-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DiHxtZe7NNZVTE91HRSAEyLDiICAYjok927ZIUHHn7rpyNV67UdnTiutvOeBkwjp SdLfPoFvQ07MfXa200Qu/g== 0000930413-98-000672.txt : 19980703 0000930413-98-000672.hdr.sgml : 19980703 ACCESSION NUMBER: 0000930413-98-000672 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980702 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK INCOME TRUST INC CENTRAL INDEX KEY: 0000832327 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05542 FILM NUMBER: 98659518 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122142189 FORMER COMPANY: FORMER CONFORMED NAME: BLACKSTONE INCOME TRUST INC DATE OF NAME CHANGE: 19920703 N-30D 1 SEMI-ANNUAL REPORT - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. SEMI-ANNUAL REPORT TO SHAREHOLDERS REPORT OF INVESTMENT ADVISER - -------------------------------------------------------------------------------- May 31, 1998 Dear Shareholder: Domestic bonds provided investors with modest total returns during the past six months, as interest rates generally fell. Supporting the bond market was favorable inflation news and the belief that the Federal Reserve is unlikely to raise short-term interest rates in the immediate future. U.S. economic growth has remained relatively robust, spurred by lower interest rates and strong consumer demand. However, the economic weakness of Asia looms large. While the fallout from the Asian fiscal crisis probably has yet to materialize in the U.S., we expect a "slowdown" in Asia's economies to slow U.S. growth in 1998. While we expect that interest rates will be fairly stable in the near-term, our longer-term outlook for the bond market remains optimistic, based on the fundamentally favorable backdrop of low inflation, a currently high level of real yields, and declining Treasury borrowing. As you may know, the five investment management firms that comprised the PNC Asset Management Group have consolidated under BlackRock, resulting in a $118 billion money management firm. We look forward to using our global investment management expertise to present exciting investment opportunities to closed-end fund shareholders in the future. This report contains comments from your Trust's managers regarding the markets and portfolio in addition to the Trust's financial statements and a detailed portfolio listing. We thank you for your continued investment in the Trust. Sincerely, /s/ Laurence D. Fink /s/ Ralph L. Schlosstein - -------------------- ------------------------- Laurence D. Fink Ralph L. Schlosstein Chairman President 1 May 31, 1998 Dear Shareholder: We are pleased to present the semi-annual report for The BlackRock Income Trust Inc. ("the Trust") for the six months ended April 30, 1998. We would like to take this opportunity to review the Trust's stock price and net asset value (NAV) performance, summarize market developments and discuss recent portfolio management activity. The Trust is a diversified, actively managed closed-end bond fund whose shares are traded on the New York Stock Exchange under the symbol "BKT". The Trust's investment objective is to provide high current income consistent with the preservation of capital. The Trust seeks its objective by investing primarily in mortgage-backed securities backed by U.S. Government agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae) and, to a lesser extent, U.S. Government securities, asset-backed securities and privately issued mortgage-backed securities. At least 85% of the Trust's assets must be issued or guaranteed by the U.S. government or its agencies or rated at least "AAA" by Standard & Poor's or "Aaa" by Moody's (up to 5% can be unrated and deemed by the Adviser to be of equivalent credit quality); the remaining 15% of the Trust's assets must be rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time of purchase. The table below summarizes the performance of the Trust's stock price and NAV over the period: -------------------------------------------------- 4/30/98 10/31/97 CHANGE HIGH LOW - -------------------------------------------------------------------------------- STOCK PRICE $6.875 $6.875 0.00% $7.250 $6.813 - -------------------------------------------------------------------------------- NET ASSET VALUE (NAV) $8.01 $8.12 (1.36%) $8.22 $8.01 - -------------------------------------------------------------------------------- 10-YEAR U.S. TREASURY NOTE 5.67% 5.83% (0.16%) 5.96% 5.36% - -------------------------------------------------------------------------------- THE FIXED INCOME MARKETS The first four months of 1998 have witnessed continued rapid expansion of the U.S. economy. GDP growth is estimated at an annual rate of 4.2%, far exceeding the historical non-inflationary level of 2%. Despite the strong economic growth, inflation stayed surprisingly subdued. After rising only 1.7% in 1997, inflation inched higher at a 0.2% annual rate for the first quarter of 1998. One explanation for the absence of inflation in the U.S. economy stems from the aftermath of the Asian crisis. U.S. exports to Asia have slowed, while the strength of the dollar caused cheaper Asian imports to flood the U.S. market and exert downward price pressure on domestic goods. The Treasury market rallied during the fourth quarter of 1997 and into 1998 before giving back some gains during the past few months. For the semi-annual period, the yield of the 10-year Treasury security fell from 5.83% on October 31, 1997 to 5.67% on April 30, 1998. The strong performance of the Treasury market was in response to moderating economic growth, low inflation and a "flight to quality" from investors seeking a safe haven in U.S. Treasury securities. Continued expectations that the Asian crisis will slow economic growth and force the Fed to leave the Federal funds rate unchanged provided additional support to the bond market. With Treasury supply waning due to surplus in the federal budget and increased foreign demand for Treasuries due to their U.S. government backing and relatively attractive yields, we anticipate a positive environment for Treasuries for the balance of 1998. 2 In light of declining interest rates and faster prepayment speeds during the period, mortgages modestly underperformed the broader investment grade bond market. As measured by the Lehman Brothers Mortgage Index, mortgages posted a 3.48% total return versus 3.58% for the Lehman Brothers Aggregate Index. Mortgage rates fell below the critical 7% threshold for the first time since January 1994, causing concerns that increased refinancing activity would negatively impact the performance of mortgage securities. Declining interest rate volatility attracted investors to the mortgage market, providing some support for mortgage securities. As much of the mortgage market has been brought into a "refinanceable" position due to the recent decline in interest rates, lower coupon securities have generally outperformed more prepayment-sensitive higher-coupon issues. THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY BlackRock actively manages the Trust's portfolio holdings consistent with BlackRock's overall market outlook and the Trust's investment objectives. The Trust is managed to maintain an interest rate sensitivity (or duration) resembling that of the Salomon Brothers Mortgage Index; this means that the portfolio's NAV will change similarly to the price of the Index given a change in interest rates. The following chart compares the Trust's current and October 31, 1997 asset composition: - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 1998 OCTOBER 31, 1997 - -------------------------------------------------------------------------------- U.S. Government Securities 24% 15% - -------------------------------------------------------------------------------- Adjustable & Inverse Floating Rate Mortgages 15% 20% - -------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 14% 14% - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 10% 12% - -------------------------------------------------------------------------------- Principal Only Mortgage-Backed Securities 10% 13% - -------------------------------------------------------------------------------- FHA Project Loans 9% 9% - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 8% 8% - -------------------------------------------------------------------------------- Non-Agency Multiple Class Mortgage Pass-Throughs 4% 4% - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 4% 3% - -------------------------------------------------------------------------------- Asset Backed Securities 1% 1% - -------------------------------------------------------------------------------- CMO RESIDUALS 1% 1% - -------------------------------------------------------------------------------- The Trust has emphasized prepayment protection over the past six months as interest rates have trended lower. The likelihood of faster prepayments on mortgage securities led the Trust to be a net seller of mortgage securities most susceptible to prepayments. Specifically, the Trust's non-prepayment protected IO (Interest-Only mortgage security) holdings were reduced, as that sector began to weaken as interest rates fell. The Trust purchased Treasuries with cash raised from mortgage sales, including 30-year TIPS (Treasury Inflation Protected Securities), which we believe offered attractive inflation adjusted yields. 3 We look forward to continuing to manage the Trust to benefit from the opportunities available to investors in the fixed income markets as well as to maintain the Trust's ability to meet its investment objectives. We thank you for your investment in the BlackRock Income Trust Inc. Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you have specific questions which were not addressed in this report. Sincerely /s/ Robert S. Kapito /s/ Michael P. Lustig - ----------------------------------- ----------------------------------- Robert S. Kapito Michael P. Lustig Vice Chairman and Portfolio Manager Director and Portfolio Manager BlackRock Financial Management, Inc. BlackRock Financial Management, Inc. - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BKT - -------------------------------------------------------------------------------- Initial Offering Date: July 22, 1988 - -------------------------------------------------------------------------------- Closing Stock Price as of April 30, 1998: $6.875 - -------------------------------------------------------------------------------- Net Asset Value as of April 30, 1998: $8.01 - -------------------------------------------------------------------------------- Yield on Closing Stock Price as of 4/30/98 ($6.875) 1: 8.18% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share 2: $0.046875 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share 2: $0.5625 - -------------------------------------------------------------------------------- 1 Yield on Closing Stock Price is calculated by dividing the current annualized distribution per share by the closing stock price per share. 2 The distribution is not constant and is subject to change. 4 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. PORTFOLIO OF INVESTMENTS APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--148.2% MORTGAGE PASS-THROUGHS--22.3% Federal Home Loan Mortgage Corp., $ 4,733+ 7.50%, 7/01/07 - 2/01/23 ....................... $ 4,839,710 1,103+ 8.00%, 11/01/15 ................................ 1,152,163 1,811 8.50%, 3/01/06 - 3/01/08, 15 year .............. 1,889,436 632 8.50%, 6/01/11 ................................. 660,896 3,160 9.00%, 9/01/20 ................................. 3,390,949 Federal Housing Administration, 4,241 Brookville, 7.50%, 8/01/28 ..................... 4,416,107 3,725 Country Estates, 8.375%, 1/01/35 ............... 4,008,663 GMAC, 6,184 Series 33, 7.43%, 9/01/21 ...................... 6,344,011 2,145 Series 46, 7.43%, 1/01/22 ...................... 2,214,114 885 Series 48, 7.43%, 6/01/22 ...................... 909,973 313 Series 51, 7.43%, 2/01/23 ...................... 322,300 7,643 Series 56, 7.43%, 11/01/22 ..................... 7,876,262 1,258 Merrill, Series 54, 7.43%, 5/15/23 ...................... 1,300,690 1,251 Middlesex, 8.625%, 9/01/34 ..................... 1,357,800 4,567 Parkside, 7.30%, 2/01/13 ....................... 4,676,386 1,050 Reilly, Series 41, 8.28%, 3/01/20 .............. 1,114,308 2,858 Tuttle Grove, 7.25%, 10/01/35 .................. 2,933,781 USGI, 4,314 Polaris 982, 7.43%, 11/01/21 ................... 4,442,084 919 Series 87, 7.43%, 12/01/22 ..................... 953,684 4,839 Series 99, 7.43%, 10/01/23 ..................... 5,021,805 2,736 Series 1003, 7.43%, 3/01/24 .................... 2,794,514 2,736 Series 6302, 7.43%, 12/01/21 ................... 2,824,776 6,990 Yorkville, Series 6094, 7.43%, 6/01/21 ................................ 7,206,660 3,584 Waterford, 8.625%, 7/25/27 ..................... 3,890,779 Federal National Mortgage Association, 1,132+ 7.00%, 11/01/08 ................................ 1,153,180 5,746 7.50%, 11/01/14 - 9/01/23, 18 year Multifamily ................................... 5,804,253 5,421+ 8.00%, 5/01/08 - 5/01/22 ....................... 5,634,775 721 9.317%, 6/01/19, 10 year Multifamily ........... 811,619 586 9.484%, 7/01/19, Multifamily ................... 620,367 1,444 9.497%, 6/01/24, Multifamily ................... 1,524,172 135 9.50%, 1/01/19 - 6/01/20 ....................... 143,597 Government National Mortgage Association, 601 7.00%, 10/15/17 ................................ 607,668 17,660 7.50%, 8/15/21 - 12/15/23 ...................... 18,141,171 41 8.50%, 5/15/01 - 2/15/17 ....................... 42,834 856 9.00%, 6/15/18 - 9/15/21 ....................... 915,688 13 9.50%, 7/15/16 ................................. 14,362 ------------ 111,955,537 ------------ MULTIPLE CLASS MORTGAGE PASS-THROUGHS--51.6% AAA 2,100@@Citicorp Mortgage Securities Inc., Series 1994-9, Class A-4, 6/25/09 ................ 2,026,563 AAA 1,098 Collateralized Mortgage Obligation Trust, Series 13, Class Q, 1/20/03 ...................... 1,127,893 Countrywide Funding Corp., Mortgage Certificates, AAA 3,394 Series 1993-10, Class A-8, 1/25/24, (ARM) ................................ 3,189,893 AAA 6,202 Series 1994-9, Class A-16, 5/25/24, (ARM) ................................ 5,457,333 AAA 17,000 DLJ Mortgage Acceptance Corp., Series 1998-2, Class A-1, 4/25/28 ............. 16,830,000 Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, 27,426+ Series G-13, Class 13-PP, 5/25/21, (I) .................................. 7,233,720 2,544 Series G-24, Class G24-SG, 11/25/23, (ARM) ............................... 2,127,844 7,500+ Series 1104, Class 1104-L, 6/15/21 ....................................... 8,067,375 1,742 Series 1347, Class 1347-HC, 12/15/21 ...................................... 1,578,130 2,000 Series 1523, Class 1523-SA, 6/15/23, (ARM) ................................ 1,414,420 1,060 Series 1534, Class 1534-NE, 6/15/23, (ARM) ................................ 1,033,702 4,257 Series 1541, Class 1541-T, 7/15/23 ....................................... 4,146,063 1,912 Series 1559, Class 1559- WA, 7/15/22 ....................................... 1,892,539 12,305+ Series 1584, Class 1584-FB, 9/15/23 ....................................... 12,492,751 1,494 Series 1596, Class 1596-SB, 12/15/12, (ARM) ............................... 1,387,669 3,892 Series 1608, Class 1608-SD, 6/15/23, (ARM) ................................ 3,670,222 866 Series 1609, Class 1609-KA, 11/15/23 ...................................... 860,451 1,744 Series 1611, Class 1611-PD, 11/15/23, (ARM) ............................... 1,128,994 500 Series 1625, Class 1625-SL, 12/15/08, (ARM) ............................... 510,000 6,543+ Series 1627, Class 1627-S, 12/15/23, (ARM) ............................... 5,266,984 5,038 Series 1627, Class 1627-SC, 12/15/23, (ARM) ............................... 3,663,536 3,084 Series 1629, Class 1629-OD, 12/15/23, (ARM) ............................... 2,181,726 See Notes to Financial Statements. 5 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- $ 2,915 Series 1686, Class 1686-A, 2/15/24 ....................................... $2,679,232 687 Series 1720, Class 1720-PK, 1/15/24, (I) .................................. 245,805 1,225 Series 1750, Class 1750-PC, 3/15/24, (P) .................................. 1,003,851 4,564 Series 1882, Class 1882-PJ, 4/15/22, (I) .................................. 936,490 72,489 Series 1914, Class 1914-PC, 12/15/11, (I) ................................. 1,624,486 11,214 Series 1992, Class 1992-PV, 9/15/27, (I) .................................. 4,471,721 9,955 Series 2037, Class 2037-IB, 12/15/26 ...................................... 2,484,649 Federal National Mortgage Association, REMIC Pass-Through Certificates, 3,235 Trust 1988-16, Class 16-B, 6/25/18 ....................................... 3,461,761 5,488@ Trust 1990-12, Class 12-G, 2/25/20 ....................................... 5,120,798 12,451@@ Trust 1991-15, Class 15-S, 6/25/21, (ARM) ................................ 2,160,472 3,029@@ Trust 1991-38, Class 38-F, 4/25/21, (ARM) ................................ 3,070,466 2,564 Trust 1991-38, Class 38-SA, 4/25/21, (ARM) ................................ 2,588,762 2,477 Trust 1991-87, Class 87-S, 8/25/21, (ARM) ................................ 2,633,264 1,077 Trust 1992-12, Class 12-C, 2/25/22, (I) .................................. 332,013 6,000 Trust 1992-43, Class 43-E, 4/25/22, (ARM) ................................ 6,177,120 3,874 Trust 1992-187, Class 187-JA, 10/25/06, (I) ................................. 335,958 10,084 Trust 1992-200, Class 200-K, 11/25/21, (I) ................................. 1,261,767 768 Trust 1993-27, Class 27-SB, 8/25/23, (ARM) ................................ 631,738 551 Trust 1993-29 Class 29-SP, 3/25/23, (ARM) ................................ 442,307 1,280 Trust 1993-50, Class 50-SH, 1/25/23, (ARM) ................................ 1,206,585 2,768+ Trust 1993-53, Class 53-M, 4/25/23 ....................................... 2,719,428 2,137 Trust 1993-82, Class 82-SB, 5/25/23, (ARM) ................................ 1,664,796 1,086 Trust 1993-87, Class 87-L, 6/25/23 ....................................... 1,081,263 879 Trust 1993-116, Class 116-SB, 7/25/23, (ARM) ................................ 755,852 2,597 Trust 1993-129, Class 129-SE, 8/25/08, (ARM) ................................ 2,534,186 817 Trust 1993-167, Class 167-SA, 9/25/23, (ARM) ................................ 801,091 6,000@@ Trust 1993-169, Class 169-SC, 3/25/23, (ARM) ................................ 4,460,520 5,763+ Trust 1993-178, Class 178-A, 9/25/23 ....................................... 5,650,332 2,776 Trust 1993-179, Class 179-SC, 10/25/23, (ARM) ............................... 3,167,036 2,871 Trust 1993-179, Class 179-VC, 10/25/21, (ARM) ............................... 2,060,092 16,000 Trust 1993-201, Class-JC, 5/25/19, (I) .................................. 2,910,720 1,576 Trust 1993-223, Class 223-SJ, 12/25/23, (ARM) ............................... 1,187,928 2,993 Trust 1993-224, Class 224-S, 11/25/23, (ARM) ............................... 2,515,138 1,908 Trust 1993-224, Class 224-SH, 11/25/23, (ARM) ............................... 1,639,467 2,562 Trust 1993-247, Class 247-SN, 12/25/23, (ARM) ............................... 3,101,638 5,643 Trust 1993-248, Class 248-FB, 9/25/23, (ARM) ................................ 5,182,309 3,487 Trust 1993-256, Class 256-F, 11/25/23, (ARM) ............................... 3,214,479 3,777 Trust 1994-14, Class 14-S, 10/25/23, (ARM) ............................... 2,451,129 4,802 Trust 1994-19, Class 19-SB, 1/25/24, (ARM) ................................ 2,955,214 387 Trust 1994-27, Class 27-SE, 3/25/23, (ARM) ................................ 422,323 14,300+ Trust 1996-14, Class 14-AB, 8/25/23, (P) .................................. 6,193,688 6,797+ Trust 1996-14, Class 14-M, 10/25/21, (P) ................................. 