- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
November 30, 1998
Dear Shareholders:
Over the past twelve months, U.S. Treasury securities have experienced a
strong rally, as investors sought a safe haven from global market turmoil and
the Federal Reserve continued to cut interest rates. Other segments of the
fixed income market have lagged behind Treasuries, but still produced positive
returns since our last report. We anticipate that the Federal Reserve will
remain prepared to combat any signs of a credit crunch through interest rate
cuts, and given the unstable economic situation in Brazil, the Fed likely will
retain a loosening bias.
Despite previous worries of a second half slowdown in 1998, the U.S.
economy continues to expand rapidly. Third quarter GDP registered a 3.3%
annualized growth rate, supported by strong consumer spending. This momentum,
however, may not continue as briskly into the new year, based on weaker
corporate profits and a loosening of the labor markets. Already, major
corporations have warned of slower profit growth and announced major layoffs.
This report contains detailed market and portfolio strategy by your
Trust's managers in addition to the Trust's audited financial statements and a
detailed portfolio list of the portfolio's holdings. We thank you for your
continued investment in the Trust and look forward to serving your investment
needs in the future.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
November 30, 1998
Dear Shareholder:
We are pleased to present the annual report for The BlackRock Income Trust
Inc. ("the Trust") for the fiscal year ended October 31, 1998. We would like to
take this opportunity to review the Trust's stock price and net asset value
(NAV) performance, summarize market developments and discuss recent portfolio
management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "BKT". The
Trust's investment objective is to provide high current income consistent with
the preservation of capital. The Trust seeks this 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 "AAA" by Standard
& Poor's or "Aaa" 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:
------------------------------------------------
<TABLE>
<CAPTION>
10/31/98 10/31/97 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
STOCK PRICE $ 6.9375 $ 6.875 0.91% $ 7.25 $ 6.75
NET ASSET VALUE (NAV) $ 7.94 $ 8.12 ( 2.22%) $ 8.36 $ 7.83
10-YEAR U.S. TREASURY NOTE 4.61 % 5.83 % (20.93%) 5.95% 4.16%
</TABLE>
THE FIXED INCOME MARKETS
The first half of the Trust's fiscal year was characterized by the
positive momentum and bull market trend that brought Treasury yields towards
historic lows. The low Treasury yields were due to budget surplus projections
as well as the Fed's decision to move from a tightening to a neutral policy.
The positive economic momentum throughout the first half of the fiscal year was
strengthened by unseasonably warm weather that led to increased consumer
spending and job gains, and a less than expected impact on trade from the Asian
financial crisis.
GDP growth measured at a very strong 5% for the first quarter of 1998;
however, signs of a slowdown became evident when economic data for April and
May began to lag.
The second half of the trust's fiscal year witnessed virtually
unparalleled market turbulence. During the second quarter of 1998, GDP growth
faltered to a 1.8% rate due to slower output and an increasing trade deficit
created by a strong U.S. dollar. Although consumers continued their spending
domestically, demand for U.S. goods abroad faltered, as the strong dollar and
weakness overseas, especially Asia, drove prices for U.S. goods higher relative
to foreign goods.
In the Trust's final quarter, U.S. GDP growth rebounded to a 3.3% pace;
however, the instability in global financial markets began to rattle investor
confidence. The devaluation of the Russian ruble and the fear of a possible
devaluation of the Brazilian currency caused a flight-to-quality to U.S.
Treasuries. Spread sectors widened dramatically as a result of the sell-off. In
addition, the global financial markets witnessed a credit crunch where even
higher-grade securities were affected. This dramatic shift of investor
sentiment culminated in the near collapse of a prominent hedge fund.
The Treasury market rally pushed Treasury yields to historic levels below
the 5% barrier. In response, to the financial fragility in the third quarter
1998 the Fed eased interest rates on September 29, 1998 by 25bps and again on
October 15, in an unusual between-meetings move. On November 17, the Fed eased
interest rates again by 25bps.
2
<PAGE>
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)
approximately 150% of the Salomon Brothers Mortgage Index; this means that the
portfolio's NAV will change roughly 1.5 times 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:
SECTOR BREAKDOWN
<TABLE>
<CAPTION>
COMPOSITION OCTOBER 31, 1998 OCTOBER 31, 1997
<S> <C> <C>
Agency Multiple Class Mortgage Pass-Throughs 19% 14%
Adjustable & Inverse Floating Rate Mortgages 17% 20%
U.S. Government Securities 17% 15%
Commercial Mortgage-Backed Securities 10% 3%
Principal Only Mortgage-Backed Securities 9% 13%
FHA Project Loans 9% 9%
Interest Only Mortgage-Backed Securities 6% 12%
Mortgage Pass-Throughs 6% 8%
Non-Agency Multiple Class Mortgage Pass-Throu 3% 4%
Asset Backed Securities 3% 1%
CMO Residuals 1% 1%
</TABLE>
Global instability has caused a flight to quality to US Treasuries causing
mortgages to severely underperform Treasuries as well as the broad bond market.
During the period, mortgage-backed securities (MBS), as measured by the Salomon
Brothers Mortgage Index, underperformed the broader investment grade domestic
bond market (Lehman Aggregate Index) on a total return basis by 7.29% vs.
9.33%.
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.
<TABLE>
<S> <C>
THE BLACKROCK INCOME TRUST INC.
