- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATEDSEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
July 31, 1997
Dear Trust Shareholder:
After experiencing higher interest rates in the face of a resilient stock
market and stronger economic growth for the first few months of 1997, bond
investors were comforted by more moderate economic data released during the
second quarter which allowed the bond market to recapture some of its losses.
Our outlook for the bond market is cautiously optimistic. Over the short
term, we believe that the recent rally may continue, since inflation news has
been positive and U.S. securities appear cheap relative to their global
counterparts. Additionally, Fed Chairman Greenspan appears to be comfortable
allowing the economy to expand in the absence of rising inflationary pressures.
Thus, we do not foresee another tightening in the immediate future in the
absence of a visible inflation shock. However, recent wage increases, the
buoyant stock market and record levels of consumer confidence could lead to
stronger consumer spending and overall economic growth in the third quarter.
Therefore, an uninterrupted decline in yields is by no means a certainty.
This report provides the Trust's portfolio managers an opportunity to
provide you with detailed market commentary and to review the major investment
themes of the portfolio over the past six months. We hope that you find this
report informative and look forward to serving your financial needs in the
future.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------------- ---------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
July 31, 1997
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock 1999
Term Trust Inc. ("the Trust") for the six months ended June 30, 1997. We would
like to take this opportunity to review the Trust's stock price and net asset
value (NAV) performance, summarize market developments and discuss recent
portfolio management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BNN". The
Trust's investment objective is to return $10 per share (its initial offering
price) to shareholders on or about December 31, 1999 while providing high
monthly income. Although there can be no guarantee, BlackRock is confident that
the Trust can achieve its investment objectives. The Trust seeks these
objectives by investing in investment grade fixed income securities, including
corporate debt securities, mortgage-backed securities backed by U.S. Government
agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae), asset-backed
securities and commercial mortgage-backed securities. All of the Trust's assets
must be rated at least "BBB" by Standard & Poor's or "Baa" by Moody's at the
time of purchase or be issued or guaranteed by the U.S. Government or its
agencies.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
--------------------------------------------------
6/30/97 12/31/96 CHANGE HIGH LOW
- --------------------------------------------------------------------------------
STOCK PRICE $9.00 $8.875 1.41% $9.125 $8.25
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $9.68 $9.53 1.57% $9.70 $9.51
- --------------------------------------------------------------------------------
5-YEAR U.S. TREASURY NOTE 6.39% 6.21% +18 bp 6.85% 6.06%
- --------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
The strong economic growth witnessed during the fourth quarter of 1996
spilled over into the first quarter of 1997. Although inflationary measures such
as commodity, producer and consumer prices remained relatively stable, labor
markets continued to strengthen. In an effort to subdue this growth, the federal
reserve raised the federal funds rate by 25 basis points at their march 25
policy meeting as a pre-emptive strike against inflation.
After expanding at a blistering pace of 5.9% during the first quarter, the
U.S. economy's growth rate slowed in the second quarter of 1997. Signs of an
economic slowdown were prevalent in a broad range of industrial and consumer
indicators, including lower factory orders, decreased consumer spending, and
higher inventories. In addition, inflationary forces remained benign according
to year-over-year comparisons for the consumer and producer indices. These
indicators allowed the Federal Reserve to maintain interest rate levels at their
May 20 and July 2 policy meetings and wait for more definite signs of inflation
before increasing interest rates.
The market for mortgage-backed securities (MBS) significantly outperformed
the broader investment grade bond market for the six months ended June 30, 1997.
Strong investor demand for higher yielding spread product, which offers a yield
premium over comparable maturity Treasury securities, boosted prices in the
mortgage sector. For the period, the MBS market as measured by the Lehman
Brothers Mortgage Index posted a 3.91% total return versus the 3.11% return of
the Lehman Brothers Aggregate Index. In the corporate bond market, strong
fundamentals created by steady economic growth, low inflation, and rising
corporate profits drove the sector to outperform comparable maturity Treasuries.
Corporate yields rose during March and April as interest rates drifted higher
and the stock market faltered. However, a benign inflationary outlook and strong
corporate earnings led to a reversal of performance in May and June.
2
<PAGE>
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
following chart compares the Trust's current and December 31, 1996 asset
composition.
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
- --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
COMPOSITION 1997 1996
- --------------------------------------------------------------------------------
Corporate Bonds 49% 45%
- --------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 15% 19%
- --------------------------------------------------------------------------------
Asset-Backed Securities 9% 7%
- --------------------------------------------------------------------------------
Municipal Securities 9% 6%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 4% 5%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 4% 4%
- --------------------------------------------------------------------------------
U.S. Government Securities 4% 2%
- --------------------------------------------------------------------------------
Adjustable Rate Mortgages 3% 6%
- --------------------------------------------------------------------------------
Certificate of Deposit 2% 0%
- --------------------------------------------------------------------------------
Non Agency Multiple Class Mortgage Pass-Throughs 1% 5%
- --------------------------------------------------------------------------------
CMO Residuals 0% 1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RATING % OF CORPORATES
CREDIT RATING JUNE 30, 1997 DECEMBER 31, 1996
- --------------------------------------------------------------------------------
AAA or equivalent 0% 2%
- --------------------------------------------------------------------------------
AA or equivalent 9% 9%
- --------------------------------------------------------------------------------
A or equivalent 60% 56%
- --------------------------------------------------------------------------------
BBB or equivalent 31% 33%
- --------------------------------------------------------------------------------
In seeking the primary investment objective of returning the initial offer
price upon maturity, the Trust continued to emphasize securities offering both
attractive yield spreads over Treasury securities and a maturity date matching
the Trust's termination date of December 31, 1999. To that end, the Trust
remained primarily invested in investment grade corporate bonds, U.S. Treasury
securities and well-structured mortgage and asset-backed securities (ABS). Over
the period, the Trust significantly reduced its adjustable-rate mortgage (ARM)
allocation, as these securities have enjoyed strong performance over the past
year. The sale of ARMs raised cash that the Trust used to increase its corporate
bond and ABS holdings. Both of these asset classes typically offer more
predictable maturity dates and cash flows than mortgage-backed securities in
addition to higher yields than Treasuries.
