- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
November 30, 1999
Dear Shareholder:
After easing monetary policy three times during the fourth quarter of 1998,
the Federal Reserve reversed its trend by raising the Fed funds target rate 75
basis points (to 5.50%) over the course of 1999 in response to robust GDP, low
unemployment and rising equity prices. U.S. Treasury yields rose significantly
during the past twelve months, with the yield of the 30-year Treasury rising
above 6.00% for the first time since May 1998.
Despite the rise in Treasury yields, continued strong economic growth may
spur the Federal Reserve to proactively fight perceived inflation through
continued monetary policy tightening in 2000. Until the inflation picture
becomes clearer, we expect interest rates to remain largely range-bound.
Accordingly, we will continue to seek the most attractive relative value
opportunities and utilize our proprietary risk management systems to help the
Trust to achieve its investment objectives.
This report contains a summary of market conditions during the annual
period and a review of portfolio strategy by your Trust's managers in addition
to the Trust's audited financial statements and a detailed portfolio list of the
portfolio's holdings. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
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November 30, 1999
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, 1999. We would like to
take this opportunity to review the Trust's stock price and net asset value
(NAV) performance, summarize market developments and discuss recent portfolio
management activity.
The Trust is a diversified, actively managed closed-end bond fund whose
shares are traded on the New York Stock Exchange under the symbol "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 past twelve months:
------------------------------------------------------
10/31/99 10/31/98 CHANGE HIGH LOW
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STOCK PRICE $6.125 $6.9375 (11.71)% $7.0625 $6.00
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $7.31 $7.94 (7.93)% $8.09 $7.26
- --------------------------------------------------------------------------------
10-YEAR TREASURY NOTE 6.02% 4.61% 30.59% 6.24% 4.52%
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THE FIXED INCOME MARKETS
The U.S. economy sustained its growth during the past twelve months, as
U.S. exports and manufacturing continued to rebound. Additionally, consumer
strength remains an important contributor to economic growth as low unemployment
and rising incomes fuel domestic demand. After lowering interest rates three
times in the second half of 1998, and despite inflation concerns as measured by
CPI and PPI remaining relatively benign, the Federal Reserve adopted a
tightening bias and raised its target for the Federal funds rate from 4.75% to
5.50% between June and November 1999. In a statement accompanying the latest
tightening on November 16, it was indicated that the Fed believes that growth
"continues in excess of the economy's growth potential"; nevertheless, the Fed
reversed their tightening stance by adopting a neutral bias.
After a brief rally in late 1998, Treasury yields rose dramatically during
1999. Over the period, the yield of the 30-year Treasury increased by 100 basis
points, closing at 6.16% on October 31. Bond prices, which move inversely to
their yields, were punished by the constant threat of inflation in response to
the strong economic data and the market's uncertainty over the Fed's policy
throughout the year. Recently, a weaker dollar, higher commodity prices and
strong gains in the U.S. and European equity markets have depressed overall
demand for fixed income securities.
Mortgage security performance significantly outpaced both Treasuries and
the broader domestic fixed income markets during the period, as the LEHMAN
BROTHERS MORTGAGE INDEX posted a 3.00% total return versus -0.82% for the
MERRILL LYNCH U.S. TREASURY MASTER INDEX and 0.53% for the LEHMAN BROTHERS
AGGREGATE INDEX. Higher interest rates throughout the period helped to alleviate
prepayment fears and pushed mortgage rates above 8% for the first time since
1997. Additionally, new mortgage issuance declined in response to lower
refinancing activity across all coupons and vintages, providing a favorable
technical environment for mortgages.
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the
2
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Trust's investment objectives. The Trust is managed to maintain an interest rate
sensitivity (or duration) approximately 1.5 times the SALOMON BROTHERS MORTGAGE
INDEX; this means that the portfolio's NAV will change similarly to the price of
the Index given a change in interest rates. The following chart compares the
Trust's current and October 31, 1998 asset composition:
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SECTOR BREAKDOWN
- --------------------------------------------------------------------------------
COMPOSITION OCTOBER 31, 1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------------
U.S. Government Securities 19% 17%
- --------------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 16% 19%
- --------------------------------------------------------------------------------
Mortgage Pass-Throughs 16% 7%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 11% 8%
- --------------------------------------------------------------------------------
FHA Project Loans 9% 8%
- --------------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 9% 11%
- --------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 8% 12%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 5% 7%
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Commercial Mortgage-Backed Securities 4% 8%
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Asset Backed Securities 3% 3%
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The Trust continued to emphasize yield during the period, maintaining a
significant allocation to IOs and mortgage pass-through allocations. In
particular, pass-throughs were attractively priced relative to other fixed
income alternatives during the period and provided the Trust an opportunity to
increase its overall liquidity. To fund these purchases, the Trust took
advantage of the strong performance of the commercial mortgage-backed sector by
paring its exposure as yield spreads tightened during the year. Additionally,
the Trust sold some of its CMO and adjustable-rate mortgage holdings into strong
bids, which aided performance as well as reduced the Trust's interest rate
exposure.
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 yours,
/s/ Robert S. Kapito /s/ Keith T. Anderson
- ------------------------------------ ------------------------------------
Robert S. Kapito Keith T. Anderson
Vice Chairman and Portfolio Manager Chief Investment Officer--Fixed Income
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
/s/ Michael P. Lustig
- ------------------------------------
Michael P. Lustig
Director and Portfolio Manager
BlackRock Financial Management, Inc.
