--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISOR
--------------------------------------------------------------------------------
November 30, 2000
Dear Shareholder:
The continued trend of economic growth boosted by strong consumer
confidence, a tight labor market and inflation concerns caused the Federal
Reserve to aggressively tighten during the first part of the year. As a result,
the Fed raised the discount rate to 6.50% during the period in an attempt to
achieve its objective of engineering a "soft landing" for the explosive U.S.
economy. The third quarter of 2000 saw a sharp decline in market expectations
for further Fed tightenings amidst evidence of significant deceleration in
growth, peaking inflation pressures and a sharp reversal in the stock market
wealth effect globally.
The reduction in Fed tightening fears and the potential for a slower pace
of Treasury buybacks due to a more expansionary fiscal policy enabled high
quality spread product to outperform Treasuries in the third quarter of 2000.
Looking forward we believe that both consumers and corporations face
significant headwinds that suggest a likely GDP growth rate close to the Fed
target of 3.5%-4.0%. The risk, however, is even slower growth. While consumer
confidence is still high, a sharp reversal of the wealth effect year-to-date,
higher oil prices that have acted as a tax on the consumer and muted employment
growth should lead personal consumption growth to decline to 3.0%. We believe
that the Fed may eventually be required to ease interest rates to ensure a soft
landing. Monetary conditions are restrictive globally; in the absence of a
fiscal stimulus the Fed may have to ease policy moderately. The end scenario is
likely to be favorable to financial assets and the performance of spread assets
versus Treasuries.
This annual report contains a summary of market conditions during the
annual period and a review of portfolio strategy by your Trust's managers in
addition to the Trust's audited financial statements and a detailed list of the
portfolio's holdings. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
---------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
November 30, 2000
Dear Shareholder:
We are pleased to present the annual report for The BlackRock Income Trust
Inc. ("the Trust") for the fiscal year ended October 31, 2000. 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 Advisor 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 changes in the Trust's stock price and NAV
over the past year:
-------------------------------------------------------
10/31/00 10/31/99 CHANGE HIGH LOW
--------------------------------------------------------------------------------
STOCK PRICE $6.375 $6.125 4.08% $6.50 $5.625
--------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $7.23 $7.31 (1.09)% $7.34 $6.90
--------------------------------------------------------------------------------
10-YEAR TREASURY NOTE 5.75% 6.02% (4.49)% 6.79% 5.58%
--------------------------------------------------------------------------------
THE FIXED INCOME MARKETS
The rapid expansion of U.S. GDP witnessed throughout much of the period
finally slowed dramatically in the third quarter. After expanding at nearly a
6.0% annualized rate in the first half of the year, growth in the third quarter
slowed to 3.0%. Higher oil prices and declines in global equity markets led to
declines in consumer spending, residential investment and manufacturing
activity. According to the minutes of the October 3, 2000 FOMC meeting, "Recent
data have indicated that the expansion of aggregate demand has moderated to a
pace closer to the enhanced rate of growth of the economy's potential to
produce. The more rapid advances in productivity also continue to help contain
costs and hold down underlying price pressures." The Federal Reserve raised the
discount rate by 0.25% at their meetings in November 1999, February, and March
2000 and raised the discount rate by 0.50% in May 2000 to bring the current
discount rate to 6.50%.
Treasury yields were inverted for much of the period as yields rose on the
short-end of the yield curve in response to the Fed's increases in the discount
rate, and yields on the long-end of the curve fell below the short-end in
reaction to the announcement that the Treasury would buy back $30 billion of
Treasuries with maturities ranging from 10 to 30 years. In the second half of
the period, concerns over rising inflation from a surge in oil prices, weaker
stock markets and signs of slower growth all caused the bond market to price in
a neutral Federal Reserve. This shift in market sentiment caused significant
yield curve disinversion during the third quarter of 2000. As the slower growth
scenario plays out, the curve is likely to steepen further. For the annual
period, the 10-year Treasury fell from 6.02% on October 31, 1999 to 5.75% on
October 31, 2000.
For the annual period ending October 31, 2000 mortgages posted positive
returns and outperformed the broader market. Mortgages as measured by the LEHMAN
BROTHERS MORTGAGE INDEX, posted a 7.56% total return versus 7.30% for the LEHMAN
BROTHERS AGGREGATE INDEX. GNMAs performed well during this period as mortgage
rates hovering near 8% throughout the year caused prepayments to decline and
resulted in an increased demand for GNMAs and other mortgage-backed securities.
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.
Additionally, the Trust employs leverage to enhance its income by
borrowing at short-term rates and investing the proceeds in longer maturity
issues that have higher yields. The degree to which the Trust can benefit from
its use of leverage may affect its ability to pay high monthly income.
The Trust significantly reduced its allocation to Treasuries and
reallocated assets to higher yielding spread products as yields on mortgages and
other spread products increased relative to Treasuries. The Trust increased
Adjustable & Inverse Floating Rate Mortgages as the cheapening of the 1-year
Constant Maturity Treasury (CMT) Index increased coupons on CMT ARMs. The Trust
continually increased its holdings of IOs (Interest-Only securities) throughout
the period as a defensive strategy. IOs help to protect the value of a portfolio
in a rising interest rate environment by appreciating when mortgages extend.
The following chart compares the Trust's current and October 31, 1999
asset composition:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
SECTOR BREAKDOWN
------------------------------------------------------------------------------------------
COMPOSITION OCTOBER 31, 2000 OCTOBER 31, 1999
------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable & Inverse Floating Rate Mortgages 26% 8%
------------------------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 21% 16%
------------------------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 12% 9%
------------------------------------------------------------------------------------------
Agency Multiple Class Mortgage Pass-Throughs 11% 11%
------------------------------------------------------------------------------------------
FHA Project Loans 9% 9%
------------------------------------------------------------------------------------------
Mortgage Pass-Throughs 8% 16%
------------------------------------------------------------------------------------------
U.S. Government Securities 7% 19%
------------------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 4% 4%
------------------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage Pass-Throughs 2% 5%
------------------------------------------------------------------------------------------
Asset-Backed Securities -- 3%
------------------------------------------------------------------------------------------
</TABLE>
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 and continued interest in The BlackRock Income Trust Inc. Please
feel free to call our marketing center at (800) 227-7BFM (7236) if you have any
specific questions which were not addressed in this report.
Sincerely yours,
<TABLE>
<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 Managing Director and Managing Director and Portfolio Manager
BlackRock Advisors, Inc. Chief Investment Officer - Fixed Income BlackRock Advisors, Inc.
BlackRock Advisors, 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 10/31/00: $6.375
--------------------------------------------------------------------------------
Net Asset Value as of 10/31/00: $7.23
--------------------------------------------------------------------------------
Yield on Closing Stock Price as of 10/31/00 ($6.375) (1): 8.82%
--------------------------------------------------------------------------------
Current Monthly Distribution per Share (2): $0.046875
--------------------------------------------------------------------------------
Current Annualized Distribution per Share (2): $0.562500
--------------------------------------------------------------------------------
(1) Yield on Closing Stock Price is calculated by dividing the current
annualized distribution per share by the closing stock price per share.
(2) Distribution is not constant and is subject to change.