3
<PAGE>
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 1999 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 Principal and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BNN
- --------------------------------------------------------------------------------
Initial Offering Date: December 23, 1992
- --------------------------------------------------------------------------------
Closing Stock Price as of 6/30/97: $9.00
- --------------------------------------------------------------------------------
Net Asset Value as of 6/30/97: $9.68
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 6/30/97 ($9.00)1: 4.44%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.0333
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.40
- --------------------------------------------------------------------------------
- -----------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 Distribution not constant and is subject to change.
4
<PAGE>
================================================================================
THE BLACKROCK 1999 TERM TRUST, INC.
CONSOLIDATED PORTFOLIO OF INVESTMENTS
JUNE 30, 1997 (UNAUDITED)
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--138.5%
MORTGAGE PASS-THROUGHS--5.1%
$8,352+ Federal Home Loan Mortgage
Corporation, 5.50%, 9/01/99 .................... $ 8,261,438
2,580 Federal Housing Administration
Massachusetts St. Hsg. Fin. Agcy.,
Series C, 6.85%, 4/01/19 ....................... 2,366,918
-----------
10,628,356
-----------
MULTIPLE CLASS MORTGAGE
Pass-Throughs--11.2%
AAA 497 Capstead Securities Corporation IV,
Series 1992-4, Class H,
12/25/20, (ARM) ............................... 569,535
AAA 3,267 CBA Mortgage Corporation,
Series 1993-C1, Class A-2,
12/25/03 ...................................... 3,322,402
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
1,231 Series 172, Class 172-H, 5/15/20 ............... 1,233,718
3,482 Series 1234, Class 1234-H,
5/15/99, (ARM) ............................... 3,586,629
517 Series 1330, Class 1330-I,
9/15/99, (ARM) ............................... 512,180
1,183 Series 1330, Class 1330-M,
9/15/99, (ARM) ............................... 711,649
461 Series 1352, Class 1352-G,
9/15/97, (ARM) ............................... 460,268
3,000 Series 1505, Class 1505-ID,
9/15/15, (I) ................................. 251,160
Federal National Mortgage Association,
1,260 7.516%, 7/01/99, Multifamily ................... 1,280,647
5,932+ 8.775%, 8/01/99, Multifamily ................... 6,035,933
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
52 Trust 1991-146, Class 146-SB,
10/25/06, (ARM) .............................. 51,322
2,127 Trust 1992-3, Class 3-S,
1/25/99, (ARM) ............................... 2,340,774
888 Trust 1992-106, Class 106-S,
6/25/99, (ARM) ............................... 930,868
1,030 Trust 1992 -176, Class 176-FA,
10/25/99 ..................................... 1,007,690
4,530 Trust 1993-G33, Class P,
9/25/14, (I) ................................. 339,545
357 Trust 1993-193, Class 193-PC,
9/25/23 ...................................... 331,187
6,065 Trust 1994-8, Class 8-TA,
9/17/13 (I) .................................. 451,177
AAA 60 Structured Asset Securities Corporation,
Series 1996, Class A, 2 ...................... 59,679
-----------
23,476,363
-----------
Corporate Bonds--68.6%
FINANCE & BANKING--32.3%
Aa3 3,350 Associates Corporation of
North America,
6.75%, 10/15/99 ................................ 3,375,962
Aa3 5,000 CIT Group Holdings Incorporated,
5.875%, 12/09/99 ............................... 4,935,650
A2 4,200 Citicorp, 9.75%, 8/01/99 .......................... 4,470,144
A1 2,500++ Goldman Sachs Group LP,
6.875%, 9/15/99 ................................ 2,518,000
A3 3,000 Hartford National Corporation,
9.85%, 6/01/99 ................................. 3,183,600
International Lease Finance
Corporation,
A1 1,100 6.09%, 11/08/99 ................................ 1,090,540
A1 4,000 6.30%, 11/01/99 ................................ 3,981,630
Baa1 5,000 Lehman Brothers Holdings
Incorporated, 6.71%, 10/12/99................. 5,008,850
Baa3 2,000 Meditrust, 7.25%, 8/16/99 ......................... 2,021,320
A1 2,000 Morgan Stanley Group Incorporated,
5.625%, 3/01/99 ................................ 1,978,725
A1 5,000++Paccar Financial Corporation,
5.84%, 6/15/99 ................................. 4,948,800
Baa1 3,500 PaineWebber Group Incorporated,
6.31%, 7/22/99 ................................. 3,476,630
Baa1 2,000 Salomon, Inc. 7.43%, 12/30/98 ..................... 2,029,700
A2 4,000 Security Pacific Corporation,
9.75%, 5/15/99 ................................. 4,234,139
A3 5,000 Shawmut National Corporation,
8.625%, 12/15/99 ............................... 5,232,404
Smith Barney Holdings Incorporated,
A2 1,500 7.875%, 10/01/99 ............................... 1,544,685
A2 529 7.98%, 3/01/00 ................................. 546,513
A3 5,000++Transamerica Finance Corporation,
5.97%, 12/09/99 ................................ 4,935,392
Aa3 3,000 Travelers Group Incorporated,
7.75%, 6/15/99 ................................. 3,077,250
A2 5,000 Union Planters National Bank,
6.47%, 10/29/99 ................................ 4,995,862
-----------
67,585,796
-----------
CORPORATE BONDS
Industrials--29.6%
Baa1 4,400 Alco Capital Resource Incorporated,
6.83%, 5/10/99 ................................. 4,431,023
A1 1,895 Anheuser Busch Companies
Incorporated, 8.75%, 12/01/99................... 1,996,743
A1 5,000 Bass America Incorporated,
6.75%, 8/01/99 ................................. 5,035,000
A3 5,000 Chrysler Financial Corporation,
9.50%, 12/15/99 ................................ 5,339,550
A2 1,612 Kern River Funding, 144A,
Series A, 6.42%, 3/31/01 ....................... 1,600,856
Baa2 5,000 McDonnell Douglas Finance
Corporation, 6.30%, 12/23/99 ................... 4,970,750
See Notes to Consolidated Financial Statements.
