interest rate swaps ......................................... 87,453
Decrease in interest receivable ............................. 437,086
Increase in receivable for investments sold ................. (78,763,208)
Decrease in deposits with brokers for
investments sold short ...................................... 20,403,489
Decrease in other assets .................................... 674,608
Decrease in payable for investments purchased ............... (54,587,343)
Increase in call options written ............................ 2,320,871
Decrease in interest rate caps .............................. (2,651,151)
Decrease in payable for investments sold short .............. (21,203,760)
Decrease in broker-variation margin ......................... (845,165)
Increase in dividends payable ............................... 3,300,059
Increase in accrued expenses and other
liabilities ................................................. 3,099,447
--------------
Total adjustments ......................................... 170,378,260
--------------
Net cash flows provided by operating
activities .................................................. $ 181,265,210
==============
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ............. $ 181,265,210
--------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ................... (149,609,096)
Cash dividends paid ......................................... (30,745,053)
--------------
Net cash flows used for financing activities ................ (180,354,149)
--------------
Net increase in cash ........................................ 911,061
Cash at beginning of period ................................. 2,679
--------------
Cash at end of period ....................................... $ 913,740
==============
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED STATEMENTS OF
CHANGES IN NET ASSETS
(UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS YEAR
ENDED ENDED
DECEMBER 31, JUNE 30,
1999 1999
--------------- ---------------
INCREASE (DECREASE) IN
NET ASSETS
Operations:
Net investment income .............. $ 11,158,684 $ 75,700,234
Net realized gain (loss) on
investments ...................... 802,218 (3,096,459)
Net change in unrealized
appreciation/depreciation
on investments ................... (1,073,952) (33,884,583)
--------------- ---------------
Net increase
in net assets resulting
from operations ...................... 10,886,950 38,719,192
Dividends from net
investment income .................... (30,745,053) (56,746,965)
--------------- ---------------
Total decrease ....................... (19,858,103) (18,027,773)
NET ASSETS
Beginning of period .................. 1,333,132,232 1,351,160,005
--------------- ---------------
End of period (including
undistributed net investment
income of $81,719,291 and
$98,497,981, respectively) ......... $ 1,313,274,129 $ 1,333,132,232
=============== ===============
See Notes to Consolidated Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
---------- ----------------------------------------------------------------
1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........... $ 9.39 $ 9.51 $ 9.10 $ 8.68 $ 8.72 $ 8.32
---------- ---------- ---------- ---------- ---------- ----------
Net investment income (net of interest
expense of $0.10, $0.14, $0.21, $0.25,
$0.22 and $0.27, respectively) ................ 0.08 0.54 0.56 0.62 0.58 0.61
Net realized and unrealized gain (loss) ...... -- (0.26) 0.25 0.20 (0.17) 0.42
---------- ---------- ---------- ---------- ---------- ----------
Net increase from investment operations ........ 0.08 0.28 0.81 0.82 0.41 1.03
---------- ---------- ---------- ---------- ---------- ----------
Dividends from net investment income ........... (0.22) (0.40) (0.40) (0.40) (0.45) (0.63)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period* ................ $ 9.25 $ 9.39 $ 9.51 $ 9.10 $ 8.68 $ 8.72
========== ========== ========== ========== ========== ==========
Market value, end of period* ................... $ 8.875 $ 9.00 $ 8.81 $ 8.13 $ 7.63 $ 7.50
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN+ ....................... 1.02% 6.72% 13.59% 12.07% 7.83% 1.61%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ............................. 0.62% ++0.60% 0.59% 0.63% 0.64% 0.63%
Operating expenses and interest expense ........ 2.73%++ 2.06%2.80% 3.47% 3.17% 3.89%
Operating expenses, interest expense
and excise taxes ............................. 3.18% ++2.26% 2.95% 3.53% 3.17% 3.89%
Net investment income .......................... 2.95%++ 5.58%5.96% 7.04% 6.57% 7.28%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .............. $1,323,044 $1,356,648 $1,327,288 $1,261,766 $1,248,679 $1,181,411
Portfolio turnover ............................. 50% 133% 307% 110% 216% 107%
Net assets, end of period (in thousands) ....... $1,313,274 $1,333,132 $1,351,160 $1,292,884 $1,232,802 $1,238,389
Reverse repurchase agreements outstanding,
end of period (in thousands) ................. $ 332,985 $ 482,594 $ 88,476 $ 595,783 $ 352,757 $ 489,335
Asset coverage+++ .............................. $ 4,944 $ 3,762 $ 16,271 $ 3,170 $ 4,495 $ 3,531
</TABLE>
- ----------
* Net asset value and market value are published in BARRON's each Saturday
and THE WALL STREET JOURNAL each Monday.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of the each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Trust's dividend reinvestment plan. Total investment
return does not reflect brokerage commissions. Total investment return for
periods of less than one full year are 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.