4
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 2000
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--112.1%
MORTGAGE PASS-THROUGHS--9.5%
Federal Home Loan Mortgage Corp.,
$ 999 6.50%, 5/01/29 - 5/01/30 ................ $ 960,786
2,214@ 7.50%, 7/01/07 - 2/01/23 ................ 2,211,544
614@ 8.00%, 11/01/15 ......................... 623,262
758@ 8.50%, 10/01/06 - 3/01/08, 15 Year ...... 784,511
1,304 9.00%, 9/01/20 .......................... 1,347,783
Federal National Mortgage Association,
2,778@ 5.50%, 12/01/13 - 2/01/14, 15 Year ...... 2,617,607
8,027@ 6.50%, 2/01/26 - 6/01/29 ................ 7,719,214
6,142@ 7.00%, 6/01/26 - 9/01/29 ................ 6,019,901
5,554@ 7.50%, 11/01/14 - 9/01/23,
18 Year Multifamily ................... 5,544,934
2,829@ 8.00%, 5/01/08 - 5/01/22,
Multifamily ........................... 2,858,682
1,411 9.497%, 6/01/24, Multifamily ............ 1,438,442
45 9.50%, 1/01/19 - 6/01/20 ................ 46,912
Government National Mortgage
Association,
464 7.00%, 10/15/17 ......................... 457,730
5,068@ 7.50%, 8/15/21 - 12/15/23 ............... 5,085,561
4,824@ 8.00%, 10/15/22 - 2/15/29 ............... 4,905,930
12 8.50%, 5/15/01 - 2/15/17 ................ 12,609
374 9.00%, 6/15/18 - 9/15/21 ................ 386,428
-----------
43,021,836
-----------
FEDERAL HOUSING ADMINISTRATION--9.9%
2,967 Beachtree, Series 87430,
10.25%, 6/01/32 ......................... 3,054,696
GMAC,
5,403 Series 33, 7.43%, 9/01/21 ............... 5,284,673
2,052 Series 46, 7.43%, 1/01/22 ............... 2,003,051
844 Series 48, 7.43%, 6/01/22 ............... 824,477
1,198 Series 51, 7.43%,
6/26/01 - 2/01/23 ..................... 1,170,583
6,603 Series 56, 7.43%, 11/01/22 .............. 6,449,676
1,130 Merrill, Series 54, 7.43%, 5/15/23 ........ 1,103,683
4,111 Parkside, 7.30%, 2/01/13 .................. 4,073,648
989 Reilly, Series 41, 8.767%, 3/01/20 ........ 1,012,952
2,818 Tuttle Grove, 7.25%, 10/01/35 ............. 2,787,059
USGI,
4,124 Polaris, Series 982, 7.43%, 11/01/21 .... 4,029,341
834 Series 87, 7.43%, 12/01/22 .............. 816,527
3,435 Series 99, 7.43%, 10/01/23 .............. 3,365,342
2,621 Series 6302, 7.43%, 12/01/21 ............ 2,558,339
-----------
6,680 Yorkville, Series 6094, 7.43%,
6/01/21 6,524,265
-----------
45,058,312
-----------
AGENCY MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--12.0%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage
Participation Certificates,
4,066 Series 1104, Class 1104-L,
6/15/21 ............................... 4,207,292
1,708 Series 1347, Class 1347-HC,
12/15/21 .............................. 1,606,444
450 Series 1541, Class 1541-T,
7/15/23 ............................... 358,208
633 Series 1559, Class 1559-WA,
7/15/22 ............................... 611,916
3,000@ Series 1577, Class 1577-SC,
9/15/23 ............................... 2,495,156
13,281@ Series 1584, Class 1584-FB,
9/15/23 ............................... 13,762,787
2,169 Series 1601, Class 1601-SE,
10/15/08 .............................. 1,744,959
2,918 Series 1604, Class 1604-MB,
11/15/08 .............................. 2,388,801
21 Series 1609, Class 1609-KA,
11/15/23 .............................. 20,617
5,000 Series 1649, Class 1649-S,
12/15/08 .............................. 4,943,750
3,248 Series 1896, Class 1896-PA,
11/15/23 .............................. 2,412,010
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,371@ Trust 1988-16, Class 16-B,
6/25/18 ............................... 1,468,628
2,397@ Trust 1990-12, Class 12-G,
2/25/20 ............................... 2,187,822
3,802 Trust 1992-43, Class 43-E,
4/25/22 ............................... 3,830,060
5,000 Trust 1993-79, Class 79-SE,
1/25/22 ............................... 4,431,250
450 Trust 1993-87, Class 87-L,
6/25/23 ............................... 418,753
1,598 Trust 1993-224, Class 224-SD,
11/25/23 .............................. 1,481,734
6,797@ Trust 1996-14, Class 14-M,
10/25/21 .............................. 6,030,251
502 Trust 1997-43, Class 43-G,
4/18/27 ............................... 338,210
-----------
54,738,648
-----------
See Notes to Financial Statements.
5
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
NON-AGENCY MULTIPLE CLASS
MORTGAGE PASS-THROUGHS--2.8%
AAA $ 9,464 Credit Suisse First Boston Mortgage
Certificates,
Series 2000-1, Class 2A,
3/15/15 ............................... $ 9,144,898
AAA 1,138 Salomon Capital Access Corp.,
Series 1986-1, Class C,
9/01/15 ............................... 1,151,191
-----------
AAA 2,693 Summit Mortgage Trust,
Series 2000-1, Class B1,**
12/28/12 .............................. 2,592,354
-----------
12,888,443
-----------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES--29.0%
AAA 181@ Collateralized Mortgage Obligation Trust,
Series 13, Class Q,
1/20/03 ............................... 180,548
Countrywide Funding Corp.,
Mortgage Certificates,
AAA 3,394 Series 1993-10, Class A-8,
1/25/24 ............................... 2,947,046
AAA 6,202 Series 1994-09, Class A-16,
5/25/24 ............................... 5,038,731
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
450 Series 1160, Class 1160-F,
10/15/21 .............................. 440,523
8,223 Series 1518, Class 1518-G,
5/15/23 ............................... 4,959,288
2,879 Series 1526, Class 1526-SA,
6/15/23 ............................... 2,084,914
2,558 Series 1570, Class 1570-SA,
8/15/23 ............................... 2,289,528
2,948 Series 1580, Class 1580-SD,
9/15/08 ............................... 2,734,494
3,219 Series 1587, Class 1587-SE,
5/15/08 ............................... 2,834,104
1,109 Series 1590, Class 1590-OA,
10/15/23 .............................. 1,164,724
4,517@ Series 1598, Class 1598-S,
10/15/08 .............................. 4,016,930
1,457 Series 1616, Class 1616-SB,
11/15/08 .............................. 1,458,066
4,785 Series 1625, Class 1625-SC,
12/15/08 .............................. 3,884,935
5,769@ Series 1627, Class 1627-S,
12/15/23 .............................. 4,174,450
5,038 Series 1627, Class 1627-SC,
12/15/23 .............................. 2,735,385
3,084 Series 1629, Class 1629-OD,
12/15/23 .............................. 1,948,598
3,165 Series 1666, Class 1666-S,
1/15/24 ............................... 2,634,605
1,139 Series 1669, Class 1669-MD,
2/15/24 ............................... 1,023,615
2,250 Series 1688, Class 1688-S,
12/15/13 .............................. 2,137,500
5,778 Series 1699, Class 1699-ST,
3/15/24 ............................... 4,170,787
457 Series 1862, Class 1862-SF,
4/15/23 ............................... 431,625
6,689 Series 2190, Class 2190-S,
10/15/14 .............................. 6,182,866
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
243 Trust G93-27, Class 27-SB,
8/25/23 ............................... 169,499
1,208 Trust 1991-38, Class 38-F,
4/25/21 ............................... 1,261,341
1,225 Trust 1991-38, Class 38-SA,
4/25/21 ............................... 1,182,724
1,186 Trust 1991-87, Class 87-S,
8/25/21 ............................... 1,160,617
942 Trust 1991-145, Class 145-S,
10/25/06 .............................. 976,765
147 Trust 1993-50, Class 50-SH,
1/25/23 ............................... 137,082
1,959 Trust 1993-93, Class 93-S,
5/25/08 ............................... 1,997,399
2,388 Trust 1993-113, Class 113-SB,
7/25/23 ............................... 2,461,411
642 Trust 1993-116, Class 116-SB,
7/25/23 ............................... 457,992
374@ Trust 1993-129, Class 129-SE,
8/25/08 ............................... 329,128
3,708 Trust 1993-147, Class 147-S,
8/25/23 ............................... 3,411,255
173 Trust 1993-167, Class 167-SA,
9/25/23 ............................... 168,753
5,739@ Trust 1993-169, Class 169-SC,
3/25/23 ............................... 3,978,389
3,000 Trust 1993-170, Class 170-SC,
9/25/08 ............................... 2,896,020
3,500 Trust 1993-179, Class 179-SB,
10/25/23 .............................. 2,752,969
170 Trust 1993-183, Class 183-SM,
10/25/23 .............................. 167,662
698 Trust 1993-201, Class 201-SA,
10/25/23 .............................. 385,640
2,799 Trust 1993-208, Class 208-SE,
11/25/23 .............................. 2,079,589
See Notes to Financial Statements.