3
<PAGE>
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THE BLACKROCK INCOME TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BKT
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Initial Offering Date: July 22, 1988
- --------------------------------------------------------------------------------
Closing Stock Price as of 10/31/99: $6.125
- --------------------------------------------------------------------------------
Net Asset Value as of 10/31/99: $7.31
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 10/31/99 ($6.125)(1): 9.18%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share(2): $0.046875
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share(2): $0.562500
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
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THE BLACKROCK INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--135.2%
MORTGAGE PASS-THROUGHS--32.9%
Federal Home Loan Mortgage Corp.,
$ 997++ 6.50%, 5/1/29 - 6/1/29 ................. $ 955,450
2,885++ 7.50%, 7/1/07 - 2/1/23 ................. 2,888,109
756++ 8.00%, 11/1/15 ......................... 778,318
1,042 8.50%, 3/1/06 - 3/1/08, 15 year......... 1,075,973
1,645++ 9.00%, 9/1/20 .......................... 1,728,111
Federal Housing Administration,
1,301 Allen Oaks, 8.60%, 8/1/33 .............. 1,304,517
2,977 Beachtree,10.25%, 6/1/32 ............... 3,124,566
4,186 Brookville, 7.50%, 8/1/28 .............. 4,151,643
GMAC,
5,512 Series 33, 7.43%, 9/1/21 ............ 5,536,238
2,091 Series 46, 7.43%, 3/1/22 ............ 2,095,641
861 Series 48, 7.43%, 8/1/22 ............ 864,453
1,222 Series 51, 7.43%, 2/1/23 ............ 1,224,930
6,742 Series 56, 7.43%, 11/1/22............ 6,765,113
1,179 Merrill, Series 54, 7.43%, 2/1/23....... 1,181,272
1,243 Middlesex, 8.63%, 9/1/34 ............... 1,268,379
4,304 Parkside, 7.30%, 8/1/13 ................ 4,248,624
1,013 Reilly, Series 41, 8.77%, 12/1/18 ...... 1,034,478
2,976 Sunfield Lakes, 7.93%, 7/1/37 .......... 2,983,475
2,835 Tuttle Grove, 7.25%, 10/1/35 ........... 2,759,812
USGI,
4,204 Polaris, Series 982, 7.43%,
11/1/21 ........................... 4,219,765
898 Series 87, 7.43%, 12/1/22 ........... 900,045
4,448 Series 99, 7.43%, 10/1/23 ........... 4,454,725
2,670 Series 6302, 7.43%, 12/1/21 ......... 2,675,788
168 Wilshire Manor, 8.50%, 8/1/33 .......... 167,620
6,811 Yorkville, Series 6094, 7.43%, 6/1/21... 6,832,389
Federal National Mortgage Association,
19,203++ 5.50%, 12/1/13 - 2/1/14, 15 Year........ 8,072,813
38,557++ 6.50%, 2/1/26 - 7/1/29 ................. 36,941,917
6,716++ 7.00%, 6/1/26 - 9/1/29 ................. 6,596,010
5,622++ 7.50%, 11/1/14 - 9/1/23,
18 year Multifamily .................. 5,516,848
3,597++ 8.00%, 5/1/08 - 5/1/22, Multifamily..... 3,660,385
705 -9.32%, 6/1/19, 10 year, Multifamily.... 717,257
55 9.50%, 1/1/19 - 6/1/20 ................. 58,269
1,425++ 9.50%, 6/1/24, Multifamily ............. 1,482,616
Government National Mortgage Association,
499 7.00%, 10/15/17 ........................ 489,648
6,028++ 7.50%, 8/15/21 - 12/15/23............... 6,043,199
5,756 8.00%, 10/15/22 - 2/15/29 .............. 5,880,238
13 8.50%, 5/15/01 - 2/15/17,
15 year .............................. 13,169
461 9.00%, 6/15/18 - 9/15/21 ............... 483,984
151,175,787
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--32.3%
AAA 455@ Collateralized Mortgage Obligation Trust,
Series 13, Class Q,
1/20/03, (ARM) ....................... 466,313
Countrywide Funding Corp.,
Mortgage Certificates,
AAA 3,394 Series 1993-10, Class A-8,
1/25/24, (ARM) ....................... 3,020,218
AAA 6,202 Series 1994-9, Class A-16,
5/25/24, (ARM) ....................... 5,155,009
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
5,166 Series 1104, Class 1104-L,
6/15/21 .............................. 5,356,271
541 Series 1160, Class 1160-F,
10/15/21, (ARM) ...................... 556,567
1,742 Series 1347, Class 1347-HC,
12/15/21 ............................. 1,634,745
14,905 Series 1353, Class 1353-S,
8/15/07, (ARM) ....................... 1,410,945
2,879 Series 1526, Class 1526-SA,
6/15/23, (ARM) ....................... 2,131,007
491 Series 1541, Class 1541-T,
7/15/23 .............................. 485,390
910 Series 1559, Class 1559-WA,
7/15/22 .............................. 904,715
4,409 Series 1580, Class 1580-SD,
9/15/08 .............................. 4,221,908
13,281+ Series 1584, Class 1584-FB,
9/15/23 .............................. 14,327,897
1,113 Series 1590, Class 1590-OA,
10/15/23, (ARM) ...................... 1,172,989
3,686++ Series 1598, Class 1598-S,
10/15/08, (ARM) ...................... 3,285,172
2,169 Series 1601, Class 1601-SE,
10/15/08 ............................. 1,800,199
172 Series 1609, Class 1609-KA,
11/15/23 ............................. 170,763
See Notes to Financial Statements.
5
<PAGE>
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PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates (cont'd)
$ 4,785 Series 1625, Class 1625-SC,
12/15/08, (ARM) ...................... $ 3,971,665
500 Series 1625, Class 1625-SL,
12/15/08, (ARM) ...................... 478,906
5,787 Series 1627, Class 1627-S,
12/15/23, (ARM) ...................... 4,354,119
5,038 Series 1627, Class 1627-SC,
12/15/23, (ARM) ...................... 2,808,835
3,084 Series 1629, Class 1629-OD,
12/15/23, (ARM) ...................... 2,402,921
5,000 Series 1649, Class 1649-S,
12/15/08 ............................. 4,846,875
3,220 Series 1666, Class 1666-S,
1/15/24, (ARM) ....................... 2,781,285
2,250 Series 1688, Class 1688-S,
12/15/13, (ARM) ...................... 2,182,500
5,778 Series 1699, Class 1699-ST,
3/15/24 .............................. 4,085,912
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
243 Trust G93-27, Class 27-SB,
8/25/23, (ARM) ....................... 174,373
1,735@+ Trust 1988-16, Class16-B,
6/25/18 .............................. 1,838,546
2,954@+ Trust 1990-12, Class 12-G,
2/25/20 .............................. 2,726,742
1,508 Trust 1991-38, Class 38-F,
4/25/21, (ARM) ....................... 1,539,026
1,528 Trust 1991-38, Class 38-SA,
4/25/21, (ARM) ....................... 1,500,853
1,566 Trust 1991-87, Class 87-S,
8/25/21, (ARM) ....................... 1,681,082
1,358 Trust 1991-145, Class 145-S,
10/25/06, (ARM) ...................... 1,513,020
4,166+ Trust 1992-43, Class 43-E,
4/25/22 .............................. 4,191,027
147 Trust 1993-50, Class 50-SH,
1/25/23, (ARM) ....................... 139,896
367 Trust 1993-87, Class 87-L,
6/25/23 .............................. 344,255
2,388 Trust 1993-113, Class 113-SB,
