-----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, Gl/0lHuO6WYk1OqIulXuRUJpl070l1lHfVfmPFh/mlGya3n7S3PP8XffbiqXTSXD BfteDpmaB7hEvBVuWt4FzA== /in/edgar/work/20000630/0000930413-00-001023/0000930413-00-001023.txt : 20000920 0000930413-00-001023.hdr.sgml : 20000920 ACCESSION NUMBER: 0000930413-00-001023 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK INCOME TRUST INC CENTRAL INDEX KEY: 0000832327 STANDARD INDUSTRIAL CLASSIFICATION: [0000 ] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05542 FILM NUMBER: 665644 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 0001.txt SEMI-ANNUAL REPORT - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. SEMI-ANNUAL REPORT TO SHAREHOLDERS REPORT OF INVESTMENT ADVISOR - -------------------------------------------------------------------------------- May 31, 2000 Dear Shareholder: The Federal Reserve continued to aggressively tighten in an attempt to achieve its objective of a soft-landing for the explosive U.S. economy. As a result, the Federal Reserve tightened short-term rates by 0.75% during the period and raised rates by another 0.50% at the May FOMC meeting to 6.50%. In the first four months of the new millennium we have been witness to unprecedented volatility in both the Treasury yield curve and the spread sectors. The Treasury curve inverted sharply as expectations of continued Fed tightening in the wake of an insatiable U.S. economy, while anticipation of a significant buyback at the long end of the maturity spectrum led to lower yields on long Treasuries. The yield curve inversion along with the premium placed on the dwindling outstanding Treasuries caused a dramatic underperformance of spread sectors relative to the performance of the Treasury sectors, especially in the 10- to 30-year part of the curve. At this juncture, the general implication for spread product is negative, but the potential for spread widening is more limited. Most of the negatives for high quality spread product in terms of relative supply differentials between Treasuries and non-Treasuries as well as equity market volatility have been priced into the market. Given current market conditions, we maintain a significant overweight in high quality spread product. Treasuries are fully valued even considering the strong technicals in the market. While near-term volatility is virtually guaranteed by an active Federal Reserve, a successful soft landing of the economy would ultimately result in a healthier U.S. economy. This report contains a summary of market conditions during the semi-annual period and a review of portfolio strategy by your Trust's managers in addition to the Trust's unaudited financial statements and a detailed list of the portfolio's holdings. Continued thanks for your confidence in BlackRock. We appreciate the opportunity to help you achieve your long-term investment goals. Sincerely, /s/ Laurence D. Fink /s/ Ralph L. Schlosstein Laurence D. Fink Ralph L. Schlosstein Chairman President 1 May 31, 2000 Dear Shareholder: We are pleased to present the unaudited semi-annual report for The BlackRock Income Trust Inc. ("the Trust") for the six months ended April 30, 2000. We would like to take this opportunity to review the Trust's stock price and net asset value (NAV) performance, summarize market developments and discuss recent portfolio management activity. The Trust is a diversified, actively managed closed-end bond fund whose shares are traded on the New York Stock Exchange under the symbol "BKT". The Trust's investment objective is to provide high current income consistent with the preservation of capital. The Trust seeks this objective by investing primarily in mortgage-backed securities backed by U.S. Government agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae) and, to a lesser extent, U.S. Government securities, asset-backed securities and privately issued mortgage-backed securities. At least 85% of the Trust's assets must be issued or guaranteed by the U.S. government or its agencies or rated "AAA" by Standard & Poor's or "Aaa" 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: ----------------------------------------------------- 4/30/00 10/31/99 CHANGE HIGH LOW - -------------------------------------------------------------------------------- STOCK PRICE $6.0625 $6.125 (1.02)% $6.3125 $5.625 - -------------------------------------------------------------------------------- NET ASSET VALUE (NAV) $7.00 $7.31 (4.24)% $7.34 $6.96 - -------------------------------------------------------------------------------- 10-YEAR TREASURY NOTE 6.22% 6.02% 3.32% 6.79% 5.77% - -------------------------------------------------------------------------------- THE FIXED INCOME MARKETS The dynamic expansion of the U.S. economy continues undaunted by Federal Reserve Chairman Greenspan's attempt to brake the economy, short of stalling it into a recession. The labor markets remain tight, growth remains strong with 5%+ annualized growth rates and inflation pressures continue to be offset by increased productivity. However, the Fed remains cautious, in their February minutes it was noted that: "Other members acknowledged that the Committee might need to move more aggressively at a later meeting should imbalances continue to build and inflation expectations clearly begin to pick up." At the Federal Reserve meeting in November, February and March the Fed raised the discount rate by 0.25% at each meeting and a 0.50% increase was made in May to bring the current discount rate to 6.50%. The Treasury Yield curve experienced a complex set of dynamics, which has inverted the curve and may continue to invert the curve for the foreseeable future. The yields on the short-end of the curve increased sharply during the period in response to three Federal Reserves increases to the discount rate and perceived future Fed actions in the coming months. The long-end of the curve is reacting to the "official" announcement that the Treasury will buy back $30 billion of Treasuries with maturities ranging 10 to 30 years. With a decreasing supply of available Treasuries, a balanced budget, and an unchanged demand for longer maturity Treasuries, we would anticipate this condition to continue. This condition is further augmented by Treasury auction activity, as they reduce the available bonds on the long end of the curve they continue to add supply in the 1-10 year range through periodic auctions. For the semi-annual period, the yield of the 10-year Treasury security rose from 6.02% on October 31, 1999 to 6.22% on April 30, 2000. Mortgages posted positive returns during the semi-annual period but trailed the broader market, which was led by the strong rally in the Treasury market. As measured by the LEHMAN BROTHERS MORTGAGE INDEX, mortgages posted a 1.26% total return versus 1.42% for the LEHMAN BROTHERS AGGREGATE INDEX. Strength in the housing market has continued unabated, leading to more supply than expected, but in comparison to other spread sectors, mortgages benefited from greater liquidity and higher credit quality. On a relative valuation basis mortgages appear cheap, although uncertainty was increased in 2 the market by Treasury Undersecretary Gensler's testimony concerning a bill seeking to end the quasi-governmental status of FNMA and FHLMC. GNMAs performed well during the quarter as a Treasury substitute, since it is the only other asset class backed by the full faith and credit of the U.S. Government. 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, 1999 asset composition: - -------------------------------------------------------------------------------- SECTOR BREAKDOWN - -------------------------------------------------------------------------------- COMPOSITION APRIL 30, 2000 OCTOBER 31, 1999 - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 30% 16% - -------------------------------------------------------------------------------- Interest Only Mortgage-Backed Securities 18% 16% - -------------------------------------------------------------------------------- Adjustable & Inverse Floating Rate Mortgages 18% 8% - -------------------------------------------------------------------------------- Principal Only Mortgage-Backed Securities 9% 9% - -------------------------------------------------------------------------------- FHA Project Loans 8% 9% - -------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 6% 11% - -------------------------------------------------------------------------------- U.S. Government Securities 5% 19% - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 3% 4% - -------------------------------------------------------------------------------- Non-Agency Multiple Class Mortgage Pass-Throughs 2% 5% - -------------------------------------------------------------------------------- Asset Backed Securities 1% 3% - -------------------------------------------------------------------------------- The Trust reduced its allocation to Treasuries and reallocated assets to higher yielding spread products as yields on Mortgages and other spread product increased relative to Treasuries. The Trust has continued to emphasize mortgage product with relatively strong prepayment protection, including deals backed by lower-coupon mortgages and structured bonds with prepayment lockout. The Trust also purchased IOs (Interest-Only securities) as a defensive strategy. IOs help to protect the value of a portfolio in a rising interest rate environment by appreciating when mortgages extend. The Trust also purchased Adjustable and Inverse Floating Rate Mortgages. Although rates have trended up recently, and spreads have widened significantly, BlackRock believes that longer-term spreads will tighten and benefit the Trust. We look forward to continuing to manage the Trust to benefit from the opportunities available to investors in the fixed income markets as well as to maintain the Trust's ability to meet its investment objectives. We thank you for your investment in the BlackRock Income Trust Inc. Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you have specific questions which were not addressed in this report. Sincerely yours, /s/ Robert S. Kapito /s/ Keith T. Anderson /s/ Michael P. Lustig Robert S. Kapito Keith T. Anderson Michael P. Lustig Vice Chairman and Chief Investment Officer-- Managing Director Portfolio Manager Fixed Income and Portfolio Manager BlackRock Advisors Inc. BlackRock Advisors Inc. BlackRock Advisors Inc. 3 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BKT - -------------------------------------------------------------------------------- Initial Offering Date: July 22, 1988 - -------------------------------------------------------------------------------- Closing Stock Price as of 4/30/00: $6.0625 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/00: $7.00 - -------------------------------------------------------------------------------- Yield on Closing Stock Price as of 4/30/00 ($6.0625)1: 9.28% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share2: $0.046875 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share2: $0.562500 - -------------------------------------------------------------------------------- (1) Yield on Closing Stock Price is calculated by dividing the current annualized distribution per share by the closing stock price per share. (2) Distribution is not constant and is subject to change. 