5,822,124 25,000 Trust 1997-50, Class 50-HK, 8/25/27, (I) .................................. 9,234,375 51,000 Trust 1997-90, Class 90-M, 1/25/28, (I) .................................. 20,639,063 13,724 Trust 1998-12, Class 12-PL, 7/18/19, (I) .................................. 2,581,783 7,378 Trust 1998-25, Class 25-PG, 3/18/22, (ARM) ................................ 1,715,452 18,301 Trust 1998-26, Class 26-PK, 12/18/21, (I) ................................. 3,431,466 18,154 Trust 1998-27, Class 27-L, 3/25/20, (I) .................................. 2,337,328 AAA 8,598 G. E. Capital Mortgage Services Inc., REMIC Certificates 94-7, Class A-17, 2/25/09, (ARM) ..................... 7,474,823 AAA 8,870 PNC Mortgage Corp., Mortgage Pass-Through Certificates, Series 1997-6 Class-A2, 7/25/27, (ARM) ................................ 8,861,349 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificates, Aaa 743 Series 1993-43, Class A-16, 10/25/23, (ARM) ............................... 673,252 Aaa 2,500 Series 1993-48, Class A-8, 12/25/08, (ARM) ............................... 2,416,625 See Notes to Financial Statements. 6 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- AAA $ 7,349 Salomon Capital Access Corp., CMO, Series 1986-1, Class C, 9/01/15 ................ $ 7,556,048 ------------ 259,569,370 ------------ COMMERCIAL MORTGAGE-BACKED SECURITIES--6.0% AAA 3,162 Asset Securitization Corp., Series 1997-D5, Class PS-1, 2/14/41, (I/O) ..................... 340,389 AAA 44,113** Credit Suisse First Boston Mortgage, Series 1997, Class C-1, 6/20/29, (I/O) ................................. 4,838,608 AAA 48,225 GMAC Commercial Mortgage Corp., Series 97-C1, Class-X, 7/15/27, (I/O) ................................. 4,596,452 AAA 140,000 Kidder Peabody Acceptance Corp., Series 1994-C1, 2/01/01, (I/O) ................................. 1,400 AAA 6,000 ML Mortgage Investments, Series 1996-C1, Class A-3, 7.42%, 4/25/28 ................................. 6,313,053 AAA 20,307 Morgan Stanley Capital I Inc., Series 1997, Class HF-1, 6/15/17, (I/O) ................................. 1,786,416 AAA 10,250** NYC Mortgage Loan Trust, Series 1996, Class A-2, 6.75%, 6/25/11 ................................. 10,451,797 AA 2,000 PaineWebber Mortgage Acceptance Corp. IV, Series1995-M1, Class B, 6.95%, 1/15/07 ........................ 2,028,671 ---------- 30,356,786 ---------- ASSET-BACKED SECURITIES--1.9% AAA 4,826 Chase Manhattan Grantor Trust, Series 1996-B, Class A, 6.61%, 9/15/02 ................................. 4,863,745 AAA 4,581 Money Store Trust, Series 1998-A, Class MH-2, 7.23%, 5/15/30 ................................. 4,568,116 ---------- 9,431,861 ---------- STRIPPED MORTGAGE-BACKED SECURITIES--30.2% Aaa 928 Chase Mortgage Finance Corp., Mortgage Pass-Through Certificates, Series 1994-A, Class AP, 1/25/10, (P/O) .................................. 715,535 AAA 1,022 Collateralized Mortgage Obligation Trust, Series 29, Class A, 5/23/17, (P/O) ........................................... 804,563 Drexel Burnham Lambert, AAA 362 Trust K, Class K-1A, 9/23/17, (P/O) ............. 313,889 AAA 3,911 Trust V, Class V-1, 9/01/18, (P/O) .............. 3,113,896 Federal Home Loan Mortgage Corp., 2,249 Series 273, Class A-10, 11/15/28, (P/O) ................................. 1,427,366 3,826 Series 1238, Class 1238-J, 1/15/07, (I/O) ................................. 739,187 25,209 Series 1353, Class 1353-S, 8/15/07, (I/O) ................................. 2,682,230 676 Series 1418, Class 1418-M, 11/15/22, (P/O) ................................ 268,631 797 Series 1473, Class 1473-JA, 2/15/05, (I/O) ................................. 40,259 12,000 Series 1506, Class 1506-L, 3/15/22, (I/O) ................................. 2,258,040 12,915 Series 1632, Class 1632-S, 4/15/23, (I/O) ................................. 416,649 32,000 Series 1809, Class 1809-SC, 12/15/23, (I/O) ................................ 3,280,000 14,069+ Series 1828, Class 1828-A, 5/15/24, (P/O) ................................. 10,305,505 17,850 Series 1850, Class 1850-SA, 2/15/24, (I/O) ................................. 2,727,646 6,687 Series 1857, Class 1857-PB, 12/15/08, (P/O) ................................ 5,800,843 5,000 Series 1900, Class 1900-SV, 8/15/08, (I/O) ................................. 870,300 4,828 Series 1917, Class 1917-AS, 5/15/08, (I/O) ................................. 1,074,234 17,938 Series 1946, Class 1946-SG, 3/15/24, (I/O) ................................. 2,197,448 40,000 Series 1965, Class 1965-SA, 3/15/24, (l/O) ................................. 5,662,500 120,299 Series 1968, Class 1968-S, 10/15/26, (I/O) ................................ 6,766,795 15,106 Series 2002, Class 2002-HJ, 10/15/08, (I/O) ................................ 2,317,844 5,500 Series 2009, Class 2009-HJ, 10/15/22, (P/O) ................................ 3,226,094 Federal Housing Aministration, 31,678+ Series 184, Class 184-IO, 12/01/26, (l/O) ................................ 8,355,058 Federal National Mortgage Association, 3,819 Trust A, Class A-2, 8/01/10, (I/O) ................................. 704,931 1,250 Trust 50, Class 50-G, 12/25/21, (I/O) ................................ 451,730 5,980 Trust 225, Class 1, 2/01/23, (P/O) ................................. 4,836,773 1,559+ Trust 267, Class 1, 10/01/24, (P/O) ................................ 1,309,371 6,134 Trust 279, Class 1, 7/01/26, (P/O) ................................. 5,167,721 1,065 Trust 1991-7, Class-J, 2/25/21, (P/O) ................................. 834,459 3,808 Trust 1992-34, Class 34-A, 4/25/22, (I/O) ................................. 1,101,350 16,240 Trust 1992-60, Class 60-SB, 10/25/22, (I/O) ................................ 625,241 1,896 Trust 1992-68, Class 68-K, 10/25/05, (I/O) ................................ 151,661 37,140 Trust 1992-216, Class 216-S, 12/25/22, (I/O) ................................ 4,740,179 See Notes to Financial Statements. 7 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- $ 1,428 Trust 1993-2, Class 2-KB, 1/25/23, (I/O) ................................. $ 617,680 62,603 Trust 1993-82, Class 82-SB, 5/25/23, (I/O) ................................. 6,705,372 2,466 Trust 1993-113, Class 113-B, 7/25/23, (P/O) ................................. 1,906,260 12,364+ Trust 1993-213, Class 213-H, 9/25/23, (P/O) ................................. 10,935,310 3,210 Trust 1994-24, Class 24-D, 11/25/23, (P/O) ................................ 2,808,313 3,960 Trust 1994-57, Class 57-C, 1/25/24, (P/O) ................................. 3,560,602 23,000 Trust 1994-77, Class 77- SB, 4/25/24, (I/O) ................................. 2,825,320 2,955 Trust 1994-94, Class 94-C, 8/25/23, (P/O) ................................. 2,517,062 13,853 Trust 1995-26, Class 26-SW, 2/25/24, (I/O) ................................. 2,437,317 2,151 Trust 1996-5, Class 5-PV, 11/25/23, (P/O) ................................ 1,896,851 9,963 Trust 1996-38, Class 38-E, 8/25/23, (P/O) ................................. 5,899,964 2,572 Trust 1996-56, Class 56-E, 4/25/23, (P/O) ................................. 2,045,002 12,371 Trust 1996-68, Class 68-SC, 1/25/24, (I/O) ................................. 1,470,976 85,756 Trust 1997-37, Class 37-SE, 10/25/22, (I/O) ................................ 2,036,716 35,476 Trust 1997-65, Class 65-SB, 3/25/24, (I/O) ................................. 1,940,111 27,000 Trust 1997-65, Class 65-SG, 6/25/23, (I/O) ................................. 3,915,000 11,139 Trust 1997-76, Class 76-SP, 12/25/23, (I/O) ................................ 1,924,958 5,294 Trust 1997-85, Class 85-EL, 7/25/23, (P/O) ................................. 3,751,874 2,780 Trust 1997-85, Class 85-LE, 10/25/23, (P/O) ................................ 2,297,387 AAA 1,070 First Boston Mortgage Securities Corp., Series 1987-C, Class Z, 4/25/17, (I/O) ................................. 339,832 Housing Security Inc., AAA 377 Series 1992-EB, Class B-8, 9/25/22, (P/O) ................................. 278,760 AAA 578 Series 1993-D, Class D-8, 6/25/23, (P/O) ................................. 387,195 Kidder Peabody Acceptance Corp., Series B, Class B-1, AAA 2,739 4/22/18, (P/O) ................................. 2,323,544 AAA 1,466 Series B, Class B-2, 4/22/18, (I/O) ................................. 382,844 AAA 2,852 Structured Asset Securities Corp., Series 1991-2, Class GA, 12/20/21, (I/O) ............................... 780,800 AAA 834 Structured Mortgage Asset Trust, Series 1993-3C, Class CX, 4/25/24, (P/O) .................................. 544,771 AAA 363 Prudential Securities, Inc., Trust 15, Class 1G, 5/20/21, (I/O) .................................. 385,453 ------------ 152,203,202 ------------ U.S GOVERNMENT AND AGENCY SECURITIES--35.5% Overseas Private Investment Corp., 200 6.27%, 5/29/12 ................................... 197,875 400 6.84%, 5/29/12 ................................... 405,000 Small Business Administration, 4,475 Series 1996-20E, 7.60%, 5/01/16 ................................... 4,752,872 3,984 Series 1996-20G, 7.70%, 7/01/16 ................................... 4,255,387 3,765 Series 1996-20H, 7.25%, 8/01/16 ................................... 3,938,302 Series 1996-20K, 6,710 6.95%, 11/01/16 .................................. 6,909,903 3,777 7.55%, 6/01/16 ................................... 4,004,312 2,882 Series 1997-20C, 7.15%, 3/01/17 ................................... 3,000,860 5,490 Series 1998-10A, 6.12%, 2/01/08 ................................... 5,424,381 115,107+ United States Treasury Bonds, 3.625%, 4/15/28 (TIPS) ........................... 114,387,531 31,300++ United States Treasury Notes, 5.75%, 11/30/02 .................................. 31,378,250 ------------ 178,654,673 ------------ COLLATERALIZED MORTGAGE OBLIGATION RESIDUALS***--0.7% AAA 5,435 American Housing Trust III, Senior Mortgage Pass- Through Certificates, Series 1, Class 4, (REMIC) **, 3/25/19 ..................... 