7/25/23 .............................. 2,411,802
218 Trust 1993-116, Class 116-SB,
7/25/23, (ARM) ....................... 181,405
378@+ Trust 1993-129, Class 129-SE,
8/25/08, (ARM) ....................... 361,830
173 Trust 1993-167, Class 167-SA,
9/25/23, (ARM) ....................... 170,564
6,000@@ Trust 1993-169, Class 169-SC,
3/25/23, (ARM) ....................... 4,785,660
3,000 Trust 1993-170, Class 170-SC,
9/25/08, (ARM) ....................... 2,985,270
3,500 Trust 1993-179, Class 179-SB,
10/25/23 ............................. 2,921,406
183 Trust 1993-183, Class 183-SM,
10/25/23, (ARM) ...................... 181,639
2,799 Trust 1993-208, Class 208-SE,
11/25/23 ............................. 2,152,091
5,595 Trust 1993-214, Class 214-S,
12/25/08 ............................. 5,338,304
335 Trust 1993-224, Class 224-S,
11/25/23, (ARM) ...................... 268,874
1,598 Trust 1993-224, Class 224-SD,
11/25/23 ............................. 1,519,715
214 Trust 1993-224, Class 224-SH,
11/25/23, (ARM) ...................... 174,055
2,562 Trust 1993-247, Class 247-SN,
12/25/23, (ARM) ...................... 2,650,301
2,743 Trust 1993-248, Class 248-FB,
9/25/23, (ARM) ....................... 2,552,105
2,530 Trust 1993-256, Class 256-F,
11/25/23, (ARM) ...................... 2,080,612
375 Trust 1994-27, Class 27-SE,
3/25/23, (ARM) ....................... 387,635
1,000 Trust 1994-50, Class 50-S,
3/25/24 .............................. 760,050
3,165 Trust 1999-1, Class 1-S,
.7/25/23 ............................. 3,222,186
3,434 Trust 1999-40, Class 40-SB,
8/25/14 .............................. 2,957,628
AAA 8,598 G. E. Capital Mortgage Services Inc.,
REMIC Certificate 94-7,
Class A-17, 2/25/09, (ARM) .......... 6,757,433
Aaa 2,519 Kidder Peabody Acceptance Corp.,
Series 1993-1, Class A-6, 8/25/23 ...... 1,671,863
Prudential Home Mortgage Securities Co.,
Mortgage Pass-Through Certificates,
Aaa 743 Series 1993-43, Class A-16,
10/25/23, (ARM) ...................... 668,609
Aaa 2,500 Series 1993-48, Class A-8,
12/25/08, (ARM) ...................... 2,071,550
Aaa 8,929 Series 1993-50, Class A-12,
11/25/23 ............................. 5,672,476
Aaa 1,000 Series 1993-54, Class A-28,
1/25/24 .............................. 827,500
AAA 2,881 Salomon Capital Access Corp.,
Series 1986-1, Class C, 9/1/15 ......... 2,911,562
-----------
148,306,071
-----------
See Notes to Financial Statements.
6
<PAGE>
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PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--22.3%
AAA $5,435 American Housing Trust III, Senior
Mortgage Pass-Through Certificates,
Series 1, Class 4, (REMIC),
3/25/19 .............................. $ 760,914
BA Mortgage Securities Inc.,
Aaa 2,193 Series 1997-1, Class X, 7/25/26......... 340,626
AAA 2,282 Series 1998-1, Class 2X, 5/28/13........ 344,405
AAA 40,000 Countrywide Funding Corp.,
Mortgage Certificates,
Series 1997-8, Class A-5,
1/25/28 .............................. 387,500
AAA 43,279 Credit Suisse First Boston Mortgage
Securities Corp. Trust,
Series 1997-C1, Class C1-AX,**
6/20/29, ............................. 3,793,878
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
27,426+ Series G-13, Class 13-PP,
5/25/21 .............................. 5,195,114
1,477 Series 1238, Class 1238-J,
1/15/07 .............................. 241,838
499++ Series 1506, Class 1506-L,
3/15/22 .............................. 53,495
5,621 Series 1632, Class 1632-S,
4/15/23 .............................. 113,943
687 Series 1720, Class 1720-PK,
1/15/24 .............................. 192,564
50,399 Series 1809, Class 1809-SC,
12/15/23 ............................. 4,092,438
4,228 Series 1882, Class 1882-PJ,
4/15/22 .............................. 562,733
4,053 Series 1900, Class 1900-SV,
8/15/08 .............................. 531,248
7,086 Series 1910, Class 1910-IC,
5/15/25 .............................. 1,225,641
57,940 Series 1914, Class 1914-PC,
12/15/11 ............................. 1,131,573
3,311 Series 1917, Class 1917-AS,
5/15/08 .............................. 659,225
17,938 Series 1946, Class 1946-SG,
3/15/24 .............................. 1,402,062
11,214 Series 1992, Class 1992-PV,
9/15/27 .............................. 4,009,040
15,106 Series 2002, Class 2002-HJ,
10/15/08 ............................. 1,590,284
9,307 Series 2037, Class 2037-IB,
12/15/26 ............................. 1,921,134
10,000 Series 2062, Class 2062-QL,
3/15/28 .............................. 3,125,300
4,500 Series 2066, Class 2066-PJ,
12/15/26 ............................. 1,179,808
18,000 Series 2080, Class 2080-PL,
1/15/27 .............................. 4,962,420
23,000 Series 2130, Class 2130-SC,
3/15/29 .............................. 1,926,250
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
804 Trust G50, Class 50-G, 12/25/21 ........ 241,869
2,352 Trust G92-5, Class 5-H, 1/25/22 ........ 623,821
7,866 Trust G92-60, Class 60-SB,
10/25/22 ............................. 430,643
589 Trust 1992-12, Class 12-C,
2/25/22 .............................. 175,245
1,475 Trust 1992-187, Class 187-JA,
10/25/06 ............................. 100,276
6,296 Trust 1992-200, Class 200-K,
11/25/21 ............................. 750,781
7,584 Trust 1993-46, Class 46-S,
5/25/22 .............................. 359,876
4,000 Trust 1993-196, Class 196-SC,
10/25/08 ............................. 3,658,800
10,806 Trust 1993-199, Class 199-SB,
10/25/23 ............................. 435,637
16,000 Trust 1993-201, Class 201-JC,
5/25/19 .............................. 1,753,920
6,495 Trust 1993-202, Class 202-QA,
6/25/19 .............................. 420,554
12,372 Trust 1995-26, Class 26-SW,
2/25/24 .............................. 1,907,798
12,371 Trust 1996-68, Class 68-SC,
1/25/24 .............................. 1,024,680
55,910 Trust 1997-37, Class 37-SE,
10/25/22 ............................. 994,329
25,000 Trust 1997-50, Class 50-HK,
8/25/27 .............................. 7,772,958
11,002 Trust 1997-50, Class 50-SI,
4/25/23 .............................. 374,755
35,476 Trust 1997-65, Class 65-SB,
3/25/24 .............................. 924,091
27,000 Trust 1997-65, Class 65-SG,
6/25/23 .............................. 3,324,375
11,139 Trust 1997-76, Class 76-SP,
12/25/23 ............................. 1,011,078
51,000++ Trust 1997-90, Class 90-M,
1/25/28 .............................. 16,324,080
13,025 Trust 1998-12, Class 12-PL,
7/18/19 .............................. 1,538,726
233 Trust 1998-16, Series 16-PK,
12/18/21 ............................. 33,917
See Notes to Financial Statements.