4 - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Portfolio of Investments April 30, 2000 (Unaudited) - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS--143.9% MORTGAGE PASS-THROUGHS--42.9% Federal Home Loan Mortgage Corp., $110,991@ 6.50%, 5/01/29 - 12/01/99 ................... $103,672,933 2,524@ 7.50%, 7/01/07 - 2/01/23 .................... 2,486,035 685@ 8.00%, 11/01/15 ............................. 688,992 877@ 8.50%, 10/01/06 - 3/01/08, 15 Year .......... 898,454 1,465@ 9.00%, 9/01/20 .............................. 1,505,129 Federal National Mortgage Association, 18,363@ 5.50%, 12/01/13 - 2/01/14, 15 Year .......... 16,813,836 37,369@ 6.50%, 2/01/26 - 7/01/29 .................... 34,901,519 6,477@ 7.00%, 6/01/26 - 9/01/29 .................... 6,199,494 5,587@ 7.50%, 11/01/14 - 9/01/23, 18 Year Multifamily ....................... 5,509,161 3,215@ 8.00%, 5/01/08 - 5/01/22, Multifamily ....... 3,209,057 1,419 9.497%, 6/01/24 ............................. 1,451,983 48 9.50%, 1/01/19 - 6/01/20 .................... 50,019 Government National Mortgage Association, 473 7.00%, 10/15/17 ............................. 455,004 5,608 7.50%, 8/15/21 - 12/15/23 ................... 5,515,898 5,226 8.00%, 10/15/22 - 2/15/29 ................... 5,237,537 12 8.50%, 5/15/01 - 2/15/17 .................... 12,702 429 9.00%, 6/15/18 - 9/15/21 .................... 442,136 ------------- 189,049,889 ------------- FEDERAL HOUSING ADMINISTRATION--11.9% 1,298 Allen Oaks, 8.60%, 8/01/33 .................. 1,301,522 2,972 Beachtree, Series 87430, 10.25%, 6/01/32 ........................... 3,039,121 4,166 Brookville, 7.50%, 8/01/28 .................. 4,029,229 GMAC, 5,466 Series 33, 7.43%, 9/01/21 ................. 5,440,084 2,072 Series 46, 7.43%, 1/01/22 ................. 2,052,459 853 Series 48, 7.43%, 6/01/22 ................. 848,520 1,209 Series 51, 7.43%, 6/26/01 - 2/01/23 ....... 1,202,663 6,674 Series 56, 7.43%, 11/01/22 ................ 6,636,591 1,168 Merrill, Series 54, 7.43%, 5/15/23 .......... 1,151,863 1,241 Middlesex, 8.625%, 9/01/34 .................. 1,231,222 4,209 Parkside, 7.30%, 2/01/13 .................... 4,062,295 1,000 Reilly, Series 41, 8.767%, 3/01/20 .......... 1,012,899 2,828 Tuttle Grove, 7.25%, 10/01/35 ............... 2,681,991 USGI, 4,165 Polaris, Series 982, 7.43%, 11/01/21 ...... 4,144,327 892 Series 87, 7.43%, 12/01/22 ................ 874,452 3,464 Series 99, 7.43%, 10/01/23 ................ 3,393,608 2,646 Series 6302, 7.43%, 12/01/21 .............. 2,623,515 6,747 Yorkville, Series 6094, 7.43%, 6/01/21 ................................... 6,703,102 ------------- 52,429,463 ------------- AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--9.2% Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, 4,629@ Series 1104, Class 1104-L, 6/15/21 ................................... 4,744,775 1,742 Series 1347, Class 1347-HC, 12/15/21 .................................. 1,611,890 450 Series 1541, Class 1541-T, 7/15/23 ................................... 336,287 776 Series 1559, Class 1559-WA, 7/15/22 ................................... 769,565 3,000@ Series 1577, Class 1577-SC, 9/15/23 ................................... 2,119,687 13,281@ Series 1584, Class 1584-FB, 9/15/23 ................................... 13,865,848 2,169 Series 1601, Class 1601-SE, 10/15/08 .................................. 1,670,742 131 Series 1609, Class 1609-KA, 11/15/23 .................................. 128,315 5,000 Series 1649, Class 1649-S, 12/15/08 .................................. 4,564,062 Federal National Mortgage Association, REMIC Pass-Through Certificates, 714 Trust 1993-87, Class 87-L, 6/25/23 ................................... 644,490 1,549@ Trust 1988-16, Class16-B, 6/25/18 ................................... 1,617,581 2,600@ Trust 1990-12, Class 12-G, 2/25/20 ................................... 2,353,191 4,154 Trust 1992-43, Class 43-E, 4/25/22 ................................... 4,095,810 1,598 Trust 1993-224, Class 224-SD, 11/25/23 .................................. 1,722,614 537 Trust 1997-43, Class 43-G, 4/18/27 ................................... 390,031 ------------- 40,634,888 ------------- NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--2.8% AAA 9,939@ Credit Suisse First Boston Mortgage Certificates, Series 2000-1, Class 2A, 3/15/15 .............. 9,429,836 See Notes to Financial Statements. 5 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- AAA $2,966 Summit Mortgage Trust, Series 2000-1, Class B1,** 12/28/12 .................................. $ 2,767,148 ------------- 12,196,984 ------------- ADJUSTABLE & INVERSE FLOATING RATE MORTGAGES--25.2% AAA 307@ Collateralized Mortgage Obligation Trust, Series 13, Class Q, 1/20/03 ................................... 304,855 Countrywide Funding Corp., Mortgage Certificates, AAA 3,394 Series 1993-10, Class A-8, 1/25/24 ................................... 2,942,804 AAA 6,202 Series 1994-09, Class A-16, 5/25/24 ................................... 4,920,514 Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, 498 Series 1160, Class 1160-F, 10/15/21 .................................. 462,137 2,879 Series 1526, Class 1526-SA, 6/15/23 ................................... 2,092,572 2,558 Series 1570, Class 1570-SA, 8/15/23 ................................... 2,270,342 3,621 Series 1580, Class 1580-SD, 9/15/08 ................................... 3,270,863 1,109 Series 1590, Class 1590-OA, 10/15/23 .................................. 1,150,771 3,678@ Series 1598, Class 1598-S, 10/15/08 .................................. 3,185,999 1,457 Series 1616, Class 1616-SB, 11/15/08 .................................. 1,444,405 4,785@ Series 1625, Class 1625-SC, 12/15/08 .................................. 3,720,446 5,769@ Series 1627, Class 1627-S, 12/15/23 .................................. 4,029,238 5,038 Series 1627, Class 1627-SC, 12/15/23 .................................. 2,771,959 3,084 Series 1629, Class 1629-OD, 12/15/23 .................................. 2,160,418 3,165 Series 1666, Class 1666-S, 1/15/24 ................................... 2,448,680 1,276 Series 1669, Class 1669-MD, 2/15/24 ................................... 1,124,514 2,250 Series 1688, Class 1688-S, 12/15/13 .................................. 2,061,563 5,778 Series 1699, Class 1699-ST, 3/15/24 ................................... 4,069,677 475 Series 1862, Class 1862-SF, 4/15/23 ................................... 424,471 8,134 Series 2190, Class 2190-S, 10/15/14 .................................. 6,848,128 Federal National Mortgage Association, REMIC Pass-Through Certificates, 243 Trust G93-27, Class 27-SB, 8/25/23 ................................... 169,356 1,338 Trust 1991-38, Class 38-F, 4/25/21 ................................... 1,428,310 1,356 Trust 1991-38, Class 38-SA, 4/25/21 ................................... 1,292,717 1,344 Trust 1991-87, Class 87-S, 8/25/21 ................................... 1,331,464 1,143 Trust 1991-145, Class 145-S, 10/25/06 .................................. 1,204,301 147 Trust 1993-50, Class 50-SH, 1/25/23 ................................... 136,554 2,388 Trust 1993-113, Class 113-SB, 7/25/23 ................................... 2,394,223 215 Trust 1993-116, Class 116-SB, 7/25/23 ................................... 169,457 374@ Trust 1993-129, Class 129-SE, 8/25/08 ................................... 335,631 173 Trust 1993-167, Class 167-SA, 9/25/23 ................................... 166,852 6,000@ Trust 1993-169, Class 169-SC, 3/25/23 ................................... 4,259,220 3,000 Trust 1993-170, Class 170-SC, 9/25/08 ................................... 2,920,800 3,500 Trust 1993-179, Class 179-SB, 10/25/23 .................................. 2,692,266 183 Trust 1993-183, Class 183-SM, 10/25/23 .................................. 180,453 2,799 Trust 1993-208, Class 208-SE, 11/25/23 .................................. 2,096,917 5,595 Trust 1993-214, Class 214-S, 12/25/08 .................................. 5,000,835 1,494 Trust 1993-214, Class 214-SH, 12/25/08 .................................. 1,012,031 313 Trust 1993-224, Class 224-S, 11/25/23 .................................. 236,659 199 Trust 1993-224, Class 224-SH, 11/25/23 .................................. 152,097 2,562 Trust 1993-247, Class 247-SN, 12/25/23 .................................. 2,625,270 2,709 Trust 1993-248, Class 248-FB, 9/25/23 ................................... 2,823,522 2,472 Trust 1993-256, Class 256-F, 11/25/23 .................................. 1,965,421 375 Trust 1994-27, Class 27-SE, 3/25/23 ................................... 381,013 1,000 Trust 1994-50, Class 50-S, 3/25/24 ................................... 782,980 See Notes to Financial Statements. 6 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- $ 3,123 Trust 1999-1, Class 1-S, 7/25/23 ................................... $3,123,160 Government National Mortgage Association, 1,571 Trust 99-37, Class 37-SA, 4/20/26 ................................... 1,168,561 AAA 8,598 G. E. Capital Mortgage Services, Inc., REMIC Certificate 94-7, Class A-17, 2/25/09 ................................... 6,229,467 Aaa 2,519 Kidder Peabody Acceptance Corp., Series 1993-1, Class A-6, 8/25/23 ................................... 1,508,927 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificates, AAA 743 Series 1993-43, Class A-16, 10/25/23 .................................. 638,893 AAA 2,500 Series 1993-48, Class A-8, 12/25/08 .................................. 1,936,975 AAA 8,929 Series 1993-50, Class A-12, 11/25/23 .................................. 6,197,033 AAA 1,000 Series 1993-54, Class A-28, 1/25/24 ................................... 780,000 AAA 1,904 Salomon Capital Access Corp., Series 1986-1, Class C, 9/01/15 ................................... 1,905,437 ------------- 110,951,158 ------------- INTEREST ONLY MORTGAGE- BACKED SECURITIES--26.4% AAA 909 American Housing Trust III, Senior Mortgage Pass-Through Certificates, Series 1, Class 4, (REMIC), 3/25/19 ................................... 18,187 AAA 203 American Housing Trust VII, Senior Mortgage Pass-Through Certificates, Series A, Class R, 11/25/20 .................................. 1,457,742 BA Mortgage Securities, Inc., AAA 2,073 Series 1997-1, Class X, 7/25/26 ................................... 380,961 AAA 2,110 Series 1998-1, Class 2X, 5/28/13 ................................... 431,839 AAA 37,522 Countrywide Funding Corp., Mortgage Certificates, Series 1997-8, Class A-5, 1/25/28 ......... 351,770 AAA 42,885 Credit Suisse First Boston Mortgage Securities Corp. Trust, Series 1997-C1, Class C1-AX **, 6/20/29 ................................... 3,478,926 Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, 27,369 Series G-13, Class 13-PP, 5/25/21 ................................... 4,669,004 12 Series 1238, Class 1238-J, 1/15/07 ................................... 184,874 13,406 Series 1353, Class 1353-S, 8/15/07 ................................... 1,114,591 3,748 Series 1397, Class 1397-IO, 10/15/22 .................................. 1,049,383 4,486 Series 1632, Class 1632-S, 4/15/23 ................................... 48,314 7,168 Series 1706, Class 1706-IA, 10/15/23 .................................. 1,144,680 687 Series 1720, Class 1720-PK, 1/15/24 ................................... 184,674 50,356 Series 1809, Class 1809-SC, 12/15/23 .................................. 