- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
May 31, 1999
Dear Shareholder:
Since the Trust's last report, interest rates rose sharply as U.S.
economic growth remained strong, labor markets tightened and international
markets began to recover. In light of these factors, on May 18 members of the
Federal Reserve's Federal Open Market Committee announced that they had adopted
a bias towards higher interest rates, citing a concern that inflation might
start to accelerate.
BlackRock has adopted a cautious view of the bond market, as we believe
that there is a real possibility that the Federal Reserve will raise interest
rates in the near future. Additionally, because the Treasury yield curve has
already priced in Federal Reserve action, we believe that interest rates will
trade in a relatively narrow range until the economy shows signs of slowing.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/Laurence D. Fink /s/Ralph L. Schlosstein
- ------------------ -----------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
May 31, 1999
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock Income
Trust Inc. (the "Trust") for the six months ended April 30, 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" by Moody's (up to 5% can be unrated and deemed by the Adviser
to be of equivalent credit quality); the remaining 15% of the Trust's assets
must be rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time of
purchase.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
<TABLE>
<CAPTION>
-------------------------------------------------------
4/30/99 10/31/98 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------
STOCK PRICE $6.8125 $6.9375 (1.80%) $7.0625 $6.75
- -------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $7.79 $7.94 (1.89%) $8.09 $7.61
- -------------------------------------------------------------------------------------
10-YEAR U.S. TREASURY NOTE 5.35% 4.61% 16.05% 5.42% 4.52%
- -------------------------------------------------------------------------------------
</TABLE>
THE FIXED INCOME MARKETS
The past six months have witnessed continued rapid expansion of the U.S.
economy. GDP growth for the first quarter of 1999 is estimated at an annual
rate above 4%, far exceeding the historical non-inflationary level of 2%. While
BlackRock believes that growth may slow down in the second half of 1999, we
anticipate GDP to remain above 3% for the year. Despite the strong economic
growth, inflation has stayed surprisingly subdued. A significant factor in
maintaining low inflation in the U.S. economy stems from the increase in
industrial productivity. Higher productivity has allowed manufacturers to avoid
price increases despite tight labor markets.
The Treasury market briefly rallied early in the fourth quarter of 1998
before dramatically reversing in 1999. For the semi-annual period, the yield of
the 10-year Treasury security rose from 4.61% on October 31, 1998 to 5.35% on
April 30, 1999. The weak performance of the Treasury market can be attributed
to investors leaving the safe haven of Treasuries to purchase credit sensitive
or higher yielding securities in reaction to inflationary concerns voiced by
the Federal Reserve.
As interest rates rose and alleviated prepayment fears, mortgages
significantly outperformed the broader investment grade bond market for the
semi-annual period. As measured by the LEHMAN BROTHERS MORTGAGE INDEX,
mortgages posted a 2.39% total return versus 0.68% for the LEHMAN BROTHERS
AGGREGATE INDEX. After significantly underperforming Treasuries in 1998,
mortgages experienced a significant rally late in 1998 into the first four
months of 1999. Although yields have tightened significantly from early in the
fourth quarter of 1998 mortgages remain at attractive levels as record issuance
has come to market and created favorable supply and demand technicals. Although
higher mortgage rates have allayed prepayment fears, the fact that mortgages
rates still remain at historically low levels should temper enthusiasm.
2
<PAGE>
THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY
BlackRock actively manages the Trust's portfolio holdings consistent with
BlackRock's overall market outlook and the Trust's investment objectives. The
Trust is managed to maintain an interest rate sensitivity (or duration)
resembling that of the Salomon Brothers Mortgage Index; this means that the
portfolio's NAV will change similarly to the price of the Index given a change
in interest rates. The following chart compares the Trust's current and October
31, 1998 asset composition.
The following chart compares the Trust's current and October 31, 1998
asset composition:
<TABLE>
<CAPTION>
SECTOR BREAKDOWN
-------------------------------------------------------------------------------
COMPOSITION APRIL 30, 1999 OCTOBER 31, 1998
<S> <C> <C>
-------------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 19% 6%
-------------------------------------------------------------------------------
Mortgage Pass-Throughs 17% 6%
-------------------------------------------------------------------------------
U.S. Government Securities 16% 17%
-------------------------------------------------------------------------------
Adjustable & Inverse Floating Rate Mortgages 11% 17%
-------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 9% 19%
-------------------------------------------------------------------------------
FHA Project Loans 8% 9%
-------------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 8% 9%
-------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 7% 10%
-------------------------------------------------------------------------------
Asset Backed Securities 3% 3%
-------------------------------------------------------------------------------
CMO Residuals 1% 1%
-------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throu 1% 3%
-------------------------------------------------------------------------------
</TABLE>
The Trust has continued to emphasize mortgage products with relatively
strong prepayment protection, including deals backed by lower-coupon mortgages
and structured bonds with prepayment lockout. The Trust has purchased IOs
(Interest-Only securities) as a defensive strategy. IOs help to protect the
value of a portfolio in a rising interest rate environment by appreciating when
mortgages extend.