6
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
ADJUSTABLE & INVERSE FLOATING
RATE MORTGAGES (CONT'D)
Federal National Mortgage Association,
REMIC Pass-Through
Certificates (cont'd)
$ 7,397 Trust 1993-214, Class 214-S,
12/25/08 ............................. $ 6,753,949
1,494 Trust 1993-214, Class 214-SH,
12/25/08 ............................. 1,144,604
181 Trust 1993-224, Class 224-S,
11/25/23 ............................. 140,673
115 Trust 1993-224, Class 224-SH,
11/25/23 ............................. 90,796
2,562 Trust 1993-247, Class 247-SN,
12/25/23 ............................. 2,701,618
2,629 Trust 1993-248, Class 248-FB,
9/25/23 .............................. 2,685,606
2,413 Trust 1993-256, Class 256-F,
11/25/23 ............................. 1,969,684
668 Trust 1994-19, Class 19-SB,
1/25/24 .............................. 442,290
375 Trust 1994-27, Class 27-SE,
3/25/23 .............................. 376,786
1,000 Trust 1994-50, Class 50-S,
3/25/24 .............................. 868,930
3,123 Trust 1999-1, Class 1-S,
7/25/23 .............................. 3,127,064
G. E. Capital Mortgage Services, Inc.,
Aaa 8,598 REMIC Certificate 94-7,
Class A-17,
2/25/09 .............................. 6,804,453
AAA 10,000 REMIC Certificate 94-16,
Class A-13,
8/25/24 .............................. 6,137,500
1,526 Government National Mortgage
Association,
Trust 1999-37, Class 37-SA,
4/20/26 .............................. 1,308,112
Aaa 2,519 Kidder Peabody Acceptance Corp.,
Series 1993-1, Class-A6,
8/25/23 .............................. 1,784,422
Prudential Home Mortgage Securities Co.,
Mortgage Pass-Through Certificates,
AAA 743 Series 1993-43, Class A-16,
10/25/23 ............................. 664,895
AAA 2,500 Series 1993-48, Class A-8,
12/25/08 ............................. 1,969,375
AAA 8,929 Series 1993-50, Class A-12,
11/25/23 ............................. 6,473,263
AAA 1,000 Series 1993-54, Class A-28,
1/25/24 .............................. 831,250
------------
131,722,767
------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES--23.2%
AAA 843 American Housing Trust III, Senior
Mortgage Pass-Through Certificates,
Series 1, Class 4, (REMIC),
3/25/19 .............................. 16,864
AAA 189 American Housing Trust VII, Senior
Mortgage Pass-Through Certificates,
Series A, Class 2,
11/25/20 ............................. 1,357,043
BA Mortgage Securities, Inc.,
Aaa 1,861 Series 1997-1, Class X,
7/25/26 .............................. 362,886
AAA 1,962 Series 1998-1, Class 2X,
5/28/13 .............................. 388,472
AAA 31,792 Countrywide Funding Corp.,
Mortgage Certificates,
Series 1997-8, Class A-5,
1/25/28 .............................. 303,014
AAA 42,268 Credit Suisse First Boston
Mortgage Securities Corp. Trust,
Series 1997-C1, Class C1-AX,**
4/20/22 .............................. 3,285,128
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
25,333 Series G-13, Class 13-PP,
5/25/21 .............................. 4,076,372
10 Series 1238, Class 1238-J,
1/15/07 .............................. 135,858
11,880 Series 1353, Class 1353-S,
8/15/07 .............................. 845,173
105 Series 1388, Class 1388-I,
6/15/07 .............................. 2,874,365
3,489 Series 1397, Class 1397-IO,
10/15/22 ............................. 902,875
2,709 Series 1632, Class 1632-S,
4/15/23 .............................. 36,376
6,063 Series 1706, Class 1706-IA,
10/15/23 ............................. 933,119
687 Series 1720, Class 1720-PK,
1/15/24 .............................. 172,944
50,356 Series 1809, Class 1809-SC,
12/15/23 ............................. 4,859,390
3,261 Series 1882, Class 1882-PJ,
4/15/22 .............................. 434,698
4,053 Series 1900, Class 1900-SV,
8/15/08 .............................. 263,516
48,162 Series 1914, Class 1914-PC,
12/15/11 ............................. 852,474
See Notes to Financial Statements.
7
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates (cont'd)
$ 3,297 Series 1917, Class 1917-AS,
5/15/08 .............................. $ 392,483
17,938 Series 1946, Class 1946-SG,
3/15/24 .............................. 1,231,827
15,106 Series 2002, Class 2002-HJ,
10/15/08 ............................. 1,412,443
8,071 Series 2037, Class 2037-IB,
12/15/26 ............................. 1,655,040
6,775 Series 2039, Class 2039-PI,
2/15/12 .............................. 991,962
9,569 Series 2063, Class 2063-PI,
4/15/12 .............................. 1,408,415
4,500 Series 2066, Class 2066-PJ,
12/15/26 ............................. 961,030
18,000 Series 2080, Class 2080-PL,
1/15/27 .............................. 4,349,700
32 Series 2099, Class 2099-JB,
9/15/22 .............................. 1,302,020
12,030 Series 2103, Class 2103-PI,
5/15/12 .............................. 2,037,502
23,000 Series 2130, Class 2130-SC,
3/15/29 .............................. 1,746,563
10,674 Series 2140, Class 2140-UK,
9/15/11 .............................. 1,534,417
7,821 Series 2190, Class 2190-SC,
10/15/14 ............................. 1,305,111
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
7 Trust G50, Class 50-G,
12/25/21 ............................. 164,901
1,893 Trust G92-5, Class 5-H,
1/25/22 .............................. 488,941
5 Trust G92-12, Class 12-C,
2/25/22 .............................. 108,178
6,702 Trust G92-60, Class 60-SB,
10/25/22 ............................. 337,861
17,717 Trust 301, Class 2,
4/01/29 .............................. 5,431,465
30,510 Trust 302, Class 2,
6/01/29 .............................. 9,429,349
754 Trust 1992-187, Class 187-JA,
10/25/06 ............................. 30,763
5,587 Trust 1993-46, Class 46-S,
5/25/22 .............................. 199,744
4,000 Trust 1993-196, Class 196-SC,
10/25/08 ............................. 3,831,320
8,913 Trust 1993-199, Class 199-SB,
10/25/23 ............................. 278,627
13,466 Trust 1993-201, Class 201-JC,
5/25/19 .............................. 931,459
2,648 Trust 1993-202, Class 202-QA,
6/25/19 .............................. 162,249
12,370 Trust 1995-26, Class 26-SW,
2/25/24 .............................. 1,375,054
12,371 Trust 1996-68, Class 68-SC,
1/25/24 .............................. 681,512
39,712 Trust 1997-37, Class 37-SE,
10/25/22 ............................. 654,432
9,304 Trust 1997-50, Class 50-SI,
4/25/23 .............................. 261,672
35,476 Trust 1997-65, Class 65-SB,
3/25/24 .............................. 735,151
27,000 Trust 1997-65, Class 65-SG,
6/25/23 .............................. 2,477,250
11,139 Trust 1997-76, Class 76-SP,
12/25/23 ............................. 866,347
51,000@ Trust 1997-90, Class 90-M,
1/25/28 .............................. 14,923,620
10,328 Trust 1998-12, Class 12-PL,
7/18/19 .............................. 909,359
7,378 Trust 1998-25, Class 25-PG,
3/18/22 .............................. 925,237
6,061 Trust 1999-W4, Class W4-IO,
12/25/28 ............................. 1,644,053
36,742 Trust 2000-2, Class 2-ID,
3/25/23 .............................. 562,607
AAA 521 First Boston Mortgage Securities Corp.,
Series 1987-C, Class C-Z,
4/25/17 .............................. 145,334
AAA 43,859 GMAC Commercial Mortgage
Securities, Inc.,
Trust 1997-C1, Class C1-X,
7/15/27 .............................. 3,159,863
AAA 51,896 Goldman Sachs Mortgage
Securities Corp., Mortgage
Participation Certificates,
Series 1998-5, Class 5,**
6/19/27 .............................. 1,273,072
Government National Mortgage
Association,
4,785 Trust 1998-14, Class 14-PK,
11/20/26 ............................. 847,384
8,000 Trust 1999-3, Class 3-S,
2/16/29 .............................. 345,000
18,122 Trust 1999-5, Class 5-S,
2/16/29 .............................. 498,348
58,733 Trust 1999-8, Class 8-S,
3/16/29 .............................. 1,560,083
AAA 32,344 Hanover Grantor Trust,
Series 1999-1, Class 1-A,**
8/01/27 .............................. 1,051,169
See Notes to Financial Statements.