7
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Federal National Mortgage Association
REMIC Pass-Through Certificates (cont'd)
$ 7,378 Trust 1998-25, Class 25-PG,
3/18/22 .............................. $ 1,274,156
10,000 Trust 1998-45, Class 45-PL,
3/18/24 .............................. 2,369,700
AAA 659 First Boston Mortgage Securities Corp.,
Series 1987-C, Class C-Z,
4/25/17 .............................. 184,028
AAA 45,400 GMAC Commercial Mortgage
Securities Inc.,
Trust 1997-C1, Class C1-X,
7/15/27 .............................. 3,488,163
AAA 61,480 Goldman Sachs Mortgage Securities
Corp., Mortgage Participation
Certifcates, Series 1998-5,
Class 5**, 2/19/25 ................... 1,537,004
Government National Mortgage
Association,
6,042 Trust 1998-14, Class 14-PK,
11/20/26 ............................. 1,077,222
8,000 Trust 1999-3, Class 3-S,
2/16/29 .............................. 635,000
20,811 Trust 1999-5, Class 5-S,
2/16/29 .............................. 773,909
67,840 Trust 1999-8, Class 8-S,
3/16/29 .............................. 2,374,409
AAA 38,217 Hanover Grantor Trust,
Series 1999-1, Class 1-A**,
4/28/10 .............................. 1,270,035
AAA 839 Kidder Peabody Acceptance Corp.,
Series B, Class B-2, 4/22/18 ........... 189,431
AAA 19,499 Morgan Stanley Capital 1 Inc.,
Series 1997-HF1, Class HF1-X**,
6/15/17, ............................. 1,414,560
Aaa 121,015 Prudential Home Mortgage Securities
Co., Mortgage Pass-Through
Certificates, Series 1994-5,
Class A-9, 2/25/24 ..................... 1,266,871
AAA 194 Prudential Securities Inc.,
Trust 15, Class 1-G,
5/20/21 .............................. 178,514
AAA 1,227 Structured Asset Securities Corp.,
Series 1991-2, Class GA,
12/20/21 ............................. 366,037
102,324,681
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--12.2%
Aaa 709 Chase Mortgage Finance Corp.,
Mortgage Pass-Through Certificates,
Series 1994-A, Class A-P,
1/25/10 .............................. 621,941
AAA 606 Collateralized Mortgage
Obligation Trust,
Trust 29, Class A,
5/23/17 .............................. 477,756
Drexel Burnham Lambert, Inc.,
AAA 232 Trust K, Class K-1, 9/23/17 ............ 185,216
AAA 2,295 Trust V, Class V-1A, 9/1/18 ............ 1,772,927
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
2,802 Series G-50, Class 50-AM,
4/25/24 .............................. 1,472,769
2,029 Series T-8, Class A-10,
..8/15/27 ............................ 1,135,958
663 Series 1418, Class 1418-M,
11/15/22 ............................. 278,204
11,971++ Series 1686, Class 1686-B,
2/15/24 .............................. 7,025,257
3,199 Series 1739, Class 1739-PO,
2/15/24 .............................. 2,355,202
1,100 Series 1750, Class 1750-PC,
3/15/24 .............................. 971,720
276++ Series 1828, Class 1828-A,
5/15/24 .............................. 147,518
1,658+ Series 1857, Class 1857-PB,
12/15/08 ............................. 1,359,750
5,500 Series 2009, Class 2009-HJ,
10/15/22 ............................. 3,370,455
900 Series 2087, Class 2087-PO,
9/15/25 .............................. 662,886
2,354 Series 2169, Class 2169-EA,
6/15/29 .............................. 1,095,898
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,428 Trust G93-2, Class 2-KB,
1/25/23 .............................. 724,090
3,002 Trust 225, Class 1, 2/1/23 ............. 2,417,350
2,673 Trust 279, Class 279-1,
7/1/26 ............................... 2,100,177
588 Trust 1991-7, Class 7-J,
2/25/21 .............................. 460,830
427+ Trust 1993-213, Class 213-H,
9/25/23 .............................. 401,768
1,119 Trust 1994-9, Class 9-C,
.8/25/23 ............................. 1,026,252
1,042 Trust 1996-5, Class 5-NH,
4/25/24 .............................. 552,690
1,072 Trust 1996-5, Class 5-PV,
11/25/23 ............................. 889,131
6,797++ Trust 1996-14, Class 14-M,
10/25/21 ............................. 5,924,080
14,300 Trust 1996-14, Class 14-PE,
8/25/23 .............................. 5,943,438
3,151++ Trust 1996-38, Class 38-E,
8/25/23 .............................. 984,680
1,629 Trust 1997-85, Class 85-EL,
7/25/23 .............................. 1,150,558
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
Federal National Mortgage Association
REMIC Pass-Through Certificates (cont'd)
$ 300 Trust 1997-85, Class 85-LE,
10/25/23 ............................. $ 247,877
9,000 Trust 1998-26, Class 26-L,
3/25/23 .............................. 6,008,292
1,284 Trust 1998-48, Class 48-P,
8/18/28 .............................. 780,393
AAA 1,403 First Union Residential, Mortgage
Certificate, Series 1999-A,
Class 11-AP, 3/25/15 ................... 925,800
AAA 13,000 Fund America Investment Corp.,
Series 1993-C, Class B, 4/29/30 ........ 1,797,172
Housing Security Inc.,
AAA 135 Series 1992-EB, Class B-8,
9/25/22 .............................. 104,279
AAA 457 Series 1993-D, Class D-8,
6/25/23 .............................. 317,969
AAA 480 Structured Mortgage Asset Trust,
Series 1993-3C, Class CX,
4/25/24 .............................. 331,186
------------
56,021,469
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--5.2%
AAA 1,677 LB Commercial Conduit Mortgage Trust,
Series 1999-C1, Class-A1,
6.41%, 8/15/07 ....................... 1,619,837
AAA 6,000 Merrill Lynch Mortgage Investors Inc.,
Series 1996-C1, Class A-3,
7.42%, 4/25/28 ....................... 6,008,843
AAA 10,250 NYC Mortgage Loan Trust,
Series 1996, Class A-2,**
6.75%, 6/25/11, ...................... 9,732,695
AA 2,000 PaineWebber Mortgage Acceptance
Corp. IV, Series 1995-M1,
Class B,** 6.95%, 1/15/07 .............. 1,990,967
AAA 5,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A-1B,
7/15/08 .............................. 4,736,151
------------
24,088,493
------------
ASSET-BACKED SECURITIES--3.8%
AAA 11,600 Chase Credit Card Master Trust,
Series 1997-5, Class A,
6.19%, 8/15/05 ....................... 11,460,371
AAA 1,610 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ....................... 1,611,109
A 4,581 The Money Store Trust,
Series 1998-A, Class MH-2,
7.23%, 5/15/24 ....................... 4,269,271
------------
17,340,751
------------
U.S GOVERNMENT AND AGENCY
SECURITIES--26.1%
Overseas Private Investment Corp.,
264 5.46%, 5/29/12 ........................ 239,823
240 5.79%, 5/29/12 ........................ 221,787
310 5.88%, 5/29/12 ........................ 291,741
200 6.27%, 5/29/12 ........................ 191,147
351 6.81%, 5/29/12 ........................ 351,274
400 6.84%, 5/29/12 ........................ 393,482
920 6.91%, 5/29/12 ........................ 876,875
Small Business Administration,
3,963 Series 1996-20E, 7.60%,
5/1/16 ............................... 3,987,106
3,347 Series 1996-20F, 7.55%,
7/1/16 ............................... 3,332,131
3,578 Series 1996-20G-1, 7.70%,
7/1/16 ............................... 3,613,234
3,401 Series 1996-20H, 7.25%,
8/1/16 ............................... 3,370,814
6,169 Series 1996-20K, 6.95%,
11/1/16 .............................. 6,018,364
2,661 Series 1997-20C, 7.15%,
3/1/17 ............................... 2,594,552
5,490 Series 1998-P10A-1, 6.12%,
2/1/08 ............................... 5,171,750