3,480,129 3,750 Series 1882, Class 1882-PJ, 4/15/22 ................................... 536,994 4,053 Series 1900, Class 1900-SV, 8/15/08 ................................... 266,597 53,031 Series 1914, Class 1914-PC, 12/15/11 .................................. 1,144,938 3,299 Series 1917, Class 1917-AS, 5/15/08 ................................... 492,763 17,938 Series 1946, Class 1946-SG, 3/15/24 ................................... 953,782 15,106 Series 2002, Class 2002-HJ, 10/15/08 .................................. 1,799,469 8,745 Series 2037, Class 2037-IB, 12/15/26 .................................. 2,114,591 7,553 Series 2039, Class 2039-PI, 2/15/12 ................................... 1,157,698 10,579 Series 2063, Class 2063-PI, 4/15/12 ................................... 1,646,361 4,500 Series 2066, Class 2066-PJ, 12/15/26 .................................. 1,093,672 18,000 Series 2080, Class 2080-PL, 1/15/27 ................................... 5,545,620 32 Series 2099, Class 2099-JB, 9/15/22 ................................... 1,420,750 13,218 Series 2103, Class 2103-PI, 5/15/12 ................................... 2,519,605 23,000 Series 2130, Class 2130-SC, 3/15/29 ................................... 1,358,437 11,000 Series 2140, Class 2140-UK, 9/15/11 ................................... 1,827,031 Federal National Mortgage Association, REMIC Pass-Through Certificates, 7 Trust G50, Class 50-G, 12/25/21 .................................. 181,183 See Notes to Financial Statements. 7 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- $ 2,097 Trust G92-5, Class 5-H, 1/25/22 ...................................... $ 564,224 7,279 Trust G92-60, Class 60-SB, 10/25/22 ..................................... 405,291 31,648 Trust 302, Class 2, 6/01/29 ...................................... 10,157,153 5 Trust 1992-12, Class 12-C, 2/25/22 ...................................... 131,151 1,083 Trust 1992-187, Class 187-JA, 10/25/06 ..................................... 61,015 6,588 Trust 1993-46, Class 46-S, 5/25/22 ...................................... 209,831 4,000 Trust 1993-196, Class 196-SC, 10/25/08 ..................................... 3,641,680 9,875 Trust 1993-199, Class 199-SB, 10/25/23 ..................................... 203,675 16,000 Trust 1993-201, Class 201-JC, 5/25/19 ...................................... 1,308,480 4,557 Trust 1993-202, Class 202-QA, 6/25/19 ...................................... 269,020 12,370 Trust 1995-26, Class 26-SW, 2/25/24 ...................................... 1,282,402 6,797@ Trust 1996-14, Class 14-M, 10/25/21 ..................................... 5,839,117 12,371 Trust 1996-68, Class 68-SC, 1/25/24 ...................................... 646,131 47,690 Trust 1997-37, Class 37-SE, 10/25/22 ..................................... 786,002 25,000 Trust 1997-50, Class 50-HK, 8/25/27 ...................................... 7,698,220 10,095 Trust 1997-50, Class 50-SI, 4/25/23 ...................................... 302,841 35,476 Trust 1997-65, Class 65-SB, 3/25/24 ...................................... 725,026 27,000 Trust 1997-65, Class 65-SG, 6/25/23 ...................................... 2,775,937 11,139 Trust 1997-76, Class 76-SP, 12/25/23 ..................................... 1,061,651 51,000@ Trust 1997-90, Class 90-M, 1/25/28 ...................................... 15,384,660 12,163 Trust 1998-12, Class 12-PL, 7/18/19 ...................................... 1,321,216 7,378 Trust 1998-25, Class 25-PG, 3/18/22 ...................................... 1,218,671 36,712 Trust 1998-46, Class 46-SC, 5/18/28 ...................................... 2,202,749 AAA 600 First Boston Mortgage Securities Corp., Series 1987-C, Class C-Z, 4/25/17 ...................................... 185,289 AAA 44,584 GMAC Commercial Mortgage Securities, Inc., Trust 1997-C1, Class C1-X, 7/15/27 ...................................... 3,317,160 AAA 57,002 Goldman Sachs Mortgage Securities Corp., Mortgage Participation Certificates, Series 1998-5, Class 5,** 2/19/25 ...................................... 1,505,199 Government National Mortgage Association, 5,461 Trust 1998-14, Class 14-PK, 11/20/26 ..................................... 1,114,954 8,000 Trust 1999-3, Class 3-S, 2/16/29 ...................................... 380,000 19,459 Trust 1999-5, Class 5-S, 2/16/29 ...................................... 419,582 63,110 Trust 1999-8, Class 8-S, 3/16/29 ...................................... 1,301,635 AAA 35,082 Hanover Grantor Trust, Series 1999-1, Class 1-A,** 8/01/27 ...................................... 1,206,253 Aaa 39,907 Headlands Mortgage Securities, Inc., Mortgage Certificates, Series 1997-1, Class X-1, 3/25/27 ...................................... 748,262 AAA 722 Kidder Peabody Acceptance Corp., Series B, Class B-2, 4/22/18 ...................................... 191,680 Aaa 15,836 Merrill Lynch Mortgage Investors, Inc., Mortgage Pass-Through Certificates, Series 95-C2, Class-IO, 6/15/21 ...................................... 450,324 Aaa 19,136@ Morgan Stanley Capital 1, Inc., Series 1997-HF1, Class HF1-X,** 6/15/17 ...................................... 1,291,470 AAA 112,483 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificates, Series 1994-5, Class A-9, 2/25/24 ...................................... 1,107,258 AAA 2 Prudential Securities, Inc., Trust 15, Class 1-G, 5/20/21 ...................................... 149,387 68,274 Small Business Administration, Series 2000-1, Class 1-I0, 4/01/15 ...................................... 2,208,239 AAA 11 Structured Asset Securities Corp., Series 1991-2, Class GA, 12/20/21 ..................................... 320,048 ----------- 116,147,448 ----------- PRINCIPAL ONLY MORTGAGE- BACKED SECURITIES--12.5% AAA 665 Chase Mortgage Finance Corp., Mortgage Pass-Through Certificates, Series 1994-A, Class A-P, 1/25/10 ...................................... 508,357 See Notes to Financial Statements. 8 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- AAA $ 534 Collateralized Mortgage Obligation Trust, Trust 29, Class A, 5/23/17 ...................................... $ 414,526 Drexel Burnham Lambert, Inc., AAA 206 Trust K, Class K-1, 9/23/17 ...................................... 162,388 AAA 2,049 Trust V, Class V-1A, 9/01/18 ...................................... 1,531,525 Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, 2,685 Series G-50, Class 50-AM, 4/25/24 ...................................... 1,431,399 1,967 Series T-8, Class A-10, 11/15/28 ..................................... 1,032,415 659 Series 1418, Class 1418-M, 11/15/22 ..................................... 282,956 2,653 Series 1571, Class 1571-G, 8/15/23 ...................................... 1,253,581 11,971@ Series 1686, Class 1686-B, 2/15/24 ...................................... 6,392,713 1,583 Series 1691, Class 1691-G, 3/15/24 ...................................... 1,085,613 3,065 Series 1739, Class 1739-B, 2/15/24 ...................................... 2,168,347 948 Series 1750, Class 1750-PC, 3/15/24 ...................................... 837,158 264 Series 1828, Class 1828-A, 5/15/24 ...................................... 134,219 1,543 Series 1857, Class 1857-PB, 12/15/08 ..................................... 1,250,276 5,500 Series 2009, Class 2009-HJ, 10/15/22 ..................................... 3,294,830 8,019 Series 2082, Class 2082-PN, 1/15/24 ...................................... 3,695,119 900 Series 2087, Class 2087-PO, 9/15/25 ...................................... 615,483 1,027 Series 2162, Class 2162-L, 6/15/29 ...................................... 343,949 2,354 Series 2169, Class 2169-EA, 6/15/29 ...................................... 1,079,015 2,214 Series 2217, Class 2217-PO, 2/15/30 ...................................... 1,335,296 Federal National Mortgage Association, REMIC Pass-Through Certificates, 2,684 Trust 225, Class 1, 2/01/23 ...................................... 2,117,231 2,320 Trust 279, Class 279-1, 7/01/26 ...................................... 1,705,768 481 Trust 1991-7, Class 7-J, 2/25/21 ...................................... 370,480 1,428 Trust 1993-2, Class 2-KB, 1/25/23 ...................................... 728,602 378@ Trust 1993-213, Class 213-H, 9/25/23 ...................................... 373,995 936 Trust 1994-9, Class 9-C, 8/25/23 ...................................... 843,237 1,037 Trust 1996-5, Class 5-NH, 4/25/24 ...................................... 508,349 1,003 Trust 1996-5, Class 5-PV, 11/25/23 ..................................... 814,491 14,300@ Trust 1996-14, Class 14-PE, 8/25/23 ...................................... 5,429,531 3,151 Trust 1996-38, Class 38-E, 8/25/23 ...................................... 1,024,068 1,418 Trust 1997-85, Class 85-EL, 7/25/23 ...................................... 821,362 300 Trust 1997-85, Class 85-LE, 10/25/23 ..................................... 189,851 9,000 Trust 1998-26, Class 26-L, 3/25/23 ...................................... 5,720,282 1,250 Trust 1998-48, Class 48-P, 8/18/28 ...................................... 745,726 AAA 1,329 First Union Residential, Mortgage Certificates, Series 1999-A, Class 11-AP, 3/25/15 ........................... 881,468 AAA 13,000 Fund America Investment Corp., Series 1993-C, Class B, 4/29/30 ...................................... 1,844,908 2,590 Government National Mortgage Association, Trust 1999-40, Class-N, 6/20/27 ...................................... 1,528,027 Housing Security, Inc., AAA 127 Series 1992-EB, Class B-8, 9/25/22 ...................................... 94,689 AAA 448 Series 1993-D, Class D-8, 6/25/23 ...................................... 299,222 AAA 437 Structured Mortgage Asset Trust, Series 1993-3C, Class CX, 4/25/24 ...................................... 291,718 ---------- 55,182,170 ---------- COMMERCIAL MORTGAGE- BACKED SECURITIES--5.1% AAA 6,000 Merrill Lynch Mortgage Investors, Inc., Series 1996-C1, Class A-3, 7.42%, 4/25/28 ............................... 5,907,701 AAA 10,250 NYC Mortgage Loan Trust, Series 1996, Class A-2,** 6.75%, 6/25/11 ............................... 9,391,563 AAA 2,000 PaineWebber Mortgage Acceptance Corp. IV, Series 1995-M1, Class B,** 6.95%, 1/15/07 ............................... 1,978,961 See Notes to Financial Statements. 9 - -------------------------------------------------------------------------------- PRINCIPAL AMOUNT VALUE RATING* (000) DESCRIPTION (NOTE 1) - -------------------------------------------------------------------------------- AAA $5,000 Prudential Securities, Secured Financing Corp., Series 1998-C1, Class A-1B, 6.51%, 7/15/08 ............................... $ 4,644,860 ---------- 21,923,085 ---------- ASSET-BACKED SECURITIES--1.2% AAA 952@Chase Manhattan Grantor Trust, Series 1996-B, Class B, 6.61%, 9/15/02 .............................. 949,567 A 4,581 The Money Store Trust, Series 1998-A, Class MH-2, 7.23%, 5/15/30 .............................. 4,110,464 ---------- 5,060,031 ---------- U.S GOVERNMENT AND AGENCY SECURITIES--6.6% Overseas Private Investment Corp., 264 5.46%, 2/15/06 ................................. 235,192 240 5.79%, 5/29/12 ................................. 215,227 310 5.88%, 2/15/06 ................................. 281,463 200 6.27%, 5/29/12 ................................. 187,802 351 6.81%, 5/29/12 ................................. 