13
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 2001 TERM TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION &
ACCOUNTING
POLICIES
The BlackRock 2001 Term Trust Inc. (the "Trust"), a Maryland corporation, is a
diversified, closed-end management investment company. The primary 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. 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, swaps, caps, floors and non-exchange traded options on the
basis of current market quotations provided by dealers or pricing services
approved by the Trust's Board of Directors. In determining the value of a
particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on 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. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervisionand
responsibility of the Trust's Board of Directors.
Short-term securities having a remaining maturity of 60 days or less are
valued at amortized cost which approximates market value.
REPURCHASE AGREEMENT: In connection with transactions in repurchase agreements,
the Trusts custodian takes possession of the underlying collateral securities,
the value of which at least equals the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. If
the seller defaults and the value of the collateral declines or if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization of the collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions, or collections of positions, so that changes in interest rates do not
change the duration of the portfolio unexpectedly. In general, the Trust uses
options to hedge a long or short position or an overall portfolio that is longer
or shorter than the benchmark security. A call option gives the purchaser of the
option the right (but not obligation)
14
<PAGE>
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.
SWAPS: In a simple interest rate swap, one investor pays a floating rate of
interest on a notional principal amount and receives a fixed rate of interest on
the same notional principal amount for a specified period of time.
Alternatively, an investor may pay a fixed rate and receive a floating rate.
Interest rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
Credit default swaps involve the receipt or payment of fixed amounts at a
specified rate times the notional amount in exchange for the payment or receipt
of an amount only upon a credit event of the underlying security. See note 3 for
a summary of open swap agreements as of December 31, 1999.
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 Trusts basis in the contract, if any.
The Trust is exposed to credit loss in the event of non- performance by the
other party to the swap. However, the Trust does not anticipate non-performance
by any counterparty.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are subsequently adjusted to
the current market value of the option written or purchased. Premiums received
or paid from writing or purchasing options which 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 Trusts
portfolio in a manner similar to more generic options described above.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy 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 Trusts 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
15
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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 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.
The Trust did not engage in securities lending during the period ended
December 31, 1999.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trusts
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transaction fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequentlyadjusted to
the current market value of the interest rate cap purchased or sold. Changes in
the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trusts
leverage provides extra income in a period of falling rates. Selling floors
reduces some of the advantage by partially monetizing it as an up front payment
which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
SECURITIES TRANSACTIONS AND 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.
TAXES: It is the Trusts intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute sufficient taxable income to shareholders. Therefore, no federal
income tax provision is required. As part of its tax planning strategy, the
Trust intends to retain a portion of its taxable income and pay an excise tax on
the undistributed amount.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards may be distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
RECLASSIFICATION OF CAPITOL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain, and
Return of Capital Distributions by Investment Companies. The effect caused by
applying this statement was to decrease paid-in capital and increase
undistributed net investment income by $2,807,679 due to certain expenses not
being deductible for tax purposes. Net investment income, net realized gains and
net assets were not affected by this change.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Advisor"), a wholly-owned subsidiary of BlackRockAdvisors
Inc., which is a wholly-owned subsidiary of BlackRock, Inc., which in turn is an
indirect majority-owned subsidiary of PNC Bank Corp. The Trust has 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 Advisor is computed weekly and
payable monthly at an annual rate of 0.40% of the Trusts 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 Trusts average weekly net
assets.
Pursuant to the agreements, the Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Advisor. 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, 1999 aggregated
$733,322,037 and $926,947,158, 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, 1999, the Trust
held 5.3% of its portfolio assets in restricted securities.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by affiliates such
as PNC Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities
Corp. succeeded to rights and duties of Sears) or mortgage related securities
containing loans or mortgages originated by PNC Bank or its affiliates,
including Midland Loan Services,Inc. It is possible under certain circumstances,
PNC Mortgage Securities Corp. or its affiliates, including Midland Loan
Services, Inc. could have interests that are in conflict with the holders of
these mortgage backed securities, and such holders could have rights against PNC
Mortgage Securities Corp. or its affiliates, including Midland Loan Securities,
Inc.