Symbol on New York Stock Exchange: BKT
Initial Offering Date: July 22, 1988
Closing Stock Price as of October 31, 1998: $ 6.9375
Net Asset Value as of October 31, 1998: $ 7.94
Yield on Closing Stock Price as of 10/31/98 ($6.9375)1: 8.11%
Current Monthly Distribution per Share2: $ 0.046875
Current Annualized Distribution per Share2: $ 0.562500
</TABLE>
1Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2The distribution is not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ========================================== ==================
<S> <C> <C> <C>
LONG-TERM INVESTMENTS-136.4%
MORTGAGE PASS-THROUGHS-19.4%
Federal Home Loan Mortgage Corp.,
$ 3,792+ 7.50%, 7/01/07 - 2/01/23 ................. $ 3,887,006
949+ 8.00%, 11/01/15 .......................... 984,135
1,583 8.50%, 3/01/06 - 3/01/08, 15 year......... 1,650,079
2,570 9.00%, 9/01/20 ........................... 2,730,752
Federal Housing Administration,
4,223 Brookville, 7.50%, 8/01/28 ............... 4,434,590
GMAC,
6,137 Series 33, 7.43%, 9/01/21 ............... 6,383,299
2,128 Series 46, 7.43%, 1/01/22 ............... 2,213,895
877 Series 48, 7.43%, 6/01/22 ............... 931,776
311 Series 51, 7.43%, 2/01/23 ............... 322,839
7,229 Series 56, 7.43%, 11/01/22 .............. 7,314,180
1,249 Merrill, Series 54, 7.43%, 5/15/23........ 1,300,918
1,248 Middlesex, 8.625%, 9/01/34 ............... 1,321,837
4,482 Continental, 7.30%, 2/01/13 .............. 4,639,186
1,038 Reilly, Series 41, 8.30%, 3/01/20 ........ 1,071,154
2,852 Tuttle Grove, 7.25%, 10/01/35 ............ 2,974,759
USGI,
4,279 Polaris 982, 7.43%, 11/01/21 ............ 4,451,020
913 Series 87, 7.43%, 12/01/22 .............. 950,606
4,804 Series 99, 7.43%, 10/01/23 .............. 5,010,415
2,719 Series 1003, 7.43%, 3/01/24 ............. 2,786,530
2,715 Series 6302, 7.43%, 12/01/21 ............ 2,824,772
6,933 Yorkville, Series 6094, 7.43%,
6/01/21 ................................. 7,208,255
Federal National Mortgage Association,
5,711+ 7.50%, 11/01/14 - 9/01/23,
18 year Multifamily ..................... 6,035,807
4,746+ 8.00%, 5/01/08 - 5/01/22 Multifamily...... 5,002,664
716 9.317%, 6/01/19, 10 year Multifamily...... 813,963
1,438++ 9.497%, 6/01/24, Multifamily ............. 1,506,638
89 9.50%, 1/01/19 - 6/01/20 ................. 95,488
Government National Mortgage
Association,
550 7.00%, 10/15/17 .......................... 563,216
15,799+ 7.50%, 8/15/21 - 12/15/23 ................ 16,268,442
40 8.50%, 5/15/01 - 2/15/17 ................. 42,311
685 9.00%, 6/15/18 - 9/15/21 ................. 729,875
-----------
96,450,407
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS-53.7%
AAA 833 Collateralized Mortgage Obligation
Trust, Series 13, Class Q,
1/20/03, (ARM) .......................... 926,589
Countrywide Funding Corp.,
Mortgage Certificates,
AAA 3,394 Series 1993-10, Class A-8,
1/25/24, (ARM) .......................... 3,327,754
Aa 6,202 Series 1994-9, Class A-16,
5/25/24, (ARM) .......................... 5,901,129
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ========================================== ==================
<S> <C> <C> <C>
AAA $ 16,795++ DLJ Mortgage Acceptance Corp.**,
Series 1998-2, Class A-1,
6/19/28 ................................. $16,818,180
Federal Home Loan Mortgage
Corp., Multiclass Mortgage
Participation Certificates,
27,426+ Series G-13, Class 13-PP,
5/25/21, (I) ............................ 6,788,315
1,980 Series G-24, Class G24-SG,
11/25/23, (ARM) ......................... 2,044,661
7,500 Series 1104, Class 1104-L,
6/15/21 ................................. 7,906,875
1,742+ Series 1347, Class 1347-HC,
12/15/21 ................................ 1,683,748
2,000 Series 1523, Class 1523-SA,
6/15/23, (ARM) .......................... 1,831,000
658 Series 1534, Class 1534-NE,
6/15/23, (ARM) .......................... 660,967
2,453++ Series 1541, Class 1541-T,
7/15/23 ................................. 2,432,377
1,539 Series 1559, Class 1559- WA,
7/15/22 ................................. 1,550,570
13,281+ Series 1584, Class 1584-FB**,
9/15/23 ................................. 13,618,156
1,195 Series 1590, Class 1590-OA,
10/15/23, (ARM) ......................... 1,363,412
332 Series 1596, Class 1596-SB,
12/15/12, (ARM) ......................... 330,976
3,892 Series 1608, Class 1608-SD,
6/15/23, (ARM) .......................... 3,962,857
362 Series 1609, Class 1609-KA,
11/15/23 ................................ 364,179
1,744 Series 1611, Class 1611-PD,
11/15/23, (ARM) ......................... 1,457,999
500 Series 1625, Class 1625-SL,
12/15/08, (ARM) ......................... 545,000
6,543 Series 1627, Class 1627-S,
12/15/23, (ARM) ......................... 6,061,828
5,038 Series 1627, Class 1627-SC,
12/15/23, (ARM) ......................... 4,310,582
3,084 Series 1629, Class 1629-OD,
12/15/23, (ARM) ......................... 2,393,176
8,000 Series 1673, Class 1673-SD
2/15/24, (ARM) .......................... 8,277,500
687 Series 1720, Class 1720-PK,
1/15/24, (I) ............................ 239,955
1,225++ Series 1750, Class 1750-PC,
3/15/24, (P) ............................ 1,072,904
4,564 Series 1882, Class 1882-PJ,
4/15/22, (I) ............................ 580,049
8,208 Series 1910, Class 1910-IC,
5/15/25, (I) ............................ 1,646,146
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ====================================== ==================
<S> <C> <C> <C>
$ 67,873 Series 1914, Class 1914-PC,
12/15/11, (I) ....................... $1,476,247
11,214 Series 1992, Class 1992-PV,
9/15/27, (I) ........................ 4,509,848
16,189 Series 1998, Class 1998-L,
3/25/20, (I) ........................ 1,165,938
17,644 Series 1998, Class 1998-PK,
12/18/21, (I) ....................... 2,370,575
9,955 Series 2037, Class 2037-IB,
12/15/26, (I) ....................... 2,366,380
10,000 Series 2062, Class 2062-QL,
3/15/28, (I) ........................ 2,948,897
4,500 Series 2066, Class 2066-PJ,
12/15/26, (I) ....................... 887,145
18,000 Series 2080, Class 2080-PL,
1/15/27, (I) ........................ 4,342,500
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
3,460 Trust G-92, Class 5-H,
1/25/22, (I) ........................ 922,715
2,582 Trust 1988-16, Class16-B,
6/25/18 ............................. 2,764,678
4,697@ Trust 1990-12, Class 12-G,
2/25/20 ............................. 4,511,374
10,088 Trust 1991-15, Class 15-S,
6/25/21, (I) ........................ 1,682,921
2,416 Trust 1991-38, Class 38-F,
4/25/21, (ARM) ...................... 2,475,702
2,045@@ Trust 1991-38, Class 38-SA,
4/25/21, (ARM) ...................... 2,112,421
2,152 Trust 1991-87, Class 87-S,
8/25/21, (ARM) ...................... 2,470,422
882 Trust 1992-12, Class 12-C,
2/25/22, (I) ........................ 275,267
6,000+ Trust 1992-43, Class 43-E,
4/25/22 ............................. 6,426,960
3,041 Trust 1992-187, Class 187-JA,
10/25/06, (I) ....................... 229,931
8,774 Trust 1992-200, Class 200-K,