5
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
CORPORATE BONDS
INDUSTRIALS--29.6% (CONTINUED)
Baa2 $3,000 MCN Investment Corporation,
5.84%, 2/01/99 ................................. $ 2,974,770
Baa2 4,000 Nabisco Brands Incorporated,
8.30%, 4/15/99 ................................. 4,104,320
A2 2,000 National Fuel Gas Company,
5.58%, 3/01/99 ................................. 1,977,960
BBB- 7,000 NWCG Holding Corporation,
Series B, Zero Coupon, 6/15/99.................. 6,101,776
Baa2 2,000 Occidental Petroleum Corporation,
6.08%, 11/26/99 ................................ 1,971,020
BBB- 2,750 Pulte Home Corporation,
10.125%, 7/15/99 ............................... 2,894,623
A2 5,000 Sears Roebuck & Company,
7.75%, 10/25/99 ................................ 5,131,550
A1 3,000 Texaco Capital Incorporated,
9.00%, 12/15/99 ................................ 3,178,290
A3 1,000 Textron Financial Corporation, 144A,
7.125%, 10/05/99 ............................... 1,009,562
A+ 3,000 TTX Company,
6.28%, 6/28/99 ................................. 2,986,650
Baa2 2,500 Union Oil Company,
8.40%, 1/15/99 ................................. 2,569,775
A2 4,000 Walt Disney Corporation,144A,
1.50%, 10/20/99 ................................ 3,582,241
-----------
61,856,459
-----------
CORPORATE BONDS
UTILITIES--6.1%
A1 4,750 Alabama Power Company,
6.375%, 8/01/99 ................................ 4,744,443
A2 4,000 Atlanta Gas Light Company,
7.30%, 12/10/99 ................................ 4,074,304
AA 2,000 California Petroleum Transport
Corporation, 7.30%, 4/01/99 .................... 2,028,983
BBB+ 2,000 Potomac Capital Investment
Corporation, 6.73%, 8/09/99 .................... 2,007,203
-----------
12,854,933
-----------
CORPORATE BONDS
YANKEE--OTHER--0.6%
A3 1,272 Nova Corporation of Alberta,
7.25%, 7/06/99 ................................. 1,291,067
-----------
ASSET-BACKED SECURITIES--12.3%
AAA 1,871 Banc One Auto Grantor Trust,
Series 1996-A, Class A,
6.10%, 10/15/02 ................................ 1,872,127
AAA 3,536 Chevy Chase Auto Receivables,
Series 1997-1, Class A,
6.50%, 10/15/03 ................................ 3,546,609
AAA 5,000 Dayton Hudson Credit Card Trust,
Series 1995-1, Class A,
6.10%, 2/25/02 ................................. 5,002,345
AAA 2,391 Fifth Third Bank Auto Trust,
Series 1996-B, Class A,
6.45%, 3/15/02 ................................. 2,397,555
AAA 2,403 Ford Credit Grantor Trust,
Series 1995-B, Class A,
5.90%, 10/15/00 ................................ 2,397,982
AAA 8,225++ Prime Credit Card Trust,
Series 1992-2, Class A,
7.45%, 11/15/02 ................................ 8,413,920
AAA 2,000 Standard Credit Card Master Trust,
Series 1995-3, Class A,
7.85%, 2/07/02 ................................. 2,063,438
-----------
25,693,976
-----------
STRIPPED MORTGAGE-BACKED
SECURITIES--21.1%
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
1,640 Series 1195, Class 1195-H,
3/15/05, (I/O) ............................... 116,502
8,040+ Series 1359, Class 1359-C,
9/15/99, (P/O) ............................... 7,276,689
4,148 Series 1440, Class 1440-PK,
8/15/18, (I/O) ............................... 459,011
3,012 Series 1473, Class 1473-JA,
2/15/05, (I/O) ............................... 236,648
1,452 Series 1719, Class 1719-C,
4/15/99, (P/O) ............................... 1,351,565
9,269+ Series 1887, Class 1887-J,
7/15/99, (P/O) ............................... 8,144,851
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
2,046+ Series 1992-59, Class 59-A,
8/25/06, (P/O) ............................... 1,916,876
1,443 Trust 1992-62, Class 192-H,
5/25/99, (P/O) ............................... 1,298,348
981 Trust 1992-203, Class 203-JA,
6/25/05, (I/O) ............................... 77,858
3,798+ Trust 1993-111, Class 111-A,
11/25/17, (P/O) .............................. 3,595,074
12,000 Series1993-152, Class 152- C,
6/25/22, (P/O) ............................... 11,431,320
898 Trust 1993-176, Class 176-B,
6/25/18 (P/O) ................................ 872,490
13,122 Trust 1993-199, Class 199-SC,
10/25/14, (I/O) .............................. 54,589
13,496 Trust 1993-226, Class 226-SB,
5/25/19 (I/O) ................................ 408,940
4,627 Trust 1994-15, Class 15- N,
9/25/15, (I/O) ............................... 230,840
6,862+ Trust 1994-47, Class 47-B,
9/25/22, (I/O) ............................... 6,358,003
AAA 35,703 Sears Mortgage Corporation,
Series 1992-7, Class 7-X,
5/25/22, (I/O) ............................... 357,034
-----------
44,186,638
-----------
See Notes to Consolidated Financial Statements.