The federal income tax basis of the Trusts investments at December 31, 1999
was substantially the same as the basis for financial reporting and accordingly,
net unrealized depreciation for federal income tax purposes was $26,674,490
(gross unrealized appreciation--$26,840,365; gross unrealized
depreciation--$53,514,855).
Details of open financial futures contracts at December 31, 1999 are as
follows:
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE DECEMBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 1999 DEPRECIATION
- --------- ---- ---------- -------- ----------- ------------
Long position:
30 Yr. 3/2000 $68,497,125 $68,203,125 $(294,000)
750 T-Bond =========
Details of the interest rate cap held at December 31, 1999 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED DECEMBER 31, UNREALIZED
(000) RATE RATE DATE COST 1999 APPRECIATION
------ ----- -------- ----------- --------- ------------ ----------
120,000 6.00% 3-month 2/19/02 $1,652,609 $1,848,504 $ 195,895
LIBOR =========
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Details of open credit default swaps at December 31, 1999 are as follows:
NOTIONAL
AMOUNT NET UNREALIZED
(000) TERMS DEPRECIATION
----- ----- ------------
Sold:
$(15,000) An agreement with Salomon BrothersInternational $(10,920)
Limited dated July 16, 1999 (trade date) to receive
1.68% per year times the notional amount. The fund
makes a payment only upon a credit event with
respect to News America Holdings, the referenced
security in the contract, of the notional amount.
The scheduled termination date is June 15, 2001.
(15,000) An agreement with Salomon BrothersInternational (122)
Limited dated July 20, 1999 (trade date) to receive
1% per year times the notional amount. The fund
makes a payment only upon a credit event with
respect to MCI Worldcom Inc., the referenced
security in the contract, of the notional amount.
The scheduled termination date is June 15, 2001.
--------
$(11,042)
========
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 Trusts 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, 1999, was approximately $439,558,194 at a
weighted average interest rate of approximately 4.96%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period,
was $613,051,938 as of August 31, 1999 which was 27.93% 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 Trust did not enter into dollar rolls during the six months ended
December 31, 1999.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorizes. Of the
142,010,583 common shares out-standing at December 31, 1999, the Advisor owned
10,583 shares.
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THE BLACKROCK 2001 TERMTRUST INC.
DIVIDEND REINVESTMENT PLAN
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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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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.
We have transitioned into the Year 2000, and it is business as usual at
BlackRock.
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THE BLACKROCK 2001 TERM TRUST INC.
INVESTMENT SUMMARY
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THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock 2001 TermTrust Inc.'s primary 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.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. is an SEC-registered investment advisor. As of December
31, 1999, BlackRock and its affiliates (together, "BlackRock") managed $165
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-two closed-end funds that are traded on either the New York or American
stock exchanges, and a $27 billion family of open-end funds. BlackRock manages
over 580 accounts, domiciled in the United States and overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB") or determined by the advisor 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 ADVISOR'S INVESTMENT STRATEGY?
The advisor will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The advisor will implement a conservative strategy that will seek
to closely match the maturity of the assets of the portfolio with the future
return of the initial investment at the end of 2001. At the Trust's termination,
the Advisor expects that the value of the securities which have matured,
combined with the value of the securities that are sold, will be sufficient to
return the initial offering price to investors. On a continuous basis, the Trust
will seek its objective by actively managing its assets in relation to market
conditions, interest rate changes and, importantly, the remaining term to
maturity of the Trust.
In order to maintain competitive yields as the Trust approaches maturity and
depending on market conditions, the advisor will attempt to purchase securities
with call protection or maturities as close to the Trust's maturity date as
possible. Securities with call protection should provide the portfolio with some
degree of protection against reinvestment risk during times of lower prevailing
interest rates. Since the Trust's primary goal is to return the initial offering
price at maturity, any cash that the Trust receives prior to its maturity date
(i.e. cash from early and regularly scheduled payments of principal on
mortgage-backed securities) will be reinvested in securities with maturities
which coincide with the remaining term of the Trust. Since shorter-term
securities typically yield less than longer-term securities, this strategy will
likely result in a decline in the Trust's income over time. It is important to
note that the Trust will be managed so as to preserve the integrity of the
return of the initial offering price.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be 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.