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,
<TABLE>
<CAPTION>
<S> <C> <C>
/s/Robert S. Kapito /s/Keith T. Anderson /s/Michael P. Lustig
- ------------------- -------------------- --------------------
Robert S. Kapito Keith T. Anderson Michael P. Lustig
Vice Chairman and Portfolio Manager Chief Investment Officer-Fixed Income Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
</TABLE>
3
<PAGE>
------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BKT
------------------------------------------------------------------------------
Initial Offering Date: July 22, 1988
------------------------------------------------------------------------------
Closing Stock Price as of 4/30/99: $6.8125
------------------------------------------------------------------------------
Net Asset Value as of 4/30/99: $7.79
------------------------------------------------------------------------------
Yield on Closing Stock Price as of 4/30/99 ($6.8125)1: 8.26%
------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.046875
------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $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
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS-138.3%
MORTGAGE PASS-THROUGHS-36.8%
Federal Home Loan Mortgage Corp.,
$ 1,000 6.50%, 5/17/99 (TBA) ...................... $ 995,000
3,283+ 7.50%, 7/01/07 - 2/1/23 ................... 3,331,891
832+ 8.00%, 11/01/15 ........................... 865,072
1,207 8.50%, 3/01/06 - 3/1/08, 15 year .......... 1,261,445
2,015 9.00%, 9/01/20 ............................ 2,147,866
Federal Housing Administration,
1,304 Allen Oaks, 8.60%, 8/1/33 ................. 1,306,847
2,983 Beachtree, 10.25%, 6/1/32 ................. 3,213,862
4,205 Brookville, 7.50%, 8/1/28 ................. 4,276,628
GMAC,
6,081 Series 33, 7.43%, 9/1/21 ................. 6,233,032
2,110 Series 46, 7.43%, 3/1/22 ................. 2,163,284
869 Series 48, 7.43%, 8/1/22 ................. 872,974
1,635 Series 51, 7.43%, 2/1/23 ................. 1,655,305
6,807 Series 56, 7.43%, 11/1/22 ................ 6,931,682
1,216 Merrill, Series 54, 7.43%, 2/1/23 ......... 1,237,664
1,246 Middlesex, 8.63%, 9/1/34 .................. 1,306,134
4,395 Parkside, 7.30%, 8/1/13 ................... 4,437,159
1,026 Reilly, Series 41, 8.77%, 12/1/18 ......... 1,149,011
2,843 Tuttle Grove, 7.25%, 10/1/35 .............. 2,874,057
USGI,
4,242 Polaris 982, 7.43%, 11/1/21 .............. 4,348,867
906 Series 87, 7.43%, 12/1/22 ................ 917,651
4,768 Series 99, 7.43%, 10/1/23 ................ 4,896,080
2,700 Series 1003, 7.43%, 3/1/24 ............... 2,738,094
2,693 Series 6302, 7.43%, 12/1/21 .............. 2,727,201
1,670 Wilshire Manor, 8.50%, 8/1/33 ............. 1,669,320
6,873 Yorkville Series 6094, 7.43%,
6/1/21 ................................... 6,997,844
Federal National Mortgage Association,
19,914+ 5.50%, 12/1/13 - 2/1/14, 15 year .......... 19,316,887
55,744++ 6.50%, 5/17/99 - 03/01/29 ................. 55,384,253
7,237 7.00%, 6/1/26 - 3/1/29 .................... 7,331,957
5,669+ 7.50%, 11/1/14 - 9/1/23, 18 year
Multifamily ............................... 5,813,010
4,083+ 8.00%, 5/1/08 - 5/1/22 Multifamily 4,246,272
711 9.32%, 6/1/19, 10 year Multifamily 790,120
74 9.50%, 1/1/19 - 6/1/20 .................... 78,888
1,432+ 9.50%, 6/1/24, Multifamily ................ 1,502,143
Government National
Mortgage Association,
507 7.00%, 10/15/17 ........................... 514,710
6,783+ 7.50%, 8/15/21 - 12/15/23 ................. 6,991,169
6,683 8.00%, 10/15/22 - 2/15/29 ................. 6,963,223
13 8.50%, 5/15/01 - 2/15/17 .................. 13,845
536 9.00%, 6/15/18 - 9/15/21 .................. 572,621
-----------
180,073,068
-----------
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS-28.5%
AAA $ 653@ Collateralized Mortgage Obligation
Trust, Series 13, Class Q,
1/20/03, (ARM) ............................ $ 685,866
Countrywide Funding Corp.,
Mortgage Certificates,
AAA 3,394 Series 1993-10, Class A-8,
1/25/24, (ARM) ............................ 3,312,908
AAA 6,202 Series 1994-9, Class A-16,
5/25/24, (ARM) ............................ 5,736,401
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
1,252 Series G-24, Class G-24-SG,
11/25/23, (ARM) ........................... 1,139,496
6,614 Series 1104, Class 1104-L,
6/15/21 ................................... 6,876,476
686 Series 1160, Class 1160-F,
10/15/21, (ARM) ........................... 786,935
1,742 Series 1347, Class 1347-HC,
12/15/21 .................................. 1,660,875
465 Series 1534, Class1534-NE,
6/15/23, (ARM) ............................ 434,987
728 Series 1541, Class 1541-T,
7/15/23 ................................... 721,861
1,206 Series 1559, Class 1559-WA,
7/15/22 ................................... 1,205,188
5,615 Series 1580, Class 1580-SD,
9/15/08 ................................... 5,727,361
13,281+ Series 1584, Class 1584-FB,
9/15/23 ................................... 13,867,044
1,195 Series 1590, Class 1590-OA,
10/15/23, (ARM) ........................... 1,244,585
262 Series 1609, Class 1609-KA,
11/15/23 .................................. 259,557
500 Series 1625, Class 1625-SL,
12/15/08, (ARM) ........................... 512,500
6,543 Series 1627, Class 1627-S,
12/15/23, (ARM) ........................... 5,431,410
5,038 Series 1627, Class 1627-SC,
12/15/23, (ARM) ........................... 3,842,426
3,084 Series 1629, Class 1629-OD,
12/15/23, (ARM) ........................... 2,516,031
8,000 Series 1673, Class 1673-SD,
2/15/24, (ARM) ............................ 7,541,250
5,778 Series 1699, Class 1699-ST,
3/15/24 ................................... 4,709,390
4,492 Series 1900, Class 1900-SV,
8/15/08, (ARM) ............................ 641,086
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
$ 361 Trust G93-27, Class 27-SB,
8/25/23, (ARM) ......................... $ 319,738
2,096@ Trust 1988-16, Class 16-B,
6/25/18 ................................ 2,236,532
3,701@ Trust 1990-12, Class 12-G,
2/25/20 ................................ 3,539,936
1,888 Trust 1991-38, Class 38-F,
4/25/21, (ARM) ......................... 1,954,196
1,598@ Trust 1991-38, Class 38-SA,
4/25/21, (ARM) ......................... 1,609,199
1,977 Trust 1991-87, Class 87-S,
8/25/21, (ARM) ......................... 2,252,006
1,679 Trust 1991-145, Class 145-S,
10/25/06, (ARM) ........................ 1,931,409
5,129+ Trust 1992-43, Class 43-E,
4/25/22 ................................ 5,218,850
210 Trust 1993-50, Class 50-SH,
1/25/23, (ARM) ......................... 203,312
578 Trust 1993-87, Class 87-L,
6/25/23 ................................ 574,347
266 Trust 1993-116, Class 116-SB,
7/25/23, (ARM) ......................... 232,906
466@ Trust 1993-129, Class 129-SE,
8/25/08, (ARM) ......................... 463,618
197 Trust 1993-167, Class 167-SA,
9/25/23, (ARM) ......................... 196,764
6,000@@ Trust 1993-169, Class 169-SC,
3/25/23, (ARM) ......................... 5,255,160
3,000 Trust 1993-170, Class 170-SC,
9/25/08, (ARM) ......................... 2,949,030
97 Trust 1993-178, Class 178-A,
9/25/23 ................................ 96,300
335 Trust 1993-183, Class 183-SM,
10/25/23, (ARM) ........................ 334,076
4,000 Trust 1993-196, Class 196-SC,
10/25/08, (ARM) ........................ 4,007,480
5,835 Trust 1993-214, Class 214-S,
12/25/08 ............................... 5,762,451
970 Trust 1993-224, Class 224-S,
11/25/23, (ARM) ........................ 821,992