11/25/21, (I) ....................... 1,066,550
719 Trust 1993-27, Class 27-SB,
8/25/23, (ARM) ...................... 678,102
9,996 Trust 1993-46, Class 46-J,
5/25/22, (I) ........................ 791,913
565 Trust 1993-50, Class 50-SH,
1/25/23, (ARM) ...................... 545,514
1,040++ Trust 1993-53, Class 53-M,
4/25/23 ............................. 1,037,143
2,202 Trust 1993-82, Class 82-SC,
5/25/23, (ARM) ...................... 2,370,445
817 Trust 1993-87, Class 87-L,
6/25/23 ............................. 824,580
604 Trust 1993-116, Class 116-SB,
7/25/23, (ARM) ...................... 569,420
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ====================================== ==================
<S> <C> <C> <C>
$ 617 Trust 1993-129, Class 129-SE,
8/25/08, (ARM) ...................... $ 620,185
817 Trust 1993-167, Class 167-SA,
9/25/23, (ARM) ...................... 836,150
6,000@@ Trust 1993-169, Class 169-SC,
3/25/23, (ARM) ...................... 5,194,020
3,000 Trust 1993-170, Class 170-SC,
9/25/08, (ARM) ...................... 3,232,230
2,035+ Trust 1993-178, Class 178-A,
9/25/23 ............................. 2,021,449
2,776 Trust 1993-179, Class 179-SC,
10/25/23, (ARM) ..................... 3,375,884
2,871 Trust 1993-179, Class 179-VC,
10/25/21, (ARM) ..................... 2,464,576
1,345 Trust 1993-183, Class 183-SM
10/25/23, (ARM) ..................... 1,351,540
4,000 Trust 1993-196, Class 196-SC,
10/25/08, (I) ....................... 4,359,720
16,000 Trust 1993-201, Class 201-JC,
5/25/19, (I) ........................ 2,624,160
10,000 Trust 1993-202, Class 202-QA,
6/25/19, (I) ........................ 821,875
1,776 Trust 1993-223, Class 223-SJ,
12/25/23, (ARM) ..................... 1,495,694
2,802 Trust 1993-224, Class 224-S,
11/25/23, (ARM) ..................... 2,599,171
1,786 Trust 1993-224, Class 224-SH,
11/25/23, (ARM) ..................... 1,715,144
2,562 Trust 1993-247, Class 247-SN,
12/25/23, (ARM) ..................... 2,817,815
4,854 Trust 1993-248, Class 248-FB,
9/25/23, (ARM) ...................... 4,503,974
2,988 Trust 1993-256, Class 256-F,
11/25/23, (ARM) ..................... 2,920,057
3,777 Trust 1994-14, Class 14-S,
10/25/23, (ARM) ..................... 2,750,095
5,574 Trust 1994-19, Class 19-SB**,
1/25/24, (ARM) ...................... 3,791,808
387 Trust 1994-27, Class 27-SE,
3/25/23, (ARM) ...................... 438,656
14,300 Trust 1996-14, Class 14-E,
8/25/23, (P) ........................ 7,936,500
6,797++ Trust 1996-14, Class 14-M,
10/25/21 ............................ 6,170,475
25,000 Trust 1997-50, Class 50-HK,
8/25/27, (I) ........................ 6,358,697
51,000++ Trust 1997-90, Class 90-M,
1/25/28, (I) ........................ 16,941,562
13,562 Trust 1998-12, Class 12-PL,
7/18/19, (I) ........................ 1,330,807
7,378 Trust 1998-25, Class 25-PG,
3/18/22, (I) ........................ 908,451
10,000 Trust 1998-45, Class 45-PL
3/18/24, (I) ........................ 2,218,750
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ========================================= ==================
<S> <C> <C> <C>
$ 31,782 Trust 1998-48, Class 48-J,
11/25/27, (I) .......................... $ 2,433,315
Aaa 8,598 G. E. Capital Mortgage Services
Inc., REMIC Certificate 94-7,
Class A-17, 2/25/09, (ARM) ............. 7,609,165
AAA 7,083 PNC Mortgage Corp., Mortgage
Pass-Through Certificates,
Series 1997-6, Class-A2,
7/25/27, (ARM) ......................... 7,094,457
Prudential Home Mortgage
Securities Co., Mortgage
Pass-Through Certificates,
Aaa 743 Series 1993-43, Class A-16,
10/25/23, (ARM) ........................ 740,113
Aaa 2,500 Series 1993-48, Class A-8,
12/25/08, (ARM) ........................ 2,701,525
AAA 5,690 Salomon Capital Access Corp., CMO,
Series 1986-1, Class C, 9/01/15 ......... 5,839,555
-----------
268,138,047
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-13.2%
AAA 3,143 Asset Securitization Corp.,
Series 1997-D5, Class PS-1,
2/14/41, (I/O) ......................... 303,709
AAA 43,854 Credit Suisse First Boston Mortgage,
Series 1997, Class C-1***,
6/20/29, (I/O) ......................... 4,433,388
AAA 47,095 GMAC Commercial Mortgage Corp.,
Series 1997-C1, Class-X,
7/15/27, (I/O) ......................... 4,236,042
AAA 25,500++ Series 1998-C2, Class A-2,
6.42%, 8/15/08 ......................... 25,711,000
AAA 6,000 ML Mortgage Investments,
Series 1996-C1, Class A-3,
7.42%, 4/25/28 ......................... 6,370,750
AAA 20,035 Morgan Stanley Capital I Inc.,
Series 1997, Class HF-1**,
6/15/17, (I/O) ......................... 1,814,896
AAA 10,250 NYC Mortgage Loan Trust,
Series 1996, Class A-2***,
6.75%, 6/25/11 ......................... 10,493,438
AA 2,000 PaineWebber Mortgage Acceptance
Corp. IV, Series 1995-M1**,
Class B, 6.95%, 1/15/07 ................ 2,053,477
AAA 10,000 Prudential Securities Secured
Financing Corp., Series 1998-C1,
Class A-1B, 7/15/08 .................... 10,169,266
-----------
65,585,966
-----------
ASSET-BACKED SECURITIES-4.0%
AAA 11,600 Chase Credit Card Master Trust,
Series 1997-5, Class A,
6.194%, 8/15/05 ........................ 11,929,295
AAA 3,555 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ......................... 3,590,200
A 4,581 Money Store Trust,
Series 1998-A, Class MH-2,
7.23%, 5/15/30, MBIA ................... 4,543,805
-----------
20,063,300
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ========================================= ==================
<S> <C> <C> <C>
STRIPPED MORTGAGE-BACKED
SECURITIES-21.8%
Aaa $ 882 Chase Mortgage Finance Corp.,
Mortgage Pass-Through Certificates,
Series 1994-A, Class AP,
1/25/10, (P/O) ......................... $ 706,960
AAA 855 Collateralized Mortgage Obligation
Trust, Series 29, Class A, 5/23/17,
(P/O) .................................. 708,656
Drexel Burnham Lambert,
AAA 309 Trust K, Class K-1, 9/23/17, (P/O) ...... 276,922
AAA 3,284 Trust V, Class V-2A, 9/01/18, (P/O)...... 2,840,454
Federal Home Loan Mortgage Corp.,
2,802 Series 1238, Class 1238-J,
1/15/07, (I/O) ......................... 535,322
21,293 Series 1353, Class 1353-S,
8/15/07, (I/O) ......................... 2,288,095
671 Series 1418, Class 1418-M,
11/15/22, (P/O) ........................ 306,192
486 Series 1473, Class 1473-JA,
2/15/05, (I/O) ......................... 16,804
12,000++ Series 1506, Class 1506-L,
3/15/22, (I/O) ......................... 1,987,320
9,586 Series 1632, Class 1632-S,
4/15/23, (I/O) ......................... 436,568
53,000 Series 1809, Class 1809-SC,
12/15/23, (I/O) ........................ 4,715,410
9,407++ Series 1828, Class 1828-A,
5/15/24, (P/O) ......................... 7,724,251
17,664 Series 1850, Class 1850-SA,
2/15/24, (I/O) ......................... 1,836,680
3,926+ Series 1857, Class 1857-PB,
12/15/08, (P/O) ........................ 3,658,112
5,000 Series 1900, Class 1900-SV,
8/15/08, (I/O) ......................... 1,030,100
4,563 Series 1917, Class 1917-AS,
5/15/08, (I/O) ......................... 962,858