8
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
AAA $35,510 Headlands Mortgage Securities, Inc.,
Mortgage Certificates,
Series 1997-1, Class X-1,
3/25/27 .............................. $ 637,089
Aaa 645 Kidder Peabody Acceptance Corp.,
Series B, Class B-2,
4/22/18 ................................ 148,784
AAA 14,090 Merrill Lynch Mortgage Investors, Inc.,
Mortgage Pass-Through Certificates,
Series 95-C2, Class-IO,
6/15/21 .............................. 345,898
AAA 18,351@ Morgan Stanley Capital 1, Inc.,
Series 1997-HF1, Class HF1-X,**
6/15/17 .............................. 1,156,578
Aaa 108,526 Prudential Home Mortgage Securities Co.,
Mortgage Pass-Through Certificates,
Series 1994-5, Class A-9,
2/25/24 .............................. 983,516
AAA 2 Prudential Securities, Inc.,
Trust 15, Class 1-G, 5/20/21 ........... 149,704
64,903 Small Business Administration,
Series 2000-1, Class 1-I0,
4/01/15 .............................. 2,078,925
AAA 10 Structured Asset Securities Corp.,
Series 1991-2, Class GA,
12/20/21 ............................. 294,986
420,424 United States Department
Veteran Affairs,
Trust 1999-2, Class 1,
5/15/29 .............................. 1,123,793
------------
105,639,757
------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES--13.3%
Aaa 607 Chase Mortgage Finance Corp.,
Mortgage Pass-Through Certificates,
Series 1994-A, Class A-P,
1/25/10 .............................. 479,683
AAA 475 Collateralized Mortgage Obligation Trust,
Trust 29, Class A,
5/23/17 .............................. 377,941
Drexel Burnham Lambert, Inc.,
AAA 173 Trust K, Class K-1,
9/23/17 .............................. 139,126
AAA 1,815 Trust V, Class V-1A,
9/01/18 .............................. 1,408,025
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
2,666 Series G-50, Class 50-AM,
4/25/24 .............................. 1,681,133
1,852 Series T-8, Class A-10,
11/15/28 ............................. 1,240,115
655 Series 1418, Class 1418-M,
11/15/22 ............................. 292,450
2,653 Series 1571, Class 1571-G,
8/15/23 .............................. 1,290,061
11,971 Series 1686, Class 1686-B,
2/15/24 .............................. 7,220,502
1,583 Series 1691, Class 1691-G,
3/15/24 .............................. 1,230,926
2,881 Series 1739, Class 1739-B,
2/15/24 .............................. 2,178,809
785 Series 1750, Class 1750-PC,
3/15/24 .............................. 708,833
1,388 Series 1857, Class 1857-PB,
12/15/08 ............................. 1,201,646
5,500 Series 2009, Class 2009-HJ,
10/15/22 ............................. 3,482,160
8,019 Series 2082, Class 2082-PN,
1/15/24 .............................. 3,796,395
900 Series 2087, Class 2087-PO,
9/15/25 .............................. 543,861
1,027 Series 2162, Class 2162-L,
6/15/29 .............................. 400,418
2,354 Series 2169, Class 2169-EA,
6/15/29 .............................. 1,135,287
2,121 Series 2217, Class 2217-PO,
2/15/30 .............................. 1,510,125
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,428 Trust G93-2, Class 2-KB,
1/25/23 .............................. 781,464
2,369 Trust 225, Class 1,
2/01/23 .............................. 1,915,942
2,106 Trust 279, Class 279-1,
7/01/26 .............................. 1,681,722
429 Trust 1991-7, Class 7-J,
2/25/21 .............................. 338,559
123@ Trust 1993-213, Class 213-H,
9/25/23 .............................. 123,368
745 Trust 1994-9, Class 9-C,
8/25/23 .............................. 690,846
1,030 Trust 1996-5, Class 5-NH,
4/25/24 .............................. 571,706
767 Trust 1996-5, Class 5-PV,
11/25/23 ............................. 671,029
14,300 Trust 1996-14, Class 14-PE,
8/25/23 .............................. 6,095,375
3,151 Trust 1996-38, Class 38-E,
8/25/23 .............................. 976,803
2,216 Trust 1996-54, Class 54-M,
9/25/26 .............................. 1,418,147
See Notes to Financial Statements.
9
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
Federal National Mortgage Association,
REMIC Pass-Through Certificates (cont'd)
$ 1,418 Trust 1997-85, Class 85-EL,
7/25/23 .............................. $1,097,712
279 Trust 1997-85, Class 85-LE,
10/25/23 ............................. 236,656
9,000 Trust 1998-26, Class 26-L,
3/25/23 .............................. 6,119,717
1,118 Trust 1998-48, Class 48-P,
8/18/28 .............................. 704,799
2,321 Trust 1999-W4, Class W4-PO,
2/25/29 .............................. 1,371,713
AAA 1,272 First Union Residential, Mortgage
Certificates, Series 1999-A,
Class 11-AP,
3/25/15 .............................. 881,938
AAA 13,000 Fund America Investment Corp.,
Series 1993-C, Class B,
4/29/30 .............................. 2,106,559
2,202 Government National Mortgage
Association,
Trust 1999-40, Class N,
6/20/27 .............................. 1,433,502
Housing Security, Inc.,
AAA 125 Series 1992-EB, Class B-8,
9/25/22 .............................. 96,833
AAA 440 Series 1993-D, Class D-8,
6/25/23 .............................. 340,248
AAA 420 Structured Mortgage Asset Trust,
Series 1993-3C, Class CX,
4/25/24 .............................. 295,431
------------
60,267,565
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--3.9%
AAA 6,000 Merrill Lynch Mortgage Investors, Inc.,
Series 1996-C1, Class A-3,
7.42%, 4/25/28 ....................... 6,056,523
AAA 10,250 NYC Mortgage Loan Trust,
Series 1996, Class A-2,**
6.75%, 6/25/11 ....................... 9,702,266
AAA 2,000 PaineWebber Mortgage Acceptance
Corp. IV, Series 1995-M1, Class B,**
6.95%, 1/15/07 ....................... 1,987,763
------------
17,746,552
------------
ASSET-BACKED SECURITIES--0.1%
AAA 475@ Chase Manhattan Grantor Trust,
Series 1996-B, Class A,
6.61%, 9/15/02 ....................... 474,553
------------
U.S. GOVERNMENT AND AGENCY
SECURITIES--8.4%
Overseas Private Investment Corp.,
264 5.46%, 5/29/12 ......................... 243,084
240 5.79%, 5/29/12 ......................... 218,467
310 5.88%, 5/29/12 ......................... 290,259
200 6.27%, 5/29/12 ......................... 192,635
351 6.81%, 5/29/12 ......................... 336,521
400 6.84%, 5/29/12 ......................... 393,604
2,945 6.89%, 5/29/12 ......................... 2,841,671
920 6.91%, 5/29/12 ......................... 889,141
250 7.35%, 5/29/12 ......................... 250,789
Small Business Administration,
3,645 Series 1996-20E,
7.60%, 5/01/16 ....................... 3,706,806
3,120 Series 1996-20F,
7.55%, 6/01/16 ....................... 3,164,284
3,156 Series 1996-20G-1,
7.70%, 7/01/16 ....................... 3,228,224
3,108 Series 1996-20H,
7.25%, 8/01/16 ....................... 3,101,664
5,745 Series 1996-20K,
6.95%, 11/01/16 ...................... 5,638,855
2,418 Series 1997-20C,
7.15%, 3/01/17 ....................... 2,399,774
4,619 Series 1998-P10A-1,
6.12%, 2/01/08 ....................... 4,350,748
6,500@ United States Treasury Notes,
6.75%, 5/15/05 ....................... 6,740,195
------------
37,986,721
------------
COLLATERALIZED MORTGAGE OBLIGATION
RESIDUALS***
AAA 25 Collateralized Mortgage Obligation Trust,
Series 13, Class R, 1/20/03 ............ 50,250
AAA 45 FBC Mortgage Securities Trust 16,
CMO, Series A-1, 7/01/17 ............... 117,265
------------
167,515
------------
Total long-term investments
(cost $523,556,346) .................... 509,712,669
------------
SHORT-TERM INVESTMENTS--0.4%
DISCOUNT NOTE
1,600 Federal Home Loan Bank,
6.40%, 11/01/00
(cost $1,600,000) ...................... 1,600,000
------------
Total investments, before investments
sold short--112.5%
(cost $525,156,346) .................... 511,312,669
------------
See Notes to Financial Statements.
