- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
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May 31, 1998
Dear Shareholder:
Domestic bonds provided investors with modest total returns during the past
six months, as interest rates generally fell. Supporting the bond market was
favorable inflation news and the belief that the Federal Reserve is unlikely to
raise short-term interest rates in the immediate future.
U.S. economic growth has remained relatively robust, spurred by lower
interest rates and strong consumer demand. However, the economic weakness of
Asia looms large. While the fallout from the Asian fiscal crisis probably has
yet to materialize in the U.S., we expect a "slowdown" in Asia's economies to
slow U.S. growth in 1998. While we expect that interest rates will be fairly
stable in the near-term, our longer-term outlook for the bond market remains
optimistic, based on the fundamentally favorable backdrop of low inflation, a
currently high level of real yields, and declining Treasury borrowing.
As you may know, the five investment management firms that comprised the
PNC Asset Management Group have consolidated under BlackRock, resulting in a
$118 billion money management firm. We look forward to using our global
investment management expertise to present exciting investment opportunities to
closed-end fund shareholders in the future.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- -------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
May 31, 1998
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock Income
Trust Inc. ("the Trust") for the six months ended April 30, 1998. We would like
to take this opportunity to review the Trust's stock price and net asset value
(NAV) performance, summarize market developments and discuss recent portfolio
management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BKT". The
Trust's investment objective is to provide high current income consistent with
the preservation of capital. The Trust seeks its objective by investing
primarily in mortgage-backed securities backed by U.S. Government agencies (such
as Fannie Mae, Freddie Mac or Ginnie Mae) and, to a lesser extent, U.S.
Government securities, asset-backed securities and privately issued
mortgage-backed securities. At least 85% of the Trust's assets must be issued or
guaranteed by the U.S. government or its agencies or rated at least "AAA" by
Standard & Poor's or "Aaa" by Moody's (up to 5% can be unrated and deemed by the
Adviser to be of equivalent credit quality); the remaining 15% of the Trust's
assets must be rated at least "AA" by Standard & Poor's or "Aa" by Moody's at
time of purchase.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
--------------------------------------------------
4/30/98 10/31/97 CHANGE HIGH LOW
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STOCK PRICE $6.875 $6.875 0.00% $7.250 $6.813
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $8.01 $8.12 (1.36%) $8.22 $8.01
- --------------------------------------------------------------------------------
10-YEAR U.S. TREASURY NOTE 5.67% 5.83% (0.16%) 5.96% 5.36%
- --------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
The first four months of 1998 have witnessed continued rapid expansion of
the U.S. economy. GDP growth is estimated at an annual rate of 4.2%, far
exceeding the historical non-inflationary level of 2%. Despite the strong
economic growth, inflation stayed surprisingly subdued. After rising only 1.7%
in 1997, inflation inched higher at a 0.2% annual rate for the first quarter of
1998. One explanation for the absence of inflation in the U.S. economy stems
from the aftermath of the Asian crisis. U.S. exports to Asia have slowed, while
the strength of the dollar caused cheaper Asian imports to flood the U.S. market
and exert downward price pressure on domestic goods.
The Treasury market rallied during the fourth quarter of 1997 and into
1998 before giving back some gains during the past few months. For the
semi-annual period, the yield of the 10-year Treasury security fell from 5.83%
on October 31, 1997 to 5.67% on April 30, 1998. The strong performance of the
Treasury market was in response to moderating economic growth, low inflation and
a "flight to quality" from investors seeking a safe haven in U.S. Treasury
securities. Continued expectations that the Asian crisis will slow economic
growth and force the Fed to leave the Federal funds rate unchanged provided
additional support to the bond market. With Treasury supply waning due to
surplus in the federal budget and increased foreign demand for Treasuries due to
their U.S. government backing and relatively attractive yields, we anticipate a
positive environment for Treasuries for the balance of 1998.
2
<PAGE>
In light of declining interest rates and faster prepayment speeds during
the period, mortgages modestly underperformed the broader investment grade bond
market. As measured by the Lehman Brothers Mortgage Index, mortgages posted a
3.48% total return versus 3.58% for the Lehman Brothers Aggregate Index.
Mortgage rates fell below the critical 7% threshold for the first time since
January 1994, causing concerns that increased refinancing activity would
negatively impact the performance of mortgage securities. Declining interest
rate volatility attracted investors to the mortgage market, providing some
support for mortgage securities. As much of the mortgage market has been brought
into a "refinanceable" position due to the recent decline in interest rates,
lower coupon securities have generally outperformed more prepayment-sensitive
higher-coupon issues.
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
Trust is managed to maintain an interest rate sensitivity (or duration)
resembling that of the Salomon Brothers Mortgage Index; this means that the
portfolio's NAV will change similarly to the price of the Index given a change
in interest rates. The following chart compares the Trust's current and October
31, 1997 asset composition:
- --------------------------------------------------------------------------------
COMPOSITION APRIL 30, 1998 OCTOBER 31, 1997
- --------------------------------------------------------------------------------
U.S. Government Securities 24% 15%
- --------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 15% 20%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 14% 14%
- --------------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 10% 12%
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Principal Only Mortgage-Backed Securities 10% 13%
- --------------------------------------------------------------------------------
FHA Project Loans 9% 9%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 8% 8%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 4% 4%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 4% 3%
- --------------------------------------------------------------------------------
Asset Backed Securities 1% 1%
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CMO RESIDUALS 1% 1%
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The Trust has emphasized prepayment protection over the past six months as
interest rates have trended lower. The likelihood of faster prepayments on
mortgage securities led the Trust to be a net seller of mortgage securities most
susceptible to prepayments. Specifically, the Trust's non-prepayment protected
IO (Interest-Only mortgage security) holdings were reduced, as that sector began
to weaken as interest rates fell. The Trust purchased Treasuries with cash
raised from mortgage sales, including 30-year TIPS (Treasury Inflation Protected
Securities), which we believe offered attractive inflation adjusted yields.
