-----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, GfbaFuECYj82JH8dWUBHOF2KbJMgzf5BeJazqZ6xm5pWRBiTyGWeSpBEVfy9CwcM Jv2FHpuZIAnDOG8JH3SlZQ== 0000950007-96-000123.txt : 19960629 0000950007-96-000123.hdr.sgml : 19960629 ACCESSION NUMBER: 0000950007-96-000123 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960627 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK INCOME TRUST INC CENTRAL INDEX KEY: 0000832327 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05542 FILM NUMBER: 96587007 BUSINESS ADDRESS: STREET 1: 199 WATER ST CITY: NEW YORK STATE: NY ZIP: 10292 BUSINESS PHONE: 2122142189 FORMER COMPANY: FORMER CONFORMED NAME: BLACKSTONE INCOME TRUST INC DATE OF NAME CHANGE: 19920703 N-30D 1 SEMI-ANNUAL REPORT - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. SEMI-ANNUAL REPORT TO SHAREHOLDERS REPORT OF INVESTMENT ADVISER - -------------------------------------------------------------------------------- May 31, 1996 Dear Trust Shareholder: After posting strong returns during 1995, the fixed income markets have given back much of their gains in 1996 in response to a strengthening U.S. economy. Accelerating economic growth has raised concerns about an increased inflationary environment, which could erode the value of fixed income investments. The stronger economy also has led some market participants to consider the possibility that the Federal Reserve may increase interest rates to thwart inflation threats after three interest rate reductions over the past twelve months. Despite the pick-up in economic growth, we believe that current inflationary fears will subside. Commodity prices have risen but manufacturers will have difficulty passing along the increased costs of raw materials to consumers, whose debt levels as a percentage of disposable income are at the highest point since the recessionary highs of 1990. We believe that the overleveraged consumer will have to retrench, restricting future economic expansion and creating a positive environment for bonds in the latter half of this year. The following semi-annual report provides detailed market commentary and a review of portfolio management activity. We believe that BlackRock's duration controlled management style and risk management capabilities will allow each of our Trusts to achieve its long-term investment objective. We look forward to maintaining your respect and confidence and to serving your financial needs in the coming years. Sincerely, Laurence D. Fink Ralph L. Schlosstein Chairman President 1 May 31, 1996 Dear Shareholder: We are pleased to present the semi-annual report for The BlackRock Income Trust Inc. ("the Trust") for the six months ended April 30, 1996. We would like to take this opportunity to review the Trust's stock price and net asset value (NAV) performance, summarize market developments and discuss recent portfolio management activity. The Trust is a diversified, actively managed closed-end bond fund whose shares are traded on the New York Stock Exchange under the symbol "BKT". The Trust's investment objective is to provide high current income consistent with the preservation of capital. The Trust seeks this objective by investing primarily in mortgage-backed securities backed by U.S. Government agencies (such as Fannie Mae, Freddie Mac or Ginnie Mae) and, to a lesser extent, U.S. Government securities, asset-backed securities and privately issued mortgage-backed securities. At least 85% of the Trust's assets must be issued or guaranteed by the U.S. Government or its agencies or rated "AAA" by Standard & Poor's or "Aaa" by Moody's at the time of purchase (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 the time of purchase. The table below summarizes the performance of the Trust's stock price and NAV (the market value of its bonds per share) over the period: - -------------------------------------------------------------------------------- 4/30/96 10/31/95 Change High Low - -------------------------------------------------------------------------------- Stock Price $6.00 $7.25 (17.24%) $7.25 $6.00 - -------------------------------------------------------------------------------- Net Asset Value (NAV) $7.42 $7.66 (3.13%) $7.85 $7.30 - -------------------------------------------------------------------------------- Premium/(Discount) to NAV (19.14%) (5.35%) (13.79%) (7.71%) (20.00%) - -------------------------------------------------------------------------------- Ten Year Treasury Yield 6.65% 6.01% (10.58%) 6.68% 5.52% - -------------------------------------------------------------------------------- The Fixed Income Markets The domestic fixed income markets witnessed two profoundly different environments during the six month period, presenting both challenges and opportunities to the management of the Trust. The Treasury market rally of 1995 continued through the middle of February 1996, as market demand for fixed income securities remained strong due to a combination of moderate economic growth, low absolute levels of inflation and two reductions of the Fed funds target rate. The rally halted during mid-February, however, as data indicating accelerating economic growth, in conjunction with a sharp rise in commodity prices, rekindled inflationary concerns. Positive news for the economy which may indicate increased levels of inflation can cause bond yields to rise and prices to fall. The March 8th release of the February employment report showed a surprisingly strong gain of 705,000 new jobs (subsequently revised downward to 624,000) and produced the largest one-day price decline in U.S. bond prices in the last seven years. For the first quarter of 1996, economic growth as measured by GDP grew 2.8%, which represented a strong rebound from the 0.5% gain posted in the fourth quarter of 1995. Interest rate movements reflected the change in investor sentiment toward fixed income securities. Interest rates across the Treasury yield curve fell dramatically from November to mid-January, as evidenced by the decline in yield levels on the ten-year Treasury, which declined 49 basis points (0.49%) from 6.01% on October 31, 1995 to a low of 5.52% on January 19. However, data released during February suggesting renewed economic vigor placed pressure on bond prices, as thoughts of a stronger economy dampened investor expectations that interest rates would continue to fall. These fears translated into a 2 sharp rise in bond yields across the Treasury yield curve. The yield of the ten-year Treasury ended the semi-annual period at 6.64%, an increase of 112 basis points in three and one-half months and a net rise of 63 basis points from October 31, 1995. The mortgage-backed securities (MBS) market posted strong relative performance during the first four months of 1996, as rising interest rates resulted in a reduction in prepayment risk. Still, many investors remained on the sidelines, convinced that even historically high mortgage yields relative to Treasuries offered inadequate compensation for the perceived risks of owning MBS. Due to such narrow participation, MBS performance in 1996 has been somewhat short of expectations, creating a window of purchasing opportunity for the Trust. 