17,938 Series 1946, Class 1946-SG,
3/15/24, (I/O) ......................... 2,126,233
40,000 Series 1965, Class 1965-SA,
3/15/24, (I/O) ......................... 1,943,200
15,106 Series 2002, Class 2002-HJ,
10/15/08, (I/O) ........................ 1,494,859
5,500 Series 2009, Class 2009-HJ,
10/15/22, (P/O) ........................ 3,834,820
Federal Housing Administration,
34,525 Series 184, Class 184-IO,
12/01/26, (I/O) ........................ 6,195,840
2,169 Series T-8, Class 273 A-10,
11/15/28, (P/O) ........................ 1,393,010
Federal National Mortgage Association,
3,322 Trust A, Class A-2,
8/01/10, (I/O) ......................... 621,008
1,201 Trust 50, Class 50-G,
12/25/21, (I/O) ........................ 385,739
4,766 Trust 225, Class 1,
2/01/23, (P/O) ......................... 4,050,966
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ======================================== ==================
<S> <C> <C> <C>
$ 4,575 Trust 279, Class 1,
7/01/26, (P/O) ........................ $ 4,026,035
25,354 Trust 299, Class 2,
5/01/28 (I/O) ......................... 4,423,491
911 Trust 1991-7, Class 7-J,
2/25/21, (P/O) ........................ 754,645
3,132 Trust 1992-34, Class 34-A,
4/25/22, (I/O) ........................ 901,352
12,090 Trust 1992-60, Class 60-SB,
10/25/22, (I/O) ....................... 471,640
882 Trust 1992-68, Class 68-K,
10/25/05, (I/O) ....................... 42,611
1,428 Trust 1993-2, Class 2-KB,
1/25/23, (I/O) ........................ 736,185
8,686++ Trust 1993-213, Class 213-H,
9/25/23, (P/O) ........................ 8,334,461
2,314 Trust 1994-57, Class 57-C,
1/25/24, (P/O) ........................ 2,183,066
2,194++ Trust 1994-94, Class 94-C,
8/25/23, (P/O) ........................ 1,914,594
13,853 Trust 1995-26, Class 26-SW,
2/25/24, (I/O) ........................ 2,915,152
1,452 Trust 1996-5, Class 5-PV,
11/25/23, (P/O) ....................... 1,305,961
9,331++ Trust 1996-38, Class 38-E,
8/25/23, (P/O) ........................ 8,569,749
12,371 Trust 1996-68, Class 68-SC,
1/25/24, (I/O) ........................ 1,360,797
73,108 Trust 1997-37, Class 37-SE,
10/25/22, (I/O) ....................... 1,206,375
35,476 Trust 1997-65, Class 65-SB,
3/25/24, (I/O) ........................ 1,143,806
27,000 Trust 1997-65, Class 65-SG,
6/25/23, (I/O) ........................ 3,176,719
11,139 Trust 1997-76, Class 76-SP,
12/25/23, (I/O) ....................... 1,546,492
2,210+ Trust 1997-85, Class 85-LE,
10/25/23 (P/O) ........................ 2,122,507
5,294 Trust 1997-85, Class 85-EL,
7/25/23, (P/O) ........................ 5,057,090
AAA 920 First Boston Mortgage Securities Corp.,
Series 1987-C, Class Z,
4/25/17, (I/O) ........................ 300,282
Housing Security Inc.,
AAA 262 Series 1992-EB, Class B-8,
9/25/22, (P/O) ........................ 223,099
AAA 539+ Series 1993-D, Class D-8,
6/25/23, (P/O) ........................ 404,366
Kidder Peabody Acceptance Corp.,
AAA 2,324 Series B, Class B-1,
4/22/18, (P/O) ........................ 1,976,286
Aaa 1,259 Series B, Class B-2,
4/22/18, (I/O) ........................ 337,871
AAA 294 Prudential Securities, Inc.,
Trust 15, Class 1G,
5/20/21, (I/O) ........................ 252,724
AAA 1,816 Structured Asset Securities Corp.,
Series 1991-2, Class GA,
12/20/21, (I/O) ....................... 631,932
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ===================== ======================================== ==================
<S> <C> <C> <C>
AAA $ 703 Structured Mortgage Asset Trust,
Series 1993-3C, Class CX,
4/25/24, (P/O) ........................ $ 541,593
-----------
108,937,260
-----------
U.S. GOVERNMENT AND
AGENCY SECURITIES-23.7%
Overseas Private Investment Corp.,
264 5.46%, 5/29/12 ......................... 259,550
310 5.88%, 5/29/12 ......................... 311,757
200 6.27%, 5/29/12 ......................... 204,104
400 6.84%, 5/29/12 ......................... 418,014
Small Business Administration,
Series 1996-20E,
4,336 7.60%, 5/01/16 ........................ 4,716,136
Series 1996-20G,
3,870 7.70%, 7/01/16 ........................ 4,222,620
Series 1996-20H,
3,674 7.25%, 8/01/16 ........................ 3,948,054
Series 1996-20K,
6,591 6.95%, 11/01/16 ....................... 6,986,301
3,684 7.55%, 6/01/16 ........................ 3,997,576
Series 1997-20C,
2,805 7.15%, 3/01/17 ........................ 2,999,589
Series 1998-10A,
5,490 6.12%, 2/01/08 ........................ 5,607,488
United States Treasury Bonds,
110,000++ Zero Coupon, 8/15/17 .................. 38,657,300
46,046+ 3.625%, 4/15/28 (TIPS) ................ 46,074,376
-----------
118,402,865
-----------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS-0.6%
AAA 5,435 American Housing Trust III, Senior
Mortgage Pass-Through Certificates,
Series 1, Class 4, (REMIC) **,
3/25/19 ............................... 761,324
AA+ 273 American Housing Trust VII, Senior
Mortgage Pass-Through Certificates,
Series A, Class R, (REMIC),
11/25/20 .............................. 1,928,025
AAA 25 Collateralized Mortgage Obligation,
Trust 13**, Class R, 1/20/03 ........... 136,666
AAA 45 FBC Mortgage Securities Trust 16,
CMO, Series A-1**,
7/01/17 ............................... 150,199
NR 43 PaineWebber Trust,
Series N, Class 7, (REMIC),
1/01/19 ............................... 128,780
-----------
3,104,994
-----------
NOTIONAL
AMOUNT
(000)
----------------
OPTIONS PURCHASED-1.6%
CALL OPTIONS-1.5%
97,000 Interest Rate Swap, 5.85% over 3
month LIBOR, expires 8/07/00 .......... 3,634,260
185,000 Interest Rate Swap, 5.25% over 3
month LIBOR, expires 9/24/01 .......... 3,585,300
-----------
7,219,560
-----------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
NOTIONAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
============= ============ ================================= =================
<S> <C> <C> <C>
PUT OPTIONS-0.1%
$150,000 Interest Rate Swap, 7.25% over
3 month LIBOR, expires 5/10/00 $ 566,040
------------
Total Options Purchased
(cost $12,325,050).............. 7,785,600
------------
Total Long-Term Investments
(cost $677,615,604)............. 688,468,439
------------
PRINCIPAL
AMOUNT
(000)
--------
SHORT-TERM INVESTMENTS-0.9%
DISCOUNT NOTE
4,504 Federal Home Loan Mortgage Corp.,
5.42%, 11/02/98
(cost $4,504,322) ............... 4,504,322
------------
Total Investments-138.9%
(cost $682,119,926).............. 692,972,761
Liabilities in excess of other
assets-(38.9%) .................. (193,898,032)
------------
NET ASSETS-100% ................. 499,074,729
============
</TABLE>
- ---------------------
* Using the higher of Standard & Poor's or Moody's rating.
** Private placements restricted as to resale.
*** Illiquid securities representing 3.8% of portfolio assets.
+ (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.
<TABLE>
<S> <C>
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.
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $682,119,926) (Note 1)......... $692,972,761
Cash ...................................................... 281,176