6
<PAGE>
================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS--0.0%
$ 4 Federal Home Loan Mortgage
Corporation,
Series 1115, Class 1115 ........................ $ 21,500
-----------
U.S GOVERNMENT SECURITIES--5.8%
United States Treasury Notes,
6,095+ 5.875%, 11/15/99 ............................... 6,055,931
4,265+ 6.00%, 8/15/99 ................................. 4,254,337
550+ 6.375%, 5/15/99 ................................ 552,750
1,315 6.625%, 3/31/02 ................................ 1,326,914
-----------
12,189,932
-----------
MUNICIPAL BONDS--12.0%
AAA 2,000 Alameda County California Pension,
Series A, 7.35%, 12/01/99 ...................... 2,043,900
AAA 2,295 Essex County,
Zero Coupon, 11/15/99 .......................... 1,979,828
AAA 1,500 Long Beach California Pension,
6.26%, 9/01/99 ................................. 1,496,550
Baa1 500 Los Angeles County California Pension,
Series A, 7.81%, 6/30/99 ....................... 511,860
Baa1 3,000 New York St. Dormitory Authority
Revenues, 6.32%, 4/01/99 ....................... 2,991,330
Baa1 1,550 New York St. Dormitory Authority
Revenues Pension Oblig.,
6.45%, 10/01/99 ................................ 1,548,512
Baa1 5,000 New York, New York, Series G,
6.23%, 2/01/99 ................................. 4,981,900
AAA 497 North Slope Borough Alaska,
Series A, Zero Coupon, 6/30/99 ................. 437,919
AAA 5,000 Oakland California Pension,
Series A, 6.20%, 12/15/99 ...................... 4,983,000
AAA 3,000 Ventura County California,
Pension Oblig., 5.92%, 11/01/99 ................ 2,972,160
AAA 1,000 Western Minnesota Muni.,
Pwr. Agcy. Supply, Series A,
6.05%, 1/01/99 ................................. 997,740
-----------
24,944,699
-----------
CERTIFICATE OF DEPOSIT--2.4%
5,000 MBNA America Bank, N. A.,
6.15%, 6/19/98 ................................. 5,000,000
-----------
TOTAL LONG-TERM INVESTMENTS
(cost $289,912,285) ............................ 289,729,719
-----------
SHORT-TERM INVESTMENTS--0.2%
REPURCHASE AGREEMENT--0.2%
400 State Street Bank, &Trust Co.
Repo, 5.6% dated 6/30/97 due
7/11/97 in the amount of $400,062
(cost $400,000 collateralized by
$405,000 U.S. Treasury Note,
6.25% due 3/31/99, value including
accrued interest $412,920) ..................... 400,000
-----------
Total Investments Before Security
Sold Short--138.7%
(COST $290,312,285) ............................ 290,129,719
SECURITY SOLD SHORT--(7.2%)
(15,000) United States Treasury Notes,
6.125%, 8/31/98 ................................ (15,037,500)
(Proceeds $14,960,156) -----------
Total Investments net of security
sold short--131.5%
(cost $275,352,129) ............................ 275,092,219
Liabilities in excess of other
assets--(31.5%) ................................ (65,887,217)
------------
NET ASSETS--100% .................................. $209,205,002
============
* Using the higher of Standard & Poor's or Moody's rating.
+ (Partial) principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
I/O -- Interest Only.
I -- Denotes a CMO with Interest only characteristics.