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 a ten year Treasury; this means that the portfolio's NAV will change similarly to the price of the ten year given a change in interest rates. The following chart compares the Trust's current and October 31, 1995 asset composition. - -------------------------------------------------------------------------------- Composition April 30, 1996 October 31, 1995 - -------------------------------------------------------------------------------- Adjustable Rate Mortgages 20% 18% - -------------------------------------------------------------------------------- Mortgage Pass-Throughs 15% 24% - -------------------------------------------------------------------------------- FHA Project Loans 14% 15% - -------------------------------------------------------------------------------- U.S. Treasury Securities 12% 2% - -------------------------------------------------------------------------------- Agency Multiple Class Mortgage Pass-Throughs 11% 16% - -------------------------------------------------------------------------------- Stripped Mortgage-Backed Securities 11% 10% - -------------------------------------------------------------------------------- Non-Agency Multiple Class Mortgage Pass-Throughs 6% 7% - -------------------------------------------------------------------------------- Asset-Backed Securities 6% 4% - -------------------------------------------------------------------------------- CMO Residuals 3% 3% - -------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities 1% 1% - -------------------------------------------------------------------------------- Corporate Bonds 1% 0% - -------------------------------------------------------------------------------- After increasing exposure to the mortgage-backed securities (MBS) sector for much of 1995, the Trust reduced its overall mortgage holdings from 94% of assets on October 31, 1995 to 81% on April 30, 1996. Most significantly, the Trust's mortgage pass-through exposure was reduced by almost half to capture that sector's strong performance. Additionally, the Trust moderately increased its adjustable rate mortgage (ARM) allocations as the rising interest rate environment during the first four months of 1996 produced mixed performance in that market. Currently, we believe that the ARM sector represents attractive value, particularly seasoned GNMA ARMs, which are expected to perform well as prepayment rates should slow in response to the higher interest rate environment. The Trust's Board of Directors announced on December 14, 1995 a reduction in the Trust's monthly dividend rate from $0.0625 ($0.75 annualized) to $0.046875 ($0.5625 annualized) effective with the January 1996 payment. The reduction in the Trust's dividend was made with the expectation that the Trust would be able to sustain its dividend through its earned income without returning capital to shareholders. This in turn should provide for greater long-term earning potential for the Trust. The new dividend rate reflected a decline in the amount of investment income the Trust earned as interest rates declined sharply from late 1994 through early 1996. The two main reasons for the reduction to the Trust's income earning potential: 3 first, an increase in mortgage refinancing resulted in the reinvestment of prepaid principal from higher yielding bonds into lower yielding bonds; and second, the leverage employed by the Trust generated less excess income due to a flattening of the yield curve. The Fed funds target rate declined only 0.25% from late 1994 through December 1995, while the yield of the ten year Treasury fell from 7.83% at year-end 1994 to 5.57% on December 31, 1995. This led to a dramatic reduction in the yield spread between the Trust's borrowing costs and the yields on available long term investments for 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, Robert Kapito Keith T. Anderson Vice Chairman and Portfolio Manager Managing Director and Portfolio Manager BlackRock Financial Management, Inc. BlackRock Financial Management, Inc. - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. - -------------------------------------------------------------------------------- Symbol on New York Stock Exchange: BKT - -------------------------------------------------------------------------------- Initial Offering Date: July 22, 1988 - -------------------------------------------------------------------------------- Closing Stock Price as of 4/30/96: $6.00 - -------------------------------------------------------------------------------- Net Asset Value as of 4/30/96: $7.42 - -------------------------------------------------------------------------------- Yield on Closing Stock Price as of 4/30/96 ($6.00)1: 9.38% - -------------------------------------------------------------------------------- Current Monthly Distribution per Share2: $0.046875 - -------------------------------------------------------------------------------- Current Annualized Distribution per Share2: $0.56250 - -------------------------------------------------------------------------------- - ------------- 1 Yield on Closing Stock Price is calculated by dividing the current annualized distribution per share by the closing stock price per share. 2 The distribution is not constant and is subject to change. 4 (Left Column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Portfolio of Investments April 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Principal Amount Value (000) Description (Note 1) - -------------------------------------------------------------------------------- LONG-TERM INVESTMENTS-138.7% Mortgage Pass-Throughs-58.9% Federal Home Loan Mortgage Corporation, $33,510@ 6.50%, 4/01/26 - 1/01/99 ...................... $ 31,467,901 1,735 6.774%, 2/01/18, 1 year CMT (ARM) ............. 1,739,244 7,151++ 7.50%, 7/01/07 - 2/01/23 ...................... 7,194,508 1,591 8.00%, 11/01/15 ............................... 1,642,618 3,618 8.50%, 5/01/01 - 3/01/08, 15 year ............. 3,742,286 1,931 8.50%, 6/01/06 - 4/01/25 ...................... 1,991,362 5,083 9.00%, 9/01/20 ................................ 5,353,228 42 10.50%, 6/01/19 ............................... 46,604 Federal Housing Administration, 1,912 Altercare Bucyrus, 8.25%, 6/25/34 ............. 1,924,347 2,328 Beachwood Manor, 8.25%, 10/01/34 .............. 2,366,491 4,308 Brookville, 7.50%, 8/01/28 .................... 4,192,286 3,749 Country Estates, 8.375%, 1/01/35 .............. 3,833,319 1,519 Elkton Care Center, 7.30%, 6/01/35 ............ 1,456,793 GMAC, 6,369 Series 33, 7.43%, 9/01/21 ................... 6,395,173 2,208 Series 46, 7.43%, 1/01/22 ................... 2,211,476 913 Series 48, 7.43%, 6/01/22 ................... 911,034 505 Series 51, 7.43%, 2/01/23 ................... 506,040 8,097 Series 56, 7.43%, 11/01/22 .................. 8,115,047 Merrill, 1,294 Series 54, 7.43%, 5/15/23 ................... 1,295,039 3,416 Series 95, 7.43%, 3/01/22 ................... 3,421,960 1,260 Middlesex, 8.625%, 9/01/34 .................... 1,306,732 1,688 Overlook Green South, 7.50%, 9/01/34 .......... 1,640,344 4,875 Parkside, 7.30%, 2/01/13 ...................... 4,730,294 1,918 Providence Apartments, 7.25%, 12/01/34 ............................. 1,832,130 Reilly, 3,154 Series 34, 7.43%, 8/01/19 ................... 3,171,785 1,903 Series 41, 8.28%, 3/01/20 ................... 1,903,658 572 Series 74, 7.43%, 10/01/23 .................. 549,208 2,344 Retreat at Windmere, 7.375%, 11/01/34 ......... 2,259,802 2,119 Rosewood, 7.875%, 12/01/34 .................... 