Interest receivable ....................................... 5,845,825
Interest rate caps, at value
(amortized cost $8,227,744) (Notes 1 & 3) ................ 1,494,114
Due from broker-variation margin .......................... 885,004
Receivable for investments sold ........................... 36,167
-------------
701,515,047
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) .................... 198,335,893
Payable for investments purchased ......................... 987,755
Unrealized depreciation on interest rate swaps
(Note 1 & 3) ............................................ 1,209,739
Interest payable .......................................... 697,483
Investment advisory fee payable (Note 2) .................. 278,255
Administration fee payable (Note 2) ....................... 85,504
Other accrued expenses .................................... 845,689
-------------
202,440,318
-------------
NET ASSETS ................................................ $499,074,729
=============
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 ...................... 2,250,590
Accumulated net realized losses .......................... (67,345,775)
Net unrealized appreciation .............................. 185,646
-------------
Net assets, October 31, 1998 .............................. $499,074,729
=============
NET ASSET VALUE PER SHARE:
($499,074,729 [div] 62,849,878 shares of
common stock issued and outstanding) .................... $ 7.94
=============
</TABLE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of $9,449,719
and interest expense of $11,688,747)............... $44,371,768
-----------
Expenses
Investment advisory ................................ 3,304,129
Administration ..................................... 1,016,655
Custodian .......................................... 136,000
Transfer agent ..................................... 129,000
Reports to shareholders ............................ 110,000
Directors .......................................... 94,000
Audit .............................................. 73,000
Legal .............................................. 15,000
Miscellaneous ...................................... 261,264
-----------
Total operating expenses .......................... 5,139,048
-----------
Net investment income .............................. 39,232,720
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ........................................ 23,718,109
Futures ............................................ (2,231,694)
Short sales ........................................ (12,279,973)
Swaps .............................................. 1,231,981
-----------
10,438,423
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ........................................ (25,006,878)
Options ............................................ 2,830,500
Interest rate caps ................................. (1,594,313)
Futures ............................................ (1,712,645)
Short sales ........................................ 628,781
Swaps .............................................. (619,200)
-----------
(25,473,755)
-----------
Net loss on investments ............................ (15,035,332)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................... $24,197,388
===========
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash flows provided by operating activities:
Interest received ....................................... $ 65,349,736
Operating expenses paid ................................. (5,848,081)
Interest expense paid ................................... (11,329,070)
Purchase of short-term portfolio investments
including options, net ................................. 1,488,859
Purchase of long-term portfolio investments ............. (1,640,163,831)
Proceeds from disposition of long-term
portfolio investments .................................. 1,653,545,362
Variation margin on futures ............................. 2,970,321
--------------
Net cash flows provided by operating activities ......... 66,013,296
--------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ............... (30,194,307)
Cash dividends paid ..................................... (35,583,306)
--------------
Net cash flows used for financing activities ............ (65,777,613)
--------------
Net increase in cash ..................................... 235,683
Cash at beginning of year ................................ 45,493
--------------
Cash at end of year ...................................... $ 281,176
==============
RECONCILIATION OF NET INCREASE IN NET
ASSETS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net increase in net assets resulting from
operations ............................................. $ 24,197,388
--------------
Decrease in investments .................................. 16,005,898
Increase in interest receivable .......................... (160,498)
Decrease in receivable for investments sold .............. 62,891,659
Increase in due from broker variation margin ............. (1,467,020)
Net realized gain ........................................ (10,438,423)
Decrease in unrealized appreciation ...................... 25,473,755
Increase in depreciation on interest rate swaps .......... 1,172,661
Decrease in call options written ......................... (3,901,500)
Decrease in payable for investments sold short ........... (25,765,500)
Decrease in payable for investments purchased ............ (51,270,274)
Increase in interest payable ............................. 359,677
Decrease in deposits with brokers for
investments sold short ................................. 25,937,500
Decrease in interest rate caps ........................... 3,687,006
Decrease in accrued expenses and other
liabilities ............................................ (709,033)
--------------
Total adjustments ....................................... 41,815,908
--------------
Net cash provided by operating activities ................ $ 66,013,296
==============
</TABLE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Operations:
Net investment income ................. $ 39,232,720 $ 36,244,955
Net realized gain ..................... 10,438,423 10,941,155
Net change in net unrealized
appreciation (depreciation) ......... (25,473,755) 20,310,564
------------ ------------
Net increase in
net assets resulting from
operations .......................... 24,197,388 67,496,674
Dividends from net investment
income ............................... (35,352,217) (35,352,309)
------------ ------------
Total increase (decrease) ............. (11,154,829) 32,144,365
NET ASSETS
Beginning of year ..................... 510,229,558 478,085,193
------------ ------------
End of year ........................... $499,074,729 $510,229,558
============ ============
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------
1998 1997
PER SHARE OPERATING PERFORMANCE: ---------------------- ------------
<S> <C> <C>