3
<PAGE>
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets as well as to
maintain the Trust's ability to meet its investment objectives. We thank you for
your investment in the BlackRock Income 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 Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BKT
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Initial Offering Date: July 22, 1988
- --------------------------------------------------------------------------------
Closing Stock Price as of April 30, 1998: $6.875
- --------------------------------------------------------------------------------
Net Asset Value as of April 30, 1998: $8.01
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 4/30/98 ($6.875) 1: 8.18%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share 2: $0.046875
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share 2: $0.5625
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
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THE BLACKROCK INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--148.2%
MORTGAGE PASS-THROUGHS--22.3%
Federal Home Loan Mortgage Corp.,
$ 4,733+ 7.50%, 7/01/07 - 2/01/23 ....................... $ 4,839,710
1,103+ 8.00%, 11/01/15 ................................ 1,152,163
1,811 8.50%, 3/01/06 - 3/01/08, 15 year .............. 1,889,436
632 8.50%, 6/01/11 ................................. 660,896
3,160 9.00%, 9/01/20 ................................. 3,390,949
Federal Housing Administration,
4,241 Brookville, 7.50%, 8/01/28 ..................... 4,416,107
3,725 Country Estates, 8.375%, 1/01/35 ............... 4,008,663
GMAC,
6,184 Series 33, 7.43%, 9/01/21 ...................... 6,344,011
2,145 Series 46, 7.43%, 1/01/22 ...................... 2,214,114
885 Series 48, 7.43%, 6/01/22 ...................... 909,973
313 Series 51, 7.43%, 2/01/23 ...................... 322,300
7,643 Series 56, 7.43%, 11/01/22 ..................... 7,876,262
1,258 Merrill,
Series 54, 7.43%, 5/15/23 ...................... 1,300,690
1,251 Middlesex, 8.625%, 9/01/34 ..................... 1,357,800
4,567 Parkside, 7.30%, 2/01/13 ....................... 4,676,386
1,050 Reilly, Series 41, 8.28%, 3/01/20 .............. 1,114,308
2,858 Tuttle Grove, 7.25%, 10/01/35 .................. 2,933,781
USGI,
4,314 Polaris 982, 7.43%, 11/01/21 ................... 4,442,084
919 Series 87, 7.43%, 12/01/22 ..................... 953,684
4,839 Series 99, 7.43%, 10/01/23 ..................... 5,021,805
2,736 Series 1003, 7.43%, 3/01/24 .................... 2,794,514
2,736 Series 6302, 7.43%, 12/01/21 ................... 2,824,776
6,990 Yorkville, Series 6094,
7.43%, 6/01/21 ................................ 7,206,660
3,584 Waterford, 8.625%, 7/25/27 ..................... 3,890,779
Federal National Mortgage Association,
1,132+ 7.00%, 11/01/08 ................................ 1,153,180
5,746 7.50%, 11/01/14 - 9/01/23, 18 year
Multifamily ................................... 5,804,253
5,421+ 8.00%, 5/01/08 - 5/01/22 ....................... 5,634,775
721 9.317%, 6/01/19, 10 year Multifamily ........... 811,619
586 9.484%, 7/01/19, Multifamily ................... 620,367
1,444 9.497%, 6/01/24, Multifamily ................... 1,524,172
135 9.50%, 1/01/19 - 6/01/20 ....................... 143,597
Government National Mortgage
Association,
601 7.00%, 10/15/17 ................................ 607,668
17,660 7.50%, 8/15/21 - 12/15/23 ...................... 18,141,171
41 8.50%, 5/15/01 - 2/15/17 ....................... 42,834
856 9.00%, 6/15/18 - 9/15/21 ....................... 915,688
13 9.50%, 7/15/16 ................................. 14,362
------------
111,955,537
------------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--51.6%
AAA 2,100@@Citicorp Mortgage Securities Inc.,
Series 1994-9, Class A-4, 6/25/09 ................ 2,026,563
AAA 1,098 Collateralized Mortgage Obligation Trust,
Series 13, Class Q, 1/20/03 ...................... 1,127,893
Countrywide Funding Corp., Mortgage
Certificates,
AAA 3,394 Series 1993-10, Class A-8,
1/25/24, (ARM) ................................ 3,189,893
AAA 6,202 Series 1994-9, Class A-16,
5/25/24, (ARM) ................................ 5,457,333
AAA 17,000 DLJ Mortgage Acceptance Corp.,
Series 1998-2, Class A-1, 4/25/28 ............. 16,830,000
Federal Home Loan Mortgage
Corp., Multiclass Mortgage
Participation Certificates,
27,426+ Series G-13, Class 13-PP,
5/25/21, (I) .................................. 7,233,720
2,544 Series G-24, Class G24-SG,
11/25/23, (ARM) ............................... 2,127,844
7,500+ Series 1104, Class 1104-L,
6/15/21 ....................................... 8,067,375
1,742 Series 1347, Class 1347-HC,
12/15/21 ...................................... 1,578,130
2,000 Series 1523, Class 1523-SA,
6/15/23, (ARM) ................................ 1,414,420
1,060 Series 1534, Class 1534-NE,
6/15/23, (ARM) ................................ 1,033,702
4,257 Series 1541, Class 1541-T,
7/15/23 ....................................... 4,146,063
1,912 Series 1559, Class 1559- WA,
7/15/22 ....................................... 1,892,539
12,305+ Series 1584, Class 1584-FB,
9/15/23 ....................................... 12,492,751
1,494 Series 1596, Class 1596-SB,
12/15/12, (ARM) ............................... 1,387,669
3,892 Series 1608, Class 1608-SD,
6/15/23, (ARM) ................................ 3,670,222
866 Series 1609, Class 1609-KA,
11/15/23 ...................................... 860,451
1,744 Series 1611, Class 1611-PD,
11/15/23, (ARM) ............................... 1,128,994
500 Series 1625, Class 1625-SL,
12/15/08, (ARM) ............................... 510,000
6,543+ Series 1627, Class 1627-S,
12/15/23, (ARM) ............................... 5,266,984
5,038 Series 1627, Class 1627-SC,
12/15/23, (ARM) ............................... 3,663,536
3,084 Series 1629, Class 1629-OD,
12/15/23, (ARM) ............................... 2,181,726
See Notes to Financial Statements.