2,117,265 1,523 Senaca Hills, 8.525%, 8/01/34 ................. 1,565,132 1,431 St. Camillus Nursing, 7.875%, 5/01/35 ......... 1,415,526 2,327 Summit Place, 7.90%, 11/01/34 ................. 2,304,758 2,885 Tuttle Grove, 7.25%, 10/01/35 ................. 2,756,552 (Right Column) - -------------------------------------------------------------------------------- Principal Amount Value (000) Description (Note 1) - -------------------------------------------------------------------------------- Federal Housing Administration, USGI, $ 4,442 Polaris 982, 7.43%, 11/01/21 ................ $ 4,452,838 943 Series 87, 7.43%, 12/01/22 .................. 944,111 5,144 Series 99, 7.43%, 10/01/23 .................. 5,151,661 2,800 Series 1003, 7.43%, 3/01/24 ................. 2,637,406 2,814 Series 6302, 7.43%, 12/01/21 ................ 2,825,455 7,199 Yorkville 6094, 7.43%, 6/01/21 .............. 7,214,138 3,633 Waterford, 8.625%, 7/25/27 .................... 3,751,066 1,418 Whitehall, 8.25%, 5/25/35 ..................... 1,441,213 Federal National Mortgage Association, 2,500 6.50%, Series 1994-M1, Class B, 10/25/03, Multifamily ......................... 2,411,719 2,170 7.00%, 11/01/08 ............................... 2,173,081 8,997+ 7.377%, 1/01/25, 1 year CMT (ARM) ............. 9,221,655 164 7.50%, 2/01/22 - 9/01/23 ...................... 162,321 1,087 7.609%, 12/01/22 .............................. 1,109,764 2,082 7.785%, 1/01/01, 7 year Multifamily ........... 2,135,100 7,925 8.00%, 5/01/08 - 5/01/22 ...................... 8,051,241 739 9.317%, 6/01/19, 10 year Multifamily .......... 784,460 1,887 9.484%, 7/01/19, Multifamily .................. 2,006,277 1,465 9.497%, 6/01/24, Multifamily .................. 1,602,213 273 9.50%, 1/01/19 - 6/01/20 ...................... 290,874 787 9.732%, 7/01/19, 10 year Multifamily .......... 860,471 Government National Mortgage Association, 3,267 6.00%, 3/15/09 - 4/15/09, 15 year ............. 3,110,920 3,500 6.00%, 12/20/99, 1 year CMT (ARM) ............. 3,482,500 45,982+ 6.50%, 2/20/23 - 6/20/25, 1 year CMT (ARM) ............................ 46,452,697 24,938++ 7.00%, 5/20/25 - 6/20/25, 1 year CMT (ARM) ................................... 25,265,508 15,216@ 7.00%, 10/15/17 - 1/15/99 ..................... 14,649,952 2,544 7.25%, 11/15/04 - 1/15/06 ..................... 2,560,967 87 8.50%, 5/15/01 - 2/15/17 ...................... 89,884 1,409 9.00%, 6/15/18 - 9/15/21 ...................... 1,479,249 14 9.50%, 7/15/16 ................................ 14,788 233 10.00%, 7/15/17 - 11/15/19 .................... 255,841 673 11.00%, 8/15/18 - 6/15/20 ..................... 752,548 ------------ 274,701,860 ------------ See Notes to Financial Statements. 5 (Left Column) - -------------------------------------------------------------------------------- S&P/ Principal Moody's Amount Value Rating* (000) Description (Note 1) - -------------------------------------------------------------------------------- Multiple Class Mortgage Pass-Throughs-33.3% AAA $2,100 Citicorp Mortgage Securities Inc., Series 1994-9, Class A-4, 6/25/09 ..... $ 1,904,532 AAA 25,845@@ Community Program Loan Trust, Series 1987-A, Class A-4, 10/01/18 .............................. 21,483,656 Federal Home Loan Mortgage Corporation, Multiclass Mortgage Participation Certificate, 8,000 Series 120, Class 120-H, 2/15/21 ...... 8,294,000 1,000 Series 1388, Class 1388-H, 6/15/07 ............................. 786,950 8,693 Series 1443, Class 1443-OC 12/15/22 (ARM) ...................... 7,354,224 17,384+/@@ Series 1584, Class 1584-FB 9/15/23 (ARM) ....................... 17,840,002 1,804 Series 1596, Class 1596-SB 12/15/12 (ARM) ...................... 1,237,740 28,852@@ Series 1632, Class 1632-S, 4/15/23 (ARM) ....................... 1,099,992 32,000 Series 1809, Class 1809-SC 12/15/23 (ARM) ...................... 2,770,000 Federal National Mortgage Association, REMIC Pass-Through Certificates, 4,741 Trust 1988-16, Class 16-B, 6/25/18 ............................. 5,003,513 3,069 Trust 1991-38, Class 38-F, 4/25/21 (ARM) ....................... 3,224,246 2,341 Trust 1991-38, Class 38-SA, 4/25/21 (ARM) ....................... 2,197,457 4,150 Trust 1991-87, Class 87-S, 8/25/21 (ARM) ....................... 4,238,019 5,000 Trust 1992-43, Class 43-E, 4/25/22 ............................. 4,858,850 34,759+/@@ Trust 1992-69, Class 69-Z, 5/25/22 ............................. 34,966,183 4,780 Trust 1993-107, Class 107-SA, 6/25/08 (ARM) ....................... 3,720,612 28,780 Trust G1994-6, Class 6-PK, 11/17/22 (I) ........................ 4,694,664 6,797 Trust 1996-14, Class 14-M, 10/25/21 ............................ 5,256,070 14,300 Trust 1996-14, Class 14-PE, 8/25/23 (P) ......................... 3,861,000 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificate Aaa 743 Series 1993-43 Class 16, 10/25/23 (ARM) ...................... 521,886 Aa2 4,660 Series 1993-55 Class A-1, 12/26/23 (ARM) ...................... 4,747,527 AAA 890 Resolution Trust Corporation, Mortgage Pass-Through Certificates, Series 1992-2, Class B-3, 11/25/21 ................... 893,117 (Right Column) - -------------------------------------------------------------------------------- S&P/ Principal Moody's Amount Value Rating* (000) Description (Note 1) - -------------------------------------------------------------------------------- AAA $14,092 Salomon Capital Access Corporation, Collateralized Mortgage Obligations, Series 1986-1, Class C, 9/01/15 ............................... $ 14,302,892 ------------ 155,257,132 ------------ Commercial Mortgage- Backed Securities-0.4% AA 2,000 PaineWebber Mortgage Acceptance Corporation IV, Series 1995-M1, Class B, 6.95%, 1/15/07 ............... 1,962,199 A 140,000 KPAC, Series 1994-C1, Zero Coupon, 2/01/01 .................. 1,400 ------------ 1,963,599 ------------ Corporate Bond-0.6% A 2,500 Travelers Aetna Property Casualty Co., 6.75%, 4/15/01 ........................ 2,491,600 ------------ Asset-Backed Securities-8.0% Aaa 14,062@@ Chase Manhattan Grantor Trust, Series 1996-Class A, Automobile Loan Pass-Through, 5.20%, 2/15/02 ............................... 13,855,047 Discover Card Master Trust, AAA 3,650 Series 1993-1, Class A, 5.77%, 10/16/01 .............................. 3,660,257 AAA 7,200 Series 1996-3, Class A, 6.05%, 8/18/08 ............................... 6,619,500 AAA 6,000 Series 1996-4, Class A, 5.81%, 10/16/13 .............................. 5,996,220 AAA 5,000 First Chicago Master Trust, Series 1994-J, Class A, 5.72%, 1/16/01 ............................... 5,009,350 AAA 1,191 NationsBank Auto Grantor Trust, Series 1995-A, Class A, 5.85%, 6/15/02 ............................... 1,186,870 AAA 848 Premier Auto Trust, Series 1995-1, Class A2, 7.35%, 5/04/97 .............. 848,048 ------------ 37,175,292 ------------ Stripped Mortgage-Backed Securities-16.1% AAA 1,158 Chase Mortgage Finance Corporation, Mortgage Pass-Through Certificates, Series 1994-A, Class AP, 1/25/10 (P/O) ............... 839,225 AAA 1,653@@ Collateralized Mortgage Obligation, Trust 36, Class A, 10/25/17 (P/O) ..... 1,207,980 DBL, Collateralized Mortgage Obligation, AAA 670 Trust K, Class 1, 9/23/17 (P/O) ....... 388,213 AAA 2,075 Trust V, Class 1, 9/01/18 (P/O) ....... 1,530,092 Federal Home Loan Mortgage Corporation, 6,061 Series 188, Class 188-G, 9/15/21 (I/O) ....................... 