331,695 400 6.84%, 5/29/12 ................................. 384,654 920 6.91%, 5/29/12 ................................. 878,600 250 7.35%, 5/29/12 ................................. 241,250 Small Business Administration, 3,830 Series 1996-20E, 7.60%, 5/01/16 ............................... 3,765,400 3,225 Series 1996-20F, 7.55%, 6/01/16 ............................... 3,161,902 3,429 Series 1996-20G-1, 7.70%, 7/01/16 ............................... 3,390,474 3,241 Series 1996-20H, 7.25%, 8/01/16 ............................... 3,124,888 6,001 Series 1996-20K, 6.95%, 11/01/16 .............................. 5,688,919 2,519 Series 1997-20C, 7.15%, 3/01/17 ............................... 2,414,382 5,422 Series 1998-P10A-1, 6.12%, 2/01/08 ............................... 4,911,401 ---------- 29,213,249 ---------- COLLATERALIZED MORTGAGE OBLIGATION RESIDUALS***--0.1% AAA 25 Collateralized Mortgage Obligation Trust, Series 13, Class R, 1/20/03 .................... 49,597 AAA 45 FBC Mortgage Securities Trust 16, CMO, Series A-1, 7/01/17 ....................... 117,265 NR 140,000 Kidder Peabody Acceptance Corp., Series 1994-C1, Class R, 2/01/01 ............... 1,400 NR 43 PaineWebber Trust, Series N, Class 7, (REMIC) 1/01/19 ............. 113,835 ----------- 282,097 ----------- Total long-term investments (cost $662,580,866) ............................ 633,070,462 SHORT-TERM INVESTMENTS DISCOUNT NOTE 300 Federal Home Loan Mortgage Corp., 5.88%, 5/01/00 (cost $300,000) ................. 300,000 ---------- Total Investments, before investments sold short--137.9% (cost $662,880,866) ............................... 633,370,462 ----------- INVESTMENTS SOLD SHORT--(13.7%) (48,000) United States Treasury Bonds, 5.25%,2/15/29 ................................... (42,165,120) (17,940) United States Treasury Notes, 6.50%, 2/15/10 ................................. (18,295,930) ------------ (proceeds $61,815,781) .......................... (60,461,050) ------------ Total Investments, net of investments sold short (cost $601,065,085) ............................ 572,909,412 Liabilities in excess of other assets--(30.2)% ................................ (133,029,035) ------------ Net Assets--100% .................................. $439,880,377 ============ - ----------- * Using the higher of Standard & Poor's, Moody's or Fitch's rating. ** Security is exempt from registration under Rule 144A of the Securities Act of 1993. These securities may be resold in transactions exempt from registration to qualified institutional buyers. *** Illiquid securities representing 0.06% of net assets. @ Entire or partial principal amount pledged as collateral for reverse repurchase agreements or financial futures contracts. - ------------------------------------------------------------------------------- KEY TO ABBREVIATIONS: CMO -- Collateralized Mortgage Obligation. REMIC -- Real Estate Mortgage Investment Conduit. - ------------------------------------------------------------------------------- See Notes to Financial Statements. 10 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF ASSETS AND LIABILITIES APRIL 30, 2000 (UNAUDITED) - -------------------------------------------------------------------------------- ASSETS Investments, at value (cost $662,880,866) (Note 1) ............ $633,370,462 Deposits with brokers as collateral for securities sold short (Note 1) .............................. 63,821,737 Interest receivable ........................................... 6,080,254 Interest rate caps, at value (amortized cost $5,091,570) (Notes 1 & 3) ................... 5,014,855 Unrealized appreciation on interest rate swaps (Note 1 & 3) ..................................... 363,500 Receivable for investments sold ............................... 86,505 -------------- 708,737,313 -------------- LIABILITIES Payable for investment purchased .............................. 104,085,306 Reverse repurchase agreements (Note 4) ........................ 102,011,944 Investments sold short, at value (proceeds $61,815,781) (Note 1) ............................. 60,461,050 Interest payable .............................................. 1,080,607 Due to broker-variation margin ................................ 587,897 Investment advisory fee payable (Note 2) ...................... 236,337 Due to custodian .............................................. 116,077 Administration fee payable (Note 2) ........................... 72,719 Other accrued expenses ........................................ 204,999 -------------- 268,856,936 -------------- NET ASSETS .................................................... $439,880,377 ============== 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 ......................... 10,807,857 Accumulated net realized loss ............................... (104,874,385) Net unrealized depreciation ................................. (30,037,363) -------------- Net assets, April 30, 2000 .................................... $439,880,377 ============== Net asset value per share: ($439,880,377 / 62,849,878 shares of common stock issued and outstanding) ......................... $7.00 ===== - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF OPERATIONS SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED) - ------------------------------------------------------------------------------- NET INVESTMENT INCOME Income Interest earned (net of premium amortization of $1,079,446 and interest expense of $4,608,176) ............... $ 17,878,667 -------------- Operating Expenses Investment advisory .......................................... 1,455,578 Administration ............................................... 447,870 Reports to shareholders ...................................... 85,000 Transfer agent ............................................... 71,000 Custodian .................................................... 70,000 Independent accountants ...................................... 57,500 Directors .................................................... 35,000 Legal ........................................................ 10,000 Miscellaneous ................................................ 122,035 -------------- Total operating expenses ................................... 2,353,983 -------------- Net investment income .......................................... 15,524,684 -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on: Investments .................................................. 3,011,989 Futures ...................................................... (2,419,050) Short sales .................................................. (4,214,112) -------------- (3,621,173) -------------- Net change in unrealized appreciation (depreciation) on: Investments .................................................. (13,387,620) Interest rate caps ........................................... 2,398,095 Futures ...................................................... (581,561) Interest rate swaps ......................................... 515,788 Short sales ................................................. (2,690,690) -------------- (13,745,988) -------------- Net loss on investments ....................................... (17,367,161) -------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................................... $ (1,842,477) ============== See Notes to Financial Statements. 11 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENT OF CASH FLOWS SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED) - ------------------------------------------------------------------------------- RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net decrease in net assets resulting from operations .......................................... $ (1,842,477) ------------- Increase in investments ............................... (29,483,371) Net realized loss ..................................... 3,621,173 Decrease in unrealized appreciation ................... 13,745,988 Increase in interest rate caps ........................ (1,432,904) Decrease in interest receivable ....................... 125,246 Decrease in due to broker-variation margin ............ (470,171) Decrease in receivable for investments sold ........... 15,239,021 Decrease in payable for investments sold short ........ (60,166,400) Increase in payable for investments purchased ......... 104,085,306 Increase in appreciation on interest rate swaps ....... (437,500) Decrease in interest payable .......................... (1,478,132) Decrease in deposits with brokers for securities sold short ............................... 57,190,764 Increase in accrued expenses and other liabilities .... 33,629 ------------- Total adjustments .................................. 100,572,649 ------------- Net cash flows provided by operating activities ....... $98,730,172 ============= INCREASE (DECREASE) IN CASH Net cash flows provided by operating activities ....... $ 98,730,172 Cash flows used for financing activities: Decrease in reverse repurchase agreements ........... (84,439,545) Cash dividends paid (17,676,026) ------------- Net cash flows used for financing activities .......... (102,115,571) ------------- Net decrease in cash ................................ (3,385,399) Cash at beginning of period ......................... 3,385,399 ------------- Cash at end of period ............................... $ -- ============= - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED) - ------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED APRIL 30, OCTOBER 31, 2000 1999 ------- ------- INCREASE (DECREASE) IN NET ASSETS Operations: Net investment income .... $ 15,524,684 $ 46,060,724) Net realized loss ........ (3,621,173) (33,907,437) Net change in unrealized depreciation ........... (13,745,988) (16,477,021) ---------- ---------- Net decrease in net assets resulting from operations ............. (1,842,477) (4,323,734) Dividends from net investment income ................. (17,676,026) (35,352,115) ---------- ---------- Total decrease ........... (19,518,503) (39,675,849) NET ASSETS Beginning of period ....... 459,398,880 499,074,729 ----------- ----------- End of period (including undis- tributed net investment income of $10,807,857 and $12,959,199, respectively).. $439,880,377 $459,398,880 ============ ============ See Notes to Financial Statements. 12 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. FINANCIAL HIGHLIGHTS (UNAUDITED) - -------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED OCTOBER 31, APRIL 30, --------------------------------------------------- 2000 1999 1998 1997 1996 1995 -------------- ----- ---- ---- ---- ---- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period ................ $ 7.31 $ 7.94 $ 8.12 $ 7.61 $ 7.66 $ 7.25 ---------- --------- ------- ------- ------- ------- Net investment income (net of $0.07, $0.16, $0.19, $0.18, $0.17 and $0.22, respectively, of interest expense) .25 .73 .62 .58 .55 .51 Net realized and unrealized gain (loss) on investments (.28) (.80) (.24) .49 (.01) .65 ---------- --------- ------- ------- ------- ------- Net increase (decrease) from investment operations ... (.03) (.07 .38 1.07 .54 1.16 ---------- --------- ------- ------- ------- ------- Dividends and distributions: Dividends from net investment income ............... (.28) (.56) (.56) (.56) (.55) (.66) Distributions in excess of net investment income ... -- -- -- -- (.04) -- Return of capital distribution ..................... -- -- -- -- -- (.09) ---------- --------- ------- ------- ------- ------- Total dividends and distributions .................... (.28) (.56) (.56) (.56) (.59) (.75) ---------- --------- ------- ------- ------- ------- Net asset value, end of period* ...................... $ 7.00 $ 7.31 $ 7.94 $ 8.12 $ 7.61 $ 7.66 ========== ========= ======= ======== ======== ======== Per share market value, end of period* ............... $ 6.06 $ 6.13 $ 6.94 $ 6.88 $ 6.25 $ 7.25 ========== ========= ======= ======== ======== ======== TOTAL INVESTMENT RETURN+ ............................. 3.74% (4.04%) 9.29% 19.68% (5.36%) 26.50% RATIOS TO AVERAGE NET ASSETS: Operating expenses 1.05%+++ 1.01% 1.01% 1.02% 1.08% 1.08% Operating expenses and interest expense .............. 3.10%+++ 3.03% 3.33% 3.44% 3.38% 4.08% Net investment income ................................ 6.93%+++ 9.54% 7.74% 7.63% 7.36% 6.85% SUPPLEMENTAL DATA: Average net assets (in thousands) .................... $447,870 $482,685 $ 506,858 $474,903 $473,056 $466,449 Portfolio turnover ................................... 41% 144% 214% 220% 440% 267% Net assets, end of period (in thousands) ............. $439,880 $459,399 $ 499,075 $510,230 $478,085 $481,301 Reverse repurchase agreements outstanding, end of period (in thousands) ....................... $102,012 $186,451 $198,336 $228,530 $204,438 $214,438 Asset coverage++ ..................................... $ 5,323 $3,478 $ 3,520 $ 3,233 $ 3,339 $ 3,244