5
<PAGE>
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PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$ 2,915 Series 1686, Class 1686-A,
2/15/24 ....................................... $2,679,232
687 Series 1720, Class 1720-PK,
1/15/24, (I) .................................. 245,805
1,225 Series 1750, Class 1750-PC,
3/15/24, (P) .................................. 1,003,851
4,564 Series 1882, Class 1882-PJ,
4/15/22, (I) .................................. 936,490
72,489 Series 1914, Class 1914-PC,
12/15/11, (I) ................................. 1,624,486
11,214 Series 1992, Class 1992-PV,
9/15/27, (I) .................................. 4,471,721
9,955 Series 2037, Class 2037-IB,
12/15/26 ...................................... 2,484,649
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
3,235 Trust 1988-16, Class 16-B,
6/25/18 ....................................... 3,461,761
5,488@ Trust 1990-12, Class 12-G,
2/25/20 ....................................... 5,120,798
12,451@@ Trust 1991-15, Class 15-S,
6/25/21, (ARM) ................................ 2,160,472
3,029@@ Trust 1991-38, Class 38-F,
4/25/21, (ARM) ................................ 3,070,466
2,564 Trust 1991-38, Class 38-SA,
4/25/21, (ARM) ................................ 2,588,762
2,477 Trust 1991-87, Class 87-S,
8/25/21, (ARM) ................................ 2,633,264
1,077 Trust 1992-12, Class 12-C,
2/25/22, (I) .................................. 332,013
6,000 Trust 1992-43, Class 43-E,
4/25/22, (ARM) ................................ 6,177,120
3,874 Trust 1992-187, Class 187-JA,
10/25/06, (I) ................................. 335,958
10,084 Trust 1992-200, Class 200-K,
11/25/21, (I) ................................. 1,261,767
768 Trust 1993-27, Class 27-SB,
8/25/23, (ARM) ................................ 631,738
551 Trust 1993-29 Class 29-SP,
3/25/23, (ARM) ................................ 442,307
1,280 Trust 1993-50, Class 50-SH,
1/25/23, (ARM) ................................ 1,206,585
2,768+ Trust 1993-53, Class 53-M,
4/25/23 ....................................... 2,719,428
2,137 Trust 1993-82, Class 82-SB,
5/25/23, (ARM) ................................ 1,664,796
1,086 Trust 1993-87, Class 87-L,
6/25/23 ....................................... 1,081,263
879 Trust 1993-116, Class 116-SB,
7/25/23, (ARM) ................................ 755,852
2,597 Trust 1993-129, Class 129-SE,
8/25/08, (ARM) ................................ 2,534,186
817 Trust 1993-167, Class 167-SA,
9/25/23, (ARM) ................................ 801,091
6,000@@ Trust 1993-169, Class 169-SC,
3/25/23, (ARM) ................................ 4,460,520
5,763+ Trust 1993-178, Class 178-A,
9/25/23 ....................................... 5,650,332
2,776 Trust 1993-179, Class 179-SC,
10/25/23, (ARM) ............................... 3,167,036
2,871 Trust 1993-179, Class 179-VC,
10/25/21, (ARM) ............................... 2,060,092
16,000 Trust 1993-201, Class-JC,
5/25/19, (I) .................................. 2,910,720
1,576 Trust 1993-223, Class 223-SJ,
12/25/23, (ARM) ............................... 1,187,928
2,993 Trust 1993-224, Class 224-S,
11/25/23, (ARM) ............................... 2,515,138
1,908 Trust 1993-224, Class 224-SH,
11/25/23, (ARM) ............................... 1,639,467
2,562 Trust 1993-247, Class 247-SN,
12/25/23, (ARM) ............................... 3,101,638
5,643 Trust 1993-248, Class 248-FB,
9/25/23, (ARM) ................................ 5,182,309
3,487 Trust 1993-256, Class 256-F,
11/25/23, (ARM) ............................... 3,214,479
3,777 Trust 1994-14, Class 14-S,
10/25/23, (ARM) ............................... 2,451,129
4,802 Trust 1994-19, Class 19-SB,
1/25/24, (ARM) ................................ 2,955,214
387 Trust 1994-27, Class 27-SE,
3/25/23, (ARM) ................................ 422,323
14,300+ Trust 1996-14, Class 14-AB,
8/25/23, (P) .................................. 6,193,688
6,797+ Trust 1996-14, Class 14-M,
10/25/21, (P) ................................. 5,822,124
25,000 Trust 1997-50, Class 50-HK,
8/25/27, (I) .................................. 9,234,375
51,000 Trust 1997-90, Class 90-M,
1/25/28, (I) .................................. 20,639,063
13,724 Trust 1998-12, Class 12-PL,
7/18/19, (I) .................................. 2,581,783
7,378 Trust 1998-25, Class 25-PG,
3/18/22, (ARM) ................................ 1,715,452
18,301 Trust 1998-26, Class 26-PK,
12/18/21, (I) ................................. 3,431,466
18,154 Trust 1998-27, Class 27-L,
3/25/20, (I) .................................. 2,337,328
AAA 8,598 G. E. Capital Mortgage Services
Inc., REMIC Certificates 94-7,
Class A-17, 2/25/09, (ARM) ..................... 7,474,823
AAA 8,870 PNC Mortgage Corp., Mortgage
Pass-Through Certificates,
Series 1997-6 Class-A2,
7/25/27, (ARM) ................................ 8,861,349
Prudential Home Mortgage
Securities Co., Mortgage
Pass-Through Certificates,
Aaa 743 Series 1993-43, Class A-16,
10/25/23, (ARM) ............................... 673,252
Aaa 2,500 Series 1993-48, Class A-8,
12/25/08, (ARM) ............................... 2,416,625
See Notes to Financial Statements.