P -- Denotes a CMO with Principal only characteristics.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
7
<PAGE>
================================================================================
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATED STATEMENT OF ASSETS
AND LIABILITIES JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
INVESTMENTS, AT VALUE (COST $290,312,285)
(NOTE 1) ............................................... $ 290,129,719
Cash ....................................................... 197,370
Deposits with brokers as collateral for investments
sold short (Note 1) ..................................... 15,318,750
Interest receivable ........................................ 3,747,485
Receivable for investments sold ............................ 780,262
Deferred organization expenses and other assets ............ 6,966
-------------
310,180,552
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 84,635,363
Investments sold short, at value
(proceeds $14,960,156) (Note 1) ......................... 15,037,500
Payable for investments purchased .......................... 600,017
Interest payable ........................................... 484,354
Dividends payable .......................................... 100,255
Advisory fee payable (Note 2) .............................. 68,799
Administration fee payable (Note 2) ........................ 17,200
Other accrued expenses ..................................... 32,062
-------------
100,975,550
-------------
NET ASSETS ................................................. $ 209,205,002
=============
Net assets were comprised of:
Common stock, at par (Note 5) ........................... 216,106
Paid-in capital in excess of par ........................ 202,928,542
-------------
203,144,648
Undistributed net investment income ..................... 12,834,578
Accumulated net realized losses ......................... (6,514,314)
Net unrealized depreciation ............................. (259,910)
-------------
Net assets, June 30, 1997 ............................... $ 209,205,002
=============
NET ASSET VALUE PER SHARE:
($209,205,002 / 21,610,583 SHARES OF
COMMON STOCK ISSUED AND OUTSTANDING) ....................... $9.68
======
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$1,024,287 and net of interest expense
of $2,740,912) ......................................... $7,252,990
----------
Operating expenses
Investment advisory ...................................... 436,000
Administration ........................................... 104,000
Reports to shareholders .................................. 37,000
Custodian ................................................ 29,000
Directors ................................................ 20,000
Transfer agent ........................................... 5,000
Audit .................................................... 8,000
Miscellaneous ............................................ 74,668
----------
Total Operating Expenses .................................... 713,668
----------
Net investment income before excise tax ..................... 6,539,322
Excise tax ............................................. 239,651
----------
Net investment income ....................................... 6,299,671
----------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3)
Net realized gain on:
Investments .............................................. 143,228
----------
Net change in unrealized appreciation on:
Investments .............................................. 327,780
Short sales .............................................. 28,050
----------
355,830
----------
Net gain on investments .................................. 499,058
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS .......................................... $6,798,729
==========
See Notes to Consolidated Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided
by operating activities:
Interest received ....................................... $ 11,145,940
Operating expenses paid and excise taxes ................ (1,759,009)
Interest expense paid ................................... (2,561,288)
Purchase of short-term portfolio
investments, net ...................................... 5,553,925
Purchase of long-term portfolio investments ............. (110,969,077)
Proceeds from disposition of long-term
portfolio investments ................................. 113,300,862
Other ................................................... (524)
-------------
Net cash flows provided by operating activities ......... 14,710,829
-------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ............... (10,324,287)
Cash dividends paid ..................................... (4,217,478)
-------------
Net cash flows used for financing activities ............ (14,541,765)
-------------
Net increase in cash ....................................... 169,064
Cash at beginning of period ................................ 28,306
-------------
Cash at end of period ...................................... $ 197,370
=============
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 ............................................ $ 6,798,729
-------------
Decrease in investments .................................... 10,848,900
Net realized gain .......................................... (143,228)
Increase in unrealized depreciation ........................ (355,830)
Decrease in interest receivable ............................ 127,750
Increase in receivable for investments sold ................ (780,262)
Decrease in deposits with brokers for
short sales ............................................. 56,250
Decrease in other assets ................................... 30,297
Decrease in securities sold short .......................... (28,050)
Decrease in payable for investments
purchased ............................................... (1,917,679)
Increase in due to parent .................................. 600,018
Decrease in interest payable ............................... (405,519)
Decrease in accrued expenses and
other liabilities ....................................... (120,547)
-------------
Total adjustments ....................................... 7,912,100
-------------
Net cash flows provided by operating activities ............ $ 14,710,829
============
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATED STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income ............... $ 6,299,671 $ 13,852,177
Net realized gain on
investments, futures
and short sales .................. 143,228 252,269
Net change in unrealized
appreciation on
investments, futures
and short sales .................. 355,830 404,142
------------- -------------
Net increase in net assets
resulting from
operations ....................... 6,798,729 14,508,588
Dividends from net investment
income .............................. (3,598,100) (8,817,020)
------------- -------------
Total increase ......................... 3,200,629 5,691,568
NET ASSETS
Beginning of period .................... 206,004,373 200,312,805
------------- -------------
End of period .......................... $ 209,205,002 $ 206,004,373
============= =============
See Notes to Consolidated Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
CONSOLIDATED FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
DECEMBER 23,
SIX MONTHS 1992
ENDED THROUGH
JUNE 30, DECEMBER 31,
1997 1996 1995 1994 1993 1992
--------- ---- ---- ---- ----- --------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ................. $ 9.53 $ 9.27 $ 8.42 $ 9.26 $ 9.40 $ 9.45
------ ------ ------ ------- ------- -------
Net investment income (net of $.13, $.26,
$.33, $.15, $.01 and $.00, respectively,
of interest expense) ........................... .29 .64 .63 .72 .73 .01
Net realized and unrealized gain (loss)
on investments ................................. .03 03 .77 (.93) (.19) (.02)
------ ------ ------ ------- ------- -------
Net increase (decrease) from investment operations .. .32 .67 1.40 (.21) .54 (.01)
------ ------ ------ ------- ------- -------
Dividends from net investment income ................ (.17) (.41) (.55) (.63) (.68) --
------ ------ ------ ------- ------- -------
Capital charge with respect to issuance of shares ... -- -- -- -- -- (.04)
------ ------ ------ ------- ------- -------
Net asset value, end of period** .................... $ 9.68 $ 9.53 $ 9.27 $ 8.42 $ 9.26 $ 9.40#
====== ====== ====== ======= ======= =======
Market value, end of period** ....................... $ 9.00 $ 8.875 $ 8.13 $ 7.50 $ 9.50 $ 10.00
====== ====== ====== ======= ======= =======
TOTAL INVESTMENT RETURN+: ........................... 3.68% 14.21% 15.25% (14.88%) 1.74% 5.82%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses@ ................................. .69%++ 0.65% 0.74% 0.71% 0.79% 0.91%++
Net investment income ............................... 6.13%++ 6.86% 7.12% 8.17% 7.74% 3.35%++
SUPPLEMENTAL DATA:
Average net assets (in thousands) ................... $207,190 $201,998 $192,717 $189,828 $202,158 $178,963
Portfolio turnover .................................. 35% 106% 165% 109% 62% 0%
Net assets, end of period (in thousands) ............ $209,205 $206,004 $200,313 $181,919 $200,126 $178,629
Reverse repurchase agreements outstanding, end of
period (in thousands) ............................ $ 84,635 $ 94,960 $ 92,861 $ 79,443 $ 47,100 --
Asset coverage+++ ................................... $ 3,472 $ 3,169 $ 3,157 $ 3,290 $ 5,249 --
</TABLE>
- -------------
* Commencement of investment operations.