- -------------- * Net asset value and market value are published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. + Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of this calculation, to be reinvested at prices obtained under the Trust's dividend reinvestment plan. Total investment return does not reflect brokerage commissions. Total investment return for period less than one full year is not annualized. ++ Per $1,000 of reverse repurchase agreement outstanding. +++ Annualized The information above represents the unaudited operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for 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. 13 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- NOTE 1. ORGANIZATION & ACCOUNTING POLICIES The BlackRock Income Trust Inc. (the "Trust"), a Maryland corporation, is a diversified closed-end management in-vestment company. The investment objective of the Trust is to achieve high monthly income consistent with preservation of capital. The ability of issuers of debt securities held by the Trust to meet their obligations may be affected by economic developments in a specific industry or region. No assurance can be given that the Trust's investment objective will be achieved. The following is a summary of significant accounting policies followed by the Trust. SECURITIES VALUATION: The Trust values mortgage-backed, asset-backed and other debt securities, interest rate swaps, caps, floors and non-exchange traded options on the basis of current market quotations provided by dealers or pricing services approved by the Trust's Board of Directors. In determining the value of a particular security, pricing services may use certain information with respect to transactions in such securities, quotations from dealers, market transactions in comparable securities, various relationships observed in the market between securities, and calculated yield measures based on valuation technology commonly employed in the market for such securities. Exchange-traded options are valued at their last sales price as of the close of options trading on the applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. Futures contracts are valued at the last sale price as of the close of the commodities exchange on which it trades unless the Trust's Board of Directors determines that such price does not reflect its fair value, in which case it will be valued at its fair value as determined by the Trust's Board of Directors. Any securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Trust's Board of Directors. Short-term securities which mature in 60 days or less are valued at amortized cost, if their term to maturity from date of purchase is 60 days or less. Short-term securities with a term to maturity greater than 60 days from the date of purchase are valued at current market quotations until maturity or disposition. In connection with transactions in repurchase agreements, the Trust's custodian takes possession of the underlying col lateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Trust may be delayed or limited. OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an amount equal to the premium received or paid by the Trust is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Trust has realized a gain or a loss on investment transactions. The Trust, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Options, when used by the Trust, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of "one" means that a portfolio's or a security's price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates. Option selling and purchasing is used by the Trust to effectively "hedge" positions, or collections of positions, so that changes in interest rates do not change the duration of the portfolio unexpectedly. In general, the Trust uses options to hedge a long or short position or an overall portfolio that is longer or shorter than the benchmark security. A call option gives the purchaser of the option the right (but not obligation) to buy, and obligates the seller to sell (when the option is exercised), the underlying position at the exercise price at any time or at a specified time during the option period. A put option gives the holder the right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put options can be purchased to effec- 14 tively hedge a position or a portfolio against price declines if a portfolio is long. In the same sense, call options can be purchased to hedge a portfolio that is shorter than its benchmark against price changes. The Trust can also sell (or write) covered call options and put options to hedge portfolio positions. The main risk that is associated with purchasing options is that the option expires without being exercised. In this case, the option expires worthless and the premium paid for the option is considered the loss. The risk associated with writing call options is that the Trust may forego the opportunity for a profit if the market value of the underlying position increases and the option is exercised. The risk in writing put options is that the Trust may incur a loss if the market value of the underlying position decreases and the option is exercised. In addition, as with futures contracts, the Trust risks not being able to enter into a closing transaction for the written option as the result of an illiquid market. INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Rate swaps are efficient as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time. During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by "marking-to-market" to reflect the market value of the swap. When the swap is terminated, the Trust will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract, if any. The Trust is exposed to credit loss in the event of non-performance by the other party to the swap. However, the Trust closely monitors swaps and does not anticipate non-performance by any counterparty. SWAP OPTIONS: Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expires unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Trust has realized a gain or loss on investment transactions. The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option. Swap options may be used by the Trust to manage the duration of the Trust's portfolio in a manner similar to more generic options described above. FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two parties to buy and sell a financial instrument for a set price on a future date. Initial margin deposits are made upon entering into futures contracts and can be either cash or securities. During the period the futures contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking-to-market" on a daily basis to reflect the market value of the contract at the end of each day's trading. Variation margin payments are made or received, depending upon whether unrealized gains or losses are incurred. When the contract is closed, the Trust records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Trust's basis in the contract. Financial futures contracts, when used by the Trust, help in maintaining a targeted duration. Futures contracts can be sold to effectively shorten an otherwise longer duration portfolio. In the same sense, futures contracts can be purchased to lengthen a portfolio that is shorter than its duration target. Thus, by buying or selling futures contracts, the Trust can effectively "hedge" positions so that changes in interest rates do not change the duration of the portfolio unexpectedly. The Trust may invest in financial futures contracts primarily for the purpose of hedging its existing portfolio securities or securities the Trust intends to purchase against fluctuations in value caused by changes in prevailing market interest rates. Should interest rates move unexpectedly, the Trust may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. The Trust is also at the risk of not being 15 able to enter into a closing transaction for the futures contract because of an illiquid secondary market. In addition, since futures are used to shorten or lengthen a portfolio's duration, there is a risk that the portfolio may have temporarily performed better without the hedge or that the Trust may lose the opportunity to realize appreciation in the market price of the underlying positions. SHORT SALES: The Trust may make short sales of securities as a method of hedging potential price declines in similar securities owned. When the Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through which it made the short sale as collateral for its obligation to deliver the security upon conclusion of the sale. The Trust may have to pay a fee to borrow the particular securities and may be obligated to pay over any payments received on such borrowed securities. A gain, limited to the price at which the Trust sold the security short, or a loss, unlimited as to dollar amount, will be recognized upon the termination of a short sale if the market price is greater or less than the proceeds originally received. SECURITIES LENDING: The Trust may lend its portfolio securities to qualified institutions. The loans are secured by collateral at least equal, at all times, to the market value of the securities loaned. The Trust may bear the risk of delay in recovery of, or even loss of rights in, the securities loaned should the borrower of the securities fail financially. The Trust receives compensation for lending its securities in the form of interest on the loan. The Trust also continues to receive interest on the securities loaned, and any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Trust. INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate over a specified fixed or floating rate. Interest rate caps are intended to both manage the duration of the Trust's portfolio and its exposure to changes in