6
<PAGE>
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PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
AAA $ 7,349 Salomon Capital Access Corp., CMO,
Series 1986-1, Class C, 9/01/15 ................ $ 7,556,048
------------
259,569,370
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--6.0%
AAA 3,162 Asset Securitization Corp.,
Series 1997-D5,
Class PS-1, 2/14/41, (I/O) ..................... 340,389
AAA 44,113** Credit Suisse First Boston Mortgage,
Series 1997, Class C-1,
6/20/29, (I/O) ................................. 4,838,608
AAA 48,225 GMAC Commercial Mortgage
Corp., Series 97-C1, Class-X,
7/15/27, (I/O) ................................. 4,596,452
AAA 140,000 Kidder Peabody Acceptance Corp.,
Series 1994-C1,
2/01/01, (I/O) ................................. 1,400
AAA 6,000 ML Mortgage Investments,
Series 1996-C1, Class A-3,
7.42%, 4/25/28 ................................. 6,313,053
AAA 20,307 Morgan Stanley Capital I Inc.,
Series 1997, Class HF-1,
6/15/17, (I/O) ................................. 1,786,416
AAA 10,250** NYC Mortgage Loan Trust,
Series 1996, Class A-2,
6.75%, 6/25/11 ................................. 10,451,797
AA 2,000 PaineWebber Mortgage Acceptance
Corp. IV, Series1995-M1,
Class B, 6.95%, 1/15/07 ........................ 2,028,671
----------
30,356,786
----------
ASSET-BACKED SECURITIES--1.9%
AAA 4,826 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ................................. 4,863,745
AAA 4,581 Money Store Trust,
Series 1998-A, Class MH-2,
7.23%, 5/15/30 ................................. 4,568,116
----------
9,431,861
----------
STRIPPED MORTGAGE-BACKED
SECURITIES--30.2%
Aaa 928 Chase Mortgage Finance Corp.,
Mortgage Pass-Through Certificates,
Series 1994-A, Class AP,
1/25/10, (P/O) .................................. 715,535
AAA 1,022 Collateralized Mortgage Obligation
Trust, Series 29, Class A, 5/23/17,
(P/O) ........................................... 804,563
Drexel Burnham Lambert,
AAA 362 Trust K, Class K-1A, 9/23/17, (P/O) ............. 313,889
AAA 3,911 Trust V, Class V-1, 9/01/18, (P/O) .............. 3,113,896
Federal Home Loan Mortgage Corp.,
2,249 Series 273, Class A-10,
11/15/28, (P/O) ................................. 1,427,366
3,826 Series 1238, Class 1238-J,
1/15/07, (I/O) ................................. 739,187
25,209 Series 1353, Class 1353-S,
8/15/07, (I/O) ................................. 2,682,230
676 Series 1418, Class 1418-M,
11/15/22, (P/O) ................................ 268,631
797 Series 1473, Class 1473-JA,
2/15/05, (I/O) ................................. 40,259
12,000 Series 1506, Class 1506-L,
3/15/22, (I/O) ................................. 2,258,040
12,915 Series 1632, Class 1632-S,
4/15/23, (I/O) ................................. 416,649
32,000 Series 1809, Class 1809-SC,
12/15/23, (I/O) ................................ 3,280,000
14,069+ Series 1828, Class 1828-A,
5/15/24, (P/O) ................................. 10,305,505
17,850 Series 1850, Class 1850-SA,
2/15/24, (I/O) ................................. 2,727,646
6,687 Series 1857, Class 1857-PB,
12/15/08, (P/O) ................................ 5,800,843
5,000 Series 1900, Class 1900-SV,
8/15/08, (I/O) ................................. 870,300
4,828 Series 1917, Class 1917-AS,
5/15/08, (I/O) ................................. 1,074,234
17,938 Series 1946, Class 1946-SG,
3/15/24, (I/O) ................................. 2,197,448
40,000 Series 1965, Class 1965-SA,
3/15/24, (l/O) ................................. 5,662,500
120,299 Series 1968, Class 1968-S,
10/15/26, (I/O) ................................ 6,766,795
15,106 Series 2002, Class 2002-HJ,
10/15/08, (I/O) ................................ 2,317,844
5,500 Series 2009, Class 2009-HJ,
10/15/22, (P/O) ................................ 3,226,094
Federal Housing Aministration,
31,678+ Series 184, Class 184-IO,
12/01/26, (l/O) ................................ 8,355,058
Federal National Mortgage Association,
3,819 Trust A, Class A-2,
8/01/10, (I/O) ................................. 704,931
1,250 Trust 50, Class 50-G,
12/25/21, (I/O) ................................ 451,730
5,980 Trust 225, Class 1,
2/01/23, (P/O) ................................. 4,836,773
1,559+ Trust 267, Class 1,
10/01/24, (P/O) ................................ 1,309,371
6,134 Trust 279, Class 1,
7/01/26, (P/O) ................................. 5,167,721
1,065 Trust 1991-7, Class-J,
2/25/21, (P/O) ................................. 834,459
3,808 Trust 1992-34, Class 34-A,
4/25/22, (I/O) ................................. 1,101,350
16,240 Trust 1992-60, Class 60-SB,
10/25/22, (I/O) ................................ 625,241
1,896 Trust 1992-68, Class 68-K,
10/25/05, (I/O) ................................ 151,661
37,140 Trust 1992-216, Class 216-S,
12/25/22, (I/O) ................................ 4,740,179
See Notes to Financial Statements.