10
<PAGE>
--------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------
INVESTMENTS SOLD SHORT--(5.7%)
United States Treasury Notes,
$(24,635) 5.75%, 8/15/10 ......................... $(24,611,843)
(1,150) 6.50%, 2/15/10 ......................... (1,203,728)
------------
(proceeds $25,833,185) ................. (25,815,571)
------------
Total investments, net of investments
sold short--106.8%
(cost $499,323,161) .................... 485,497,098
Liabilities in excess of
other assets--(6.8)% ................... (30,986,725)
------------
NET ASSETS--100% .................................. $454,510,373
============
--------------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is exempt from registration under Rule 144A of the Securities
Act of 1993. These securities may be resold in transactions exempt from
registration to qualified institutional buyers.
*** Illiquid securities representing 0.04% of net assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
--------------------------------------------------------
KEY TO ABBREVIATIONS:
CMO -- Collateralized Mortgage Obligation.
REMIC -- Real Estate Mortgage Investment Conduit.
--------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $525,156,346) (Note 1) ........... $511,312,669
Cash ......................................................... 126,081
Deposits with brokers as collateral for
securities sold short (Note 1) ............................. 26,204,231
Interest receivable .......................................... 9,506,378
Interest rate caps, at value
(amortized cost $3,261,314) (Notes 1 & 3) .................. 1,344,381
Interest rate swaps, at value (amortized
cost $(141,027)) (Notes 1 & 3) ............................. 592,434
Due from broker - variation margin (Notes 1 & 3) ............. 713,498
Receivable for investments sold .............................. 44,908
Other assets ................................................. 15,107
------------
549,859,687
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ...................... 64,460,375
Investments sold short, at value
(proceeds $25,833,185) (Note 1) ........................... 25,815,571
Interest payable ............................................ 2,863,382
Due to broker--collateral on interest rate swaps ............ 1,792,000
Investment advisory fee payable (Note 2) .................... 141,904
Administration fee payable (Note 2) ......................... 77,416
Deferred directors fees (Note 1) ............................ 15,107
Other accrued expenses ...................................... 183,559
------------
95,349,314
------------
NET ASSETS .................................................. $454,510,373
============
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 ......................... 9,458,937
Accumulated net realized loss (101,979,194)
Net unrealized depreciation (16,953,638)
------------
Net assets, October 31, 2000 $454,510,373
============
NET ASSET VALUE PER SHARE:
($454,510,373 / 62,849,878 shares of
common stock issued and outstanding) $7.23
=====
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest earned (net of premium amortization of
$15,293,517 and interest expense of $7,716,145) ............... $ 36,578,104
------------
Operating Expenses
Investment advisory ........................................... 2,928,176
Administration ................................................ 900,977
Reports to shareholders ....................................... 174,000
Transfer agent ................................................ 149,000
Independent accountants ....................................... 147,000
Custodian ..................................................... 140,000
Directors ..................................................... 69,000
Registration .................................................. 54,000
Legal ......................................................... 20,000
Miscellaneous ................................................. 144,188
------------
Total operating expenses .................................... 4,726,341
------------
Net investment income ........................................... 31,851,763
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on:
Investments ................................................... 2,686,885
Interest rate swaps ........................................... 433,500
Interest rate caps ............................................ (182,869)
Short sales ................................................... (1,617,984)
Futures ....................................................... (2,045,514)
------------
(725,982)
------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................................... 2,293,392
Interest rate swaps ........................................... 807,461
Interest rate caps ............................................ 636,166
Futures ....................................................... (371,474)
Short sales ................................................... (4,027,808)
------------
(662,263)
------------
Net loss on investments ......................................... (1,388,245)
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................................... $ 30,463,518
============
See Notes to Financial Statements.
12
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 2000
--------------------------------------------------------------------------------
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 ............................................... $ 30,463,518
-------------
Decrease in investments .................................... 108,553,336
Net realized loss .......................................... 725,982
Increase in unrealized depreciation ........................ 662,263
Decrease in interest rate caps ............................. 2,237,570
Increase in interest receivable ............................ (3,300,878)
Increase in due from broker-variation margin ............... (1,771,566)
Decrease in receivable for investments sold ................ 15,280,619
Decrease in payable for investments sold short ............. (94,811,879)
Increase in interest rate swap ............................. 141,027
Increase in appreciation on interest rate swaps ............ (807,461)
Increase in interest payable ............................... 304,643
Decrease in deposits with brokers for
securities sold short .................................... 94,808,269
Increase in accrued expenses and other liabilities ......... 1,598,377
-------------
Total adjustments .......................................... 123,620,302
-------------
Net cash flows provided by operating activities ............ $ 154,083,820
=============
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities ............ $ 154,083,820
-------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ................ (121,991,113)
Cash dividends paid ...................................... (35,352,025)
-------------
Net cash flows used for financing activities ............... (157,343,138)
-------------
Net decrease in cash ..................................... (3,259,318)
Cash at beginning of year ................................ 3,385,399
-------------
Cash at end of year ...................................... $ 126,081
=============
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------
2000 1999
------- -------
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income .................. $ 31,851,763 $ 46,060,724)
Net realized loss ...................... (725,982) (33,907,437)
Net change in unrealized
depreciation ......................... (662,263) (16,477,021)
------------- -------------
Net increase (decrease) in
net assets resulting from
operations ........................... 30,463,518 (4,323,734)
Dividends from net investment
income ............................... (35,352,025) (35,352,115)
------------- -------------
Total decrease ......................... (4,888,507) (39,675,849)
Net Assets
Beginning of year ...................... 459,398,880 499,074,729
------------- -------------
End of year (including undis-
tributed net investment
income of $9,458,937 and
$12,959,199, respectively) ........... $ 454,510,373 $ 459,398,880
============= =============
See Notes to Financial Statements.