short term rates. Owning interest rate caps reduces the portfolio's duration, making it less sensitive to changes in interest rates from a market value perspective. The effect on income involves protection from rising short term rates, which the Trust experiences primarily in the form of leverage. The Trust is exposed to credit loss in the event of non-performance by the other party to the interest rate cap. However, the Trust does not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trust are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate cap. The asset or liability is subsequently adjusted to the current market value of the interest rate cap purchased or sold. Changes in the value of the interest rate cap are recognized as unrealized gains and losses. INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps, except that one party agrees to pay a fee, while the other party pays the excess, if any, of a floating rate under a specified fixed or floating rate. Interest rate floors are used by the Trust to both manage the duration of the portfolio and its exposure to changes in short-term interest rates. Selling interest rate floors reduces the portfolio's duration, making it less sensitive to changes in interest rates from a market value perspective. The Trust's leverage provides extra income in a period of falling rates. Selling floors reduces some of that advantage by partially monetizing it as an up front payment which the Trust receives. The Trust is exposed to credit loss in the event of non-performance by the other party to the interest rate floor. However, the Trust does not anticipate non-performance by any counterparty. Transactions fees paid or received by the Trust are recognized as assets or liabilities and amortized or accreted into interest expense or income over the life of the interest rate floor. The asset or liability is subsequently adjusted to the current market value of the interest rate floor purchased or sold. Changes in the value of the interest rate floor are recognized as unrealized gains and losses. SECURITIES TRANSACTIONS AND NET INVESTMENT INCOME: Securities transactions are recorded on the trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis, and the Trust accretes discount and amortizes premium on securities purchased using the interest method. FEDERAL INCOME TAXES: It is the Trust's intention to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute sufficient amounts of its taxable income to shareholders. Therefore, no federal income tax provision is required. DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and distributions monthly; first from net investment income, then from realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards are distributed at least annually. Dividends and distributions are recorded on the ex-dividend date. 16 Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. DEFERRED COMPENSATION PLAN: Under a deferred compensation plan approved by the Board of Directors on February 24, 2000, non-interested Directors may elect to defer receipt of all or a portion of their annual compensation. Deferred amounts earn a return as though equivalent dollar amounts had been invested in common shares of other BlackRock funds selected by the Directors. This has the same economic effect as if the Directors had invested the deferred amounts in such other BlackRock funds. The deferred compensation plan is not funded and obligations thereunder represent general unsecured claims against the general assets of the Trust. The Trust may, however, elect to invest in common shares of those funds selected by the Directors in order to match its deferred compensation obligations. NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with BlackRock Advisors, Inc. (the "Advisor"), which is a wholly-owned subsidiary of BlackRock, Inc., which in turn is an indirect majority-owned subsidiary of PNCFinancial Services Group, Inc. The Trust has an Administration Agreement with Prudential Investments Fund Management LLC ("PIFM"), a wholly-owned subsidiary of The Prudential Insurance Co. of America. The investment advisory fee paid to the Advisor is computed weekly and payable monthly at an annual rate of 0.65% of the Trust's average weekly net assets. The administration fee paid to PIFM is also computed weekly and payable monthly at an annual rate of 0.20% of the first $500 million of the Trust's average weekly net assets and 0.15% of any excess. Pursuant to the agreements, the Adviser provides continuous supervision of the investment portfolio and pays the compensation of officers of the Trust. PIFM pays occupancy and certain clerical and accounting costs of the Trust. The Trust bears all other costs and expenses. NOTE 3. PORTFOLIO SECURITIES Purchases and sales of investment securities, other than short-term investments and dollar rolls, for the period ended April 30, 2000 aggregated $279,570,470 and $245,631,892, respectively. The Trust may invest without limit in securities which are not readily marketable, including those which are restricted as to disposition under securities law ("restricted securities"). At April 30, 2000, the Trust held 0.06% of its net assets in securities restricted as to resale. The Trust may from time to time purchase in the secondary market certain mortgage pass-through securities packaged or master serviced by PNC Mortgage Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded to rights and duties of Sears) or mortgage related securities containing loans or mortgages originated by PNC Bank or its affiliates, including Midland Loan Services, Inc. It is possible under certain circumstances, that PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc. could have interests that are in conflict with the holders of these mortgage-backed securities, and such holders could have rights against PNC Mortgage Securities Corp. or its affiliates, including Midland Loan Services, Inc. The federal income tax basis of the Trust's investments at April 30, 2000 was $662,970,682 and, accordingly, net unrealized depreciation for federal income tax purposes was $29,600,220 (gross unrealized appreciation $15,454,611; gross unrealized depreciation $45,054,831). For federal income tax purposes, the Trust has a capital loss carryforward at October 31, 1999 of approximately $102,707,800 of which approximately $3,440,300 will expire in 2001, approximately $23,358,000 will expire in 2002, approximately $15,428,300 will expire in 2003, approximately $27,373,200 will expire in 2004, and approximately $33,108,000 will expire in 2007. Accordingly, no capital gains distribution is expected to be paid to shareholders until net gains have been realized in excess of such amounts. Details of open financial futures contracts at April 30, 2000 are as follows:
VALUE AT UNREALIZED NUMBER OF EXPIRATION VALUE AT APRIL 30, APPRECIATION CONTRACTS TYPE DATE TRADE DATE 2000 (DEPRECIATION) - --------- ---- ---------- ---------- ---------- ---------------- C> Short Positions: 69 Eurodollar June 2000 $ (16,300,940) $ (16,092,180) $ 208,760 1,863 30 Yr. T-Bond June 2000 (177,518,703) (179,895,937) (2,377,234) ----------- $(2,168,474) ===========
17 The Trust holds four interest rate caps. Under all agreements the Trust receives the excess, if any, of a floating rate over a fixed rate. The Trust paid a transaction fee for each agreement. Details of the caps at April 30, 2000 are as follows: NOTIONAL VALUE AT UNREALIZED AMOUNT FIXED FLOATING TERMINATION AMORTIZED APRIL 30, APPRECIATION (000) RATE RATE DATE COST 2000 (DEPRECIATION) ------- ----- ------- ------------ ---------- ---------- -------------- $ 50,000 8.00% 3mth.LIBOR 2/19/02 $ 581,768 $ 996,229 $ 414,461 100,000 6.50% 3mth.LIBOR 4/4/02 1,382,131 1,343,750 (38,381) 100,000 7.00% 3mth.LIBOR 4/18/03 1,697,575 1,487,376 (210,199) 100,000 7.25% 3mth.LIBOR 4/23/03 1,430,096 1,187,500 (242,596) ----------- --------- ---------- $5,091,570 $5,014,855 $ (76,715) =========== ========= ========== Details of the open interest rate swap at April 30, 2000 is as follows: NOTIONAL AMOUNT FIXED FLOATING TERMINATION UNREALIZED (000) TYPE RATE RATE DATE APPRECIATION - -------- ----- ----- ------ ---------- ------------ $(20,000)Interest Rate 7.50% 1 mth. LIBOR 04/25/02 $363,500 ======== NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust enters into reverse repurchase agreements with qualified, third party broker-dealers as determined by and under the direction of the Trust's Board of Directors. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time the Trust enters into a reverse repurchase agreement, it establishes and maintains a segregated account with the lender containing liquid investment grade securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. The average daily balance of reverse repurchase agreements outstanding during the period ended April 30, 2000 was approximately $161,800,824 at a weighted average interest rate of approximately 5.70%. The maximum amount of reverse repurchase agreements outstanding at any month-end during the period was $185,097,256 as of March 31, 2000, which was 27.5% of total assets. N0TE 5. CAPITAL There are 200 million shares of $.01 par value common stock authorized. Of the 62,849,878 shares outstanding at April 30, 2000, the Adviser owned 10,753 shares. NOTE 6. DIVIDENDS Subsequent to April 30, 2000, the Board of Directors of the Trust declared dividends from undistributed earnings of $0.046875 per share payable May 31, 2000 to shareholders of record on May 15, 2000. 18 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. DIVIDEND REINVESTMENT PLAN - ------------------------------------------------------------------------------- Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), shareholders may elect to have all distributions of dividends and capital gains reinvested by State Street Bank and Trust Company (the "Plan Agent") in Trust shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in United States dollars mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the transfer agent, as dividend disbursing agent. The Plan Agent serves as agent for the shareholders in administering the Plan. After the Trust declares a dividend or determines to make a capital gain distribution, the Plan Agent will acquire shares for the participants' accounts, depending upon the circumstances described below, either (i) through receipt of unissued but authorized shares from the Trust ("newly issued shares") or (ii) by purchase of outstanding shares on the open market, on the New York Stock Exchange or elsewhere ("open-market purchases"). If, on the dividend payment date, the net asset value per share is equal to or less than the market price per share plus estimated brokerage commissions (such condition being referred to herein as "market premium"), the transfer agent will invest the dividend amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant's account will be determined by dividing the dollar amount of the dividend by the net asset value per share (but in no event less than 95% of the then current market price per share) on the date the shares are issued. If, on the dividend payment date, the net asset value per share is greater than the market value per share (such condition being referred to herein as "market discount"), the transfer agent will invest the dividend amount in shares acquired on behalf of the participants in open-market purchases. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent and will receive certificates for whole Trust shares and a cash payment will be made for any fraction of a Trust share. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income taxes that may be payable on such dividends or distributions. The Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent upon at least 90 days' written notice to all shareholders of the Trust. All correspondence concerning the Plan should be directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of this report. 19 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. ADDITIONAL INFORMATION - ------------------------------------------------------------------------------- There have been no material changes in the Trust's investment objectives or policies that have not been approved by the shareholders or to its charter or by-laws or in the principal risk factors associated with investment in the Trust. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Trust's portfolio. The Annual Meeting of Shareholders was held May 18, 2000 to vote on the following matters: (1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING -------- ----- ---- ------- Frank J. Fabozzi ...................................... II 3 years 2003 Walter F. Mondale ..................................... II 3 years 2003 Ralph L. Schlosstein .................................. II 3 years 2003