** Net asset value and market value published in The Wall Street Journal each
Monday. # Net asset value immediately after the closing of the first public
offering was $9.41.
@ The ratios of operating expenses, including interest expense, to average
net assets were 3.36%++, 3.42%, 4.40%, 2.46%, 1.36% and 0.91% for the
periods indicated above, respectively. The ratios of operating expenses,
including interest expense and excise tax, to average net assets were
3.60%++, 3.47%, 4.47%, 2.49%, 1.36%, and 0.91% for the periods indicated
above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends are
assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Trust's dividend reinvestment plan. This calculation
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 data
for a share of common stock outstanding, total investment return, ratios to
average net assets and other supplemental data for each of the periods
indicated. This information has been determined based upon financial
information provided in the financial statements and market value data for
the trust's shares.
10
<PAGE>
- -------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock 1999 Term
POLICIES Trust Inc. (the "Trust"), a
Maryland corporation is a diversified closed-end
management investment company.
The investment objective of the Trust is to manage a portfolio of investment
grade fixed income securities that will return $10 per share (the initial public
offering price per share) to investors on or about December 31, 1999 while
providing high monthly income. The ability of issuers of debt securities held by
the Trust to meet their obligations may be affected by economic developments in
a specific industry or region. No assurance can be given that the Trust's
investment objective will be achieved.
On July 19, 1996 the Trust transferred a substantial portion of its total
assets to a 100% owned regulated investment company subsidiary called
BNNSubsidiary, Inc. These consolidated financial statements include the
operations of both the Trust and its wholly-owned subsidiary after elimination
of all intercompany transactions and balances.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business. A
futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determine that such price does not reflect its fair value, in which case it will
be valued at its fair value as determined by the Trust's Board of Directors. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
Short-term securities which mature in 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase is 60 days or less.
Short-term securities with a term to maturity greater than 60 days from the date
of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults and
the value of the collateral declines or if bankruptcy proceedings are commenced
with respect to the seller of the security, realization of the collateral by the
Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining whether the Trust
has realized a gain or a loss on investment transactions. The Trust, as writer
of an option, may have no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means that
a portfolio's or a security's price would be expected to change by approximately
one percent with a one percent change in interest rates, while a duration of
five would imply that the price would move approximately five percent in
relation to a one percent change in interest rates.
11
<PAGE>
Option selling and purchasing is used by the Trust to effectively hedge
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly. In general, the Trust uses options to hedge a long or
short position or an overall portfolio that is longer or shorter than the
benchmark security. A call option gives the purchaser of the option the right
(but not obligation) to buy, and obligates the seller to sell (when the option
is exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
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.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively hedge
more volatile positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of 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 secur-ity short, or a loss, unlimited as
to dollar amount, will be recognized upon the termination of a short sale if the
market price is less or greater than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust. The Trust did not engage in
securities lending during the six months ended June 30, 1997.
12
<PAGE>
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis and the Trust accretes discount and amortizes premium on
securities purchased using the interest method.
TAXES: It is the Trust's intention to continue to meet the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required. As part of its tax planning
strategy, the Trust may retain a portion of its taxable income and pay an excise
tax on the undistributed amounts.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income then from net realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
DEFERRED ORGANIZATION EXPENSES: A total of $70,000 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Trust
commenced investment operations.
NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with
BlackRock Financial Management, Inc. (the "Adviser") a
wholly-owned corporate subsidiary of PNC Asset Management Group, Inc., the
holding company for PNC's asset management business, and an Administration
Agreement with Prudential Investments Fund Management LLC ("PIFM"), an indirect,
wholly-owned subsidiary of The Prudential Insurance Co. of America.
The investment advisory fee paid to the Adviser is computed weekly and
payable monthly at an annual rate of 0.40% of the Trust's average weekly net
assets. The administration fee paid to PIFM is also computed weekly and payable
monthly at an annual rate of 0.10% of the Trust's average weekly net assets.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust who
are affiliated persons of the Adviser. PIFM pays occupancy and certain clerical
and accounting costs of the Trust. The Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term invesments and dollar rolls, for the six months
ended June 30, 1997 aggregated $109,651,415 and $101,605,426 respectively.
The Trust may invest up to 40% of its total assets in securities which are
not readily marketable, including those which are restricted as to disposition
under securities law ("restricted securities"). At June 30, 1997, the Trust did
not hold any illiquid securities.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates. It is possible under
certain circumstances PNC Mortgage Securities Corp. or its affiliates could have
interests that are in conflict with the holders of these mortgage backed
securities and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates.
The federal income tax basis of the Trust's investments at June 30, 1997 was
substantially the same as the basis for financial reporting and, accordingly,
net unrealized depreciation for federal income tax purposes was $259,910 (gross
unrealized appreciation -- $1,608,791; gross unrealized depreciation --
$1,868,701).
For federal income tax purposes, the Trust's year-end is December 31 and its
wholly-owned subsidiary's year-end is June 30.