13
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ........................... $ 7.31 $ 7.94 $ 8.12 $ 7.61 $ 7.66
-------- -------- --------- -------- --------
Net investment income (net of $0.12, $0.16, $0.19, $0.18, and
$0.17, respectively, of interest expense) .................... .50 .73 .62 .58 .55
Net realized and unrealized gain (loss) on investments ....... (.02) (.80) (.24) .49 (.01)
-------- -------- --------- -------- --------
Net increase (decrease) from investment operations ........... .48 (.07) .38 1.07 .54
-------- -------- --------- -------- --------
Dividends and distributions:
Dividends from net investment income ......................... (.56) (.56) (.56) (.56) (.55)
Distributions in excess of net investment income ............. -- -- -- -- (.04)
-------- -------- --------- -------- --------
Total dividends and distributions ............................ (.56) (.56) (.56) (.56) (.59)
-------- -------- --------- -------- --------
Net asset value, end of year* ................................ $ 7.23 $ 7.31 $ 7.94 $ 8.12 $ 7.61
======== ======== ========= ======== =======
Per share market value, end of year* ......................... $ 6.38 $ 6.13 $ 6.94 $ 6.88 $ 6.25
======== ======== ========= ======== =======
TOTAL INVESTMENT RETURN+ ..................................... 14.01% (4.04%) 9.29% 19.68% (5.36%)
======== ======== ========= ======== =======
RATIOS TO AVERAGE NET ASSETS:
Operating expenses ........................................... 1.05% 1.01% 1.01% 1.02% 1.08%
Operating expenses and interest expense ...................... 2.78% 3.03% 3.33% 3.44% 3.38%
Net investment income ........................................ 7.11% 9.54% 7.74% 7.63% 7.36%
SUPPLEMENTALDATA:
Average net assets (in thousands) ............................ $448,027 $482,685 $ 506,858 $474,903 $473,056
Portfolio turnover ........................................... 114% 144% 214% 220% 440%
Net assets, end of year (in thousands) ....................... $454,510 $459,399 $ 499,075 $510,230 $478,085
Reverse repurchase agreements outstanding,
end of year (in thousands) ................................. $ 64,460 $186,451 $ 198,336 $228,530 $204,438
Asset coverage++ ............................................. $ 8,095 $ 3,478 $ 3,520 $ 3,233 $ 3,339
</TABLE>
-----------
* Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
+ 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 the year reported. Dividends and
distributions, if any, are assumed for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment
plan. Total investment return does not reflect brokerage commissions.
++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the years indicated. This information
has been determined based upon financial information provided in the financial
statements and market value data for the Trust's shares.
See Notes to Financial Statements.
14
<PAGE>
--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION The BlackRock Income Trust Inc. (the "Trust"), a
& ACCOUNTING Maryland corporation, is a diversified closed-end
POLICIES management in-vestment company. The investment objective
of the Trust is to achieve high monthly income
consistent with preservation of capital. The ability of issuers of debt
securities held by the Trust to meet their obligations may be affected by
economic developments in a specific industry or region. No assurance can be
given that the Trust's investment objective will be achieved.
The following is a summary of significant accounting policies followed by the
Trust.
SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other
debt securities, interest rate swaps, caps, floors and non-exchange traded
options on the basis of current market quotations provided by dealers or pricing
services approved by the Trust's Board of Directors. In determining the value of
a particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. In the absence of a last sale, options are valued at the average of
the quoted bid and asked prices as of the close of business. A futures contract
is valued at the last sale price as of the close of the commodities exchange on
which it trades. Short-term securities are valued at amortized cost. 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.
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.
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<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. Interest 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 temporar-
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<PAGE>
ily performed better without the hedge or that the Trust may lose the
opportunity to realize appreciation in the market price of the underlying
positions.
SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential price declines in similar securities owned. When the Trust makes a
short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as to
dollar amount, will be recognized upon the termination of a short sale if the
market price is greater or less than the proceeds originally received.
SECURITIES LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by collateral at least equal, at all times,
to the market value of the securities loaned. The Trust may bear the risk of
delay in recovery of, or even loss of rights in, the securities loaned should
the borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold.
Changes in the value of the interest rate cap are recognized as unrealized
gains and losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front payment
which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis, and the Trust accretes discount and amortizes premium on
securities purchased using the interest method.
FEDERAL INCOME 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 sufficient amounts 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 accounting
principles generally accepted in the United States of America.
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<PAGE>
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
DEFERRED COMPENSATION PLAN: Under a deferred compensation plan approved by the
Board of Directors on February 24, 2000, non-interested Directors may elect to
defer receipt of all or a portion of their annual compensation.
Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock funds selected by the Directors.
This has the same economic effect as if the Directors had invested the deferred
amounts in such other BlackRock funds.
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Trust. The
Trust may, however, elect to invest in common shares of those funds selected by
the Directors in order to match its deferred compensation obligations.
NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with
BlackRock Advisors, Inc. (the "Advisor"), which is a
wholly-owned subsidiary of BlackRock, Inc., which in turn is an indirect
majority-owned subsidiary of PNCFinancial Services Group, Inc. The Trust has an
Administration Agreement with Prudential Investments Fund Management LLC
("PIFM"), a wholly-owned subsidiary of The Prudential Insurance Co. of America.
The investment advisory fee paid to the Advisor 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 Advisor provides continuous supervision of
the investment portfolio and pays the compensation of officers of the Trust.
PIFM pays occupancy and certain clerical and accounting costs of the Trust. The
Trust bears all other costs and expenses.
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term investments and dollar rolls, for the year
ended October 31, 2000 aggregated $663,843,921 and
$700,372,193, 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"). At October 31, 2000, the Trust held
4.1% of its assets in 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, that PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. could
have interests that are in conflict with the holders of these mortgage-backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates, including Midland Loan Services, Inc.
The federal income tax basis of the Trust's investments at October 31, 2000
was $525,156,346 and, accordingly, net unrealized depreciation for federal
income tax purposes was $13,843,677 (gross unrealized appreciation $16,416,471;
gross unrealized depreciation $30,260,148).
For federal income tax purposes, the Trust has a capital loss carryforward at
October 31, 2000 of approximately $104,060,000 of which approximately $3,440,300
will expire in 2001, approximately $23,358,000 will expire in 2002,
approximately $15,428,300 will expire in 2003, approximately $27,373,200 will
expire in 2004, approximately $33,108,000 will expire in 2007, and approximately
$1,352,200 will expire in 2008. Accordingly, no capital gains distribution is
expected to be paid to shareholders until net gains have been realized in excess
of such amounts.
Details of open financial futures contracts at October 31, 2000 are as
follows:
<TABLE>
<CAPTION>
VALUE AT UNREALIZED
NUMBER OF EXPIRATION VALUE AT OCTOBER 31, APPRECIATION
CONTRACTS TYPE DATE TRADE DATE 2000 (DEPRECIATION)
---------- ---- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Long Position:
36 5yr T-Note Dec. 2000 $ 3,602,813 $ 3,612,375 $ 9,562
Short Positions:
(400) 10yr T-Bond Dec. 2000 (40,071,508) (40,281,250) (209,742)
(1,244) 30yr T-Bond Dec. 2000 (122,461,702) (124,205,625) (1,743,923)
-----------
$(1,944,103)
===========
</TABLE>
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<PAGE>
The Trust holds four interest rate caps. Under all agreements the Trust
receives the excess, if any, of a floating rate over a fixed rate. The Trust
paid a transaction fee for each agreement. Details of the caps at October 31,
2000 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT UNREALIZED
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, APPRECIATION
(000) RATE RATE DATE COST 2000 (DEPRECIATION)
---------- ---- ------------ ------------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 6.00% 3 mth. LIBOR 2/19/02 $ 419,331 $ 443,991 $ 24,660
100,000 6.50% 3 mth. LIBOR 4/4/02 1,020,378 360,000 (660,378)
100,000 7.25% 3 mth. LIBOR 4/23/03 1,188,020 310,000 (878,020)
100,000 7.75% 3 mth. LIBOR 5/4/03 633,585 230,390 (403,195)
----------- ---------- ------------
$ 3,261,314 $1,344,381 $ (1,916,933)
=========== ========== ============
</TABLE>
Details of open interest rate swaps at October 31, 2000 are as follows:
NOTIONAL UNREALIZED
AMOUNT FIXED FLOATING TERMINATION APPRECIATION
(000) TYPE RATE RATE DATE (DEPRECIATION)
-------- ---- ----- ------------ ---------- --------------
$100,000 Interest Rate 6.85% 6 mth. LIBOR 9/6/02 $ 326,540
(50,000) Interest Rate 6.95% 6 mth. LIBOR 9/6/10 (263,800)
100,000 Interest Rate 7.20% 6 mth. LIBOR 6/16/02 790,760
(20,000) Interest Rate 7.50% 1 mth. LIBOR 4/25/02 (120,039)
----------
$ 733,461
==========
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust enters into
reverse repurchase agreements with qualified, third
party broker-dealers as determined by and under the direction of the Trust's
Board of Directors. Interest on the value of reverse repurchase agreements
issued and outstanding is based upon competitive market rates at the time of
issuance. At the time the Trust enters into a reverse repurchase agreement, it
establishes and maintains a segregated account with the lender containing liquid
investment grade securities having a value not less than the repurchase price,
including accrued interest, of the reverse repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding during
the period ended October 31, 2000 was approximately $127,266,256 at a weighted
average interest rate of approximately 6.06%. The maximum amount of reverse
repurchase agreements outstanding at any month-end during the period was
$185,097,256 as of March 31, 2000, which was 29.78% of total assets.