618 Trust 1993-224, Class 224-SH,
11/25/23, (ARM) ........................ 535,881
2,562 Trust 1993-247, Class 247-SN,
12/25/23, (ARM) ........................ 2,856,245
3,347 Trust 1993-248, Class 248-FB,
9/25/23, (ARM) ......................... 3,159,074
2,651 Trust 1993-256, Class 256-F,
11/25/23, (ARM) ........................ 2,417,876
387 Trust 1994-27, Class 27-SE,
3/25/23, (ARM) ......................... 393,571
1,000 Trust 1994-50, Class 50-S,
3/25/24 ................................ 910,000
6,797++ Trust 1996-14, Class 14-M,
10/25/21 ............................... 6,017,541
AAA 8,598 G. E. Capital Mortgage Services Inc.,
REMIC Certificate 94-7, Class A-17,
2/25/09, (ARM) ......................... 7,494,974
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prudential Home Mortgage Securities Co.,
Mortgage Pass-Through Certificates,
Aaa $ 743 Series 1993-43, Class A-16,
10/25/23, (ARM) ........................ $ 709,469
Aaa 2,500 Series 1993-48, Class A-8,
12/25/08, (ARM) ........................ 2,137,525
AAA 4,190 Salomon Capital Access Corp.,
Series 1986-1, Class C, 9/1/15 .......... 4,245,161
-----------
139,690,252
-----------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES-25.7%
AAA 3,124 Asset Securitization Corp.,
Series 1997-D5, Class PS-1,
2/14/43 ................................ 288,601
BA Mortgage Securities Inc.,
Aaa 3,082 Series 1997-1, Class X,
7/25/26 ................................ 400,763
AAA 2,675 Series 1998-1, Class 2X,
5/25/13 ................................ 361,089
AAA 43,574 Credit Suisse First Boston Mortgage
Securities Corp., Trust
1997-C1, Class C1-AX**/***,
6/20/29 ................................ 4,073,772
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
27,426+ Series G-13, Class 13-PP,
5/25/21 ................................ 5,319,630
28,598 Series 184, Class 184-IO,
12/1/26 ................................ 6,412,258
1,893 Series 1238, Class 1238-J,
1/15/07 ................................ 343,550
17,481 Series 1353, Class 1353-S,
8/15/07 ................................ 1,165,263
149 Series 1473, Class 1473-JA,
2/15/05 ................................ 1,316
12,000++ Series 1506, Class 1506-L,
5/15/08 ................................ 1,676,880
7,472 Series 1632, Class 1632-S,
4/15/23 ................................ 181,933
687 Series 1720, Class 1720-PK,
1/15/24 ................................ 213,423
53,000 Series 1809, Class 1809-SC,
12/15/23 ............................... 4,659,230
4,564 Series 1882, Class 1882-PJ,
4/15/22 ................................ 636,606
7,639 Series 1910, Class 1910-IC,
5/15/25 ................................ 1,260,990
62,901 Series 1914, Class 1914-PC,
12/15/11 ............................... 1,168,074
3,707 Series 1917, Class 1917-AS,
5/15/08 ................................ 535,253
17,938 Series 1946, Class 1946-SG,
3/15/24 ................................ 1,766,748
11,214 Series 1992, Class 1992-PV,
9/15/27 ................................ 4,246,212
14,271 Series 1998-27, Class 27-L,
3/25/20 ................................ 1,530,656
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 15,106 Series 2002, Class 2002-HJ,
10/15/08 .............................. $ 1,615,458
9,795 Series 2037, Class 2037-IB,
12/15/26 .............................. 2,097,954
10,000 Series 2062, Class 2062-QL,
3/15/28 ............................... 2,943,596
4,500 Series 2066, Class 2066-PJ,
12/15/26 .............................. 1,228,248
18,000 Series 2080, Class 2080-PL,
1/15/27 ............................... 5,242,500
23,000 Series 2130, Class 2130-SC,
3/15/29 ............................... 2,443,750
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
2,918 Trust A, Class A-2, 8/1/10 ............. 374,915
8,203 Trust G15, Class 15-S,
6/25/21 ............................... 853,121
964 Trust G50, Class 50-G, 12/25/21 ........ 298,434
2,551 Trust G92-34, Class 34-A, 4/25/22 ...... 710,727
9,038 Trust G92-60, Class 60-SB,
10/25/22 .............................. 345,237
2,768 Trust 1992-5, Class 5-H,
1/25/22 ............................... 606,054
722 Trust 1992-12, Class 12-C,
2/25/22 ............................... 186,227
2,229 Trust 1992-187, Class 187-JA,
10/25/06 .............................. 140,641
7,500 Trust 1992-200, Class 200-K,
11/25/21 .............................. 827,263
8,775 Trust 1993-46, Class 46-S,
5/25/22 ............................... 530,356
11,796 Trust 1993-199, Class 199-SB,
10/25/23 .............................. 698,548
16,000 Trust 1993-201, Class 201-JC,
5/25/19 ............................... 2,184,160
8,530 Trust 1993-202, Class 202-QA,
6/25/19 ............................... 654,422
13,192 Trust 1995-26, Class 26-SW,
2/25/24 ............................... 1,795,970
12,371 Trust 1996-68, Class 68-SC,
1/25/24 ............................... 1,445,847
64,380 Trust 1997-37, Class 37-SE,
10/25/22 .............................. 1,322,169
25,000 Trust 1997-50, Class 50-HK,
8/25/27 ............................... 8,336,318
12,875 Trust 1997-50, Class 50-SI,
4/25/23 ............................... 354,050
35,476 Trust 1997-65, Class 65-SB,
3/25/24 ............................... 1,454,430
27,000 Trust 1997-65, Class 65-SG,
2/25/15 ............................... 3,704,063
11,139 Trust 1997-76, Class 76-SP,
12/25/22 .............................. 1,723,913
51,000++ Trust 1997-90, Class 90-M,
1/25/28 ............................... 16,981,406
13,328 Trust 1998-12, Class 12-PL,
7/18/19 ............................... 1,666,060
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 16,693 Trust 1998-16, Class 16-PK,
12/18/21 .............................. $ 2,401,179
7,378 Trust 1998-25, Class 25-PG,
3/18/22 ............................... 1,272,754
10,000 Trust 1998-45, Class 45-PL,
3/18/24 ............................... 2,550,000
AAA 787 First Boston Mortgage Securities Corp.,
Series 1987-C, Class C-Z,
4/15/17 ............................... 251,466
AAA 46,359 GMAC Commercial Mortgage
Securities Inc.,
Trust 1997-C1, Class C1-X,
7/15/27 ............................... 4,020,477
AAA 66,812 Goldman Sachs Mortgage Securities
Corp., Mortgage Participation
Certifcates, Series 1998-5, Class 5**,
2/19/25 ............................... 1,659,871
Government National Mortgage
Association,
8,000 Trust 1999-3, Class 3-S,
2/16/29 ............................... 850,000
120,104 Trust 1999-5, Class 5-S,
2/16/29 ............................... 5,517,257
75,000 Trust 1999-8, Class 8-S,
3/16/29 ............................... 3,375,000
AAA 41,760 Hanover Grantor Trust,
Series 1999-1, Class 1-A**,
4/28/10 ............................... 1,422,436
AAA 1,009 Kidder Peabody Acceptance Corp.,
Series B, Class B-2,
4/22/18 ............................... 192,904
AAA 19,694 Morgan Stanley Capital 1 Inc.,
Trust 1997-HF1, Class HF1-X**,
6/15/17 ............................... 1,712,493
Aaa 137,283 Prudential Home Mortgage Securities Co.,
Mortgage Pass-Through Certificates,
Series 1994-5, Class A-9,
2/25/24 ............................... 986,718
AAA 238 Prudential Securities Inc.,
Trust 15, Class 1-G,
5/20/21 ............................... 224,305
AAA 1,471 Structured Asset Securities Corp.,
Series 1991-2, Class GA,
12/20/21 .............................. 426,103
-----------
125,871,047
-----------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES-10.8%
Aaa 757 Chase Mortgage Finance Corp.,
Mortgage Pass-Through
Certificates,