For federal income tax purposes, the Trust had a capital loss carryforward at
December 31, 1996 of approximately $6,505,000 of which $4,283,000 expires in
2001 $1,985,000 expires in 2002 and $237,000 expires in 2004. Accordingly, no
capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such amounts.
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust may enter into
reverse repurchase agreements with qualified, third party
broker-dealers as determined by and under the direction of the Trust's Board of
Directors. Interest on
13
<PAGE>
the value of reverse repurchase agreements issued and outstanding will be based
upon competitive market rates at the time of issuance. At the time the Trust
enters into a reverse repurchase agreement, it will establish and maintain a
segregated account with the lender the value of which at least equals the
principal amount of the reverse repurchase transaction, including accrued
interest.
The average daily balance of reverse repurchase agreements outstanding during
the six months ended June 30, 1997 was approximately $96,293,485 at a weighted
average interest rate of approximately 5.74%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the six months ended
June 30, 1997 was $99,969,750 as of March 31, 1997 which was 31.6% of total
assets. The amount of reverse repurchase agreements outstanding at June 30, 1997
was $84,635,363 which was 27.3% of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date. The Trust did not enter into dollar rolls during the
six months ended June 30, 1997.
NOTE 5. CAPITAL There are 200 million shares of $.01 par value common stock
authorized. Of the 21,610,583 shares outstanding at June 30,
1997, the Adviser owned 10,583 shares.
NOTE 6. DIVIDENDS Subsequent to June 30, 1997, The Board of Directors of the
Trust declared a dividend from undistributed earnings of
$0.0333 per share payable July 31, 1997 to shareholders of record on July 15,
1997.
14
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the "Plan Agent")
in Trust shares pursuant to the Plan. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in United States
dollars mailed directly to the shareholders of record (or if the shares are held
in street or other nominee name, then to the nominee) by the transfer agent, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue any new shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Trust at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of
this report.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives or
policies that have not been approved by the shareholders, or to its charter or
by-laws, or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
The Annual Meeting of Trust Shareholders was held April 15, 1997 to vote
on the following matters:
(1) To elect four Directors to serve as follows:
DIRECTOR CLASS TERM EXPIRING
------- ----- ----- -------
Richard E. Cavanagh ............ I 3 years 2000
James Grosfeld ................. I 3 years 2000
James Clayburn LaForce, Jr. .... I 3 years 2000
Walter F. Mondale .............. II 1 year 1998
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Kent Dixon, Laurence D. Fink, Frank J. Fabozzi, and Ralph
L. Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending December 31, 1997.
Shareholders elected the four Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
Richard E. Cavanagh ..................... 12,584,173 0 512,573
James Grosfeld .......................... 12,584,755 0 511,991
James Clayburn LaForce, Jr .............. 12,584,755 0 511,991
Walter F. Mondale ....................... 12,574,966 0 521,780
Ratification of Deloitte & Touche LLP ... 12,774,556 31,804 290,386
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK 1999 TERM TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to manage a portfolio of investment grade
fixed income securities that will return $10 per share (the initial public
offering price per share) to investors on or about December 31, 1999 while
providing high monthly income.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock" or the "Adviser") is the
investment adviser for the Trust. BlackRock is a registered investment adviser
specializing in fixed income securities. Currently, BlackRock manages
approximately $50 billion of assets across the government, mortgage, corporate
and municipal sectors. These assets are managed on behalf of institutional and
individual investors in 21 closed-end funds traded either on the New York Stock
Exchange or American Stock Exchange, several open-end funds and separate
accounts for more than 125 clients in the U.S. and overseas. BlackRock is a
subsidiary of PNC Asset Management Group, Inc. which is a division of PNC Bank,
one of the nation's largest banking organizations.
WHAT CAN THE TRUST INVEST IN?
The Trust may invest in all fixed income securities rated investment grade or
higher ("AAA", "AA", "A" or "BBB"). Examples of securities in which the Trust
may invest include U.S. government and government agency securities, zero coupon
securities, mortgage-backed securities, corporate debt securities, asset-backed
securities, U.S. dollar-denominated foreign debt securities and municipal
securities. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities) and corporate debt
securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to return the initial offering price ($10 per share)
at maturity. The Trust will implement a conservative strategy that will seek to
closely match the maturity of the assets of the portfolio with the future return
of the initial investment at the end of 1999. At the Trust's termination,
BlackRock expects that the value of the securities which have matured, combined
with the value of the securities that are sold, will be sufficient to return the
initial offering price to investors. On a continuous basis, the Trust will seek
its objective by actively managing its assets in relation to market conditions,
interest rate changes and, importantly, the remaining term to maturity of the
Trust.
In addition to seeking the return of the initial offering price, the Adviser
also seeks to provide high monthly income to investors. The portfolio managers
will attempt to achieve this objective by investing in securities that provide
competitive income. In addition, leverage will be used (in an amount up to
331/3% of total assets) to enhance the income of the portfolio. In order to
maintain competitive yields as the Trust approaches maturity and depending on
market conditions, the Adviser will attempt to purchase securities with call
protection or maturities as close to the Trust's maturity date as possible.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates. Since the Trust's primary goal is to return the initial offering price at
maturity, any cash that the Trust receives prior to its maturity date (i.e. cash
from early and regularly scheduled payments of principal on mortgage-backed
securities) will be reinvested in securities with maturities which coincide with
the remaining term of the Trust. Since shorter-term securities typically yield
less than longer-term securities, this strategy will likely result in a decline
in the Trust's income over time. However, the Adviser will attempt to maintain a
yield which is competitive with a comparable maturity Treasury at the same point
on the yield curve (i.e. if the Trust has three years left until its maturity,
the Adviser will attempt to maintain a yield at a spread over a 3-year
Treasury). It is important to note that the Trust will be managed so as to
preserve the integrity of the return of the initial offering price.