The Trust did not enter into any dollar roll transactions during the year
ended October 31, 2000.
NOTE 5. CAPITAL There are 200 million shares of $.01 par value common
stock authorized. Of the 62,849,878 shares outstanding
at October 31, 2000, the Advisor owned 10,753 shares.
NOTE 6. DIVIDENDS Subsequent to October 31, 2000, the Board of Directors
of the Trust declared dividends from undistributed
earnings of $0.046875 per share payable November 30, 2000 to shareholders of
record on November 15, 2000.
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THE BLACKROCK INCOME TRUST INC.
REPORT OF INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock Income Trust Inc.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The BlackRock Income Trust Inc. (the
"Trust") as of October 31, 2000 and the related statements of operations and of
cash flows for the year then ended, the statement of changes in net assets for
the two years then ended, and financial highlights for each of the five years
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned at October 31, 2000, by correspondence with the custodian and
brokers; where replies were not received, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock Income
Trust Inc. at October 31, 2000 and the results of its operations, its cash
flows, the changes in its net assets and the financial highlights for the
respective stated periods in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
-----------------------
New York, New York
December 8, 2000
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--------------------------------------------------------------------------------
THE BLACKROCK INCOME TRUST INC.
TAX INFORMATION
--------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends paid by
the Trust duing its fiscal year ended October 31, 2000.
During the fiscal year ended October 31, 2000, the Trust paid dividends of
$0.5625 per share from net investment income. For federal income tax purposes,
the dividends you received are reportable in your 2000 federal income tax return
as ordinary income. Further, we wish to advise you that your income dividends do
not qualify for the dividends received deduction.
For the purpose of preparing your 2000 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 2001.
--------------------------------------------------------------------------------
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 acquire shares for the participants' accounts,
depending upon the circumstances described below, either (i) through receipt of
unissued but authorized shares from the Trust ("newly issued shares") or (ii) by
purchase of outstanding shares on the open market, on the New York Stock
Exchange or elsewhere ("open-market purchases"). If, on the dividend payment
date, the net asset value per share is equal to or less than the market price
per share plus estimated brokerage commissions (such condition being referred to
herein as "market premium"), the transfer agent will invest the dividend amount
in newly issued shares on behalf of the participants. The number of newly issued
shares to be credited to each participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share (but
in no event less than 95% of the then current market price per share) on the
date the shares are issued. If, on the dividend payment date, the net asset
value per share is greater than the market value per share (such condition being
referred to herein as "market discount"), the transfer agent will invest the
dividend amount in shares acquired on behalf of the participants in open-market
purchases.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan as applied to
any dividend or distribution paid subsequent to written notice of the change
sent to all shareholders of the Trust at least 90 days before the record date
for the dividend or distribution. The Plan also may be amended or terminated by
the Plan Agent upon at least 90 days' written notice to all shareholders of the
Trust. All correspondence concerning the Plan should be directed to the Plan
Agent at (800) 699-1BFM. The addresses are on the front of this report.
--------------------------------------------------------------------------------
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders or to its charter or
by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
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<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 miantain high monthly income consistent with
preservation of capital. The Trust will seek to distribute monthly income that
is greater than that obtainable on an annualized basis by investment in United
States Treasury securities having the same maturity as the average dollar
weighted maturity of the Trust's investments.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. ("BlackRock") is an SEC-registered investment advisor.
As of September 30, 2000, The advisor and its affiliates (together, "BlackRock")
managed $191 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-two closed-end funds that are traded on either the New York or
American stock exchanges, and a $28 billion family of open-end equity and bond
funds. BlackRock managed 670 accounts, domiciled in the United States and
overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest at least 65% of its assets in mortgage-backed securities.
At least 85% of the Trust's assets must be rated at least "AAA" by Standard &
Poor's or "Aaa" by Moody's at the time of purchase (up to 5% can be unrated but
deemed by the Advisor to be of comparable quality). 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 ADVISOR'S INVESTMENT STRATEGY?
The Advisor 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 Advisor may actively manage among various
types of securities in different interest rate environments.
Traditional mortgage pass-through securities make interest and principal
payments on a monthly basis and can be a source of attractive levels of income
to the Trust. While mortgage-backed securities in the Trust are of high credit
quality, they typically offer a yield spread above Treasuries due to the
uncertainty of the timing of their cash flows as they are subject to changes in
the rate of prepayments when interest rates change and either a larger or
smaller proportion of mortgage holders refinance their mortgages or move. While
mortgage-backed securities offer the opportunity for attractive yields, they
subject a portfolio to interest rate risk and prepayment exposure which result
in reinvestment risk when prepaid principal must be reinvested.
Multiple-class mortgage pass-through securities, or collateralized mortgage
obligations (CMOs), are also an investment that may be used in the Trust's
portfolio. These securities are issued in multiple classes each of which has a
different coupon rate, stated maturity and prioritization on the timing of
receipt of cash flows coming from interest and principal payments on the
underlying mortgages. Principal prepayments can be allocated among the different
classes of a CMO in a number of ways; for instance, they can be applied to each
of the classes in the order of their respective stated maturities. This feature
allows an investor to better plan the average life of their investment.
Additionally, in order to protect the portfolio from interest rate risk, the
Advisor 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.
22
<PAGE>
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the NewYork Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the Trust through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in
longer-term assets is the benefit to the Trust from leverage. In general, the
portfolio is typically leveraged at approximately 331/3% 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. the Advisor'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 the Advisor consider
that reduction to be in the best interests of the shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high
montly income consistent with preservation of capital, there can be no assurance
that this objective will be achieved. DIVIDEND CONSIDERATIONS. Dividends paid by
the Trust are likely to vary over time as fixed income market conditions change.
Future dividends may be higher or lower than the dividend the Trust is currently
paying.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
INVERSE FLOATING RATE MORTGAGE-BACKED SECURITIES. ARMs with interest rates that
adjust at periodic intervals in the opposite direction from the market rate of
interest to which they are indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate may vary by a magnitude that
exceeds the magnitude of the change in the index rate of interest.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage. MARKET PRICE OF
SHARES. The shares of closed-end investment companies such as the Trust trade on
the New York Stock Exchange (NYSE symbol: BKT) and as such are subject to supply
and demand influences. As a result, shares may trade at a discount or a premium
to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity;
therefore, interim price movement on the securities are generally more sensitive
to interest rate movements then securities that make periodic coupon payments.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
23
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THE BLACKROCK INCOME TRUST INC.
GLOSSARY
--------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-
BACKED SECURITIES (ARMS): Mortgage instruments with interest rates that
adjust at periodic intervals at a fixed amount
over the market levels of interest rates as
reflected in specified indexes. ARMS are backed
by mortgage loans secured by real property.