1,894,147 30 Series 1003, Class 1003-O, 10/15/20 (I/O) ...................... 823,867 See Notes to Financial Statements. 6 (Left Column) - -------------------------------------------------------------------------------- S&P/ Principal Moody's Amount Value Rating* (000) Description (Note 1) - -------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation, $ 681 Series 1418, Class 1418-M, 11/15/22 (P/O) ...................... $ 186,950 3,388 Series 1473, Class 1473-JA, 2/15/05 (I/O) ....................... 258,300 9,461 Series 1690, Class 1690-B, 11/15/23 (P/O) ...................... 3,116,153 Federal National Mortgage Association, 30,170 Trust 2, Class 2, 2/01/17 (I/O) ....... 9,330,795 2,726 Trust 9, Class 2, 2/01/17 (I/O) ....... 808,415 31,597 Trust 23, Class 2, 9/01/17 (I/O) ...... 10,031,979 8,908 Trust 95, Class 2, 10/01/20 (I/O) ..... 2,861,553 14,430 Trust 103, Class 2, 9/01/06 (I/O) ..... 2,786,850 2,234 Trust 141, Class 2, 9/25/21 (I/O) ..... 712,183 7,069 Trust 225, Class 1, 2/01/23 (P/O) ..... 5,082,968 5,500 Trust 1991-110, Class 110-E, 5/25/21 (P/O) ....................... 3,549,205 60 Trust G1992-34, Class 34-A 4/25/22 (I/O) ....................... 1,836,947 1,405 Trust G1993-2, Class 2-KB, 1/25/23 (P/O) ....................... 393,750 12,614 Trust 1993-213, Class 213-H, 9/25/23 (P/O) ....................... 9,495,115 First Boston Mortgage Securities Corporation, AAA 1,955 Series 1987-C, Class Z, 4/25/17 (I/O) ....................... 423,912 AAA 23,170 Series 1988-E, Class 2, 10/01/18 (I/O) ...................... 7,095,727 AAA 19,871 Greenwich Capital Acceptance Inc., Series 1994-LB3, Class S, 8/25/24 (I/O) ......................... 509,185 Housing Security Incorporated, AAA 478 Series 1992-EB, Class B-8, 9/25/22 (P/O) ......................... 276,062 AAA 713 Series 1993-D, Class D-8, 6/25/23 (P/O) ......................... 411,362 AAA 679 ML Trust XIX, Collateralized Mortgage Obligation, Class B, 11/25/17 (P/O) ........................ 509,148 AAA 1 Prudential Home Mortgage Securities Company, Mortgage Pass-Through Certificates, Series 1993-29, Class A18, 8/25/08 (I/O) .............. 3,150,000 Prudential Securities Inc., Collateralized Mortgage Obligation, AAA 6 Trust 15, Class 1G, 5/20/21 (I/O) ..... 607,105 AAA 93 Trust 1991-24, Class O, 3/25/21 (I/O) ......................... 4,316,099 AAA 4,052 Residential Funding Corporation, Trust 1992-S6, Class S6-A11 2/25/22 (I/O) ......................... 34,190 AAA 1,102 Structured Mortgage Asset Trust, Series 1993-3C, Class CX 4/25/24 (P/O) ......................... 629,803 ------------ 75,097,280 ------------ (Right Column) - -------------------------------------------------------------------------------- S&P/ Principal Moody's Amount Value Rating* (000) Description (Note 1) - -------------------------------------------------------------------------------- CMO Residuals**-4.1% AAA $ 5,522 American Housing Trust III, Senior Mortgage Pass-Through Certificates, Series 1, Class 4, (REMIC)#, 3/25/19 ............................... $ 848,046 AAA 25 Collateralized Mortgage Obligation, Trust 13#, 1/20/03 .................... 995,510 AAA 4 Collateralized Mortgage Securities Corporation, Collateralized Mortgage Obligations, Series 1990-3, Class 3-R, (REMIC)#, 5/25/20 ..................... 265,236 AAA 45 FBC Mortgage Securities Trust 16, Variable Rate Collateralized Mortgage Obligation, Series A#, 7/01/17 .................... 1,185,125 AAA 3,115 FBC Mortgage Securities Trust 19, Variable Rate Collateralized Mortgage Obligation, Series A#, 10/20/18 ................... 249,800 Federal Home Loan Mortgage Corporation, Multiclass Mortgage Participation Certificates, 450 Series 32, Class 32-R, (REMIC), 3/15/20 ............................. 509,243 7 Series 1017, Class 1017-R, (REMIC), 11/15/20 ..................... 1,186,706 13,537 Series 1119, Class 1119-R, (REMIC), 8/15/21 ...................... 3,599,970 Federal National Mortgage Association, REMIC Pass-Through Certificates, 1,100 Trust 1989-99, Class 99-R, 12/25/19 ............................ 1,275,000 10 Trust 1990-12, Class 12-R, 2/25/20 ............................. 1,975,000 100 Trust 1990-57, Class 57-R, 5/25/20 ............................. 1,077,000 27 Trust 1990-86, Class 86-R, 7/25/20 ............................. 2,028,000 AAA 7,310 ML Collateralized Mortgage Obligations, Trust V#, 3/20/18 ........ 2,521,982 AAA 10 P-B Collateralized Mortgage Obligation, Trust 8, Class 8-H, (REMIC)#, 3/01/19 .......... 198,000 AAA 43 PaineWebber, Collateralized Mortgage Obligation, Series N, Class 7, (REMIC)#, 1/01/19 ............................... 365,091 AAA 1,059 Ryland Acceptance Corporation, Collateralized Mortgage Bonds, Series 33, Class A#, 6/20/18 .......... 307,780 See Notes to Financial Statements. 7 (Left Column) - -------------------------------------------------------------------------------- S&P/ Principal Moody's Amount Value Rating* (000) Description (Note 1) - -------------------------------------------------------------------------------- AAA $ 995 Smith Barney Mortgage Capital Trust VIII, Collateralized Mortgage Obligations, Series 1, Class 1-R, (REMIC)#, 5/01/19 .......... $ 346,000 ------------ 18,933,489 ------------ U.S Government Securities-17.3% U.S. Treasury Notes, 14,251++ 5.375%, 11/30/97 ...................... 14,121,886 12,790 6.25%, 2/15/03 ........................ 12,568,221 7,600+ 6.50%, 5/15/05 ........................ 7,500,212 24,750++ 6.375%, 3/31/01 ....................... 24,703,470 15,500 United States Treasury Bond, 12.75%, 11/15/10 ...................... 21,871,895 ------------ 80,765,684 ------------ Total long-term investments (cost $660,398,183) ................... 646,385,936 ------------ Contracts*** ------------ SHORT-TERM INVESTMENTS CALL OPTION PURCHASED-0.4% 503 U.S. Treasury Bond, expiring June 1996 @ $106 (cost $7,044,389) ..................... 1,697,625 ------------ Total investments before investments sold short-139.1% (cost $667,442,572) ................... 648,083,561 ------------ Principal Amount (000) --------- INVESTMENTS SOLD SHORT-(4.1%) (15,000) Federal Home Loan Mortgage Corporation, 7.00%, 1/01/99 ........... (14,479,650) (4,655) United States Treasury Notes, 5.00%, 2/15/99 ........................ (4,516,095) ------------ Total investments sold short (proceeds $18,973,863) ................ (18,995,745) Total investments, net of short sales-135.0% (cost $648,468,709) ................... 629,087,816 Liabilities in excess of other assets-(35.0%) .................. (163,041,350) ------------ NET ASSETS-100% ......................... $466,046,466 ============ - ------------------ *Using the higher of Standard & Poor's or Moody's rating. **Illiquid securities representing 2.9% of portfolio assets. ***One contract equals 100,000 face value. #Private placements restricted as to resale. +$1,784,098 principal amount pledged as collateral for futures transactions. ++$44,949,725 principal amount pledged as collateral for mortgage dollar rolls. @Entire principal amount pledged as collateral for mortgage swap. @@$10,147,437 principal amount pledged as collateral for mortgage swap. - -------------------------------------------------------------------------------- Key to Abbreviations ARM --Adjustable Rate Mortgage. CMO --Collateralized Mortgage Obligation. CMT --Constant Maturity Treasury. I --Denotes a CMO with interest only characteristics. I/O --Interest Only. P --Denotes a CMO with principal only characteristics. P/O --Principal Only. REMIC --Real Estate Mortgage Investment Conduit. - -------------------------------------------------------------------------------- See Notes to Financial Statements. 