Net asset value, beginning of year ....................... $ 8.12 $ 7.61
----------- -------
Net investment income (net of $0.19, $0.18,
$0.17, $0.22 and $0.10, respectively,
of interest expense) .................................. 0.62 0.58
Net realized and unrealized gains (losses) .............. (0.24) 0.49
----------- -------
Net increase (decrease) from investment
operations .............................................. 0.38 1.07
----------- -------
Dividends from net investment income ..................... (0.56) (0.56)
Distributions in excess of net investment income ......... - -
Return of capital distribution ........................... - -
----------- --------
Total dividends and distributions ....................... (0.56) (0.56)
----------- --------
Net asset value, end of year* ............................ $ 7.94 $ 8.12
=========== ========
Per share market value, end of year* ..................... $ 6.94 $ 6.88
=========== ========
TOTAL INVESTMENT RETURN+ ................................ 9.29% 19.68%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................................... 1.01% 1.02%
Net investment income .................................... 7.74% 7.63%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $ 506,858 $474,903
Portfolio turnover ....................................... 214% 220%
Net assets, end of year (in thousands) ................... $ 499,075 $510,230
Reverse repurchase agreements outstanding,
end of year (in thousands) .............................. $ 198,336 $228,530
Asset coverage++ ....................................... $ 3,520 $ 3,233
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------
1996 1995 1994
PER SHARE OPERATING PERFORMANCE: ------------ ------------ -------------
<S> <C> <C> <C>
Net asset value, beginning of year ....................... $ 7.66 $ 7.25 $ 8.75
-------- ------- --------
Net investment income (net of $0.19, $0.18,
$0.17, $0.22 and $0.10, respectively,
of interest expense) .................................. 0.55 0.51 0.73
Net realized and unrealized gains (losses) .............. (0.01) 0.65 (1.45)
-------- ------- --------
Net increase (decrease) from investment
operations .............................................. 0.54 1.16 (0.72)
-------- ------- --------
Dividends from net investment income ..................... (0.55) (0.66) (0.78)
Distributions in excess of net investment income ......... (0.04) -- --
Return of capital distribution ........................... -- (0.09) --
-------- -------- --------
Total dividends and distributions ....................... (0.59) (0.75) (0.78)
-------- -------- --------
Net asset value, end of year* ............................ $ 7.61 $ 7.66 $ 7.25
======== ======== ========
Per share market value, end of year* ..................... $ 6.25 $ 7.25 $ 6.38
======== ======== ========
TOTAL INVESTMENT RETURN+ ................................ (5.36%) 26.50% (15.31%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................................... 1.08% 1.08% 1.10%
Net investment income .................................... 7.36% 6.85% 9.21%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $473,056 $466,449 $496,707
Portfolio turnover ....................................... 440% 267% 223%
Net assets, end of year (in thousands) ................... $478,085 $481,301 $455,651
Reverse repurchase agreements outstanding,
end of year (in thousands) .............................. $204,438 $214,438 $109,286
Asset coverage++ ......................................... $ 3,339 $ 3,244 $ 5,169
</TABLE>
- ----------
* NAV and market value are published in THE WALL STREET JOURNAL each Monday.
# The ratios of operating expenses including interest expense to average net
assets were 3.33%, 3.44%, 3.38%, 4.08% and 2.32% 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 year 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.
++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the audited 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
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION ACCOUNTING POLICIES
The BlackRock Income Trust Inc. (the "Trust"), a Maryland & corporation, is
a diversified closed-end management in-vestment 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, interest rate swaps, caps, floors and non-exchange traded
options on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers,
market transactions in comparable securities, various relationships observed in
the market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business.
A futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades 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 opti on period.
Put options can be purchased to effectively hedge a position or a portfolio
against price declines if a portfolio is long. In the same sense, call options
can be purchased to hedge a portfolio that is shorter than its benchmark
against price changes. The Trust can also sell (or write) covered call options
and put options to hedge portfolio positions.
13
<PAGE>
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 expires
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 pay ments
are made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can
be purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust can effectively "hedge"
positions so that changes in interest rates do not change the duration of the
portfolio unexpectedly.
The Trust may invest in financial futures contracts primarily for the
purpose of hedging its existing portfolio securities or securities the Trust
intends to purchase against fluctuations in value caused by changes in
prevailing market interest rates. Should interest rates move unexpectedly, the
Trust may not achieve the anticipated benefits of the financial futures
contracts and may realize a loss. The use of futures transactions involves the
risk of imperfect correlation in movements in the price of futures contracts,
interest rates and the underlying hedged assets. The Trust is also at the risk
of not being able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of
hedging potential price declines in similar securities owned. When the Trust
makes a short sale, it may borrow the security sold short and deliver it to the
broker-dealer through
14
<PAGE>
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 during the
reporting period. Actual results could differ from those estimates.
15
<PAGE>
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 SECURITIES
Purchases and sales of investment securities, other than short-term
investments and dollar rolls, for the year ended October 31, 1998 aggregated
$1,589,447,018 and $1,509,958,130, 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
October 31, 1998, the Trust held 3.8% 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 October 31,
1998 was $682,726,382 and, accordingly, net unrealized appreciation was
$10,246,379 (gross unrealized appreciation $54,426,199; gross unrealized
depreciation $44,179,820).