Series 1994-A, Class A-P,
1/25/10 .............................. 634,330
AAA 720 Collateralized Mortgage Obligation
Trust, Series 29, Class A,
5/23/17 .............................. 580,396
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Drexel Burnham Lambert, Inc.,
AAA $ 271 Trust K, Class K-1,
9/23/17 ............................. $ 238,115
AAA 2,689 Trust V, Class V-1A,
9/1/18 .............................. 2,220,174
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
2,101 Series T-8, Class A-10,
8/15/27 ............................. 1,265,565
667 Series 1418, Class 1418-M,
11/15/22 ............................ 334,319
1,225 Series 1750, Class 1750-PC,
3/15/24 ............................. 1,082,778
2,815++ Series 1828, Class 1828-A,
5/15/24 ............................. 1,992,802
1,989+ Series 1857, Class 1857-PB,
12/15/08 ............................ 1,725,920
5,500 Series 2009, Class 2009-HJ,
10/15/22 ............................ 3,908,410
900 Series 2087, Class 2087- PO,
9/15/25 ............................. 646,547
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,428 Trust G93-2, Class 2-KB,
1/25/23 ............................. 734,600
3,787 Trust 225, Class 1,
6/1/23 .............................. 3,116,580
3,461 Trust 279, Class 279-1,
7/1/26 .............................. 2,915,509
746 Trust 1991-7, Class 7-J,
2/25/21 ............................. 598,074
2,696+ Trust 1993-213, Class 213-H,
9/25/23 ............................. 2,649,793
1,658 Trust 1994-9, Class 9-C,
8/25/23 ............................. 1,526,683
1,252 Trust 1996-5, Class 5-PV,
11/25/23 ............................ 1,019,221
14,300 Trust 1996-14, Class 14-PE,
8/25/23 ............................. 6,649,500
4,690++ Trust 1996-38, Class 38-E,
8/25/23 ............................. 3,948,444
3,769 Trust 1997-85, Class 85-EL,
7/25/23 ............................. 3,372,958
551 Trust 1997-85, Class 85-LE,
10/25/23 ............................ 477,603
9,000 Trust 1998-26, Class 26-L,
3/25/23 ............................. 6,602,908
1,345 Trust 1998-48, Class 48-P,
8/18/28 ............................. 949,873
AAA 1,429 First Union Residential, Mortgage
Certificate,
Series 1999-A, Class 11-AP,
3/25/15 ............................. 1,001,248
AAA 13,000 Fund America Investment Corp.,
Series 1993-C, Class B,
4/29/30 ............................. 1,999,010
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Housing Security Inc.,
AAA $ 197 Series 1992-EB, Class B-8,
9/25/22 ............................. $ 162,780
AA+ 477 Series 1993-D, Class D-8,
6/25/23 ............................. 359,847
AAA 539 Structured Mortgage Asset Trust,
Series 1993-3C, Class CX,
4/25/24 ............................. 400,824
----------
53,114,811
----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-9.4%
AAA 17,525++ GMAC Commercial Mortgage
Securities Inc., Trust 1998-C2,
Class C2-A2,
6.42%, 8/15/08 ...................... 17,576,725
AAA 6,000 Merrill Lynch Mortgage Investors Inc.,
Series 1996-C1, Class A-3,
7.42%, 4/25/28 ...................... 6,225,975
AAA 10,250 NYC Mortgage Loan Trust,
Series 1996, Class A-2**/***,
6.75%, 6/25/11 ...................... 10,288,437
AA 2,000 PaineWebber Mortgage Acceptance
Corp. IV, Series1995-M1, Class B**,
6.95%, 1/15/07 ...................... 2,032,876
AAA 10,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A-1B,
6.51%, 7/15/08 ...................... 9,979,507
----------
46,103,520
----------
ASSET-BACKED SECURITIES-3.8%
AAA 11,600 Chase Credit Card Master Trust,
Series 1997-5, Class A,
6.19%, 8/15/05 ...................... 11,691,401
AAA 2,496 Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ...................... 2,517,771
A 4,581 Money Store Trust,
Series 1998-A, Class MH-2,
7.23%, 5/15/24 ...................... 4,518,120
----------
18,727,292
----------
U.S GOVERNMENT AND AGENCY
SECURITIES-22.2%
Overseas Private Investment Corp.,
264 5.46%, 5/29/12 ....................... 255,501
240 5.79%, 5/29/12 ....................... 233,272
310 5.88%, 5/29/12 ....................... 303,582
200 6.27%, 5/29/12 ....................... 199,618
400 6.84%, 5/29/12 ....................... 406,395
Small Business Administration,
4,150 Series 1996-20E,
7.60%, 5/1/16 ....................... 4,352,290
3,756 Series 1996-20F,
7.55%, 7/1/16 ....................... 3,961,929
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3,528 Series 1996-20H,
7.25%, 8/1/16 .......................... $ 3,653,961
6,378 Series 1996-20K,
6.95%, 11/1/16 ......................... 6,518,328
3,539 Series 1996-20K,
7.55%, 6/1/16 .......................... 3,702,356
2,744 Series 1997-20C,
7.15%, 3/1/17 .......................... 2,827,569
5,490 Series 1998-10A,
6.12%, 2/10/08 ......................... 5,435,081
United States Treasury Bonds,
55,000++ Zero Coupon, 8/15/17 ................... 18,296,300
46,356+ 3.63%, 4/15/28 (TIPS) .................. 44,429,226
15,000 5.25%, 2/15/29 ......................... 14,081,250
------------
108,656,658
------------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS***-0.6%
AAA 5,435 American Housing Trust III, Senior
Mortgage Pass-Through
Certificates, Series 1, Class 4,
(REMIC)**, 3/25/19 .................... 760,914
AAA 246 American Housing Trust VII, Senior
Mortgage Pass-Through
Certificates, Series A, Class R,
11/25/20 .............................. 1,767,148
AAA 25 Collateralized Mortgage Obligation
Trust, Series 13**, Class R,
1/20/03, (ARM) ........................ 49,799
AAA 45 FBC Mortgage Securities Trust 16,
CMO, Series A-1**, 7/1/17 .............. 117,265
NR 43 PaineWebber Trust,
Series N, Class 7,
(REMIC), 1/1/19 ....................... 98,900
------------
2,794,026
------------
NOTIONAL
AMOUNT
(000)
---------
OPTIONS PURCHASED-0.5%
CALL OPTION-0.3%
97,000 Interest Rate Swap, 5.85% over 3
month LIBOR, expires 8/07/00 ............ 1,611,684
------------
PUT OPTION-0.2%
150,000 Interest Rate Swap, 7.25% over
3 month LIBOR, expires 5/12/00 .......... 739,500
------------
Total Options Purchased .................. 2,351,184
------------
Total Long-Term Investments
(cost $674,108,967)...................... 677,381,858
------------
======================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT-0.1%
DISCOUNT NOTE
435 Federal Home Loan Mortgage Corp.,
4.82%, 5/3/99
(cost 434,884) .......................... $ 434,884
------------
Total Investments-138.4%
(cost $674,543,851)...................... 677,816,742
Liabilities in excess of other
assets -(38.4)% ......................... (187,931,475)
------------
NET ASSETS-100% .......................... $489,885,267
============
</TABLE>
- ---------------------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Private placements restricted as to resale.
*** Illiquid securities representing 2.1% of portfolio assets.
+ (Partial) principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
@ (Partial) principal amount pledged as collateral for futures
transactions.
@@ Entire principal amount pledged as collateral for futures
transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM - Adjustable Rate Mortgage.
CMO - Collateralized Mortgage Obligation.
LIBOR - London InterBank Offer Rate.
REMIC - Real Estate Mortgage Investment Conduit.
TBA - To Be Allocated.
TIPS - Treasury Inflation Protection Securities.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $674,543,851) (Note 1)..... $677,816,742
Cash .................................................. 37,192