Directors whose term of office continues beyond this meeting are Andrew F. Brimmer, Richard E. Cavanagh, Kent Dixon, Laurence D. Fink 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, 2000. 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 -------- ----------- -------- Frank J. Fabozzi .......................................... 51,630,770 -- 2,623,944 Walter F. Mondale ......................................... 51,356,636 -- 2,898,078 Ralph L. Schlosstein ...................................... 51,703,369 -- 2,551,345 Ratification of Deloitte & Touche LLP ..................... 53,414,394 338,661 501,659
20 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. INVESTMENT SUMMARY - ------------------------------------------------------------------------------- THE TRUST'S INVESTMENT OBJECTIVE The BlackRock Income Trust's investment objective is to manage a portfolio of high quality securities to miantain high monthly income consistent with preservation of capital. The Trust will seek to distribute monthly income that is greater than that obtainable on an annualized basis by investment in United States Treasury securities having the same maturity as the average dollar weighted maturity of the Trust's investments. WHO MANAGES THE TRUST? BlackRock Advisors, Inc. ("BlackRock") is an SEC-registered investment adviser. As of March 31, 2000, The advisor and its affiliates (together, "BlackRock") managed $173 billion on behalf of taxable and tax-exempt clients worldwide. Strategies include fixed income, equity and cash and may incorporate both domestic and international securities. Domestic fixed income strategies utilize the government, mortgage, corporate and municipal bond sectors. BlackRock manages twenty-two closed-end funds that are traded on either the New York or American stock exchanges, and a $29 billion family of open-end equity and bond funds. BlackRock manages over 590 accounts, domiciled in the United States and overseas. WHAT CAN THE TRUST INVEST IN? The Trust will invest at least 65% of its assets in mortgage-backed securities. At least 85% of the Trust's assets must be rated at least "AAA" by Standard & Poor's or "Aaa" by Moody's at the time of purchase. Of this 85% at least 80% of the Trust's assets must be rated at least "AAA" by Standard & Poor's at the time of purchase while the remaining 5% can be invested in securities rated at least "AAA" by Standard & Poor's, "Aaa" by Moody's or deemed "AAA" by the Advisor at the time of purchase. Additionally, 15% of the Trust's assets can be invested in securities rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time of purchase. Under current market conditions, BlackRock expects that the primary investments of the Trust will be U.S. government securities, securities backed by government agencies (such as mortgage-backed securities), privately issued mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. WHAT IS THE ADVISOR'S INVESTMENT STRATEGY? The Advisor will seek to meet the Trust's investment objective by managing the assets of the Trust so as to provide high monthly income consistent with the preservation of capital. The Trust will seek to provide monthly income that is greater than that which could be obtained by investing in U .S. Treasury securities with an average life similar to that of the Trust's assets. Under current market conditions, the average life of the Trust's assets is expected to be in the range of seven to ten years. Under other market conditions, the Trust's average life may vary and may not be predictable using any formula. In seeking the investment objective, the Advisor may actively manage among various types of securities in different interest rate environments. Traditional mortgage pass-through securities make interest and principal payments on a monthly basis and can be a source of attractive levels of income to the Trust. While mortgage-backed securities in the Trust are of high credit quality, they typically offer a yield spread above Treasuries due to the uncertainty of the timing of their cash flows as they are subject to changes in the rate of prepayments when interest rates change and either a larger or smaller proportion of mortgage holders refinance their mortgages or move. While mortgage-backed securities offer the opportunity for attractive yields, they subject a portfolio to interest rate risk and prepayment exposure which result in reinvestment risk when prepaid principal must be reinvested. Multiple-class mortgage pass-through securities, or collateralized mortgage obligations (CMOs), are also an investment that may be used in the Trust's portfolio. These securities are issued in multiple classes each of which has a different coupon rate, stated maturity and prioritization on the timing of receipt of cash flows coming from interest and principal payments on the underlying mortgages. Principal prepayments can be allocated among the different classes of a CMO in a number of ways; for instance, they can be applied to each of the classes in the order of their respective stated maturities. This feature allows an investor to better plan the average life of their investment. Additionally, in order to protect the portfolio from interest rate risk, the Advisor will attempt to locate securities with call protection, such as commercial mortgage-backed securities with prepayment penalties or lockouts. Securities with call protection should provide the portfolio with some degree of protection against reinvestment risk during times of lower prevailing interest rates. 21 HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS REGULARLY? The Trust's shares are traded on the NewYork Stock Exchange which provides investors with liquidity on a daily basis. Orders to buy or sell shares of the Trust must be placed through a registered broker or financial adviser. The Trust pays monthly dividends which are typically paid on the last business day of the month. For shares held in the shareholder's name, dividends may be reinvested in additional shares of the Trust through the Trust's transfer agent, State Street Bank & Trust Company. Investors who wish to hold shares in a brokerage account should check with their financial adviser to determine whether their brokerage firm offers dividend reinvestment services. LEVERAGE CONSIDERATIONS IN THE TRUST Under current market conditions, leverage increases the income earned by the Trust. The Trust employs leverage primarily through the use of reverse repurchase agreements and dollar rolls. Leverage permits the Trust to borrow money at short-term rates and reinvest that money in longer-term assets which typically offer higher interest rates. The difference between the cost of the borrowed funds and the income earned on the proceeds that are invested in longer-term assets is the benefit to the Trust from leverage. In general, the portfolio is typically leveraged at approximately 331/3% of total assets. Leverage also increases the duration (or price volatility of the net assets) of the Trust, which can improve the performance of the Trust in a declining rate environment, but can cause net assets to decline faster than the market in a rapidly rising rate environment. the Advisor's portfolio managers continuously monitor and regularly review the Trust's use of leverage and the Trust may reduce, or unwind, the amount of leverage employed should the Advisor consider that reduction to be in the best interests of the shareholders. SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM TRADING VEHICLE. INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high montly income consistent with preservation of capital, there can be no assurance that this objective will be achieved. DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over time as fixed income market conditions change. Future dividends may be higher or lower than the dividend the Trust is currently paying. INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying Mortgage Assets, and a rapid rate of principal payments may have a material adverse effect on such security's yield to maturity. If the underlying Mortgage Assets experience greater than anticipated prepayments of principal, the Trust may fail to recoup fully its initial investment in these securities even if the securities are rated AAA by S&P or Aaa by Moody's. LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and dollar rolls, which involves special risks. The Trust's net asset value and market value may be more volatile due to its use of leverage. MARKET PRICE OF SHARES. The shares of closed-end investment companies such as the Trust trade on the New York Stock Exchange (NYSE symbol: BKT) and as such are subject to supply and demand influences. As a result, shares may trade at a discount or a premium to their net asset value. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield characteristics of these securities differ from traditional debt securities. The major differences typically include more frequent payments and the possibility of prepayments which will change the yield to maturity of the security. CORPORATE DEBT SECURITIES. The value of corporate debt securities generally varies inversely with changes in prevailing market interest rates. The Trust may be subject to certain reinvestment risks in environments of declining interest rates. ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity; therefore, interim price movement on the securities are generally more sensitive to interest rate movements then securities that make periodic coupon payments. ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid, although under current market conditions the Trust expects to do so to only a limited extent. These securities involve special risks. ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in the Trust's business or management more difficult without the approval of the Trust's Board of Directors and may have the effect of depriving shareholders of an opportunity to sell their shares at a premium above the prevailing market price. 