845,915 AAA 304 American Housing Trust VII, Senior Mortgage Pass-Through Certificates, Series A, Class R, (REMIC), 11/25/20 ................................ 2,142,250 AAA 25 Collateralized Mortgage Obligation, Trust 13**, 1/20/03 .............................. 210,687 AAA 45 FBC Mortgage Securities Trust 16, CMO, Series A**, 7/01/17, (ARM) .................. 289,420 AAA 43 PaineWebber Trust, Series N, Class 7, (REMIC), 1/01/19 ........................ 202,826 ------------ 3,691,098 ------------ Total Long-Term Investments (cost $714,624,871) .............................. 745,862,527 ------------ See Notes to Financial Statements. 8 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS--1.0% REPURCHASE AGREEMENT--0.0% $ 140 State Street Bank & Trust Co., 5.20%, dated 4/30/98, due 5/1/98 in the amount of $140,020 (cost $140,000 collateralized by $140,000 U.S. Treasury Note, 6.625% due 7/31/01, value including accrued interest--$143,220)$ .................... $ 140,000 ------------ CONTRACTS # ----------- CALL OPTION PURCHASED--0.7% 150,000 Interest Rate Swap, 6.20% over 3 month LIBOR, expires 8/13/99 (cost $2,238,750) ............................... 3,532,500 ------------ PUT OPTION PURCHASED--0.3% 150,000 Interest Rate Swap, 7.25% over 3 month LIBOR, expires 5/12/00 (cost $6,795,000) ............................... 1,358,850 ------------ Total Short-Term Investments (cost $9,173,750) ................................ 5,031,350 ------------ Total investments before investments sold short--149.2% (cost $723,798,621) .............................. $750,893,877 INVESTMENTS SOLD SHORT--(5.0%) $ (25,000) United States Treasury Bonds, 6.125%, 11/25/27 (proceeds $25,140,625) .......................... (25,140,625) ------------ Total investments net of short sales--144.2% (cost $698,657,996) .............................. 725,753,252 Liabilities in excess of other assets--(44.2%) ..................................(222,308,696) ------------ NET ASSETS--100% ................................... $503,444,556 ============ - ---------------------- * Using the higher of Standard & Poor's or Moody's rating. ** Private placements restricted as to resale. *** Illiquid securities representing .5% of portfolio assets. # One contract equals 100,000 face value. + Partial principal amount pledged as collateral for reverse repurchase agreements. ++ Entire principal amount pledged as collateral for reverse repurchase agreements. @ Partial principal amount pledged as collateral for futures transactions. @@ Entire principal amount pledged as collateral for futures transactions. - -------------------------------------------------------------------------------- KEY TO ABBREVIATIONS ARM -- Adjustable Rate Mortgage. CMO -- Collateralized Mortgage Obligation. I -- Denotes a CMO with Interest only characteristics. I/O -- Interest only. LIBOR -- London InterBank Offer Rate. P -- Denotes a CMO with Principal only characteristics. P/O -- Principal only. REMIC -- Real Estate Mortgage Investment Conduit. TIPS -- Treasury Inflation Protection Securities. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS Investments, at value (cost $723,798,621) (Note 1) ......... $750,893,877 Cash ....................................................... 197,622 Deposit with brokers as collateral for investments sold short (Note 1) ...................................... 25,140,625 Interest receivable ........................................ 6,163,699 Interest rate caps, at value (amortized cost $9,282,691) (Notes 1 & 3) ................ 2,731,443 Receivable for investments sold ........................... 228,429 ------------ 785,355,695 ------------ LIABILITIES Reverse repurchase agreements (Note 4) ..................... 229,691,000 Investment sold short, at value (proceeds $25,140,625) (Note 1) .......................... 25,140,625 Payable for investments purchased .......................... 20,541,027 Due to broker-variation margin ............................. 3,485,202 Interest payable ........................................... 1,821,914 Unrealized depreciation on interest rate swaps (Note 1 & 3) ............................................. 566,539 Investment advisory fee payable (Note 2) ................... 289,970 Administration fee payable (Note 2) ........................ 83,318 Other accrued expenses ..................................... 291,544 ------------ 281,911,139 ------------ NET ASSETS ................................................. $503,444,556 ============ Net assets were comprised of: Common stock, at par (Note 5) ............................ $ 628,499 Paid-in capital in excess of par ......................... 563,355,769 ------------ 563,984,268 Undistributed net investment income ...................... 278,006 Accumulated net realized losses .......................... (80,125,400) Net unrealized appreciation .............................. 19,307,682 ------------ Net assets, April 30, 1998 ............................... $503,444,556 ============ NET ASSET VALUE PER SHARE: ($503,444,556 / 62,849,878 shares of common stock issued and outstanding) ..................... $8.01 ===== - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest (net of premium amortization of $3,809,751 and interest expense of $5,387,814) ........................ $22,144,567 ----------- Expenses Investment advisory ........................................ 1,653,785 Administration ............................................. 508,857 Custodian .................................................. 91,000 Transfer agent ............................................. 68,000 Reports to shareholders .................................... 55,000 Directors .................................................. 43,000 Audit ...................................................... 36,000 Legal ...................................................... 7,000 Miscellaneous .............................................. 97,884 ----------- Total operating expenses ................................. 2,560,526 ----------- Net investment income ...................................... 19,584,041 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3) Net realized gain (loss) on: Investments ................................................ 14,542,493 Options .................................................... (1,974,219) Futures .................................................... (8,186,526) Short sales ................................................ (6,722,950) ----------- (2,341,202) ----------- Net change in unrealized appreciation (depreciation) on: Investments ................................................ (8,740,457) Options .................................................... 2,830,500 Interest rate caps ......................................... (1,411,931) Futures .................................................... 341,388 Short sales ................................................ 628,781 ----------- (6,351,719) ----------- Net loss on investments .................................... (8,692,921) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................................... $10,891,120 =========== See Notes to Financial Statements. 10 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH Cash flows provided by operating activities: Interest received ............................. $ 30,863,760 Operating expenses paid ....................... (2,554,226) Interest expense paid ......................... (4,610,194) Purchase of short-term portfolio investments including options, net ...................... (7,871,344) Purchase of long-term portfolio investments ... (1,185,949,818) Proceeds from disposition of long-term portfolio investments ....................... 1,194,544,760 Variation margin on futures ................... (7,524,398) --------------- Net cash flows provided by operating activities 16,898,540 --------------- Cash flows used for financing activities: Increase in reverse repurchase agreements ..... 1,160,800 Cash dividends paid ........................... (17,907,211) --------------- Net cash flows used for financing activities .. (16,746,411) --------------- Net increase in cash ............................ 152,129 Cash at beginning of period ..................... 45,493 --------------- Cash at end of period ........................... $ 197,622 =============== RECONCILIATION OF NET INCREASE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Net increase in net assets resulting from operations .................................... $ 10,891,120 --------------- Increase in investments ......................... (35,572,807) Increase in interest receivable ................. (478,372) Decrease in receivable for investments sold ..... 62,699,397 Increase in variation margin payable ............ 2,903,186 Net realized losses ............................. 2,341,197 Decrease in unrealized appreciation ............. 6,351,719 Decrease in depreciation of forward swap ........ (24,000) Decrease in options written ..................... (3,901,500) Decrease in payable for investments sold short .. (624,875) Decrease in payable for investments purchased ... (31,717,002) Increase in interest payable .................... 1,484,108 Decrease in deposits with brokers for investments sold short ........................ 796,875 Decrease in interest rate caps .................. 2,449,677 Decrease in accrued expenses and other liabilities ................................... (700,183) --------------- Total adjustments ............................. 6,007,420 --------------- Net cash provided by operating activities ....... $ 16,898,540 =============== - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) - -------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS Six Months Year Ended Ended April 30, 1998 October 31, 1997 -------------- ---------------- Operations: Net investment income .................. $ 19,584,041 $ 36,244,955 Net realized gain (loss) on investments, futures, short sales, interest rate caps and options .......................... (2,341,202) 10,941,155 Net change in net unrealized appreciation (depreciation) on investments, futures, short sales, interest rate caps and options ..................... (6,351,719) 20,310,564 ------------ ------------ Net increase in net assets resulting from operations ........................... 