Interest receivable ................................... 6,506,930
Interest rate caps, at value
(amortized cost $7,189,998) (Notes 1 & 3) ............ 1,906,970
Receivable for investments sold ....................... 386,061
------------
686,653,895
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ................ 163,964,500
Payable for investments purchased ..................... 22,575,632
Due to broker-variation margin ........................ 8,524,053
Unrealized depreciation on interest rate swaps
(Note 1 & 3) ........................................ 670,800
Interest payable ...................................... 445,801
Investment advisory fee payable (Note 2) .............. 265,681
Administration fee payable (Note 2) ................... 81,748
Other accrued expenses ................................ 240,413
------------
196,768,628
------------
NET ASSETS ............................................ $489,885,267
============
Net assets were comprised of:
Common stock, at par (Note 5) ....................... $ 628,499
Paid-in capital in excess of par ..................... 563,355,769
------------
563,984,268
Undistributed net investment income .................. 2,461,434
Accumulated net realized losses ...................... (66,863,339)
Net unrealized depreciation .......................... (9,697,096)
------------
Net assets, April 30, 1999 ............................ $489,885,267
============
NET ASSET VALUE PER SHARE:
($489,885,267 \d 62,849,878 shares of
common stock issued and outstanding) ................ $7.79
=====
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$10,940,833 and interest expense of
$4,973,007)..................................................... $20,363,904
-----------
Expenses
Investment advisory ............................................. 1,607,289
Administration .................................................. 494,550
Transfer agent .................................................. 71,000
Reports to shareholders ......................................... 66,000
Custodian ....................................................... 63,000
Directors ....................................................... 45,000
Audit ........................................................... 37,000
Legal ........................................................... 4,000
Miscellaneous ................................................... 89,152
-----------
Total operating expenses ....................................... 2,476,991
-----------
Net investment income ........................................... 17,886,913
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3)
Net realized gain (loss) on:
Investments ..................................................... 8,093,260
Futures ......................................................... (7,379,280)
Short sales ..................................................... (586,305)
Swaps ........................................................... 354,761
-----------
482,436
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ..................................................... (7,579,944)
Interest rate caps .............................................. 1,450,602
Futures ......................................................... (4,292,339)
Swaps ........................................................... 538,939
-----------
(9,882,742)
-----------
Net loss on investments ......................................... (9,400,306)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................................ $ 8,486,607
===========
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from operations ..... $ 8,486,607
-----------
Decrease in investments .................................. 5,755,713
Net realized gain ........................................ (482,436)
Decrease in unrealized appreciation ...................... 9,882,742
Increase in interest rate caps ........................... (412,856)
Increase in interest receivable .......................... (661,105)
Increase in due to broker-variation margin ............... 9,409,057
Increase in receivable for investments sold .............. (349,894)
Increase in payable for investments purchased ............ 21,587,877
Decrease in depreciation on interest rate swaps .......... (538,939)
Decrease in interest payable ............................. (251,682)
Decrease in accrued expenses and other liabilities ....... (621,606)
-----------
Total adjustments ....................................... 43,316,871
-----------
Net cash provided by operating activities ................ $51,803,478
===========
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities .......... $51,803,478
-----------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements .............. (34,371,393)
Cash dividends paid ..................................... (17,676,069)
-----------
Net cash flows used for financing activities ............. (52,047,462)
-----------
Net decrease in cash .................................... (243,984)
Cash at beginning of period ............................. 281,176
-----------
Cash at end of period ................................... $37,192
===========
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1999 1998
---------------- ------------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income ................. $ 17,886,913 $ 39,232,720
Net realized gain ..................... 482,436 10,438,423
Net change in net unrealized
appreciation (depreciation) ......... (9,882,742) (25,473,755)
------------ ------------
Net increase in
net assets resulting from
operations .......................... 8,486,607 24,197,388
Dividends from net investment
income ............................... (17,676,069) (35,352,217)
------------ ------------
Total decrease ........................ (9,189,462) (11,154,829)
NET ASSETS
Beginning of period ................... 499,074,729 510,229,558
------------ ------------
End of period ......................... $489,885,267 $499,074,729
============ ============
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, 1999
PER SHARE OPERATING PERFORMANCE: ---------------
<S> <C>
Net asset value, beginning of period ..................... $ 7.94
--------
Net investment income (net of $0.08, $0.19, $0.18,
$0.17, $0.22 and $0.10, respectively,
of interest expense) .................................. .29
Net realized and unrealized gains (losses) .............. (.16)
--------
Net increase (decrease) from investment
operations .............................................. .13
--------
Dividends from net investment income ..................... (.28)
Distributions in excess of net investment income ......... -
Return of capital distribution ........................... -
--------
Total dividends and distributions ....................... (.28)
--------
Net asset value, end of period* .......................... $ 7.79
========
Per share market value, end of period* ................... $ 6.81
========
TOTAL INVESTMENT RETURN+ ................................ 2.22%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................................... 1.00%+++
Net investment income .................................... 7.25%+++
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $497,416
Portfolio turnover ....................................... 54%
Net assets, end of period (in thousands) ................. $489,885
Reverse repurchase agreements outstanding,
end of period (in thousands) ............................ $163,965