8 (Left Column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Statement of Assets and Liabilities April 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Assets Investments, at value (cost $667,442,572) (Note 1) .............. $648,083,561 Cash ............................................................ 113,190 Receivable for investments sold ................................. 23,094,184 Deposit with brokers for investments sold short (Note 1) ........................................... 19,020,413 Interest receivable ............................................. 8,762,982 Unrealized appreciation on interest rate floor (Notes 1 & 3) ................................................. 46,679 ------------ 699,121,009 ------------ Liabilities Reverse repurchase agreements (Note 4) .......................... 146,433,199 Payable for investments purchased ............................... 62,142,357 Investments sold short, at value (proceeds $18,973,863) (Note 1) ............................... 18,995,745 Unrealized depreciation on mortgage swap (Notes 1 & 3) ................................................. 3,588,398 Unrealized depreciation on interest rate cap (Notes 1 & 3) ................................................. 340,500 Dividends payable ............................................... 312,978 Advisory fee payable (Note 2) ................................... 249,568 Due to broker-variation margin .................................. 174,977 Interest payable ................................................ 100,804 Administration fee payable (Note 2) ............................. 76,790 Other accrued expenses .......................................... 659,227 ------------ 233,074,543 ------------ Net Assets ...................................................... $466,046,466 ============ 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 ------------ Distributions in excess of net investment income .............. (927,411) Accumulated net realized losses ............................... (73,668,123) Net unrealized depreciation ................................... (23,342,268) ------------ Net assets, April 30, 1996 .................................... $466,046,466 ============ Net asset value per share: ($466,046,466 d/b 62,849,878 shares of common stock issued and outstanding) .......................... $7.42 ===== (Right Column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Statement of Operations Six Months Ended April 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Net Investment Income Income Interest (net of premium amortization of $6,973,428 and interest expense of $6,336,382) ......................... $ 21,312,106 ------------ Expenses Investment advisory ........................................... 1,565,652 Administration ................................................ 481,739 Custodian ..................................................... 146,500 Transfer agent ................................................ 112,000 Reports to shareholders ....................................... 99,500 Directors ..................................................... 38,000 Audit ......................................................... 29,000 Legal ......................................................... 12,500 Miscellaneous ................................................. 114,396 ------------ Total operating expenses .................................... 2,599,287 ------------ Net investment income ......................................... 18,712,819 ------------ Realized and Unrealized Gain (Loss) on Investments (Note 3) Net realized gain (loss) Investments ................................................... (5,243,967) Futures ....................................................... 1,137,043 Short sales ................................................... (282,639) ------------ (4,389,563) ------------ Net change in unrealized appreciation (depreciation) Investments ................................................... (9,967,938) Futures ....................................................... 52,396 Short Sales ................................................... (21,882) ------------ (9,937,424) ------------ Net loss on investments ......................................... (14,326,987) ------------ Net Increase In Net Assets Resulting from Operations ....................................... $ 4,385,832 ============ See Notes to Financial Statements. 9 (Left Column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Statement of Cash Flows Six Months Ended April 30, 1996 (Unaudited) - -------------------------------------------------------------------------------- Increase (Decrease) in Cash Cash flows provided by operating activities: Interest received ........................................... $ 31,893,477 Operating expenses paid ..................................... (2,347,318) Interest expense paid ....................................... (5,767,761) Purchase of short-term portfolio investments including options, net ........................ (5,745,717) Purchase of long-term portfolio investments ................. (2,084,474,620) Proceeds from disposition of long-term portfolio investments ..................................... 2,155,375,336 Variation margin on futures ................................. (1,364,416) --------------- Net cash flows provided by operating activities ............. 87,568,981 --------------- Cash flows used for financing activities: Decrease in reverse repurchase agreements ................... (68,004,676) Cash dividends paid ......................................... (19,789,124) --------------- Net cash used for financing activities ...................... (87,793,800) --------------- Net decrease in cash .......................................... (224,819) Cash at beginning of period ................................... 338,009 --------------- Cash at end of period ......................................... $ 113,190 --------------- Reconciliation of Net Increase in Net Assets to Net Cash Provided by Operating Activities Net increase in net assets resulting from operations .......... $ 4,385,832 --------------- Decrease in investments ....................................... 31,384,036 Increase in interest receivable ............................... (2,165,397) Decrease in receivable for investments sold ................... 36,567,899 Increase in depreciation on mortgage swap ..................... 1,085,947 Decrease in variation margin receivable ....................... 205,610 Increase in appreciation of interest rate floor ............... (46,679) Net realized loss ............................................. 4,389,563 Increase in unrealized depreciation ........................... 9,937,424 Increase in deposits with brokers for investments sold short ...................................... (19,020,413) Increase in payable for investments sold short ................ 18,995,745 Increase in payable for investments purchased ................. 