10,891,120 67,496,674 Dividends from net investment income ................................. (17,676,122) (35,352,309) ------------ ------------ Total increase (decrease) .............. (6,785,002) 32,144,365 NET ASSETS Beginning of period .................... 510,229,558 478,085,193 ------------ ------------ End of period .......................... $503,444,556 $510,229,558 ============ ============ See Notes to Financial Statements. 11 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. FINANCIAL HIGHLIGHTS (UNAUDITED) - --------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED OCTOBER 31, ENDED -------------------------------------------------------------- APRIL 30, 1998 1997 1996 1995 1994 1993 -------------- ---- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period ....... $ 8.12 $ 7.61 $ 7.66 $ 7.25 $ 8.75 $ 8.90 -------- -------- -------- -------- -------- ------- Net investment income (net of $0.09, $0.18, $0.17, $0.22, $0.10 and $0.09 respectively, of interest expense) ..... 0.31 0.58 0.55 0.51 0.73 0.91 Net realized and unrealized gains (losses) on investments, short sales, futures and options ................... (0.14) 0.49 (0.01) 0.65 (1.45) (0.21) -------- -------- -------- -------- -------- ------- Net increase (decrease) from investment operations ............................... 0.17 1.07 0.54 1.16 (0.72) 0.70 -------- -------- -------- -------- -------- ------- Dividends from net investment income ....... (0.28) (0.56) (0.55) (0.66) (0.78) (0.85) Distributions in excess of net investment income ........................ -- -- (0.04) -- -- -- Return of capital distribution ............. -- -- -- (0.09) -- -- -------- -------- -------- -------- -------- Total dividends and distributions ........ (0.28) (0.56) (0.59) (0.75) (0.78) (0.85) -------- -------- -------- -------- -------- ------- Net asset value, end of period* ............ $ 8.01 $ 8.12 $ 7.61 $ 7.66 $ 7.25 $ 8.75 ======== ======== ======== ======== ======== ======= Per share market value, end of period* ..... $ 6 7/8 $ 6 7/8 $ 6 1/4 $ 7 1/4 $ 6 3/8 $ 8 3/8 ======== ======== ======== ======== ======== ======= TOTAL INVESTMENT RETURN .................... 4.04% 19.68% (5.36%) 26.50% (15.31%) 1.01% RATIOS TO AVERAGE NET ASSETS: Operating expenses# ........................ 1.02%** 1.02% 1.08% 1.08% 1.10% 1.03% Net investment income ...................... 7.77%** 7.63% 7.36% 6.85% 9.21% 10.19% SUPPLEMENTAL DATA: Average net assets (in thousands) ......... $508,857 $474,903 $473,056 $466,449 $496,707 $558,530 Portfolio turnover ......................... 165% 220% 440% 267% 223% 121% Net assets, end of period (in thousands) ... $503,445 $510,230 $478,085 $481,301 $455,651 $549,755 Reverse repurchase agreements outstanding, end of period (in thousands) ............. $228,691 $228,530 $204,438 $214,438 $109,286 $ 74,700 Asset coverage ............................. $ 3,201 $ 3,233 $ 3,339 $ 3,244 $ 5,169 $ 8,360
- -------------- * NAV and market value are published in The WallStreet Journal each Monday. ** Annualized. # The ratios of operating expenses including interest expense to average net assets were 3.14%**, 3.44%, 3.38%, 4.08%, 2.32%, and 2.02% for the periods indicated above, respectively. + Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each period reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Trust's dividend reinvestment plan. This calculation does not reflect brokerage commissions. Total investment returns for periods of less than one full year are not annualized. ++ Per $1,000 of reverse repurchase agreement outstanding. The information above represents the unaudited operating performance for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data, for each of the periods indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares. See Notes to Financial Statements. 12 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOTE 1. ACCOUNTING The BlackRock Income Trust Inc. (the POLICIES "Trust"), a Maryland corporation, is a diversified closed-end management investment company. The investment objective of the Trust is to achieve high monthly income consistent with preservation of capital. The ability of issuers of debt securities held by the Trust to meet their obligations may be affected by economic developments in a specific industry or region. No assurance can be given that the Trust's investment objective will be achieved. The following is a summary of significant accounting policies followed by the Trust. SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other debt securities on the basis of current market quotations provided by dealers or pricing services approved by the Trust's Board of Directors. In determining the value of a particular security, pricing services may use certain information with respect to transactions in such securities, quotations from dealers, market transactions in comparable securities, various relationships observed in the market between securities, and calculated yield measures based on valuation technology commonly employed in the market for such securities. Exchange-traded options are valued at their last sales price as of the close of options trading on the applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. A futures contract is valued at the last sale price as of the close of the commodities exchange on which it trades unless the Trust's Board of Directors determines that such price does not reflect its fair value, in which case it will be valued at its fair value as determined by the Trust's Board of Directors. Any securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Trust's Board of Directors. Short-term securities which mature in 60 days or less are valued at amortized cost, if their term to maturity from date of purchase is 60 days or less. Short-term securities with a term to maturity greater than 60 days from the date of purchase are valued at current market quotations until maturity. In connection with transactions in repurchase agreements, the Trust's custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Trust may be delayed or limited. OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an amount equal to the premium received or paid by the Trust is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Trust has realized a gain or a loss on investment transactions. The Trust, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Options, when used by the Trust, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of "one" means that a portfolio's or a security's price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates. Option selling and purchasing is used by the Trust to effectively "hedge" positions so that changes in interest rates do not change the duration of the portfolio unexpectedly. In general, the Trust uses options to hedge a long or short position or an overall portfolio that is longer or shorter than the benchmark security. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put options can be purchased to effectively hedge a position or a portfolio against price declines if a portfolio is long. In the same sense, call options can be purchased to hedge a portfolio that is shorter than its benchmark 13 against price changes. The Trust can also sell (or write) covered call options and put options to hedge portfolio positions. The main risk that is associated with purchasing options is that the option expires without being exercised. In this case, the option expires worthless and the premium paid for the option is considered the loss. The risk associated with writing call options is that the Trust may forego the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The risk in writing put options is that the Trust may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, as with futures contracts, the Trust risks not being able to enter into a closing transaction for the written option as the result of an illiquid market. INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Rate swaps were conceived as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by "marking-to-market" to reflect the market value of the swap. When the swap is terminated, the Trust will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract, if any. The Trust is exposed to credit loss in the event of non-performance by the other party to the mortgage swap. However, the Trust does not anticipate non-performance by any counterparty. SWAP OPTIONS: Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Trust has realized a gain or loss on investment transactions. The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option. Swap options may be used by the Trust to manage the duration of the Trust's portfolio reflecting the view of the Trust's management in the direction of interest rates. FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two parties to buy and sell a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Trust records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract. Financial futures contracts, when used by the Trust, help in maintaining a targeted duration. Futures contracts can be sold to effectively shorten an otherwise longer duration portfolio. In the same sense, futures contracts can be purchased to lengthen a portfolio that is shorter than its duration target. Thus, by buying or selling futures contracts, the Trust can effectively "hedge" positions so that changes in interest rates do not change the duration of the portfolio unexpectedly. The Trust may invest in financial futures contracts primarily for the purpose of hedging its existing portfolio securities or securities the Trust intends to purchase against fluctuations in value caused by changes in prevailing market interest rates. Should interest rates move unexpectedly, the Trust may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. The Trust is also at the risk of not being able to enter into a closing transaction for the futures contract because of an illiquid secondary market. In addition, since futures are used to shorten or lengthen a portfolio's duration, there is a risk that the portfolio may have temporarily performed better without the hedge or that the Trust may lose the opportunity to realize appreciation in the market price of the underlying positions. 