22 - ------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. GLOSSARY - ------------------------------------------------------------------------------- ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates that SECURITIES (ARMS): adjust at periodic intervals at a fixed amount over the market levels of interest rates as reflected in specified indexes. ARMS are backed by mortgage loans secured by real property. ASSET-BACKED SECURITIES: Securities backed by various types of receivables such as automobile and credit card receivables. CLOSED-END FUND: Investment vehicle which initially offers a fixed number of shares and trades on a stock exchange. The fund invests in a portfolio of securities in accordance with its stated investment objectives and policies. COLLATERALIZED Mortgage-backed securities which separate MORTGAGE OBLIGATIONS (CMOS): mortgage pools into short, medium, and long-term securities with different priorities for receipt of principal and interest. Each class is paid a fixed or floating rate of interest at regular intervals. Also known as multiple-class mortgage pass-throughs. COMMERCIAL MORTGAGE Mortgage-backed securities secured or backed BACKED SECURITIES (CMBS): by mortgage loans on commercial properties. DISCOUNT: When a fund's net asset value is greater than its stock price the fund is said to be trading at a discount. DIVIDEND: Income generated by securities in a portfolio and distributed to shareholders after the deduction of expenses. 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, FNMA and FHLMC. 23 INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that receive only the interest cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. INVERSE-FLOATING RATE MORTGAGE: Mortgage instruments with coupons that adjust at periodic intervals according to a formula which sets inversely with a market level interest rate index. MARKET PRICE: Price per share of a security trading in the secondary market. For a closed-end fund, this is the price at which one share of the fund trades on the stock exchange. If you were to buy or sell shares, you would pay or receive the market price. MORTGAGE DOLLAR ROLLS: A mortgage dollar roll is a transaction in which the Trust sells mortgage- backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (although not the same) securities on a specified future date. During the "roll" period, the Trust does not receive principal and interest payments on the securities, but is compensated for giving up these payments by the difference in the current sales price (for which the security is sold) and lower price that the Trust pays for the similar security at the end date as well as the interest earned on the cash proceeds of the initial sale. MORTGAGE PASS-THROUGHS: Mortgage-backed securities issued by FNMA, FHLMC, FHA or GNMA. NET ASSET VALUE (NAV): Net asset value is the total market value of all securities held by the Trust, plus income accrued on its investments, minus any liabilities including accrued expenses, divided by the total number of outstanding shares. It is the underlying value of a single share on a given day. Net asset value for the Trust is calculated weekly and published in BARRON'S on Saturday and THE WALL STREET JOURNAL on Monday. PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the principal cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. PROJECT LOANS: Mortgages for multi-family, low- to middle- income housing. PREMIUM: When a fund's stock price is greater than its net asset value, the fund is said to be trading at a premium. REMIC: A real estate mortgage investment conduit is a multiple-class security backed by mortgage-backed securities or whole mortgage loans and formed as a trust, corporation, partnership, or segregated pool of assets that elects to be treated as a REMIC for federal tax purposes. Generally, FNMA REMICs are formed as trusts and are backed by mortgage-backed securities. RESIDUALS: Securities issued in connection with collateralized mortgage obligations that generally represent the excess cash flow from the mortgage assets underlying the CMO after payment of principal and interest on the other CMO securities and related administrative expenses. REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust sells securities and agrees to repurchase them at a mutually agreed date and price. During this time, the Trust continues to receive the principal and interest payments from that security. At the end of the term, the Trust receives the same securities that were sold for the same initial dollar amount plus interest on the cash proceeds of the initial sale. STRIPPED MORTGAGE BACKED Arrangements in which a pool of assets is SECURITIES separated into two classes that receive different proportions of the interest and principal distribution from underlying mortgage-backed securities. IO's and PO's are examples of strips. 24 - ------------------------------------------------------------------------------- BLACKROCK ADVISORS, INC. SUMMARY OF CLOSED-END FUNDS - ------------------------------------------------------------------------------- TAXABLE TRUSTS - -------------------------------------------------------------------------------
STOCK MATURITY PERPETUAL TRUSTS SYMBOL DATE ------ ------ The BlackRock Income Trust Inc. BKT N/A The BlackRock North American Government Income Trust Inc. BNA N/A The BlackRock High Yield Trust BHY N/A TERM TRUSTS The BlackRock Target Term Trust Inc. BTT 12/00 The BlackRock 2001 Term Trust Inc. BTM 06/01 The BlackRock Strategic Term Trust Inc. BGT 12/02 The BlackRock Investment Quality Term Trust Inc. BQT 12/04 The BlackRock Advantage Term Trust Inc. BAT 12/05 The BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT 12/09 TAX-EXEMPT TRUSTS - ------------------------------------------------------------------------------- STOCK MATURITY PERPETUAL TRUSTS SYMBOL DATE ------ ------ The BlackRock Investment Quality Municipal Trust Inc. BKN N/A The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A The BlackRock Florida Investment Quality Municipal Trust RFA N/A The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A The BlackRock Pennsylvania Strategic Municipal Trust BPS N/A The BlackRock Strategic Municipal Trust BSD N/A TERM TRUSTS The BlackRock Municipal Target Term Trust Inc. BMN 12/06 The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08 The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08 The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08 The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08 The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM (7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR. 25 - ------------------------------------------------------------------------------- BLACKROCK ADVISOR, INC. AN OVERVIEW - ------------------------------------------------------------------------------- BlackRock Advisor, Inc. (the "Advisor") is an SEC-registered investment advisor. As of March 31, 2000, the Advisor and its affiliates (together, "BlackRock") managed $173 billion on behalf of taxable and tax-exempt clients worldwide. Strategies include fixed income, equity and cash and may incorporate both domestic and international securities. BlackRock manages twenty-two closed-end funds that are traded on either the New York or American stock exchanges, and a $29 billion family of open-end funds. BlackRock manages over 590 accounts, domiciled in the United States and overseas. BlackRock's fixed income product was introduced in 1988 by a team of highly seasoned fixed income professionals. These professionals had extensive experience creating, analyzing and trading a variety of fixed income instruments, including the most complex structured securities. In fact, several individuals at BlackRock were responsible for developing many of the major innovations in the mortgage-backed and asset-backed securities markets, including the creation of the first CMO, the floating rate CMO, the senior/subordinated pass-through and the multi-class asset-backed security. BlackRock is unique among asset management and advisory firms in the emphasis it places on the development of proprietary analytical capabilities. Over one quarter of the firm's professionals is dedicated to the design, maintenance and use of these systems, which are not otherwise available to investors. BlackRock's proprietary analytical tools are used for evaluating, and designing fixed income investment strategies for client portfolios. Securities purchased include mortgages, corporate bonds, municipal bonds and a variety of hedging instruments. BlackRock has developed investment products that respond to investors' needs and has been responsible for several major innovations in closed-end funds. In fact, BlackRock introduced the first closed-end mortgage fund, the first taxable and tax-exempt closed-end funds to offer a finite term, the first closed-end fund to achieve a AAA rating by Standard & Poor's, and the first closed-end fund to invest primarily in North American Government securities. Currently, BlackRock's closed-end funds have dividend reinvestment plans, which are designed to provide ongoing demand for the stock in the secondary market. BlackRock manages a wide range of investment vehicles, each having specific investment objectives and policies. In view of our continued desire to provide a high level of service to all our shareholders, BlackRock maintains a toll-free number for your questions. The number is (800) 227-7BFM (7236). We encourage you to call us with any questions that you may have about your BlackRock funds and we thank you for the continued trust that you place in our abilities. IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM 26 - ------------------------- BLACKROCK - ------------------------- DIRECTORS Laurence D. Fink, CHAIRMAN Andrew F. Brimmer Richard E. Cavanagh Kent Dixon Frank J. Fabozzi James Clayburn La Force, Jr. Walter F. Mondale Ralph L. Schlosstein OFFICERS Ralph L. Schlosstein, PRESIDENT Scott Amero, VICE PRESIDENT Keith T. Anderson, VICE PRESIDENT Michael C. Huebsch, VICE PRESIDENT Robert S. Kapito, VICE PRESIDENT Richard M. Shea, VICE PRESIDENT/TAX Henry Gabbay, TREASURER James Kong, ASSISTANT TREASURER Karen H. Sabath, SECRETARY INVESTMENT ADVISOR BlackRock Advisors, Inc. 400 Bellevue Parkway Wilmington, DE 19809 (800) 227-7BFM ADMINISTRATOR Prudential Investments Fund Management LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 CUSTODIAN AND TRANSFER AGENT State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 (800) 699-1BFM INDEPENDENT ACCOUNTANTS Deloitte & Touche LLP Two World Financial Center New York, NY 10281-1434 LEGAL COUNSEL Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, NY 10036 LEGAL COUNSEL - INDEPENDENT DIRECTORS Debevoise & Plimpton 875 Third Avenue New York, NY 10022 The accompanying financial statements as of April 30, 2000 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 [GRAPHIC] Printed on recycled paper 09247F-10-0 - ------------------------- BLACKROCK - ------------------------- The Income Trust Inc. - ------------------------------------------------------------------------- Semi-Annual Report April 30, 2000 [GRAPHIC OMITTED] -----END PRIVACY-ENHANCED MESSAGE-----