2,437,737 Decrease in interest payable .................................. (488,464) Decrease in depreciation of interest rate cap ................. (351,828) Increase in accrued expenses and other liabilities ................................................. 251,969 --------------- Total adjustments ........................................... 83,183,149 --------------- Net cash provided by operating activities ..................... $ 87,568,981 =============== (Right Column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Statements of Changes in Net Assets (Unaudited) - -------------------------------------------------------------------------------- Increase (Decrease) Six Months Year in Net Assets Ended Ended April 30, 1996 October 31, 1995 -------------- ---------------- Operations: Net investment income ....................... $ 18,712,819 $ 31,941,790 Net realized loss on investments, futures, short sales and options .......... (4,389,563) (16,509,006) Net change in net unrealized appreciation (depreciation) on investments, futures, short sales and options ................... (9,937,424) 57,353,523 ------------ ------------ Net increase (decrease) in net assets resulting from operations ................................ 4,385,832 72,786,307 Dividends from net investment income ...................................... (18,712,819) (41,414,771) Distributions in excess of net investment income ........................... (927,411) (192,946) Return of capital ............................. - (5,529,060) ------------ ------------ Total (decrease) increase ................... (15,254,398) 25,649,530 Net Assets Beginning of period ......................... 481,300,864 455,651,334 ------------ ------------ End of period ............................... $466,046,466 $481,300,864 ============ ============ See Notes to Financial Statements. 10 - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Financial Highlights (Unaudited) - --------------------------------------------------------------------------------
Six Months Year Ended October 31, Ended ------------------------------------------------------ PER SHARE OPERATING PERFORMANCE: April 30, 1996 1995 1994 1993 1992 1991 -------------- ---- ---- ---- ---- ---- Net asset value, beginning of period ......................... $ 7.66 $ 7.25 $ 8.75 $ 8.90 $ 9.43 $ 8.49 ------ ------ ------ ------ ------ ------ Net investment income (net of $.10, $.22, $.10, $.09, $.09, and $.07, respectively, of interest expense) ............. .30 .51 .73 .91 .74 1.05 Net realized and unrealized gain (losses) on investments, short sales, futures and options .................................................. (.23) .65 (1.45) (.21) (.31) .92 ------ ------ ------ ------ ------ ------ Net increase (decrease) from investment operations ........... .07 1.16 (.72) .70 .43 1.97 ------ ------ ------ ------ ------ ------ Dividends from net investment income ......................... (.30) (.66) (.78) (.85) (.83) (1.03) Distributions in excess of net investment income ............. (.01) - - - (.05) - Return of capital distribution ............................... - (.09) - - (.08) - ------ ------ ------ ------ ------ ------ Total dividends and distributions .......................... (.31) (.75) (.78) (.85) (.96) (1.03) ------ ------ ------ ------ ------ ------ Net asset value, end of period* .............................. $ 7.42 $ 7.66 $ 7.25 $ 8.75 $ 8.90 $ 9.43 ====== ====== ====== ====== ====== ====== Per share market value, end of period* ....................... $ 6 $ 7-1/4 $ 6-3/8 $ 8-3/8 $ 9-1/8 $10-1/8 ====== ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN+ ..................................... (13.15%) 26.50% (15.31%) 1.01% (.55%) 37.55% RATIOS TO AVERAGE NET ASSETS: Operating expenses# .......................................... 1.09%** 1.08% 1.10% 1.03% 1.02% 1.07% Net investment income ........................................ 7.81%** 6.85% 9.21% 10.19% 7.85% 11.95% SUPPLEMENTAL DATA: Average net assets (in thousands) ............................$481,681 $466,449 $496,707 $558,530 $582,984 $541,488 Portfolio turnover ........................................... 298% 267% 223% 121% 131% 261% Net assets, end of period (in thousands) .....................$466,046 $481,301 $455,651 $549,755 $555,737 $582,845 Reverse repurchase agreements outstanding, end of period (in thousands) ...............................$146,433 $214,438 $109,286 $74,700 $168,150 $ 83,025 Asset coverage++ .............................................$ 4,183 $ 3,244 $ 5,169 $ 8,360 $ 4,305 $ 8,020 * NAV and market value are published in The Wall Street Journal each Monday. ** Annualized. # The ratios of operating expenses including interest expense to average net assets were 3.71%, 4.08%, 2.32%, 2.02%, 1.97%, and 1.88% for the periods indicated above, respectively. + Total investment return is calculated assuming a purchase of common stock at the current market price on the first day and a sale at the current market price on the last day of each year reported. Dividends and distributions are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Trust's dividend reinvestment plan. This calculation does not reflect brokerage commissions. Total investment returns for periods of less than one full year are not annualized. ++ Per $1,000 of reverse repurchase agreement outstanding. The information above represents the unaudited operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data, for each of the periods indicated. This information has been determined based upon financial information provided in the financial statements and market value data for the Trust's shares.
See Notes to Financial Statements. 11 (Left column) - -------------------------------------------------------------------------------- The BlackRock Income Trust Inc. Notes to Financial Statements (Unaudited) - -------------------------------------------------------------------------------- Note 1. Accounting Policies The BlackRock Income Trust Inc. (the "Trust"), a Maryland corporation, is a diversified closed-end management investment company. The investment objective of the Trust is to achieve high monthly income consistent with preservation of capital. The ability of issuers of debt securities held by the Trust to meet their obligations may be affected by economic developments in a specific industry or region. No assurance can be given that the Trust's investment objective will be achieved. The following is a summary of significant accounting policies followed by the Trust. Securities Valuation: The Trust values mortgage-backed, asset-backed and other debt securities on the basis of current market quotations provided by dealers or pricing services approved by the Trust's Board of Directors. In determining the value of a particular security, pricing services may use certain information with respect to transactions in such securities, quotations from dealers, market transactions in comparable securities, various relationships observed in the market between securities, and calculated yield measures based on valuation technology commonly employed in the market for such securities. Exchange-traded options are valued at their last sales price as of the close of options trading on the applicable exchanges. In the absence of a last sale, options are valued at the average of the quoted bid and asked prices as of the close of business. A futures contract is valued at the last sale price as of the close of the commodities exchange on which it trades unless the Trust's Board of Directors determines that such price does not reflect its fair value, in which case it will be valued at its fair value as determined by the Trust's Board of Directors. Any securities or other assets for which such current market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the general supervision and responsibility of the Trust's Board of Directors. Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost, if their term to maturity from date of purchase was 60 days or less, or by amortizing their value on the 61st day prior to maturity, if their original term to maturity from date of purchase exceeded 60 days. (Right column) In connection with transactions in repurchase agreements, the Trust's custodian takes possession of the underlying collateral securities, the value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of the collateral. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Trust may be delayed or limited. Option Selling/Purchasing: When the Trust sells or purchases an option, an amount equal to the premium received or paid by the Trust is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by the Trust on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the proceeds from the sale or cost of the purchase in determining whether the Trust has realized a gain or a loss on investment transactions. The Trust, as writer of an option, may have no control over whether the underlying securities may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the security underlying the written option. Options, when used by the Trust, help in maintaining a targeted duration. Duration is a measure of the price sensitivity of a security or a portfolio to relative changes in interest rates. For instance, a duration of "one" means that a portfolio's or a security's price would be expected to change by approximately one percent with a one percent change in interest rates, while a duration of five would imply that the price would move approximately five percent in relation to a one percent change in interest rates. Option selling and purchasing is used by the Trust to effectively "hedge" more volatile 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 12 (Left Column) right to sell and obligates the writer to buy the underlying position at the exercise price at any time or at a specified time during the option period. Put options can be purchased to effectively hedge a position or a portfolio against price declines if a portfolio is long. In the same sense, call options can be purchased to hedge a portfolio that is shorter than its benchmark against price changes. The Trust can also sell (or write) covered call options and put options to hedge portfolio positions. 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. 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. 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. 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" more volatile positions so that changes in interest rates do not change the duration of the portfolio unexpectedly. (Right column) The Trust may invest in financial futures contracts primarily for the purpose of hedging its existing portfolio securities or securities the Trust intends to purchase against fluctuations in value caused by changes in prevailing market interest rates. Should interest rates move unexpectedly, the Trust may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets. The Trust is also at the risk of not being able to enter into a closing transaction for the futures contract because of an illiquid secondary market. In addition, since futures are used to shorten or lengthen a portfolio's duration, there is a risk that the portfolio may have temporarily performed better without the hedge or that the Trust may lose the opportunity to realize appreciation in the market price of the underlying positions. Short Sales: The Trust may make short sales of securities as a method of hedging potential price declines in similar securities owned. When the Trust makes a short sale, it may borrow the security sold short and deliver it to the broker-dealer through 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. The Trust did not engage in securities lending during the six months ended April 30, 1996. Mortgage Swaps: Mortgage swaps are a variation on interest rate swaps. In a simple interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Rate swaps were conceived as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or 13 (Left Column) amortize) over time. Mortgage swaps combine the fixed/floating concept with an amortizing feature that is indexed to mortgage securities. Scheduled amortization and prepayments on the index pools reduce the notional amount. 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. Mortgage swaps are intended to enhance the Trust^s income earning ability by effectively owning mortgage pass-throughs and locking-in the financing rate at a very attractive spread to market levels. This allows mortgage pass-throughs to be held more cheaply than if they were owned outright and financed, but at a decreased level of liquidity. The Trust is exposed to credit loss in the event of non-performance by the other party to the mortgage swap. However, the Trust does not anticipate non-performance by any counterparty. 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 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. 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. 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. 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 rate. (Right column) 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. 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. Owning interest rate floors 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 falling 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 floor. However, the Trust does not anticipate non-performance by any counterparty. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized and unrealized gains and losses are calculated on the identified cost basis. Interest income is recorded on the accrual basis and the Trust accretes discount and amortizes premium on securities purchased using the interest method. Expenses are recorded on the accrual basis which may require the use of certain estimates by management. Taxes: It is the Trust's intention to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions: The Trust declares and pays dividends and distributions monthly, first from net investment income, then from realized short-term capital gains and other sources, if necessary. Net long-term capital gains, if any, in excess of loss carryforwards are distributed at least annually. Dividends and distributions are recorded on the ex-dividend date. Income distributions and capital gain distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Note 2. Agreements The Trust has an Investment Advisory Agreement with BlackRock Financial Management, Inc. (the "Adviser") and an Administration Agreement with Prudential Mutual Fund Man- 14 (Left Column) agement, Inc. ("PMF"), an indirect, wholly-owned subsidiary of The Prudential Insurance Co. of America. The investment fee paid to the Adviser is computed weekly and payable monthly at an annual rate of 0.65% of the Trust's average