14 SHORT SALES: The Trust may make short sales of securities as a method of hedging potential price declines in similar securities owned. When the Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trust may have to pay a fee to borrow the particular securities and may be obligated to pay over any payments received on such borrowed securities. A gain, limited to the price at which the Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received. SECURITIES LENDING: The Trust may lend its portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trust may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trust receives compensation for lending its securities in the form of interest on the loan. The Trust also continues to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Trust. INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate over a specified fixed or floating rate. Interest rate caps are intended to both manage the duration of the Trust's portfolio and its exposure to changes in short term rates. Owning interest rate caps reduces the portfolio's duration, making it less sensitive to changes in interest rates from a market value perspective. The effect on income involves protection from rising short term rates, which the Trust experiences primarily in the form of leverage. The Trust is exposed to credit loss in the event of non-performance by the other party to the interest rate cap. However, the Trust does not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trust are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate cap. The asset or liability is subsequently adjusted to the current market value of the interest rate cap purchased or sold. Changes in the value of the interest rate cap are recognized as unrealized gains and losses. INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate under a specified fixed or floating rate. Interest rate floors are used by the Trust to both manage the duration of the portfolio and its exposure to changes in short-term interest rates. Selling interest rate floors reduces the portfolio's duration, making it less sensitive to changes in interest rates from a market value perspective. The Trust's leverage provides extra income in a period of falling rates. Selling floors reduces some of that advantage by partially monetizing it as an up front payment which the Trust receives. The Trust is exposed to credit loss in the event of non-performance by the other party to the interest rate floor. However, the Trust does not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trust are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate floor. The asset or liability is subsequently adjusted to the current market value of the interest rate floor purchased or sold. Changes in the value of the interest rate floor are recognized as unrealized gains and losses. SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and the Trust accretes discount and amortizes premium on securities purchased using the interest method. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. TAXES: It is the Trust's intention to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income tax provision is required. DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and distributions monthly, first from net investment income, then from realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards are distributed at least annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses 15 during the reporting period. Actual results could differ from those estimates. NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with BlackRock Financial Management, Inc. (the "Adviser"), a wholly- owned corporate subsidiary of BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of PNC Bank, N.A., and an Administration Agreement with Prudential Investments Fund Management LLC ("PIFM"), an indirect, wholly-owned subsidiary of The Prudential Insurance Co. of America. The investment fee paid to the Adviser is computed weekly and payable monthly at an annual rate of 0.65% of the Trust's average weekly net assets. The administration fee paid to PIFM is also computed weekly and payable monthly at an annual rate of 0.20% of the first $500 million of the Trust's average weekly net assets and 0.15% of any excess. Pursuant to the agreements, the Adviser provides continuous supervision of the investment portfolio and pays the compensation of officers of the Trust. PIFM pays occupancy and certain clerical and accounting costs of the Trust. The Trust bears all other costs and expenses. NOTE 3. PORTFOLIO Purchases and sales of investment SECURITIES securities, other than short-term investments and dollar rolls, for the six months ended April 30, 1998 aggregated $1,154,232,616 and $1,200,475,138, respectively. The Trust may invest without limit in securities which are not readily marketable, including those which are restricted as to disposition under securities law ("restricted securities") although the Trust does not expect that such investments will generally exceed 25% of its portfolio assets. At April 30, 1998, the Trust held 0.5% of its portfolio assets in illiquid securities all of which were securities restricted as to resale. The Trust may from time to time purchase in the secondary market certain mortgage pass-through securities packaged or master serviced by PNC Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded to rights and duties of Sears) or mortgage related securities containing loans or mortgages originated by PNC Bank or its affiliates, including Midland Loan Services, Inc. It is possible under certain circumstances, PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc. could have interests that are in conflict with the holders of these mortgage backed securities, and such holders could have rights against PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc.. The federal income tax basis of the Trust's investments at April 30, 1998 was $723,798,621 and, accordingly, net unrealized appreciation was $27,095,256 (gross unrealized appreciation-$37,561,257; gross unrealized depreciation-$10,466,001). For federal income tax purposes, the Trust has a capital loss carryforward at October 31, 1997 of approximately $81,496,600 of which approximately $264,400 will expire in 1998, approximately $15,072,600 will expire in 2001, approximately $23,358,100 will expire in 2002, approximately $15,428,300 will expire in 2003 and approximately $27,373,200 will expire in 2004. Accordingly, no capital gains distribution is expected to be paid to shareholders until net gains have been realized in excess of such amounts. Details of open financial futures contracts at April 30, 1998 are as follows:
VALUE AT VALUE AT NUMBER OF EXPIRATION TRADE APRIL 30, UNREALIZED CONTRACTS TYPE DATE DATE 1998 DEPRECIATION - --------------- ------------- ---------- -------- ---------- ------------ Long Positions: 15 10 yr. T-Note June 1998 $ 1,687,802 $ 1,684,688 $ (3,114) Short Positions: 2152 30 yr. T-Bond June 1998 258,044,077 258,710,750 (666,673) ---------- $ (669,787) ==========
The Trust entered into four interest rate caps. Under all agreements the Trust receives the excess, if any, of a floating rate over a fixed rate. The Trust paid a transaction fee for each agreement. Details of the caps at April 30, 1998 are as follows: NOTIONAL VALUE AT AMOUNT FIXED FLOATING TERMINATION COST/ APRIL 30, UNREALIZED (000) RATE RATE DATE PREMIUM 1998 DEPRECIATION ------- ----- -------- ----------- ------- -------- ------------ $ 50,000 6.00% 3 MTH LIBOR 2/19/02 $ 1,227,098 $ 616,400 $ (610,698) 100,000 6.50% 3 mth LIBOR 4/4/02 2,819,309 797,043 (2,022,266) 100,000 7.00% 3 mth LIBOR 4/18/03 2,844,458 738,000 (2,106,458) 100,000 7.25% 3 mth LIBOR 4/23/03 2,391,826 580,000 (1,811,826) ----------- --------- ----------- $ 9,282,691 $2,731,443 $(6,551,248) =========== ========== =========== Details of open interest rate swaps at April 30, 1998 are as follows: NOTIONAL UNREALIZED AMOUNT FIXED TERMINATION APPRECIATION (000) TYPE RATE FLOATING RATE DATE (DEPRECIATION) - ------- ----------- ------- ------------- ---------- -------------- $ 20,000 Interest Rate 7.50% 1 month LIBOR 04/25/02 $ (644,000) 5,455 Forward Rate 7.235% 1 Month Libor 06/15/11 77,461 ---------- $ (566,539) ========== 16 NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust enters into reverse repurchase agreements with qualified, third party broker-dealers as determined by and under the direction of the Trust's Board of Directors. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time the Trust enters into a reverse repurchase agreement, it establishes and maintains a segregated account with the lender containing liquid high grade securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. The average daily balance of reverse repurchase agreements outstanding during the six months ended April 30, 1998 was approximately $254,787,000 at a weighted average interest rate of approximately 5.68%. The maximum amount of reverse repurchase agreements outstanding at any month-end during the period was $229,691,000 as of April 30, 1998, which was 30.53% of total assets. DOLLAR ROLLS: The Trust enters into dollar rolls in which the Trust sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Trust forgoes principal and interest paid on the securities. The Trust is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the future date. The Trust did not enter into dollar rolls during the six months ended April 30, 1998. NOTE 5. CAPITAL There are 200 million shares of $.01 par value common stock authorized. Of the 62,849,878 shares outstanding at April 30, 1998, the Adviser owned 10,753 shares. NOTE 6. DIVIDENDS Since April 30, 1998, the Board of Directors of the Trust declared dividends from undistributed earnings of $0.046875 per share payable May 29, 1998 to shareholders of record on May 15, 1998. 