Asset coverage++ ....................................... $ 3,990
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
PER SHARE OPERATING PERFORMANCE: ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 8.12 $ 7.61 $ 7.66 $ 7.25 $ 8.75
-------- -------- -------- -------- --------
Net investment income (net of $0.08, $0.19, $0.18,
$0.17, $0.22 and $0.10, respectively,
of interest expense) .................................. .62 .58 .55 .51 .73
Net realized and unrealized gains (losses) .............. (.24) .49 (.01) .65 (1.45)
-------- -------- -------- -------- --------
Net increase (decrease) from investment
operations .............................................. .38 1.07 .54 1.16 (.72)
-------- -------- -------- -------- --------
Dividends from net investment income ..................... (.56) (.56) (.55) (.66) (.78)
Distributions in excess of net investment income ......... - - (.04) - -
Return of capital distribution ........................... - - - (.09) -
-------- -------- -------- -------- --------
Total dividends and distributions ....................... (.56) (.56) (.59) (.75) (.78)
-------- -------- -------- -------- --------
Net asset value, end of period* .......................... $ 7.94 $ 8.12 $ 7.61 $ 7.66 $ 7.25
======== ======== ======== ======== ========
Per share market value, end of period* ................... $ 6.94 $ 6.88 $ 6.25 $ 7.25 $ 6.38
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ................................ 9.29% 19.68% (5.36%) 26.50% (15.31%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ...................................... 1.01% 1.02% 1.08% 1.08% 1.10%
Net investment income .................................... 7.74% 7.63% 7.36% 6.85% 9.21%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ........................ $506,858 $474,903 $473,056 $466,449 $496,707
Portfolio turnover ....................................... 214% 220% 440% 267% 223%
Net assets, end of period (in thousands) ................. $499,075 $510,230 $478,085 $481,301 $455,651
Reverse repurchase agreements outstanding,
end of period (in thousands) ............................ $198,336 $228,530 $204,438 $214,438 $109,286
Asset coverage++ ....................................... $ 3,520 $ 3,233 $ 3,339 $ 3,244 $ 5,169
</TABLE>
- ----------
* NAV and market value are published in THE WALL STREET JOURNAL each Monday.
# The ratios of operating expenses including interest expense to average net
assets were 3.02%+++, 3.33%, 3.44%, 3.38%, 4.08% and 2.32% for the periods
indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
This calculation does not reflect brokerage commissions. Total investment
returns for periods of less than one full year are not annualized.
++ Per $1,000 of reverse repurchase agreement outstanding.
+++ Annualized.
The information above represents the unaudited operating performance for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided in
the financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION The BlackRock Income Trust Inc. (the "Trust"),
& ACCOUNTING a Maryland corporation, is a diversified
POLICIES closed-end management in-vestment company. The
investment objective of the Trust is to
achieve high monthly income consistent with preservation of capital. The ability
of issuers of debt securities held by the Trust to meet their obligations may be
affected by economic developments in a specific industry or region. No assurance
can be given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities, interest rate swaps, caps, floors and non-exchange traded
options on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers,
market transactions in comparable securities, various relationships observed in
the market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business.
A futures contract is valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision
and responsibility of the Trust's Board of Directors.
Short-term securities which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase is 60 days or
less. Short-term securities with a term to maturity greater than 60 days from
the date of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized
gain or loss. If an option is exercised, the premium paid or received is added
to the proceeds from the sale or cost of the purchase in determining whether
the Trust has realized a gain or a loss on investment transactions. The Trust,
as writer of an option, may have no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security underlying
the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means
that a portfolio's or a security's price would be expected to change by
approximately one percent with a one percent change in interest rates, while a
duration of five would imply that the price would move approximately five
percent in relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions, 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 effectively
hedge a position or a portfolio against price declines if a portfolio is long.
In the same sense, call options can be purchased to hedge a portfolio that is
shorter than its benchmark against price changes. The Trust can also sell (or
write) covered call options and put options to hedge portfolio positions.
13
<PAGE>
The main risk that is associated with purchasing options is that the
option expires without being exercised. In this case, the option expires
worthless and the premium paid for the option is considered the loss. The risk
associated with writing call options is that the Trust may forego the
opportunity for a profit if the market value of the underlying position
increases and the option is exercised. The risk in writing put options is that
the Trust may incur a loss if the market value of the underlying position
decreases and the option is exercised. In addition, as with futures contracts,
the Trust risks not being able to enter into a closing transaction for the
written option as the result of an illiquid market.
INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period
of time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Rate swaps 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 able to enter into a closing transaction for the futures contract
because of an illiquid secondary market. In addition, since futures are used to
shorten or lengthen a portfolio's duration, there is a risk that the portfolio
may have temporarily performed better without the hedge or that the Trust may
lose the opportunity to realize appreciation in the market price of the
underlying positions.
SHORT SALES: The Trust may make short sales of securities as a method of
hedging potential price declines in similar securities owned. When the Trust
makes a short sale, it may borrow the security sold short and deliver it to the
broker-dealer through
14
<PAGE>
which it made the short sale as collateral for its obligation to deliver the
security upon conclusion of the sale. The Trust may have to pay a fee to borrow
the particular securities and may be obligated to pay over any payments
received on such borrowed securities. A gain, limited to the price at which the
Trust sold the security short, or a loss, unlimited as to dollar amount, will
be recognized upon the termination of a short sale if the market price is
greater or less than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives
compensation for lending its securities in the form of interest on the loan.