7
<PAGE>
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PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
$ 1,428 Trust 1993-2, Class 2-KB,
1/25/23, (I/O) ................................. $ 617,680
62,603 Trust 1993-82, Class 82-SB,
5/25/23, (I/O) ................................. 6,705,372
2,466 Trust 1993-113, Class 113-B,
7/25/23, (P/O) ................................. 1,906,260
12,364+ Trust 1993-213, Class 213-H,
9/25/23, (P/O) ................................. 10,935,310
3,210 Trust 1994-24, Class 24-D,
11/25/23, (P/O) ................................ 2,808,313
3,960 Trust 1994-57, Class 57-C,
1/25/24, (P/O) ................................. 3,560,602
23,000 Trust 1994-77, Class 77- SB,
4/25/24, (I/O) ................................. 2,825,320
2,955 Trust 1994-94, Class 94-C,
8/25/23, (P/O) ................................. 2,517,062
13,853 Trust 1995-26, Class 26-SW,
2/25/24, (I/O) ................................. 2,437,317
2,151 Trust 1996-5, Class 5-PV,
11/25/23, (P/O) ................................ 1,896,851
9,963 Trust 1996-38, Class 38-E,
8/25/23, (P/O) ................................. 5,899,964
2,572 Trust 1996-56, Class 56-E,
4/25/23, (P/O) ................................. 2,045,002
12,371 Trust 1996-68, Class 68-SC,
1/25/24, (I/O) ................................. 1,470,976
85,756 Trust 1997-37, Class 37-SE,
10/25/22, (I/O) ................................ 2,036,716
35,476 Trust 1997-65, Class 65-SB,
3/25/24, (I/O) ................................. 1,940,111
27,000 Trust 1997-65, Class 65-SG,
6/25/23, (I/O) ................................. 3,915,000
11,139 Trust 1997-76, Class 76-SP,
12/25/23, (I/O) ................................ 1,924,958
5,294 Trust 1997-85, Class 85-EL,
7/25/23, (P/O) ................................. 3,751,874
2,780 Trust 1997-85, Class 85-LE,
10/25/23, (P/O) ................................ 2,297,387
AAA 1,070 First Boston Mortgage Securities
Corp.,
Series 1987-C, Class Z,
4/25/17, (I/O) ................................. 339,832
Housing Security Inc.,
AAA 377 Series 1992-EB, Class B-8,
9/25/22, (P/O) ................................. 278,760
AAA 578 Series 1993-D, Class D-8,
6/25/23, (P/O) ................................. 387,195
Kidder Peabody Acceptance Corp.,
Series B, Class B-1,
AAA 2,739 4/22/18, (P/O) ................................. 2,323,544
AAA 1,466 Series B, Class B-2,
4/22/18, (I/O) ................................. 382,844
AAA 2,852 Structured Asset Securities Corp.,
Series 1991-2, Class GA,
12/20/21, (I/O) ............................... 780,800
AAA 834 Structured Mortgage Asset Trust,
Series 1993-3C, Class CX,
4/25/24, (P/O) .................................. 544,771
AAA 363 Prudential Securities, Inc.,
Trust 15, Class 1G,
5/20/21, (I/O) .................................. 385,453
------------
152,203,202
------------
U.S GOVERNMENT AND
AGENCY SECURITIES--35.5%
Overseas Private Investment Corp.,
200 6.27%, 5/29/12 ................................... 197,875
400 6.84%, 5/29/12 ................................... 405,000
Small Business Administration,
4,475 Series 1996-20E,
7.60%, 5/01/16 ................................... 4,752,872
3,984 Series 1996-20G,
7.70%, 7/01/16 ................................... 4,255,387
3,765 Series 1996-20H,
7.25%, 8/01/16 ................................... 3,938,302
Series 1996-20K,
6,710 6.95%, 11/01/16 .................................. 6,909,903
3,777 7.55%, 6/01/16 ................................... 4,004,312
2,882 Series 1997-20C,
7.15%, 3/01/17 ................................... 3,000,860
5,490 Series 1998-10A,
6.12%, 2/01/08 ................................... 5,424,381
115,107+ United States Treasury Bonds,
3.625%, 4/15/28 (TIPS) ........................... 114,387,531
31,300++ United States Treasury Notes,
5.75%, 11/30/02 .................................. 31,378,250
------------
178,654,673
------------
COLLATERALIZED MORTGAGE
OBLIGATION RESIDUALS***--0.7%
AAA 5,435 American Housing Trust III,
Senior Mortgage Pass-
Through Certificates, Series 1,
Class 4, (REMIC) **, 3/25/19 ..................... 845,915
AAA 304 American Housing Trust VII,
Senior Mortgage Pass-Through
Certificates, Series A, Class R,
(REMIC), 11/25/20 ................................ 2,142,250
AAA 25 Collateralized Mortgage Obligation,
Trust 13**, 1/20/03 .............................. 210,687
AAA 45 FBC Mortgage Securities Trust 16,
CMO, Series A**, 7/01/17, (ARM) .................. 289,420
AAA 43 PaineWebber Trust, Series N,
Class 7, (REMIC), 1/01/19 ........................ 202,826
------------
3,691,098
------------
Total Long-Term Investments
(cost $714,624,871) .............................. 745,862,527
------------
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.0%
REPURCHASE AGREEMENT--0.0%
$ 140 State Street Bank & Trust Co.,
5.20%, dated 4/30/98,
due 5/1/98 in the amount of
$140,020 (cost $140,000
collateralized by $140,000
U.S. Treasury Note, 6.625% due
7/31/01, value including
accrued interest--$143,220)$ .................... $ 140,000
------------
CONTRACTS #
-----------
CALL OPTION PURCHASED--0.7%
150,000 Interest Rate Swap, 6.20% over
3 month LIBOR, expires 8/13/99
(cost $2,238,750) ............................... 3,532,500
------------
PUT OPTION PURCHASED--0.3%
150,000 Interest Rate Swap, 7.25% over
3 month LIBOR, expires 5/12/00
(cost $6,795,000) ............................... 1,358,850
------------
Total Short-Term Investments
(cost $9,173,750) ................................ 5,031,350
------------
Total investments before
investments sold short--149.2%
(cost $723,798,621) .............................. $750,893,877
INVESTMENTS SOLD SHORT--(5.0%)
$ (25,000) United States Treasury Bonds,
6.125%, 11/25/27
(proceeds $25,140,625) .......................... (25,140,625)
------------
Total investments net of short
sales--144.2%
(cost $698,657,996) .............................. 725,753,252
Liabilities in excess of other
assets--(44.2%) ..................................(222,308,696)
------------
NET ASSETS--100% ................................... $503,444,556
============
- ----------------------
* Using the higher of Standard & Poor's or Moody's rating.
** Private placements restricted as to resale.
*** Illiquid securities representing .5% of portfolio assets.
# One contract equals 100,000 face value.
+ Partial principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse
repurchase agreements.
@ Partial principal amount pledged as collateral for futures
transactions.
@@ Entire principal amount pledged as collateral for futures
transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
I -- Denotes a CMO with Interest only characteristics.
I/O -- Interest only. LIBOR -- London InterBank Offer Rate.
P -- Denotes a CMO with Principal only characteristics.
P/O -- Principal only.
REMIC -- Real Estate Mortgage Investment Conduit.