United States Treasury Bonds,
47,087++ 3.63%, 4/15/28, (TIPS) .............. 43,157,935
18,850++ 8.50%, 2/15/20 ....................... 23,029,422
23,330 United States Treasury Notes,
6.00%, 8/15/09 ....................... 23,297,105
------------
120,138,542
------------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS***/**--0.4%
AAA 221 American Housing Trust VII, Senior
Mortgage Pass-Through Certificates,
Series A, Class R, 11/25/20 ............ 1,585,096
AAA 25 Collateralized Mortgage Obligation
Trust, Series 13, Class R,
1/20/03, (ARM) ....................... 49,776
AAA 45 FBC Mortgage Securities Trust 16,
CMO,Series A-1, 7/1/17 ................. 117,265
NR 140,000 Kidder Peabody Acceptance Corp.,
Series 1994-C1, Class R, 2/1/01 ........ 1,400
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
PRINCIPAL
RATING AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS***/** (CONT'D)
NR $ 43 PaineWebber Trust,
Series N, Class 7,
(REMIC), 1/1/19 ...................... $ 104,920
------------
1,858,457
------------
Total Investments, before investments
sold short--135.2%
(cost $637,391,320) .................... 621,254,251
INVESTMENTS SOLD SHORT--(26.2%)
United States Treasury Bonds,
(105,000) 5.25%, 2/15/29 ......................... (90,758,850)
(30,000) 6.125%, 8/15/29 ........................ (29,868,600)
------------
(proceeds $124,672,872) ................ (120,627,450)
------------
Total Investments, net of
investments sold short--109.0%
(cost $512,718,448) .................... 500,626,801
Liabilities in excess of
other assets--(9.0)% ................... (41,227,921)
NET ASSETS--100%.......................... $459,398,880
------------
- ----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Private placements restricted as to resale.
*** Illiquid securities representing 0.24% of portfolio assets.
@ Partial principal amount pledged as collateral for futures transactions.
@@ Entire principal amount pledged as collateral for futures transactions.
+ Partial principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
- -----------------------------------------------------------------------------
KEY TO ABBREVIATIONS:
ARM - Adjustable Rate Mortgage.
CMO - Collateralized Mortgage Obligation
LIBOR - London InterBank Offer Rate.
REMIC - Real Estate Mortgage Investment Conduit.
TIPS - Treasury Inflation Protection Securities.
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $637,391,320) (Note 1) ......... $621,254,251
Cash ....................................................... 3,385,399
Deposits with brokers for securities sold short (Note 1) ... 121,012,500
Receivable for investments sold ............................ 15,325,526
Interest receivable ........................................ 6,205,500
Interest rate caps, at value
(amortized cost $6,135,050) (Notes 1 & 3) ................ 3,581,951
------------
770,765,127
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 186,451,488
Investments sold short, at value
(proceeds $124,672,872) (Note 1) ......................... 120,627,450
Interest payable ........................................... 2,558,739
Due to broker-variation margin ............................. 1,058,068
Investment advisory fee payable (Note 2) ................... 254,502
Administration fee payable (Note 2) ........................ 78,308
Unrealized depreciation on interest rate swaps
(Note 1 & 3) ............................................. 74,000
Other accrued expenses ..................................... 263,692
------------
311,366,247
------------
NET ASSETS) ................................................ $459,398,880
============
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 ...................... 12,959,199
Accumulated net realized losses .......................... (101,253,212)
Net unrealized depreciation .............................. (16,291,375)
------------
Net assets, October 31, 1999 ............................... $459,398,880
============
NET ASSET VALUE PER SHARE:
($459,398,880 / 62,849,878 shares of
common stock issued and outstanding) ..................... $ 7.31
============
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$10,268,200 and interest expense of $9,752,372) .......... $ 50,927,392
Expenses
Investment advisory ...................................... 3,147,152
Administration ........................................... 968,355
Transfer agent ........................................... 142,000
Custodian ................................................ 131,000
Reports to shareholders .................................. 130,000
Directors ................................................ 84,000
Audit .................................................... 45,000
Legal .................................................... 13,000
Miscellaneous ............................................ 206,161
------------
Total operating expenses ............................... 4,866,668
------------
Net investment income ...................................... 46,060,724
------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized loss on:
Investments .............................................. (463,786)
Futures .................................................. (28,439,204)
Short sales .............................................. (283,506)
Swaps .................................................... (4,720,941)
------------
(33,907,437)
------------
Net change in unrealized appreciation
(depreciation) on:
Investments .............................................. (26,989,904)
Interest rate caps ....................................... 4,180,531
Futures .................................................. 1,151,191
Swaps .................................................... 1,135,739
Short sales .............................................. 4,045,422
------------
(16,477,021)
------------
Net loss on investments .................................... (50,384,458)
------------
NET DECREASE IN NET ASSETS
Resulting from Operations .................................. $ (4,323,734)
------------
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
RECONCILIATION OF NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
FLOWS PROVIDED BY OPERATING ACTIVITIES
Net decrease in net assets resulting from
operations ............................................... $ (4,323,734)
------------
Decrease in investments .................................... 21,334,052
Net realized loss .......................................... 33,907,437
Decrease in unrealized appreciation ........................ 16,477,021
Increase in interest rate caps ............................. (2,087,837)
Increase in interest receivable ............................ (359,675)
Increase in due to broker-variation margin ................. 1,943,072
Increase in receivable for investments sold ................ (15,289,359)
Increase in payable for investments sold short ............. 120,627,450
Decrease in payable for investments purchased .............. (987,755)
Decrease in depreciation on interest rate swaps ............ (1,135,739)
Increase in interest payable ............................... 1,861,256
Increase in deposits with brokers for
securities sold short .................................... (121,012,500)