The Trust also continues to receive interest on the securities loaned, and any
gain or loss in the market price of the securities loaned that may occur during
the term of the loan will be for the account of the Trust.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets
or liabilities and amortized or accreted into interest expense or income over
the life of the interest rate cap. The asset or liability is subsequently
adjusted to the current market value of the interest rate cap purchased or
sold. Changes in the value of the interest rate cap are recognized as
unrealized gains and losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of
the portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front
payment which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets
or liabilities and amortized or accreted into interest expense or income over
the life of the interest rate floor. The asset or liability is subsequently
adjusted to the current market value of the interest rate floor purchased or
sold. Changes in the value of the interest rate floor are recognized as
unrealized gains and losses.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME:
Securities transactions are recorded on the trade date. Realized and unrealized
gains and losses are calculated on the identified cost basis. Interest income
is recorded on the accrual basis and the Trust accretes discount and amortizes
premium on securities purchased using the interest method. Expenses are
recorded on the accrual basis which may require the use of certain estimates by
management.
TAXES: It is the Trust's intention to continue to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly, first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
15
<PAGE>
NOTE 2. AGREEMENTS The Trust has an Investment Advisory
Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly- owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC
Bank, N.A., and an Administration Agreement with Prudential Investments Fund
Management LLC ("PIFM"), an indirect, wholly-owned subsidiary of The Prudential
Insurance Co. of America.
The investment fee paid to the Adviser is computed weekly and payable
monthly at an annual rate of 0.65% of the Trust's average weekly net assets.
The administration fee paid to PIFM is also computed weekly and payable monthly
at an annual rate of 0.20% of the first $500 million of the Trust's average
weekly net assets and 0.15% of any excess.
Pursuant to the agreements, the Adviser provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust.
PIFM pays occupancy and certain clerical and accounting costs of the Trust. The
Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO Purchases and sales of investment securities,
SECURITIES other than short-term investments and dollar
rolls, for the six months ended April 30,
1999 aggregated $429,962,950 and $379,966,742, respectively.
The Trust may invest without limit in securities which are not readily
marketable, including those which are restricted as to disposition under
securities law ("restricted securities") although the Trust does not expect
that such investments will generally exceed 25% of its portfolio assets. At
April 30, 1999, the Trust held 2.1% of its portfolio assets in illiquid
securities all of which were securities restricted as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage-backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Services, Inc.
The federal income tax basis of the Trust's investments at April 30, 1999
was $674,917,601 and, accordingly, net unrealized appreciation was $2,899,141
(gross unrealized appreciation $35,608,599; gross unrealized depreciation
$32,709,458).
For federal income tax purposes, the Trust has a capital loss carryforward
at October 31, 1998 of approximately $69,599,900 of which approximately
$3,440,300 will expire in 2001, approximately $23,358,100 will expire in 2002,
approximately $15,428,300 will expire in 2003 and approximately $27,373,200
will expire in 2004. Accordingly, no capital gains distribution is expected to
be paid to shareholders until net gains have been realized in excess of such
amounts.
Details of open financial futures contracts at April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE APRIL 30, APPRECIATION
CONTRACTS TYPE DATE DATE 1999 (DEPRECIATION)
- ----------------- --------------- ------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Long Positions:
267 10 Yr. T-Note June 1999 $30,771,858 $30,621,563 $ (150,295)
4,079 30 Yr. T-Bond June 1999 497,117,818 490,244,812 (6,873,006)
Short Positions:
69 Eurodollar June 2000 16,300,940 16,297,800 3,140
69 Eurodollar March 2000 16,323,365 16,319,363 4,002
-----------
$(7,016,159)
===========
</TABLE>
The Trust entered into four interest rate caps. Under all agreements the
Trust receives the excess, if any, of a floating rate over a fixed rate. The
Trust paid a transaction fee for each agreement. Details of the caps at April
30, 1999 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED APRIL 30, UNREALIZED
(000) RATE RATE DATE COST 1999 DEPRECIATION
- ---------- ---------- -------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$50,000 6,00% 3 mth. LIBOR 2/19/02 $ 904,874 $ 320,293 $ (584,581)
100,000 6.50% 3 mth. LIBOR 4/4/02 2,101,704 486,677 (1,615,027)
100,000 7.00% 3 mth. LIBOR 4/18/03 2,271,801 610,000 (1,661,801)
100,000 7.25% 3 mth. LIBOR 4/23/03 1,911,619 490,000 (1,421,619)
---------- ---------- -----------
$7,189,998 $1,906,970 $(5,283,028)
========== ========== ===========
</TABLE>
Details of the open interest rate swap at April 30, 1999 are as follows:
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT FIXED TERMINATION UNREALIZED
(000) TYPE RATE FLOATING RATE DATE DEPRECIATION
- ---------------- --------------- ---------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$ (20,000) Interest Rate 7.50% 1 mth LIBOR 04/25/02 $(670,800)
=========
</TABLE>
16
<PAGE>
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust
enters into reverse repurchase agreements
with qualified, third party broker-dealers as determined by and under the
direction of the Trust's Board of Directors. Interest on the value of reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance. At the time the Trust enters into a reverse
repurchase agreement, it establishes and maintains a segregated account with the
lender containing liquid high grade securities having a value not less than the
repurchase price, including accrued interest, of the reverse repurchase
agreement.
The average daily balance of reverse repurchase agreements outstanding
during the six months ended April 30, 1999 was approximately $218,544,000 at a
weighted average interest rate of approximately 4.59%. 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 six
months ended April 30, 1999 was approximately $22,801,198. 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 April 30, 1999, the Adviser owned 10,753
shares.
NOTE 6. DIVIDENDS Since April 30, 1999, the Board of
Directors of the Trust declared dividends
from undistributed earnings of $0.046875 per share payable May 28, 1999 to
shareholders of record on May 15, 1999.
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
reinvested by State Street Bank and Trust Company (the "Plan Agent") in Trust
shares pursuant to the Plan. Shareholders who do not participate in the Plan
will receive all distributions in cash paid by check in United States dollars
mailed directly to the shareholders of record (or if the shares are held in
street or other nominee name, then to the nominee) by the transfer agent, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue any new shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
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.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incur costs
of up to approximately five hundred thousand dollars to complete such
evaluation and to make any modifications to its systems as may be necessary to
achieve Year 2000 compliance. The Adviser has advised the Trust that it 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
has advised the Trust that it does not anticipate any material disruption in
the operations of the Trust as a result of any failure by the Adviser to
achieve Year 2000 compliance. There can be no assurance that the costs will not
exceed the amount referred to above or that the Trust will not experience a
disruption in operations.