TIPS -- Treasury Inflation Protection Securities.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $723,798,621) (Note 1) ......... $750,893,877
Cash ....................................................... 197,622
Deposit with brokers as collateral for investments
sold short (Note 1) ...................................... 25,140,625
Interest receivable ........................................ 6,163,699
Interest rate caps, at value
(amortized cost $9,282,691) (Notes 1 & 3) ................ 2,731,443
Receivable for investments sold ........................... 228,429
------------
785,355,695
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 229,691,000
Investment sold short, at value
(proceeds $25,140,625) (Note 1) .......................... 25,140,625
Payable for investments purchased .......................... 20,541,027
Due to broker-variation margin ............................. 3,485,202
Interest payable ........................................... 1,821,914
Unrealized depreciation on interest rate swaps
(Note 1 & 3) ............................................. 566,539
Investment advisory fee payable (Note 2) ................... 289,970
Administration fee payable (Note 2) ........................ 83,318
Other accrued expenses ..................................... 291,544
------------
281,911,139
------------
NET ASSETS ................................................. $503,444,556
============
Net assets were comprised of:
Common stock, at par (Note 5) ............................ $ 628,499
Paid-in capital in excess of par ......................... 563,355,769
------------
563,984,268
Undistributed net investment income ...................... 278,006
Accumulated net realized losses .......................... (80,125,400)
Net unrealized appreciation .............................. 19,307,682
------------
Net assets, April 30, 1998 ............................... $503,444,556
============
NET ASSET VALUE PER SHARE:
($503,444,556 / 62,849,878 shares of
common stock issued and outstanding) ..................... $8.01
=====
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of $3,809,751
and interest expense of $5,387,814) ........................ $22,144,567
-----------
Expenses
Investment advisory ........................................ 1,653,785
Administration ............................................. 508,857
Custodian .................................................. 91,000
Transfer agent ............................................. 68,000
Reports to shareholders .................................... 55,000
Directors .................................................. 43,000
Audit ...................................................... 36,000
Legal ...................................................... 7,000
Miscellaneous .............................................. 97,884
-----------
Total operating expenses ................................. 2,560,526
-----------
Net investment income ...................................... 19,584,041
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ................................................ 14,542,493
Options .................................................... (1,974,219)
Futures .................................................... (8,186,526)
Short sales ................................................ (6,722,950)
-----------
(2,341,202)
-----------
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ (8,740,457)
Options .................................................... 2,830,500
Interest rate caps ......................................... (1,411,931)
Futures .................................................... 341,388
Short sales ................................................ 628,781
-----------
(6,351,719)
-----------
Net loss on investments .................................... (8,692,921)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................................... $10,891,120
===========
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received ............................. $ 30,863,760
Operating expenses paid ....................... (2,554,226)
Interest expense paid ......................... (4,610,194)
Purchase of short-term portfolio investments
including options, net ...................... (7,871,344)
Purchase of long-term portfolio investments ... (1,185,949,818)
Proceeds from disposition of long-term
portfolio investments ....................... 1,194,544,760
Variation margin on futures ................... (7,524,398)
---------------
Net cash flows provided by operating activities 16,898,540
---------------
Cash flows used for financing activities:
Increase in reverse repurchase agreements ..... 1,160,800
Cash dividends paid ........................... (17,907,211)
---------------
Net cash flows used for financing activities .. (16,746,411)
---------------
Net increase in cash ............................ 152,129
Cash at beginning of period ..................... 45,493
---------------
Cash at end of period ........................... $ 197,622
===============
RECONCILIATION OF NET INCREASE IN NET
ASSETS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net increase in net assets resulting from
operations .................................... $ 10,891,120
---------------
Increase in investments ......................... (35,572,807)
Increase in interest receivable ................. (478,372)
Decrease in receivable for investments sold ..... 62,699,397
Increase in variation margin payable ............ 2,903,186
Net realized losses ............................. 2,341,197
Decrease in unrealized appreciation ............. 6,351,719
Decrease in depreciation of forward swap ........ (24,000)
Decrease in options written ..................... (3,901,500)
Decrease in payable for investments sold short .. (624,875)
Decrease in payable for investments purchased ... (31,717,002)
Increase in interest payable .................... 1,484,108
Decrease in deposits with brokers for
investments sold short ........................ 796,875
Decrease in interest rate caps .................. 2,449,677
Decrease in accrued expenses and other
liabilities ................................... (700,183)
---------------
Total adjustments ............................. 6,007,420
---------------
Net cash provided by operating activities ....... $ 16,898,540
===============
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
Six Months Year
Ended Ended
April 30, 1998 October 31, 1997
-------------- ----------------
Operations:
Net investment income .................. $ 19,584,041 $ 36,244,955
Net realized gain (loss) on
investments, futures,
short sales, interest rate caps
and options .......................... (2,341,202) 10,941,155
Net change in net unrealized
appreciation (depreciation)
on investments, futures,
short sales, interest rate
caps and options ..................... (6,351,719) 20,310,564
------------ ------------
Net increase in
net assets resulting from
operations ........................... 10,891,120 67,496,674
Dividends from net investment
income ................................. (17,676,122) (35,352,309)
------------ ------------
Total increase (decrease) .............. (6,785,002) 32,144,365
NET ASSETS
Beginning of period .................... 510,229,558 478,085,193
------------ ------------
End of period .......................... $503,444,556 $510,229,558
============ ============
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED --------------------------------------------------------------
APRIL 30, 1998 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....... $ 8.12 $ 7.61 $ 7.66 $ 7.25 $ 8.75 $ 8.90
-------- -------- -------- -------- -------- -------
Net investment income (net of $0.09,
$0.18, $0.17, $0.22, $0.10 and $0.09
respectively, of interest expense) ..... 0.31 0.58 0.55 0.51 0.73 0.91
Net realized and unrealized gains
(losses) on investments, short sales,
futures and options ................... (0.14) 0.49 (0.01) 0.65 (1.45) (0.21)
-------- -------- -------- -------- -------- -------
Net increase (decrease) from investment
operations ............................... 0.17 1.07 0.54 1.16 (0.72) 0.70
-------- -------- -------- -------- -------- -------
Dividends from net investment income ....... (0.28) (0.56) (0.55) (0.66) (0.78) (0.85)
Distributions in excess of net
investment income ........................ -- -- (0.04) -- -- --
Return of capital distribution ............. -- -- -- (0.09) -- --
-------- -------- -------- -------- --------
Total dividends and distributions ........ (0.28) (0.56) (0.59) (0.75) (0.78) (0.85)
-------- -------- -------- -------- -------- -------
Net asset value, end of period* ............ $ 8.01 $ 8.12 $ 7.61 $ 7.66 $ 7.25 $ 8.75
======== ======== ======== ======== ======== =======
Per share market value, end of period* ..... $ 6 7/8 $ 6 7/8 $ 6 1/4 $ 7 1/4 $ 6 3/8 $ 8 3/8
======== ======== ======== ======== ======== =======
TOTAL INVESTMENT RETURN .................... 4.04% 19.68% (5.36%) 26.50% (15.31%) 1.01%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ........................ 1.02%** 1.02% 1.08% 1.08% 1.10% 1.03%
Net investment income ...................... 7.77%** 7.63% 7.36% 6.85% 9.21% 10.19%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ......... $508,857 $474,903 $473,056 $466,449 $496,707 $558,530
Portfolio turnover ......................... 165% 220% 440% 267% 223% 121%
Net assets, end of period (in thousands) ... $503,445 $510,230 $478,085 $481,301 $455,651 $549,755
Reverse repurchase agreements outstanding,
end of period (in thousands) ............. $228,691 $228,530 $204,438 $214,438 $109,286 $ 74,700
Asset coverage ............................. $ 3,201 $ 3,233 $ 3,339 $ 3,244 $ 5,169 $ 8,360
</TABLE>
- --------------
* NAV and market value are published in The WallStreet Journal each Monday.