For federal income tax purposes, the Trust has a capital loss carryforward
at October 31, 1998 of approximately $69,599,900 of which approximately
$3,440,300 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. Such carryforward is after utilization of approximately
$11,896,700 to offset the Trust's net taxable gains recognized in the year
ended October 31, 1998. 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 October 31, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE OCTOBER 31, APPRECIATION
CONTRACTS TYPE DATE DATE 1998 (DEPRECIATION)
- ----------------- --------------- ------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Long Positions:
2,851 30 yr. T-Bond Dec. 1998 $178,176,052 $174,152,344 $(4,023,708)
Short Positions:
2,279 10 yr. T-Note Dec. 1998 326,312,388 325,012,500 1,299,888
-----------
$(2,723,820)
===========
</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 October
31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE RATE DATE COST 1998 DEPRECIATION
- ---------- ---------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$50,000 6.00% 3 mth LIBOR 2/19/02 $1,064,662 $ 246,750 $ (817,912)
100,000 6.50% 3 mth LIBOR 4/4/02 2,457,557 377,364 (2,080,193)
100,000 7.00% 3 mth LIBOR 4/18/03 2,555,776 470,000 (2,085,776)
100,000 7.25% 3 mth LIBOR 4/23/03 2,149,749 400,000 (1,749,749)
---------- ---------- -----------
$8,227,744 $1,494,114 $(6,733,630)
========== ========== ===========
</TABLE>
Details of open interest rate swaps at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL UNREALIZED
AMOUNT FIXED TERMINATION APPRECIATION
(000) TYPE RATE FLOATING RATE DATE (DEPRECIATION)
- ---------------- --------------- ---------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ (20,000) Interest Rate 7.50% 1 month LIBOR 04/25/02 $(1,287,200)
(5,455) Forward Rate 7.235% 1 month LIBOR 06/15/11 77,461
-----------
$(1,209,739)
===========
</TABLE>
16
<PAGE>
Details of open swaptions at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION OCTOBER 31,
(000) TYPE RATE RATE DATE COST 1998
- ---------- ------ ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Purchased:
$97,000 Call 5.85% 3 mth LIBOR 8/07/00 $2,022,450 $3,634,260
185,000 Call 5.25% 3 mth LIBOR 9/24/01 3,507,600 3,585,300
150,000 Put 7.25% 3 mth LIBOR 5/12/00 6,795,000 566,040
----------
$7,785,600
==========
</TABLE>
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 year ended October 31, 1998 was approximately $218,735,000 at a
weighted average interest rate of approximately 5.47%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period
was $198,335,893 as of October 31, 1998, which was 28.27% 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
year ended October 31, 1998.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of
the 62,849,878 shares outstanding at October 31, 1998, the Adviser owned 10,753
shares.
NOTE 6. DIVIDENDS
Since October 31, 1998, the Board of Directors of the Trust declared
dividends from undistributed earnings of $0.046875 per share payable November
16, 1998 to shareholders of record on November 30, 1998.
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock Income Trust Inc.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The BlackRock Income Trust Inc. as
of October 31, 1998 and the related statements of operations for the year then
ended and of changes in net investment assets for each of the two years in the
period then ended and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards.Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock Income
Trust Inc. at October 31, 1998, and the results of its operations, the changes
in its net investment assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
New York, New York
December 11, 1998
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during its fiscal year ended October 31, 1998
During the fiscal year ended October 31, 1998, the Trust paid dividends
and distributions of $0.56 per share from net investment income. For federal
income tax purposes, the aggregate of any dividends and short-term capital
gains distributions you received are reportable in your 1998 federal income tax
return as ordinary income. Further, we wish to advise you that your income
dividends do not qualify for the dividends received deduction.
We are required by Massachusetts, Missouri and Oregon to inform you that
dividends which have been derived from interest on federal obligations are not
taxable to shareholders. Please be advised that 9.66% of the dividends paid
from ordinary income in the fiscal year ended October 31, 1998, qualify for
each of these states' tax exclusion.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form
1099 DIV which will be mailed to you in January 1999.
- --------------------------------------------------------------------------------
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.
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders or to its charter
or by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
YEAR 2000 READINESS DISCLOSURE. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incure
costs of up to approximately five hundred thousand dollars to complete such
evaluation and to make any modifications to its systems as may be necessary to
achieve Year 2000 compliance. The Adviser has advised the Trust that it expects
to have fully tested its systems for Year 2000 compliance by December 31, 1998.
The Trust may be required to bear a portion of such cost incurred by the
Adviser in this regard. The Adviser has advised the Trust that it does not
anticipate any material disruption in the operations of the Trust as a result
of any failure by the Adviser to achieve Year 2000 compliance. There can be no
assurance that the costs will not exceed the amount referred to above or that
the Trust will not experience a disruption in operations.
The Adviser has advised the Trust that it is in the process of evaluating
the Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it intends to communicate with such
suppliers to determine their Year 2000 compliance status and the extent to
which the Adviser or the Trust could be affected by any supplier's Year 2000
compliance issues. To date, however, the Adviser has not received responses
from all such suppliers with respect to their Year 2000 compliance, and there
can be no assurance that the systems of such suppliers, who are beyond the
Trust's control, will be Year 2000 compliant. In the event that any of the
Trust's significant suppliers do not successfully and timely achieve Year 2000
compliance, the Trust's business or operations could be adversely affected. The
Adviser has advised the Trust that it is in the process of preparing a
contingency plan for Year 2000 compliance by its suppliers. There can be no
assurance that such contingency plan will be successful in preventing a
disruption of the Trust's operations.
The Trust is designating this disclosure as its year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
20
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock Income Trust's investment objective is to manage a portfolio of
high grade securities to achieve high monthly income consistent with
preservation of capital. The Trust will seek to achieve its objective by
investing in Canadian and U.S. dollar-denominated securities.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $122
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 410, domiciled in the United States and
overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest primarily in securities issued or guaranteed by the
federal governments of Canada and the United States, their political
subdivisions (which include the Canadian provinces) and their agencies and
instrumentalities. The Trust's investments will be either government securities
or securities rated "BBB" or higher at the time of investment by Standard &
Poor's or "A2" by Moody's, or securities which BlackRock deems as of comparable
quality. Under current market conditions, it is expected that the percentage of
the Trust's assets invested in Canadian dollar-denominated securities will be
approximately 65% and 75%. Examples of types of securities in which the Trust
may invest include Canadian and U.S. government or government agency
residential mortgage-backed securities, privately issued mortgage-backed
securities, Canadian provincial debt securities, U.S. Government securities,
commercial mortgage-backed securities, asset-backed securities and other debt
securities issued by Canadian and U.S. corporations and other entities. Under
current market conditions, BlackRock expects that the primary investments of
the Trust to be Canadian mortgage-backed securities, Canadian provincial debt
securities, U.S. government securities, securities backed by U.S. government
agencies (such as residential mortgage-backed securities), privately issued
mortgage-backed securities and commercial mortgage-backed securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
asset 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. In
seeking the investment objective, BlackRock actively manages the Trust's assets
in relation to market conditions and changes in general economic conditions in
Canada and the U.S., including its expectations regarding interest rate changes
and changes in currency exchange rates between the U.S. dollar and the Canadian
dollar, to attempt to take advantage of favorable investment opportunities in
each country. As such, the allocation between Canadian and U.S. securities will
change from time to time. 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.