The Adviser has advised the Trust that it is in the process of evaluating
the Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it 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 has received responses from all such suppliers with
respect to their Year 2000 compliance, and there can be no assurance that the
systems of such suppliers, who are beyond the Trust's control, will be Year
2000 compliant. In the event that any of the Trust's significant suppliers do
not successfully and timely achieve Year 2000 compliance, the Trust's business
or operations could be adversely affected. The Adviser has advised the Trust
that it is in the process of preparing a contingency plan for Year 2000
compliance by its suppliers. There can be no assurance that such contingency
plan will be successful in preventing a disruption of the Trust's operations.
The Trust is designating this disclosure as its Year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
ANNUAL MEETING OF TRUST SHAREHOLDERS. There have been no material changes
in the Trust's investment objectives or policies that have not been approved by
the shareholders or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust. There have been no changes in the
persons who are primarily responsible for the day-to-day management of the
Trust's Portfolio.
The Annual Meeting of Trust Shareholders was held May 19, 1999 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
-------- ------- ---- --------
Richard E. Cavanagh ................... I 3 years 2002
James Grosfeld ........................ I 3 years 2002
James Clayburn La Force, Jr. .......... I 3 years 2002
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Kent Dixon, Frank J. Fabozzi, Laurence D. Fink, Walter F.
Mondale and Ralph L. Schlosstein.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending October 31, 1999.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
------------ --------------- ------------
<S> <C> <C> <C>
Richard E. Cavanagh ............................ 45,998,475 0 1,107,915
James Grosfeld ................................. 45,974,602 0 1,131,788
James Clayburn La Force, Jr. ................... 45,975,482 0 1,130,908
Ratification of Deloitte & Touche LLP .......... 46,060,388 585,068 460,934
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock Income Trust's investment objective is to manage a portfolio of
high quality securities to achieve high monthly income consistent with
preservation of capital. The Trust will seek to distribute monthly income that
is greater than that obtainable on an annualized basis by investment in United
States Treasury securities having the same maturity as the average dollar
weighted maturity of the Trust's investments.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $141
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
stock exchanges, and a $25 billion family of open-end equity and bond funds.
Current accounts number over 450, 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. As a result, these securities may be used by the Trust to
help manage prepayment risk and align the assets of the portfolio more closely
with its targeted average life.
Additionally, in order to attempt to protect the portfolio from interest rate
risk, the Adviser will attempt to locate securities with call protection, such
as commercial mortgage-backed securities with prepayment penalties or lockouts.
Securities with call protection should provide the portfolio with some degree
of protection against reinvestment risk during times of lower prevailing
interest rates.
20
<PAGE>
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The
Trust pays monthly dividends which are typically paid on the last business day
of the month. For shares held in the shareholders name, dividends may be
reinvested in additional shares of the fund through the Trust's transfer agent,
State Street Bank & Trust Company. Investors who wish to hold shares in a
brokerage account should check with their financial advisor to determine
whether their brokerage firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in
longer term assets is the benefit to the Trust from leverage. In general, the
portfolio is typically leveraged at approximately 331|M/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the Trust in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate environment, BlackRock's portfolio managers continuously
monitor and regularly review the Trust's use of leverage and the Trust may
reduce, or unwind, the amount of leverage employed should BlackRock consider
that reduction to be in the best interests of shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high
monthly income consistent with preservation of capital, there can be no
assurance that this objective will be achieved.
DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over
time as fixed income market conditions change. Future dividends may be higher
or lower than the dividend the Trust is currently paying.
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 movements on these securities are generally
more sensitive to interest rate movements than securities that make periodic
coupon payments. These securities appreciate in value over time and can play an
important role in helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
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.
21
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates
SECURITIES (ARMS): 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.
COMMERCIAL MORTGAGE Mortgage-backed securities secured or backed
BACKED SECURITIES (CMBS): by mortgage loans on commercial properties.
COLLATERALIZED Mortgage-backed securities which separate
MORTGAGE OBLIGATIONS (CMOS): mortgage pools into short-, medium-, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DISCOUNT: When a fund's net asset value is greater
than its stock price the fund is said to be
trading at a discount.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares and pays dividends on a monthly
basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however, they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however, they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
22
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<TABLE>
<S> <C>
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES: 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 MORTGAGES: Mortgage instruments with coupons that
adjust at periodic intervals according to a
formula which sets inversely with a market
level interest rate index.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund,
this is the price at which one share of the
fund trades on the stock exchange. If you
were to buy or sell shares, you would pay or
receive the market price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in
which the Trust sells mortgage-backed
securities for delivery in the current month
and simultaneously contracts to repurchase
substantially similar (although not the
same) securities on a specified future date.
During the "roll" period, the Trust does not
receive principal and interest payments on
the securities, but is compensated for
giving up these payments by the difference
in the current sales price (for which the
security is sold) and lower price that the
Trust pays for the similar security at the
end date as well as the interest earned on
the cash proceeds of the initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie
Mae, Freddie Mac or Ginnie Mae.
MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities held by the Trust, plus
income accrued on its investments, minus any
liabilities including accrued expenses,
divided by the total number of outstanding
shares. It is the underlying value of a
single share on a given day. Net asset value
for the Trust is calculated weekly and
published in BARRON'S on Saturday, THE NEW
YORK TIMES 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, Fannie Mae
REMICs are formed as trusts and are backed
by mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow
from the mortgage assets underlying the CMO
after payment of principal and interest on
the other CMO securities and related
administrative expenses.
REVERSE REPURCHASE In a reverse repurchase agreement, the Trust
AGREEMENTS: sells securities and agrees to repurchase
them at a mutually agreed date and price.
During this time, the Trust continues to
receive the principal and interest payments
from that security. At the end of the term,
the Trust receives the same securities that
were sold for the same initial dollar amount
plus interest on the cash proceeds of the
initial sale.
STRIPPED MORTGAGE BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of STRIPs.
</TABLE>
23
<PAGE>
- --------------
BlackRock
- ---------------
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Walter F. Mondale
Ralph L. Schlosstein
OFFICERS
Ralph L. Schlosstein, PRESIDENT
Scott Amero, VICE PRESIDENT
Keith T. Anderson, VICE PRESIDENT
Michael C. Huebsch, VICE PRESIDENT
Robert S. Kapito, VICE PRESIDENT
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of April 30, 1999 were not
audited and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a
prospectus intended for use in the purchase or sale of any securities.
THE BLACKROCK INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BF
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BlackRock
THE ----------------
INCOME
TRUST INC.
===================================
SEMI-ANNUAL REPORT
APRIL 30, 1999
[GRAPHIC OMITTED]