** Annualized.
# The ratios of operating expenses including interest expense to average
net assets were 3.14%**, 3.44%, 3.38%, 4.08%, 2.32%, and 2.02% 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 and
distributions 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 returns for periods of less than one full year are not
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 Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock Income Trust Inc. (the
POLICIES "Trust"), a Maryland corporation, is a
diversified closed-end management investment
company. The investment objective of the Trust is to achieve high monthly income
consistent with preservation of capital. The ability of issuers of debt
securities held by the Trust to meet their obligations may be affected by
economic developments in a specific industry or region. No assurance can be
given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers, market
transactions in comparable securities, various relationships observed in the
market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on 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
determines 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.
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
13
<PAGE>
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.
INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate swaps were conceived as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by "marking-to-market" to reflect the
market value of the swap. When the swap is terminated, the Trust will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Trust's basis in the contract, if any. The
Trust is exposed to credit loss in the event of non-performance by the other
party to the mortgage 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 option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio reflecting the view of the Trust's management in the direction of
interest rates.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at the risk
of not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
14
<PAGE>
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.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
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 cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that 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: 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. Expenses are recorded on the
accrual basis which may require the use of certain estimates by management.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
15
<PAGE>
during the reporting period. Actual results could differ from those estimates.
NOTE 2. AGREEMENTS The Trust has an Investment Advisory
Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly- owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC
Bank, N.A., 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 fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.65% 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 0.20% of the first $500 million of the Trust's average weekly
net assets and 0.15% of any excess.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust.
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 securities, other than short-term
investments and dollar rolls, for the six
months ended April 30, 1998 aggregated $1,154,232,616 and $1,200,475,138,
respectively.
The Trust may invest without limit in securities which are not readily
marketable, including those which are restricted as to disposition under
securities law ("restricted securities") although the Trust does not expect that
such investments will generally exceed 25% of its portfolio assets. At April 30,
1998, the Trust held 0.5% of its portfolio assets in illiquid securities all of
which were securities restricted as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Services, Inc..
The federal income tax basis of the Trust's investments at April 30, 1998
was $723,798,621 and, accordingly, net unrealized appreciation was $27,095,256
(gross unrealized appreciation-$37,561,257; gross unrealized
depreciation-$10,466,001).
For federal income tax purposes, the Trust has a capital loss carryforward
at October 31, 1997 of approximately $81,496,600 of which approximately $264,400
will expire in 1998, approximately $15,072,600 will expire in 2001,
approximately $23,358,100 will expire in 2002, approximately $15,428,300 will
expire in 2003 and approximately $27,373,200 will expire 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.
Details of open financial futures contracts at April 30, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE APRIL 30, UNREALIZED
CONTRACTS TYPE DATE DATE 1998 DEPRECIATION
- --------------- ------------- ---------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Long Positions:
15 10 yr. T-Note June 1998 $ 1,687,802 $ 1,684,688 $ (3,114)
Short Positions:
2152 30 yr. T-Bond June 1998 258,044,077 258,710,750 (666,673)
----------
$ (669,787)
==========
</TABLE>
The Trust entered into four interest rate caps. Under all agreements the
Trust receives the excess, if any, of a floating rate over a fixed rate. The
Trust paid a transaction fee for each agreement. Details of the caps at April
30, 1998 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION COST/ APRIL 30, UNREALIZED
(000) RATE RATE DATE PREMIUM 1998 DEPRECIATION
------- ----- -------- ----------- ------- -------- ------------
$ 50,000 6.00% 3 MTH LIBOR 2/19/02 $ 1,227,098 $ 616,400 $ (610,698)
100,000 6.50% 3 mth LIBOR 4/4/02 2,819,309 797,043 (2,022,266)
100,000 7.00% 3 mth LIBOR 4/18/03 2,844,458 738,000 (2,106,458)
100,000 7.25% 3 mth LIBOR 4/23/03 2,391,826 580,000 (1,811,826)
----------- --------- -----------
$ 9,282,691 $2,731,443 $(6,551,248)
=========== ========== ===========
Details of open interest rate swaps at April 30, 1998 are as follows:
NOTIONAL UNREALIZED
AMOUNT FIXED TERMINATION APPRECIATION
(000) TYPE RATE FLOATING RATE DATE (DEPRECIATION)
- ------- ----------- ------- ------------- ---------- --------------
$ 20,000 Interest Rate 7.50% 1 month LIBOR 04/25/02 $ (644,000)
5,455 Forward Rate 7.235% 1 Month Libor 06/15/11 77,461
----------
$ (566,539)
==========
16
<PAGE>
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust
enters into reverse repurchase agreements
with qualified, third party broker-dealers as determined by and under the
direction of the Trust's Board of Directors. Interest on the value of reverse
repurchase agreements issued and outstanding is 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 April 30, 1998 was approximately $254,787,000 at a
weighted average interest rate of approximately 5.68%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period was
$229,691,000 as of April 30, 1998, which was 30.53% 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 April 30, 1998.