ASSET-BACKED SECURITIES:
CLOSED-END FUND: Securities backed by various types of receivables
such as automobile and credit card receivables.
Investment vehicle which initially offers a fixed
number of shares and trades on a stock exchange.
The fund invests in a portfolio of securities in
accordance with its stated investment objectives
and policies.
COLLATERALIZED MORTGAGE
OBLIGATIONS (CMOS): Mortgage-backed securities which separate
mortgage pools into short-, medium-, and
long-term securities with different priorities
for receipt of principal and interest. Each class
is paid a fixed or floating rate of interest at
regular intervals. Also known as multiple-class
mortgage pass-throughs.
COMMERCIAL MORTGAGE
BACKED SECURITIES (CMBS): Mortgage-backed securities secured or backed by
mortgage loans on commercial properties.
DISCOUNT: When a fund's net asset value is greater than its
stock price the fund is said to be trading at a
discount.
DIVIDEND: Income generated by securities in a portfolio and
distributed to shareholders after the deduction
of expenses. The Trust declares and pays
dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all dividends and
distributions of capital gains automatically
reinvested into additional shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered corporation
that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FHLMC are not guaranteed by the U.S.
government, however; they are backed by FHLMC's
authority to borrow from the U.S. government.
Also known as Freddie Mac.
FNMA: Federal National Mortgage Administration, a
publicly owned, federally chartered corporation
that facilitates a secondary mortgage market by
purchasing mortgages from lenders such as savings
institutions and reselling them to investors by
means of mortgage-backed securities. Obligations
of FNMA are not guaranteed by the U.S.
government, however; they are backed by FNMA's
authority to borrow from the U.S. government.
Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a U.S.
government agency that facilitates a secondary
mortgage market by providing an agency that
guarantees timely payment of interest and
principal on mortgages. GNMA's obligations are
supported by the full faith and credit of the
U.S. Treasury. Also known as Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and FHLMC.
24
<PAGE>
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that receive
only the interest cash flows from an underlying
pool of mortgage loans or underlying pass-through
securities. Also known as a strip.
INVERSE-FLOATING
RATE MORTGAGE: Mortgage instruments with coupons that adjust at
periodic intervals according to a formula which
sets inversely with a market level interest rate
index.
MARKET PRICE: Price per share of a security trading in the
secondary market. For a closed-end fund, this is
the price at which one share of the fund trades
on the stock exchange. If you were to buy or sell
shares, you would pay or receive the market
price.
MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which
the Trust sells mortgage-backed securities for
delivery in the current month and simultaneously
contracts to repurchase substantially similar
(although not the same) securities on a specified
future date. During the "roll" period, the Trust
does not receive principal and interest payments
on the securities, but is compensated for giving
up these payments by the difference in the
current sales price (for which the security is
sold) and lower price that the Trust pays for the
similar security at the end date as well as the
interest earned on the cash proceeds of the
initial sale.
MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by FNMA, FHLMC,
FHA or GNMA.
NET ASSET VALUE (NAV): Net asset value is the total market value of all
securities and other assets held by the Trust,
plus income accrued on its investments, minus any
liabilities including accrued expenses, divided
by the total number of outstanding shares. It is
the underlying value of a single share on a given
day. Net asset value for the Trust is calculated
weekly and published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the
principal cash flows from an underlying pool of
mortgage loans or underlying pass-through
securities. Also known as a strip.
PROJECT LOANS: Mortgages for multi family, low- to middle-income
housing.
PREMIUM: When a fund's stock price is greater than its net
asset value, the fund is said to be trading at a
premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by mortgage-backed
securities or whole mortgage loans and formed as
a trust, corporation, partnership, or segregated
pool of assets that elects to be treated as a
REMIC for federal tax purposes. Generally, FNMA
REMICs are formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from the
mortgage assets underlying the CMO after payment
of principal and interest on the other CMO
securities and related administrative expenses.
REVERSE REPURCHASE
AGREEMENT: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase them at
a mutually agreed date and price. During this
time, the Trust continues to receive the
principal and interest payments from that
security. At the end of the term, the Trust
receives the same securities that were sold for
the same initial dollar amount plus interest on
the cash proceeds of the initial sale.
STRIPPED MORTGAGE-BACKED
SECURITIES: Arrangements in which a pool of assets is
separated into two classes that receive different
proportions of the interest and principal
distributions from underlying mortgage-backed
securities. IO's and PO's are examples of strips.
25
<PAGE>
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BLACKROCK ADVISORS, INC.
SUMMARY OF CLOSED-END FUNDS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE TRUSTS
--------------------------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ ------
<S> <C> <C>
The BlackRock Income Trust Inc. BKT N/A
The BlackRock North American Government Income Trust Inc. BNA N/A
The BlackRock High Yield Trust BHY N/A
TERM TRUSTS
The BlackRock 2001 Term Trust Inc. BTM 06/01
The BlackRock Strategic Term Trust Inc. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. BQT 12/04
The BlackRock Advantage Term Trust Inc. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT 12/09
TAX-EXEMPT TRUSTS
--------------------------------------------------------------------------------------------------
STOCK MATURITY
PERPETUAL TRUSTS SYMBOL DATE
------ ------
The BlackRock Investment Quality Municipal Trust Inc. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
The BlackRock Pennsylvania Strategic Municipal Trust BPS N/A
The BlackRock Strategic Municipal Trust BSD N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
</TABLE>
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO
NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM
(7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
26
<PAGE>
--------------------------------------------------------------------------------
BLACKROCK ADVISORS, INC.
AN OVERVIEW
--------------------------------------------------------------------------------
BlackRock Advisors, Inc. (the "Advisor") is an SEC-registered investment
advisor. As of September 30, 2000, the Advisor and its affiliates (together,
"BlackRock") managed $191 billion on behalf of taxable and tax-exempt clients
worldwide. Strategies include fixed income, equity and cash and may incorporate
both domestic and international securities. BlackRock manages twenty-two
closed-end funds that are traded on either the New York or American stock
exchanges, and a $28 billion family of open-end funds. BlackRock managed 670
accounts, domiciled in the United States and overseas.
BlackRock's fixed income product was introduced in 1988 by a team of
highly seasoned fixed income professionals. These professionals had extensive
experience creating, analyzing and trading a variety of fixed income
instruments, including the most complex structured securities. In fact, several
individuals at BlackRock were responsible for developing many of the major
innovations in the mortgage-backed and asset-backed securities markets,
including the creation of the first CMO, the floating rate CMO, the
senior/subordinated pass-through and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
emphasis it places on the development of proprietary analytical capabilities.
Over one quarter of the firm's professionals is dedicated to the design,
maintenance and use of these systems, which are not otherwise available to
investors. BlackRock's proprietary analytical tools are used for evaluating, and
designing fixed income investment strategies for client portfolios. Securities
purchased include mortgages, corporate bonds, municipal bonds and a variety of
hedging instruments.
BlackRock has developed investment products that respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. In fact, BlackRock introduced the first closed-end mortgage fund, the
first taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAA rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
Currently, BlackRock's closed-end funds have dividend reinvestment plans, which
are designed to provide ongoing demand for the stock in the secondary market.
BlackRock manages a wide range of investment vehicles, each having specific
investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
that you may have about your BlackRock funds and we thank you for the continued
trust that you place in our abilities.
IF YOU WOULD LIKE FURTHER INFORMATION
PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM
27
<PAGE>
BLACKROCK
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
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
Anne Ackerley, SECRETARY
INVESTMENT ADVISOR
BlackRock Advisors, Inc.
400 Bellevue Parkway
Wilmington, DE 19809
(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 ACCOUNTANTS
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
LEGAL COUNSEL - INDEPENDENT DIRECTORS
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[Logo] Printed on recycled paper 09247F-10-0
THE BLACKROCK
INCOME
TRUST INC.
=================
ANNUAL REPORT
OCTOBER 31, 2000