While the Adviser has the opportunity to hedge against currency risks
associated with Canadian securities, the Trust is intended to provide exposure
to the Canadian marketplace. As a result, historically, currency hedging has
not been widely practiced by the Trust. However, BlackRock will attempt to
limit interest rate risk by constantly monitoring the duration (or price
sensitivity with respect to changes in interest rates) of the Trust's assets so
that it is within the range of U.S. Treasury securities with average lives of
seven to ten years. In doing so, the Adviser will attempt to locate securities
with better predictability of cash flows such as U.S. commercial
mortgage-backed securities. In addition, the Canadian mortgage-backed
securities in which the Trust invests are not prepayable, contributing to the
predictability of the Trust's cash flows. Traditional residential U.S.
21
<PAGE>
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 the U.S. mortgage-backed securities in the Trust are of high credit
quality, they typically offer a yield spread over Treasuries due to the
uncertainty of the timing of their cash flows as they are subject to prepayment
exposure when interest rates change and mortgage holders refinance their
mortgages or move. While U.S. mortgage-backed securities do 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.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD?
Does the Trust Pay Dividends Regularly? The Trust's shares are traded on the
New York Stock Exchange which provides investors with liquidity on a daily
basis. Orders to buy or sell shares of the Trust must be placed through a
registered broker or financial advisor. The Trust pays monthly dividends which
are typically paid on the last business day of the month. For shares held in
the shareholder's name, dividends may be reinvested in additional shares of the
Trust through the Trust's transfer agent, State Street Bank & Trust Company.
Investors who wish to hold shares in a brokerage account should check with
their financial advisor to determine whether their brokerage firm offers
dividend reinvestment services.
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|M/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 Trust in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate environment. BlackRock's portfolio managers continuously
monitor and regularly review the Trust's use of leverage and the Trust may
reduce, or unwind, the amount of leverage employed should BlackRock consider
that reduction to be in the best interest of shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO 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. The income and 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.
CURRENCY EXCHANGE RATE CONSIDERATIONS. Because the Trust's net asset value is
expressed in U.S. dollars, and the Trust invests a substantial percentage of
its assets in Canadian dollar-denominated assets, any change in the exchange
rate between these two currencies will have an effect on the net asset value of
the Trust. As a result, if the U.S. dollar appreciates against the Canadian
dollar, the Trust's net asset value would decrease if not offset by other
gains.
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: BNA) 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.
22
<PAGE>
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities.
The major differences typically include more frequent payments and the
possibility of prepayments on certain U.S. mortgage-backed securities which
will change the yield to maturity of the security.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S. SECURITIES. The Trust may invest a portion of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
23
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates that
SECURITIES (ARMS): adjust at periodic intervals at a fixed amount
over the market levels of interest rates as
reflected in specified indexes. ARMS are backed
by mortgage loans secured by real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit card
receivables.
CANADIAN MORTGAGE SECURITIES: Canadian Mortgage instruments which are
guaranteed by the Canadian Mortgage Housing
Corporation (CMHC), a federal agency backed by
the full faith and credit of the Canadian
Government.
CLOSED-END FUND: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
COLLATERALIZED Mortgage-backed securities which separate
MORTGAGE OBLIGATIONS (CMOS): mortgage pools into short, medium, and
long-term securities with different priorities
for receipt of principal and interest. Each
class is paid a fixed or floating rate of
interest at regular intervals. Also known as
multiple-class mortgage pass-throughs.
DISCOUNT: When a fund's net asset value is greater than
its stock price the fund is said to be trading
at a discount.
DIVIDEND: 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.
</TABLE>
24
<PAGE>
<TABLE>
<S> <C>
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.
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
NET ASSET VALUE (NAV): 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.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from
the mortgage assets underlying the CMO after
payment of principal and interest on the
other CMO securities and related
administrative expenses.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPPED MORTGAGE BACKED Arrangements in which a pool of assets is
SECURITIES separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's are
examples of STRIPs.
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS TAXABLE TRUST
- --------------------------------------------------------------------------------
TAXABLE TRUSTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK MATURITY
SYMBOL DATE
PERPETUAL TRUSTS ---------- ---------
<S> <C> <C>
The BlackRock Income Trust Inc. BKT N/A
The BlackRock North American Government Income Trust Inc. BNA N/A
TERM TRUSTS
The BlackRock 1998 Term Trust Inc. BBT 12/98
The BlackRock 1999 Term Trust Inc. BNN 12/99
The BlackRock Target Term Trust Inc. BTT 12/00
The BlackRock 2001 Term Trust Inc. BLK 06/01
The BlackRock Strategic Term Trust Inc. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. BQT 12/04
The BlackRock Advantage Term Trust Inc. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT 12/09
</TABLE>
TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK MATURITY
SYMBOL DATE
PERPETUAL TRUSTS --------- ---------
<S> <C> <C>
The BlackRock Investment Quality Municipal Trust Inc. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
</TABLE>
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO NOT HESITATE TO CALL BLACKROCK
AT (800) 227-7BFM (7236)
OR CONSULT WITH YOUR FINANCIAL ADVISOR.
26
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $122
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. 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 410, domiciled in the United States and overseas.
BlackRock's fixed income product was introduced in 1988 by a team of
highly seasoned fixed income professionals. These professionals had extensive
experience creating, analyzing and trading a variety of fixed income
instruments, including the most complex structured securities. In fact, several
individuals at BlackRock were responsible for developing many of the major
innovations in the mortgage-backed and asset-backed securities markets,
including the creation of the first CMO, the floating rate CMO, the
senior/subordinated pass-through and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
emphasis it places on the development of proprietary analytical capabilities.
Over one quarter of the firm's professionals is dedicated to the design,
maintenance and use of these systems, which are not otherwise available to
investors. BlackRock's proprietary analytical tools are used for evaluating,
and designing fixed income investment strategies for client portfolios.
Securities purchased include mortgages, corporate bonds, municipal bonds and a
variety of hedging instruments.
BlackRock has developed investment products that respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. In fact, BlackRock introduced the first closed-end mortgage fund, the
first taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAA rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
Currently, BlackRock's closed-end funds have dividend reinvestment plans, which
are designed to provide ongoing demand for the stock in the secondary market.
BlackRock manages a wide range of investment vehicles, each having specific
investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions.
The number is (800) 227-7BFM (7236). We encourage you to call us with any
questions that you may have about your BlackRock funds and we thank you for the
continued trust that you place in our abilities.
IF YOU WOULD LIKE FURTHER INFORMATION
PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM
27
<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
Vice 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
This report is for shareholder information. This is not a prospectus
intended for use in the purchase or sale of any securities.
THE BACKROCK INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[GRAPHIC OMITTED]
[logo] Printed on recycled paper 09247F-10-0
- --------------------------------------------------------------------------------
THE BLACKROCK
INCOME
TRUST INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1998