NOTE 5. CAPITAL There are 200 million shares of $.01 par
value common stock authorized. Of the
62,849,878 shares outstanding at April 30, 1998, the Adviser owned 10,753
shares.
NOTE 6. DIVIDENDS Since April 30, 1998, the Board of Directors
of the Trust declared dividends from
undistributed earnings of $0.046875 per share payable May 29, 1998 to
shareholders of record on May 15, 1998.
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME 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
Custodian, as dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan below net asset value.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividend or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all shareholders of the Trust at least 90 days before the record
date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days' written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of
this report.
- --------------------------------------------------------------------------------
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 May 6, 1998 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
------- ----- ----- -------
Andrew F. Brimmer .............. III 3 years 2000
Kent Dixon ..................... III 3 years 2000
Laurence D. Fink ............... III 3 years 2000
Directors whose term of office continues beyond this meeting are Frank J.
Fabozzi, Ralph L. Schlosstein, Walter F. Mondale, Richard E. Cavanagh,
James Grosfeld, and James Clayburn La Force, Jr.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending October 31, 1998.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
Andrew F. Brimmer ....... 51,741,336 0 1,251,120
Kent Dixon .............. 51,902,210 0 1,090,246
Laurence D. Fink ........ 51,901,031 0 1,091,425
Ratification of Deloitte
& Touche LLP ......... 51,732,575 645,614 614,267
18
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THE BLACKROCK INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to manage a portfolio of high quality
securities to achieve high monthly income consistent with preservation of
capital. The Trust will seek to distribute monthly income that is greater than
that obtainable on an annualized basis by investment in United States Treasury
securities having the same maturity as the average dollar weighted maturity of
the Trust's investments.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $118
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
stock exchanges, and a $23 billion family of open-end equity and bond funds.
Current institutional clients number 334, domiciled in the United States and
overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest at least 65% of its assets in mortgage-backed securities.
At least 85% of the Trust's assets must be rated at least "AAA" by Standard &
Poor's or "Aaa" by Moody's at the time of purchase; of this 85% at least 80% of
the Trust's assets must be rated at least "AAA" by Standard & Poor's at the time
of purchase while the remaining 5% can be invested in securities at least "AAA"
by Standard & Poor's, "Aaa" by Moody's or deemed "AAA" by the Advisor at the
time of purchase. Additionally, 15% of the Trust's assets can be invested in
securities rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time
of purchase. 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), privately issued
mortgage-backed securities, commercial mortgage-backed securities and
asset-backed 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 provide high monthly income consistent with the
preservation of capital. The Trust will seek to provide monthly income that is
greater than that which could be obtained by investing in U.S. Treasury
securities with an average life similar to that of the Trust's assets. Under
current market conditions, the average life of the Trust's assets is expected to
be in the range of seven to ten years. Under other market conditions, the
Trust's average life may vary and may not be predictable using any formula. In
seeking the investment objective, the Adviser may actively manage among various
types of securities in different interest rate environments.
Traditional mortgage pass-through securities make interest and principal
payments on a monthly basis and can be a source of attractive levels of income
to the Trust. While mortgage-backed securities in the Trust are of high credit
quality, they typically offer a yield spread above Treasuries due to the
uncertainty of the timing of their cash flows as they are subject to changes in
the rate of prepayments when interest rates change and either a larger or
smaller proportion of mortgage holders refinance their mortgages or move. While
mortgage-backed securities offer the opportunity for attractive yields, they
subject a portfolio to interest rate risk and prepayment exposure which result
in reinvestment risk when prepaid principal must be reinvested.
Multiple-class mortgage pass-through securities, or collateralized mortgage
obligations (CMOs), are also an investment that may be used in the Trust's
portfolio. These securities are issued in multiple classes each of which has a
different coupon rate, stated maturity and prioritization on the timing of
receipt of cash flows coming from interest and principal payments on the
underlying mortgages. Principal prepayments can be allocated among the different
classes of a CMO in a number of ways; for instance, they can be applied to each
of the classes in the order of their respective stated maturities. This feature
allows an investor to better plan the average life of their investment. As a
result, these securities may be used by the Trust to help manage prepayment risk
and align the assets of the portfolio more closely with its targeted average
life.
19
<PAGE>
Additionally, in order to attempt to protect the portfolio from interest rate
risk, the Adviser will attempt to locate securities with call protection, such
as commercial mortgage-backed securities with prepayment penalties or lockouts.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD?
DOES THE TRUST PAY DIVIDENDS REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the fund through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate environment. BlackRock's portfolio managers continuously
monitor and regularly review the Trust's use of leverage and the Trust may
reduce, or unwind, the amount of leverage employed should BlackRock consider
that reduction to be in the best interests of shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST
The Trust is intended to be a long-term investment and is not a short-term
trading vehicle.
INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high
monthly income consistent with preservation of capital, there can be no
assurance that this objective will be achieved.
DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over
time as fixed income market conditions change. Future dividends may be higher or
lower than the dividend the Trust is currently paying.
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: BKT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
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.
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.
20
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES (ARMS): Mortgage instruments with interest rates
that adjust at eriodic 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).
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.
21
<PAGE>
INVERSE-FLOATING RATE MORTGAGES: Mortgage instruments with coupons that
adjust at periodic intervals according to a
formula which sets inversely with a market
level interest rate index.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund,
this is the price at which one share of the
fund trades on the stock exchange. If you
were to buy or sell shares, you would pay or
receive the market price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie
Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities held by the Trust, plus
income accrued on its investments, minus any
liabilities including accrued expenses,
divided by the total number of outstanding
shares. It is the underlying value of a
single share on a given day. Net asset value
for the Trust is calculated weekly and
published in Barron's on Saturday and The
Wall Street Journal each Monday.
PRINCIPAL-ONLY SECURITIES (P/O): Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as 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 Arrangements in which a pool of assets is
BACKED SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of STRIPs.
22
<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
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 07102-4077
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 April 30, 1998 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 INCOME 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 09247F-10-0
THE BLACKROCK
INCOME
TRUST INC.
- -------------------
SEMI-ANNUAL REPORT
APRIL 30, 1998
[GRAPHIC]