Decrease in accrued expenses and other liabilities ......... (612,946)
------------
Total adjustments ........................................ 54,664,477
------------
Net cash flows provided by operating activities ............ $ 50,340,743
============
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ............ $ 50,340,743
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ................ (11,884,405)
Cash dividends paid ...................................... (35,352,115)
------------
Net cash flows used for financing activities ............... (47,236,520)
------------
Net increase in cash ..................................... 3,104,223
Cash at beginning of year ................................ 281,176
------------
Cash at end of year ...................................... $ 3,385,399
============
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------
1999 1998
------------- -------------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income ............ $ 46,060,724) $ 39,232,720
Net realized gain (loss) ......... (33,907,437) 10,438,423
Net change in unrealized
depreciation ................... (16,477,021) (25,473,755)
------------- -------------
Net increase (decrease) in
net assets resulting from
operations ....................... (4,323,734) 24,197,388
Dividends from net investment
income ......................... (35,352,115) (35,352,217)
------------- -------------
Total decrease ................... (39,675,849) (11,154,829)
NET ASSETS
Beginning of year .................. 499,074,729 510,229,558
------------- -------------
End of year ........................ $ 459,398,880 $ 499,074,729
============= =============
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ................................ $ 7.94 $ 8.12 $ 7.61 $ 7.66 $ 7.25
-------- -------- -------- -------- --------
Net investment income (net of $0.16, $0.19, $0.18, $0.17 and
$0.22, respectively, of interest expense) ..................... .73 .62 .58 .55 .51
Net realized and unrealized gains (losses) ...................... (.80) (.24) .49 (.01) .65
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ................ (.07) .38 1.07 .54 1.16
-------- -------- -------- -------- --------
Dividends and distributions:
Dividends from net investment income ............................ (.56) (.56) (.56) (.55) (.66)
Distributions in excess of net investment income ................ -- -- -- (.04) --
Return of capital distribution .................................... -- -- -- -- (.09)
-------- -------- -------- -------- --------
Total dividends and distributions ............................... (.56) (.56) (.56) (.59) (.75)
-------- -------- -------- -------- --------
Net asset value, end of year* ..................................... $ 7.31) $ 7.94 $ 8.12 $ 7.61 $ 7.66
-------- -------- -------- -------- --------
Per share market value, end of year* .............................. $ 6.13) $ 6.94$6.88 $ 6.25 $ 7.25
-------- -------- -------- -------- --------
TOTAL INVESTMENT RETURN+ .......................................... (4.04)% 9.29% 19.68% (5.36%) 26.50%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses # .............................................. 1.01% 1.01% 1.02% 1.08% 1.08%
Net investment income ............................................. 9.54% 7.74% 7.63% 7.36% 6.85%
SUPPLEMENTAL DATA:
Average net assets (in thousands) 44) ............................. $482,685 $506,858 $474,903 $473,056 $466,449
Portfolio turnover ................................................ 144% 214% 220% 440% 267%
Net assets, end of year (in thousands) ............................ $459,399 $499,075 $510,230 $478,085 $481,301
Reverse repurchase agreements outstanding,
end of year (in thousands) ...................................... $186,451 $198,336 $228,530 $204,438 $214,438
Asset coverage++ .................................................. $ 3,478 $ 3,520 $ 3,233 $ 3,339 $ 3,244
</TABLE>
- ----------------
* NAV and market value are published in BARRON'S on Saturday and THE WALL
STREET JOURNAL each Monday.
# The ratios of operating expenses, including interest expense, to average net
assets were 3.03%, 3.33%, 3.44%, 3.38%, and 4.08% for the years 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 years 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.
13
<PAGE>
THE BLACKROCK INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION The BlackRock Income Trust Inc. (the "Trust"), a
& ACCOUNTING Maryland corporation, is a diversified closed-end
POLICIES 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 or
disposition.
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, or collections of positions, so that changes in interest rates do not
change the duration of the portfolio unexpectedly. In general, the Trust uses
options to hedge a long or short position or an overall portfolio that is longer
or shorter than the benchmark security. A call option gives the purchaser of the
option the right (but not obligation) to buy, and obligates the seller to sell
(when the option is exercised), the underlying position at the exercise price at
any time or at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy the underlying position
at the exercise price at any time or at a specified time during the option
period. Put options can be purchased to effec-
14
<PAGE>
tively hedge a position or a portfolio against price declines if a portfolio is
long. In the same sense, call options can be purchased to hedge a portfolio that
is shorter than its benchmark against price changes. The Trust can also sell (or
write) covered call options and put options to hedge portfolio positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
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 are efficient as asset/liability management tools. In more
complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are
recognized as unrealized gains or losses by "marking-to-market" to reflect the
market value of the swap. When the swap is terminated, the Trust will record a
realized gain or loss equal to the difference between the proceeds from (or cost
of) the closing transaction and the Trust's basis in the contract, if any.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the swap. However, the Trust closely monitors swaps and 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 in a manner similar to more generic options described above.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the 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
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able to enter into a closing transaction for the futures contract because of an
illiquid secondary market. In addition, since futures are used to shorten or
lengthen a portfolio's duration, there is a risk that the portfolio may have
temporarily performed better without the hedge or that the Trust may lose the
opportunity to realize appreciation in the market price of the underlying
positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
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
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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.
NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with
BlackRock Financial Management, Inc. (the "Adviser"), a
wholly-owned subsidiary of BlackRock Advisors, Inc., which is a wholly-owned
subsidiary of BlackRock, Inc., which in turn is an indirect majority-owned
subsidiary of PNC Bank Corp. The Trust has an Administration Agreement with
Prudential Investments Fund Management LLC ("PIFM"), a wholly-owned subsidiary
of The Prudential Insurance Co. of America.
The investment fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.65% of the Trust's average weekly net assets. The
administration fee paid to PIFM is also computed weekly and payable monthly at
an annual rate of 0.20% of the first $500 million of the Trust's average weekly
net assets and 0.15% of any excess.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust.
PIFM pays occupancy and certain clerical and accounting costs of the Trust. The
Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term investments and dollar rolls, for the year ended
October 31, 1999 aggregated $967,030,380 and $879,274,684,
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, 1999, the Trust held 0.24% 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, 1999
was $637,646,079 and, accordingly, net unrealized depreciation was $16,391,828
(gross unrealized appreciation $22,578,062; gross unrealized depreciation
$38,969,890).
For federal income tax purposes, the Trust has a capital loss carryforward
at October 31, 1999 of approximately $102,707,800 of which approximately
$3,440,300 will expire in 2001, approximately $23,358,000 will expire in 2002,
approximately $15,428,300 will expire in 2003, approximately $27,373,200 will
expire in 2004, and approximately $33,108,000 will expire in 2007. 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, 1999 are as
follows:
VALUE AT UNREALIZED
NUMBER OF EXPIRATION VALUE AT OCTOBER 31, APPRECIATION
CONTRACTS TYPE DATE TRADE DATE 1999 (DEPRECIATION)
- ---------- ---- --------- --------- ---------- -----------
Long Positions:
300 10 Yr. T-Note Dec. 1999 $ 32,901,350 $ 32,915,625 $ 14,275
Short Positions:
69 Eurodollar June 2000 (16,300,940) (16,198,613) 102,327
69 Eurodollar March 2000 (16,323,365) (16,228,800) 94,565
1,422 30 Yr. T-Bond Dec. 1999 (159,746,507) (161,530,303) (1,783,796)
----------
$(1,572,629)
==========
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, 1999 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE RATE DATE COST 1999 DEPRECIATION
- -------- ----- ---------- ------- ---------- ----------- ------------
$ 50,000 6.00% 3mth.LIBOR 2/19/02 $ 742,438 $ 590,150 $ (152,288)
100,000 6.50% 3mth.LIBOR 4/4/02 1,739,951 819,901 (920,050)
100,000 7.00% 3mth.LIBOR 4/18/03 1,983,119 1,218,800 (764,319)
100,000 7.25% 3mth.LIBOR 4/23/03 1,669,542 953,100 (716,442)
---------- ---------- ---------
$6,135,050 $3,581,951 $(2,553,099)
========== ========== ===========
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Details of the open interest rate swap at October 31, 1999 are as follows:
NOTIONAL
AMOUNT FIXED FLOATING TERMINATION UNREALIZED
(000) TYPE RATE RATE DATE DEPRECIATION
- -------- ----- ----- ------ ---------- ----------
$(20,000) Interest Rate 7.50% 1 mth. LIBOR 04/25/02 $(74,000)
========
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 investment
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, 1999 was approximately $204,436,000 at a
weighted average interest rate of approximately 4.77%. The maximum amount of
reverse repurchase agreements outstanding at any month-end during the period was
$238,025,000 as of February 28, 1999, which was 29.88% of total assets.
DOLLAR ROLLS: The Trust enters into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date.
The average monthly balance of dollar rolls outstanding during the year
ended October 31, 1999 was approximately $13,166,793. The maximum amount of
dollar rolls outstanding at any month-end during the year was $60,312,500 as of
January 31, 1999, which was 8.07% of total assets.
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, 1999, the Adviser owned 10,753 shares.
NOTE 6. DIVIDENDS Subsequent to October 31, 1999, the Board of Directors of
the Trust declared dividends from undistributed earnings of
$0.046875 per share payable November 30, 1999 to shareholders of record on
November 15, 1999.
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THE BLACKROCK INCOME TRUST INC.
REPORT OF INDEPENDENT AUDITORS
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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. (the
"Trust") as of October 31, 1999 and the related statements of operations and of
cash flows for the year then ended, the statement of changes in net assets for
the two years then ended, and financial highlights for each of the five years
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, 1999, 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, 1999 and the results of its operations, its cash
flows, the changes in its net assets and the 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 13, 1999
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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, 1999.
During the fiscal year ended October 31, 1999, 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 1999 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.
For the purpose of preparing your 1999 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 2000.
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DIVIDEND REINVESTMENT PLAN
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Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
reinvested by State Street Bank and Trust Company (the "Plan Agent") in Trust
shares pursuant to the Plan. Shareholders who do not participate in the Plan
will receive all distributions in cash paid by check in United States dollars
mailed directly to the shareholders of record (or if the shares are held in
street or other nominee name, then to the nominee) by the transfer agent, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the transfer Agent will acquire shares for the participants'
accounts, depending upon the circumstances described below, either (i) through
receipt of unissued but authorized shares from the Trust ("newly issued shares")
or (ii) by purchase of outstanding shares on the open market, on the New York
Stock Exchange or elsewhere ("open-market purchases"). If, on the dividend
payment date, the net asset value per share is equal to or less than the market
price per share plus estimated brokerage commissions (such condition being
referred to herein as "market premium"), the transfer agent will invest the
dividend amount in newly issued shares on behalf of the participants. The number
of newly issued shares to be credited to each participant's account will be
determined by dividing the dollar amount of the dividend by the net asset value
per share (but in no event less than 95% of the then current market price per
share) on the date the shares are issued. If, on the dividend payment date, the
net asset value per share is greater than the market value per share (such
condition being referred to herein as "market discount"), the transfer agent
will invest the dividend amount in shares acquired on behalf of the participants
in open-market purchases.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
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.
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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 has evaluated 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 has evaluated whether such systems are year 2000 compliant and
that it expects to incur costs of up to approximately one million dollars to
complete such evaluation and to make any modifications to its systems as may be
necessary to achieve Year 2000 compliance. The Adviser advised the Trust that it
has fully tested its systems for Year 2000 compliance. The Trust may be required
to bear a portion of such cost incurred by the Adviser in this regard. The
Adviser 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 continuing to evaluate the
Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser advised the Trust that it has communicated 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 the Adviser received responses from substantially all such suppliers with
respect to their Year 2000 compliance. However, 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 advised the Trust that it
has prepared 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
Readiness Statement for purposes of that Act.