17 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. DIVIDEND REINVESTMENT PLAN - -------------------------------------------------------------------------------- Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), shareholders may elect to have all distributions of dividends and capital gains automatically reinvested by State Street Bank & Trust Company. (the "Plan Agent") in Trust shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in United States dollars mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Custodian, as dividend disbursing agent. The Plan Agent serves as agent for the shareholders in administering the Plan. After the Trust declares a dividend or determines to make a capital gain distribution, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Trust shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. The Trust will not issue shares under the Plan below net asset value. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent and will receive certificates for whole Trust shares and a cash payment will be made for any fraction of a Trust share. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income taxes that may be payable on such dividend or distributions. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent upon at least 90 days' written notice to all shareholders of the Trust. All correspondence concerning the Plan should be directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of this report. - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- There have been no material changes in the Trust's investment objectives or policies that have not been approved by the shareholders or to its charter or by-laws or in the principal risk factors associated with investment in the Trust. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Trust's portfolio. The Annual Meeting of Trust Shareholders was held May 6, 1998 to vote on the following matters: (1) To elect three Directors as follows: DIRECTOR CLASS TERM EXPIRING ------- ----- ----- ------- Andrew F. Brimmer .............. III 3 years 2000 Kent Dixon ..................... III 3 years 2000 Laurence D. Fink ............... III 3 years 2000 Directors whose term of office continues beyond this meeting are Frank J. Fabozzi, Ralph L. Schlosstein, Walter F. Mondale, Richard E. Cavanagh, James Grosfeld, and James Clayburn La Force, Jr. (2) To ratify the selection of Deloitte & Touche LLP as independent public accountants of the Trust for the fiscal year ending October 31, 1998. Shareholders elected the three Directors and ratified the selection of Deloitte & Touche LLP. The results of the voting was as follows VOTES FOR VOTES AGAINST ABSTENTIONS --------- ------------- ----------- Andrew F. Brimmer ....... 51,741,336 0 1,251,120 Kent Dixon .............. 51,902,210 0 1,090,246 Laurence D. Fink ........ 51,901,031 0 1,091,425 Ratification of Deloitte & Touche LLP ......... 51,732,575 645,614 614,267 18 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. INVESTMENT SUMMARY - -------------------------------------------------------------------------------- THE TRUST'S INVESTMENT OBJECTIVE The Trust's investment objective is to manage a portfolio of high quality securities to achieve high monthly income consistent with preservation of capital. The Trust will seek to distribute monthly income that is greater than that obtainable on an annualized basis by investment in United States Treasury securities having the same maturity as the average dollar weighted maturity of the Trust's investments. WHO MANAGES THE TRUST? BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered investment adviser. BlackRock and its affiliates currently manage over $118 billion on behalf of taxable and tax-exempt clients worldwide. Strategies include fixed income, equity and cash and may incorporate both domestic and international securities. Domestic fixed income strategies utilize the government, mortgage, corporate and municipal bond sectors. BlackRock manages twenty-one closed-end funds that are traded on either the New York or American stock exchanges, and a $23 billion family of open-end equity and bond funds. Current institutional clients number 334, domiciled in the United States and overseas. WHAT CAN THE TRUST INVEST IN? The Trust will invest at least 65% of its assets in mortgage-backed securities. At least 85% of the Trust's assets must be rated at least "AAA" by Standard & Poor's or "Aaa" by Moody's at the time of purchase; of this 85% at least 80% of the Trust's assets must be rated at least "AAA" by Standard & Poor's at the time of purchase while the remaining 5% can be invested in securities at least "AAA" by Standard & Poor's, "Aaa" by Moody's or deemed "AAA" by the Advisor at the time of purchase. Additionally, 15% of the Trust's assets can be invested in securities rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time of purchase. Under current market conditions, BlackRock expects that the primary investments of the Trust will be U.S. government securities, securities backed by government agencies (such as mortgage-backed securities), privately issued mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. WHAT IS THE ADVISER'S INVESTMENT STRATEGY? The Adviser will seek to meet the Trust's investment objective by managing the assets of the Trust so as to provide high monthly income consistent with the preservation of capital. The Trust will seek to provide monthly income that is greater than that which could be obtained by investing in U.S. Treasury securities with an average life similar to that of the Trust's assets. Under current market conditions, the average life of the Trust's assets is expected to be in the range of seven to ten years. Under other market conditions, the Trust's average life may vary and may not be predictable using any formula. In seeking the investment objective, the Adviser may actively manage among various types of securities in different interest rate environments. Traditional mortgage pass-through securities make interest and principal payments on a monthly basis and can be a source of attractive levels of income to the Trust. While mortgage-backed securities in the Trust are of high credit quality, they typically offer a yield spread above Treasuries due to the uncertainty of the timing of their cash flows as they are subject to changes in the rate of prepayments when interest rates change and either a larger or smaller proportion of mortgage holders refinance their mortgages or move. While mortgage-backed securities offer the opportunity for attractive yields, they subject a portfolio to interest rate risk and prepayment exposure which result in reinvestment risk when prepaid principal must be reinvested. Multiple-class mortgage pass-through securities, or collateralized mortgage obligations (CMOs), are also an investment that may be used in the Trust's portfolio. These securities are issued in multiple classes each of which has a different coupon rate, stated maturity and prioritization on the timing of receipt of cash flows coming from interest and principal payments on the underlying mortgages. Principal prepayments can be allocated among the different classes of a CMO in a number of ways; for instance, they can be applied to each of the classes in the order of their respective stated maturities. This feature allows an investor to better plan the average life of their investment. As a result, these securities may be used by the Trust to help manage prepayment risk and align the assets of the portfolio more closely with its targeted average life. 19 Additionally, in order to attempt to protect the portfolio from interest rate risk, the Adviser will attempt to locate securities with call protection, such as commercial mortgage-backed securities with prepayment penalties or lockouts. Securities with call protection should provide the portfolio with some degree of protection against reinvestment risk during times of lower prevailing interest rates. HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS REGULARLY? The Trust's shares are traded on the New York Stock Exchange which provides investors with liquidity on a daily basis. Orders to buy or sell shares of the Trust must be placed through a registered broker or financial advisor. The Trust pays monthly dividends which are typically paid on the last business day of the month. For shares held in the shareholder's name, dividends may be reinvested in additional shares of the fund through the Trust's transfer agent, State Street Bank & Trust Company. Investors who wish to hold shares in a brokerage account should check with their financial advisor to determine whether their brokerage firm offers dividend reinvestment services. LEVERAGE CONSIDERATIONS IN THE TRUST Under current market conditions, leverage increases the income earned by the Trust. The Trust employs leverage primarily through the use of reverse repurchase agreements and dollar rolls. Leverage permits the Trust to borrow money at short-term rates and reinvest that money in longer-term assets which typically offer higher interest rates. The difference between the cost of the borrowed funds and the income earned on the proceeds that are invested in longer term assets is the benefit to the Trust from leverage. In general, the portfolio is typically leveraged at approximately 331/3% of total assets. Leverage also increases the duration (or price volatility of the net assets) of the Trust, which can improve the performance of the fund in a declining rate environment, but can cause net assets to decline faster than the market in a rapidly rising rate environment. BlackRock's portfolio managers continuously monitor and regularly review the Trust's use of leverage and the Trust may reduce, or unwind, the amount of leverage employed should BlackRock consider that reduction to be in the best interests of shareholders. SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST The Trust is intended to be a long-term investment and is not a short-term trading vehicle. INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high monthly income consistent with preservation of capital, there can be no assurance that this objective will be achieved. DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over time as fixed income market conditions change. Future dividends may be higher or lower than the dividend the Trust is currently paying. LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and dollar rolls, which involves special risks. The Trust's net asset value and market value may be more volatile due to its use of leverage. MARKET PRICE OF SHARES. The shares of closed-end investment companies such as the Trust trade on the New York Stock Exchange (NYSE symbol: BKT) and as such are subject to supply and demand influences. As a result, shares may trade at a discount or a premium to their net asset value. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield characteristics of these securities differ from traditional debt securities. The major differences typically include more frequent payments and the possibility of prepayments which will change the yield to maturity of the security. ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid, although under current market conditions the Trust expects to do so to only a limited extent. These securities involve special risks. ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in the Trust's business or management more difficult without the approval of the Trust's Board of Directors and may have the effect of depriving shareholders of an opportunity to sell their shares at a premium above the prevailing market price. 20 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. GLOSSARY - -------------------------------------------------------------------------------- ADJUSTABLE RATE MORTGAGE-BACKED SECURITIES (ARMS): Mortgage instruments with interest rates that adjust at eriodic intervals at a fixed amount over the market levels of interest rates as reflected in specified indexes. ARMS are backed by mortgage loans secured by real property. ASSET-BACKED SECURITIES: Securities backed by various types of receivables such as automobile and credit card receivables. CLOSED-END FUND: Investment vehicle which initially offers a fixed number of shares and trades on a stock exchange. The fund invests in a portfolio of securities in accordance with its stated investment objectives and policies. COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS): Mortgage-backed securities which separate mortgage pools into short-, medium-, and long-term securities with different priorities for receipt of principal and interest. Each class is paid a fixed or floating rate of interest at regular intervals. Also known as multiple-class mortgage pass-throughs. DISCOUNT: When a fund's net asset value is greater than its stock price the fund is said to be trading at a discount. DIVIDEND: This is income generated by securities in a portfolio and distributed to shareholders after the deduction of expenses. This Trust declares and pays dividends on a monthly basis. DIVIDEND REINVESTMENT: Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested into additional shares of the Trust. FHA: Federal Housing Administration, a government agency that facilitates a secondary mortgage market by providing an agency that guarantees timely payment of interest and principal on mortgages. FHLMC: Federal Home Loan Mortgage Corporation, a publicly owned, federally chartered corporation that facilitates a secondary mortgage market by purchasing mortgages from lenders such as savings institutions and reselling them to investors by means of mortgage-backed securities. Obligations of FHLMC are not guaranteed by the U.S. government, however; they are backed by FHLMC's authority to borrow from the U.S. government. Also known as Freddie Mac. FNMA: Federal National Mortgage Association, a publicly owned, federally chartered corporation that facilitates a secondary mortgage market by purchasing mortgages from lenders such as savings institutions and reselling them to investors by means of mortgage-backed securities. Obligations of FNMA are not guaranteed by the U.S. government, however; they are backed by FNMA's authority to borrow from the U.S. government. Also known as Fannie Mae. GNMA: Government National Mortgage Association, a government agency that facilitates a secondary mortgage market by providing an agency that guarantees timely payment of interest and principal on mortgages. GNMA's obligations are supported by the full faith and credit of the U.S. Treasury. Also known as Ginnie Mae. GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S. government, or one of its agencies or instrumentalities, such as GNMA (Government National Mortgage Association), FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corporation). INTEREST-ONLY SECURITIES (I/O): Mortgage securities that receive only the interest cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. 21 INVERSE-FLOATING RATE MORTGAGES: Mortgage instruments with coupons that adjust at periodic intervals according to a formula which sets inversely with a market level interest rate index. MARKET PRICE: Price per share of a security trading in the secondary market. For a closed-end fund, this is the price at which one share of the fund trades on the stock exchange. If you were to buy or sell shares, you would pay or receive the market price. MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which the Trust sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (although not the same) securities on a specified future date. During the "roll" period, the Trust does not receive principal and interest payments on the securities, but is compensated for giving up these payments by the difference in the current sales price (for which the security is sold) and lower price that the Trust pays for the similar security at the end date as well as the interest earned on the cash proceeds of the initial sale. MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae. MULTIPLE-CLASS PASS-THROUGHS: Collateralized Mortgage Obligations. NET ASSET VALUE (NAV): Net asset value is the total market value of all securities held by the Trust, plus income accrued on its investments, minus any liabilities including accrued expenses, divided by the total number of outstanding shares. It is the underlying value of a single share on a given day. Net asset value for the Trust is calculated weekly and published in Barron's on Saturday and The Wall Street Journal each Monday. PRINCIPAL-ONLY SECURITIES (P/O): Mortgage securities that receive only the principal cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. PROJECT LOANS: Mortgages for multi-family, low- to middle-income housing. PREMIUM: When a fund's stock price is greater than its net asset value, the fund is said to be trading at a premium. REMIC: A real estate mortgage investment conduit is a multiple-class security backed by mortgage-backed securities or whole mortgage loans and formed as a trust, corporation, partnership, or segregated pool of assets that elects to be treated as a REMIC for federal tax purposes. Generally, Fannie Mae REMICs are formed as trusts and are backed by mortgage-backed securities. RESIDUALS: Securities issued in connection with collateralized mortgage obligations that generally represent the excess cash flow from the mortgage assets underlying the CMO after payment of principal and interest on the other CMO securities and related administrative expenses. REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust sells securities and agrees to repurchase them at a mutually agreed date and price. During this time, the Trust continues to receive the principal and interest payments from that security. At the end of the term, the Trust receives the same securities that were sold for the same initial dollar amount plus interest on the cash proceeds of the initial sale. STRIPPED MORTGAGE Arrangements in which a pool of assets is BACKED SECURITIES: separated into two classes that receive different proportions of the interest and principal distribution from underlying mortgage-backed securities. IO's and PO's are examples of STRIPs. 22 BLACKROCK DIRECTORS Laurence D. Fink, CHAIRMAN Andrew F. Brimmer Richard E. Cavanagh Kent Dixon Frank J. Fabozzi James Grosfeld James Clayburn La Force, Jr. Walter F. Mondale Ralph L. Schlosstein OFFICERS Ralph L. Schlosstein, PRESIDENT Scott Amero, VICE PRESIDENT Keith T. Anderson, VICE PRESIDENT Michael C. Huebsch, VICE PRESIDENT Robert S. Kapito, VICE PRESIDENT Richard M. Shea, VICE PRESIDENT/TAX Henry Gabbay, TREASURER James Kong, ASSISTANT TREASURER Karen H. Sabath, SECRETARY INVESTMENT ADVISER BlackRock Financial Management, Inc. 345 Park Avenue New York, NY 10154 (800) 227-7BFM ADMINISTRATOR Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 (800) 699-1BFM INDEPENDENT AUDITORS Deloitte & Touche LLP Two World Financial Center New York, NY 10281-1434 LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP 919 Third Avenue New York, NY 10022 The accompanying financial statements as of April 30, 1998 were not audited and accordingly, no opinion is expressed on them. This report is for shareholder information. This is not a prospectus intended for use in the purchase or sale of any securities. THE BLACKROCK INCOME TRUST INC. C/O PRUDENTIAL INVESTMENTS FUND MANAGEMENT LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 (800) 227-7BFM [LOGO]Printed on recycled paper 09247F-10-0 THE BLACKROCK INCOME TRUST INC. - ------------------- SEMI-ANNUAL REPORT APRIL 30, 1998 [GRAPHIC] -----END PRIVACY-ENHANCED MESSAGE-----