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HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank and Trust Co. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN A TERM TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 33 1/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rising rate environment. BlackRock's portfolio managers continuously monitor and
regularly review the Trust's use of leverage and the Trust may reduce, or
unwind, the amount of leverage employed should BlackRock consider that reduction
to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO TERM TRUSTS
The Trust is intended to be a long-term investment and is not a short-term
trading vehicle.
RETURN OF INITIAL INVESTMENT. Although the objective of the Trust is to return
its initial offering price upon termination, there can be no assurance that this
objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to decline to some extent over the term of the Trust due to the anticipated
shortening of the dollar-weighted average maturity of the Trust's assets.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange and as such are subject to supply
and demand influences. As a result, shares may trade at a discount or a premium
to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cashflow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity,
therefore, interim price movements on these securities are generally more
sensitive to interest rate movements than securities that make periodic coupon
payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S SECURITIES. The Trust may invest less than 10% of its total assets in
non-U.S. dollar-denominated securities which involve special risks such as
currency, political and economic risks, although under current market conditions
does not do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing
marketprice.
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THE BLACKROCK 1999 TERM TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with
interest rates that adjust at periodic intervals
at a fixed amount over the market levels of
interest rates as reflected in specified indexes.
ARMS are backed by mortgage loans secured by real
property.
ASSET-BACKED SECURITIES: Securities backed by various types of receivables
such as automobile and credit card receivables.
CLOSED-END FUND: Investment vehicle which initially offers a fixed
number of shares and trades on a stock exchange.
The fund invests in a portfolio of securities in
accordance with its stated investment objectives
and policies.
COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS): Mortgage-backed securities which separate
mortgage pools into short-, medium-, and
long-term securities with different priorities
for receipt of principal and interest. Each class
is paid a fixed or floating rate of interest at
regular intervals. Also known as multiple-class
mortgage pass-throughs.
DISCOUNT: When a fund's net asset value is greater than its
stock price the fund is said to be trading at a
discount.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders after
the deduction of expenses. This Trust declares
and pays dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all distributions
of dividends and capital gains automatically
reinvested into additional shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered corporation
that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FHLMC are not guaranteed by the U.S.
government, however; they are backed by FHLMC's
authority to borrow from the U.S. government.
Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a publicly
owned, federally chartered corporation that
facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FNMA are not guaranteed by the U.S.
government, however; they are backed by FNMA's
authority to borrow from the U.S. government.
Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
government agency that facilitates a secondary
mortgage market by providing an agency that
guarantees timely payment of interest and
principal on mortgages. GNMA's obligations are
supported by the full faith and credit of the
U.S. Treasury. Also known as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA (Federal
National Mortgage Association) and FHLMC (Federal
Home Loan Mortgage Corporation).
18
<PAGE>
INTEREST-ONLY
SECURITIES (I/O): Mortgage securities that receive only the
interest cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as a "Strip."
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund, this is
the price at which one share of the fund trades
on the stock exchange. If you were to buy or sell
shares, you would pay or receive the market
price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which
the Trust sells mortgage-backed securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar
(although not the same) securities on a specified
future date. During the "roll" period, the Trust
does not receive principal and interest payments
on the securities, but is compensated for giving
up these payments by the difference in the
current sales price (for which the security is
sold) and lower price that the Trust pays for the
similar security at the end date as well as the
interest earned on the cash proceeds of the
initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae,
Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus any
liabilities including accrued expenses, divided
by the total number of outstanding shares. It is
the underlying value of a single share on a given
day. Net asset value for the Trust is calculated
weekly and published in Barron's on Saturday and
The New York Times or The Wall Street Journal
each Monday.
PRINCIPAL-ONLY
SECURITIES (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as a "Strip."
PROJECT LOANS: Mortgages for multi-family, low- to middle-income
housing.
PREMIUM: When a fund's stock price is greater than its net
asset value, the fund is said to be trading at a
premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as
a trust, corporation, partnership, or segregated
pool of assets that elects to be treated as a
REMIC for federal tax purposes. Generally, Fannie
Mae REMICs are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from the
mortgage assets underlying the CMO after payment
of principal and interest on the other CMO
securities and related administrative expenses.
REVERSE REPURCHASE
AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase them at
a mutually agreed date and price. During this
time, the Trust continues to receive the
principal and interest payments from that
security. At the end of the term, the Trust
receives the same securities that were sold for
the same initial dollar amount plus interest on
the cash proceeds of the initial sale.
STRIPPED MORTGAGE BACKED
SECURITIES: Arrangements in which a pool of assets is
separated into two classes that receive different
proportions of the interest and principal
distributions from underlying mortgage-backed
securities. IO's and PO's are examples of strips.
19
<PAGE>
BLACKROCK
DIRECTORS
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, President
Scott Amero, Vice President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Robert S. Kapito, Vice President
Richard M. Shea, Vice President/Tax
Henry Gabbay, Treasurer
James Kong, Assistant Treasurer
Frank Smith, Assistant Treasurer
Karen H. Sabath, Secretary
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 01702-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of June 30, 1997 were not audited
and, accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK 1999 TERM TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[LOGO] Printed on recycled paper ` 09247T-10-0
The BlackRock
1999 Term
Trust Inc.
======================================
Consolidated
Semi-Annual Report
June 30, 1997
[GRAPHIC]