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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 quality securities to miantain high monthly income consistent with
preservation of capital. The Trust will seek to distribute monthly income that
is greater than that obtainable on an annualized basis by investment in United
States Treasury securities having the same maturity as the average dollar
weighted maturity of the Trust's investments.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. As of September 30, 1999, BlackRock and its affiliates
managed over $148 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-three closed-end funds that are traded on either the New York or
American stock exchanges, and a $24 billion family of open-end equity and bond
funds. BlackRock manages over 487 accounts, domiciled in the United States and
overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest at least 65% of its assets in mortgage-backed securities.
At least 85% of the Trust's assets must be rated at least "AAA" by Standard &
Poor's or "Aaa" by Moody's at the time of purchase. Of this 85% at least 80% of
the Trust's assets must be rated at least "AAA" by Standard & Poor's at the time
of purchase while the remaining 5% can be invested in securities rated at least
"AAA" by Standard & Poor's, "Aaa" by Moody's or deemed "AAA" by the Advisor at
the time of purchase. Additionally, 15% of the Trust's assets can be invested in
securities rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time
of purchase. Under current market conditions, BlackRock expects that the primary
investments of the Trust will be U.S. government securities, securities backed
by government agencies (such as mortgage-backed securities), privately issued
mortgage-backed securities, commercial mortgage-backed securities and
asset-backed securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to provide high monthly income consistent with the
preservation of capital. The Trust will seek to provide monthly income that is
greater than that which could be obtained by investing in U .S. Treasury
securities with an average life similar to that of the Trust's assets. Under
current market conditions, the average life of the Trust's assets is expected to
be in the range of seven to ten years. Under other market conditions, the
Trust's average life may vary and may not be predictable using any formula. In
seeking the investment objective, the Adviser may actively manage among various
types of securities in different interest rate environments. Traditional
mortgage pass-through securities make interest and principal payments on a
monthly basis and can be a source of attractive levels of income to the Trust.
While mortgage-backed securities in the Trust are of high credit quality, they
typically offer a yield spread above Treasuries due to the uncertainty of the
timing of their cash flows as they are subject to changes in the rate of
prepayments when interest rates change and either a larger or smaller proportion
of mortgage holders refinance their mortgages or move. While mortgage-backed
securities offer the opportunity for attractive yields, they subject a portfolio
to interest rate risk and prepayment exposure which result in reinvestment risk
when prepaid principal must be reinvested. Multiple-class mortgage pass-through
securities, or collateralized mortgage obligations (CMOs), are also an
investment that may be used in the Trust's portfolio. These securities are
issued in multiple classes each of which has a different coupon rate, stated
maturity and prioritization on the timing of receipt of cash flows coming from
interest and principal payments on the underlying mortgages. Principal
prepayments can be allocated among the different classes of a CMO in a number of
ways; for instance, they can be applied to each of the classes in the order of
their respective stated maturities. This feature allows an investor to better
plan the average life of their investment. Additionally, in order to protect the
portfolio from interest rate risk, the Adviser will attempt to locate securities
with call protection, such as commercial mortgage-backed securities with
prepayment penalties or lockouts. Securities with call protection should provide
the portfolio with some degree of protection against reinvestment risk during
times of lower prevailing interest rates.
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HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial adviser. 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 adviser to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THETRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in
longer-term assets is the benefit to the Trust from leverage. In general, the
portfolio is typically leveraged at approximately 331/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the 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 interests of the 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
montly income consistent with preservation of capital, there can be no assurance
that this objective will be achieved.
DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over
time as fixed income market conditions change. Future dividends may be higher or
lower than the dividend the Trust is currently paying.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BKT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity;
therefore, interim price movement on the securities are generally more sensitive
to interest rate movements then securities that make periodic coupon payments.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
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THE BLACKROCK INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with interest rates
that adjust at periodic intervals at a fixed
amount over the market levels of interest
rates as reflected in specified indexes.
ARMS are backed by mortgage loans secured by
real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
CLOSED-END FUND: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
COLLATERALIZED MORTGAGE
OBLIGATIONS (CMOS): Mortgage-backed securities which separate
mortgage pools into short-, medium-, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
COMMERCIAL MORTGAGE
BACKED SECURITIES (CMBS): Mortgage-backed securities secured or backed
by mortgage loans on commercial properties.
DISCOUNT: When a fund's net asset value is greater
than its stock price the fund is said to be
trading at a discount.
DIVIDEND: Income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. The Trust
declares and pays dividends on a monthly
basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all dividends
and distributions of capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Administration, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
U.S. government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and
FHLMC.
24
<PAGE>
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that
receive only the interest cash flows from an
underlying pool of mortgage loans or
underlying pass-through securities. Also
known as a strip.
INVERSE-FLOATING RATE MORTGAGE: 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 FNMA,
FHLMC, FHA or GNMA.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its
investments, minus any liabilities including
accrued expenses, divided by the total
number of outstanding shares. It is the
underlying value of a single share on a
given day. Net asset value for the Trust is
calculated weekly and published in BARRON'S
on Saturday and THE WALL STREET JOURNAL on
Monday.
PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a strip.
PROJECT LOANS: Mortgages for multi family, low- to
middle-income housing.
PREMIUM: When a fund's stock price is greater than
its net asset value, the fund is said to be
trading at a premium.
REMIC: A real estate mortgage investment conduit is
a multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets
that elects to be treated as a REMIC for
federal tax purposes. Generally, FNMA REMICs
are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
REVERSE REPURCHASE
AGREEMENT: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPPED MORTGAGE-BACKED
SECURITIES: Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's
are examples of strips.
25
<PAGE>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
TAXABLE TRUSTS
- --------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ ------
The BlackRock Income Trust Inc. BKT N/A
The BlackRock North American Government Income Trust Inc. BNA N/A
The BlackRock High Yield Trust BHY N/A
TERM TRUSTS
The BlackRock Target Term Trust Inc. BTT 12/00
The BlackRock 2001 Term Trust Inc. BTM 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
TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ ------
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
The BlackRock Pennsylvania Strategic Municipal Trust BPS N/A
The BlackRock Strategic Municipal Trust BSD 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
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE CALL
BLACKROCK AT (800) 227-7BFM (7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
26
<PAGE>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. As of Septemebr 30, 1999, BlackRock and its affiliates
managed over $148 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-three closed-end
funds that are traded on either the New York or American stock exchanges, and a
$24 billion family of open-end funds. BlackRock manages over 487 accounts,
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 logo]
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
THE [BlackRock logo]
INCOME
TRUST INC.
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ANNUAL REPORT
OCTOBER 31, 1999
[Recycle logo] Printed on recycled paper 09247F-10-0