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LEVERAGE CONSIDERATIONS IN A TERM TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate environment. The Advisor's portfolio managers continuously
monitor and regularly review the Trust's use of leverage and the Trust may
reduce, or unwind, the amount of leverage employed should the Advisor consider
that reduction to be in the best 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: BTM) 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 up to 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.
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THE BLACKROCK 2001 TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE Mortgage instruments with interest rates that adjust at
MORTGAGE-BACKED periodic intervals at a fixed amount relative to the
SECURITIES (ARMS): market levels of interest rates as reflected in
specified indexes. ARMs are backed by mortgage loans
secured by real property.
ASSET-BACKED Securities backed by various types of receivables such
SECURITIES: as automobile and credit card receivables.
CLOSED-END FUND: Investment vehicle which initially offers a fixed number
of shares and trades on a stock exchange. The fund
invests in a portfolio of securities in accordance with
its stated investment objectives and policies.
COLLATERALIZED Mortgage-backed securities which separate mortgage pools
MORTGAGE OBLIGATIONS into short-, medium-, and long-term securities with
(CMOS): 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 secured or backed by mortgage
MORTGAGE BACKED loans on commercial properties.
SECURITIES (CMBS):
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 and FHLMC.
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INTEREST-ONLY Mortgage securities including CMBS that receive only the
SECURITIES: interest cash flows from an underlying pool of mortgage
loans or underlying pass-through securities.
INVERSE-FLOATING Mortgage instruments with coupons that adjust at
RATE MORTGAGES: periodic intervals according to a formula which sets
inversely with a market level interest rate index.
MARKET PRICE: Price per share of a security trading in the secondary
market. For a closed-end fund, this is the price at
which one share of the fund trades on the stock
exchange. If you were to buy or sell shares, you would
pay or receive the market price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which the
Trust sells mortgage-backed securities for delivery in
the current month and simultaneously contracts to
repurchase substantially similar (although not the same)
securities on a specified future date. During the "roll"
period, the Trust does not receive principal and
interest payments on the securities, but is compensated
for giving up these payments by the difference in the
current sales price (for which the security is sold) and
lower price that the Trust pays for the similar security
at the end date as well as the interest earned on the
cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by FNMA, FHLMC, GNMA
or FHA.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust, plus
income accrued on its investments, minus any liabilities
including accrued expenses, divided by the total number
of outstanding shares. It is the underlying value of a
single share on a given day. Net asset value for the
Trust is calculated WEEKLY AND PUBLISHED IN BARRON'S on
Saturday and THE WALL STREET JOURNAL on Monday.
PRINCIPAL-ONLY Mortgage securities that receive only the principal cash
SECURITIES: flows from an underlying pool of mortgage loans or
underlying pass-through securities.
PROJECT LOANS: Mortgages for multi-family, low- to middle-income
housing.
PREMIUM: When a fund's stock price is greater than its net asset
value, the fund is said to be trading at a premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as a
trust, corporation, partnership, or segregated pool of
assets that elects to be treated as a REMIC for federal
tax purposes. Generally, FNMA REMICs are formed as
trusts and are backed by mortgage-backed securities.
RESIDUALS: Securities issued in connection with collateralized
mortgage obligations that generally represent the excess
cash flow from the mortgage assets underlying the CMO
after payment of principal and interest on the other CMO
securities and related administrative expenses.
REVERSE In a reverse repurchase agreement, the Trust sells
REPURCHASE AGREEMENTS: securities and agrees to repurchase them at a mutually
agreed date and price. During this time, the Trust
continues to receive the principal and interest payments
from that security. At the end of the term, the Trust
receives the same securities that were sold for the same
initial dollar amount plus interest on the cash proceeds
of the initial sale.
STRIPPED MORTGAGE Arrangements in which a pool of assets is separated into
BACKED SECURITIES: 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>
BLACKROCK
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISOR
BlackRock Advisors, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
ADMINISTRATOR
Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
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
Four Times Square
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, 1999 were not audited and accordingly, no opinion is expressed on
them.
THE BLACKROCK 2001 TERM TRUST INC.
c/o Mitchell Hutchins Asset Management Inc.
51 West 52nd Street
New York, NY 10019
(800) 227-7BFM
THE BLACKROCK
2001 TERM TRUST INC.
=====================
CONSOLIDATED
SEMI-ANNUAL REPORT
DECEMBER 31, 1999
092477-10-8
[RECYCLE LOGO] Printed on recycled paper