weekly net assets. The administration fee paid to PMF 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. PMF 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 six months ended April 30, 1996 aggregated $2,085,665,278 and $2,101,066,145, respectively. The Trust may invest without limit in securities which are not readily marketable, including those which are restricted as to dis position under securities law ("restricted securities") although the Trust does not expect that such investments will generally exceed 25% of its portfolio assets. At April 30, 1996, the Trust held 2.9% of its portfolio assets in illiquid securities including 1.1% of its portfolio assets in securities restricted as to resale. The federal income tax basis of the Trust's investments at April 30, 1996 was $670,542,034 and, accordingly, net unrealized depreciation for federal income tax purposes was $22,458,473 (gross unrealized appreciation-$16,290,970; gross unrealized depreciation-$38,749,443). For federal income tax purposes, the Trust has a capital loss carryforward at October 31, 1995 of approximately $64,731,200 of which approximately $6,398,700 will expire in 1997, approximately $4,473,500 will expire in 1998, approximately $15,072,600 will expire in 2001, approximately $23,358,200 will expire in 2002 and approximately $15,428,200 will expire in 2003. Accordingly, no capital gains distribution is expected to be paid to shareholders until net gains have been realized in excess of such amounts. During the six months ended April 30, 1996, the Trust entered into financial futures contracts. Details of open contracts at April 30, 1996 are as follows: (Right column) Value at Value at Unrealized Number of Expiration Trade April 30, Appreciation/ Contracts Type Date Date 1996 (Depreciation) - --------- ---- ---- ---- ---- -------------- Short position: 256 2 yr. T-Note June 1996 $26,466,919 $26,412,000 $ 54,919 Long positions: 55 Muni-Bond Index June 1996 6,167,136 6,118,750 (48,386) 13 5 yr. T-Note June 1996 1,383,972 1,376,984 (6,988) 50 10 yr. T-Note June 1996 5,393,906 5,375,000 (18,906) 65 10 yr. T-Note Sept. 1996 6,916,715 6,969,219 52,504 160 30 yr. T-Bond June 1996 17,577,299 17,465,000 (112,299) -------- $(79,156) ======== The Trust entered into a FNMA mortgage swap with an original notional amount of $150 million. Under this agreement, the Trust receives a fixed rate and pays a floating rate. The swap settled on October 27, 1993. Details of this swap is as follows: Current Notional Amount Fixed Termination Unrealized (000) Type Rate Floating Rate Date Depreciation ----- ---- ---- ------------------------------- ---- ------------ $97,313 FNMA 8% 1-mo. LIBOR minus 15 basis pts. Oct.'96 $(3,588,398) The Trust entered into an interest rate cap which settled on November 5, 1991 with a notional amount of $200 million. Under this agreement, the Trust receives the excess, if any, of three-month LIBOR over the fixed rate of 8.50%. The agreement terminates on November 5, 1996. At April 30, 1996 unrealized depreciation was $340,500. The Trust sold an interest rate floor which settled on December 4, 1995 with a notional amount of approximately $32 million which will decline over the term of the agreement. At April 30, 1996, the notional amount is approximately $28 million. Under the agreement, the Trust pays the excess, if any, of 8.15% over one-month LIBOR. In exchange, the Trust received a fee on settlement date of $1.4 million which is being recognized into income over the term of the agreement. The agreement terminates on December 15, 2000. At April 30, 1996 unrealized appreciation was $46,679. Note 4. Borrowings Reverse Repurchase Agreements: The Trust enters into reverse repurchase agreements with qualified, third party broker-dealers as determined by and under the direction of the Trust's Board of Directors. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time the Trust enters into a reverse repurchase agreement, it establishes and maintains a segregated account with the lender containing liquid high grade securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. 15 (Left column) The average daily balance of reverse repurchase agreements outstanding during the six months ended April 30, 1996 was approximately $205,028,000 at a weighted average interest rate of approximately 5.65%. The maximum amount of reverse repurchase agreements outstanding at any month-end during the period was $243,918,988 as of November 30, 1995, which was 23.0% of total assets. Dollar Rolls: The Trust enters into dollar rolls in which the Trust sells securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the roll period the Trust forgoes principal and interest paid on the securities. The Trust is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the future date. The average monthly balance of dollar rolls outstanding during the six months ended April 30, 1996 was approximately (Right column) $7,141,170. The maximum amount of dollar rolls outstanding at any month-end during the year was $31,133,190 as of April 30, 1996, which was 4.5% of total assets. Note 5. Capital There are 200 million shares of 1 par value common stock authorized. Of the 62,849,878 shares outstanding at April 30, 1996, the Adviser owned 10,753 shares. Note 6. Dividends Since April 30, 1996, the Board of Directors of the Trust declared dividends from undistributed earnings of $0.046875 per share payable May 31, 1996 and June 28, 1996 to shareholders of record on May 15, 1996 and June 14, 1996, respectively. Note 7. Quarterly Data
- ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments, Net increase short sales, (decrease) futures and in net assets Dividends Net investment options resulting from and income written operations distributions Period end Quarterly Total Per Per Per Per Share price net asset period income Amount share Amount share Amount share Amount share High Low value - --------- ----------- ---------- ----- ----------- ----- ----------- ----- ----------- ----- ------- ------ ----- November 1, 1993 to January 31, 1994 $13,196,365 $8,584,248 $.14 $(12,850,059) $(.21) $ (4,265,811) $(.07) $13,348,984 $.212 $8-5/8 $7-3/4 $8.47 February 1, 1994 to April 30, 1994 7,657,185 9,529,620 .15 (41,634,010) (.66) (32,104,390) (.51) 12,306,006 .196 8-1/2 7 7.76 May 1, 1994 to July 31, 1994 18,431,996 16,068,999 .26 31,105,782 .49 47,174,781 .75 11,784,274 .188 7-3/8 6-5/8 7.55 August 1, 1994 to October 31, 1994 11,977,840 11,622,427 .18 (67,307,118) (1.07) (55,684,691) (.89) 11,784,229 .188 7-1/4 6-1/8 7.25 November 1, 1994 to January 31, 1995 7,966,522 6,718,106 .11 6,924,347 .11 13,642,453 .22 11,784,164 .188 6-7/8 5-7/8 7.28 February 1, 1995 to April 30, 1995 13,875,262 12,635,132 .20 12,679,455 .20 25,314,587 .40 11,784,196 .188 7-1/4 6-5/8 7.49 May 1, 1995 to July 31, 1995 9,186,628 7,888,261 .13 4,537,191 .07 12,425,452 .20 11,784,243 .188 7-3/8 6-7/8 7.50 August 1, 1995 to October 31, 1995 5,947,291 4,700,291 .07 16,703,524 .27 21,403,815 .34 11,784,174 .188 7-3/8 6-7/8 7.66 November 1, 1995 to January 31, 1996 11,192,969 9,880,763 .16 21,999,110 .35 31,879,873 .51 10,802,096 .172 7-1/4 6-1/4 7.85 February 1, 1996 to April 30, 1996 10,119,137 8,832,056 .14 (36,326,097) (.58) (27,494,041) (.44) 8,838,134 .141 6-5/8 6 7.42
16 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. DIVIDEND REINVESTMENT PLAN - -------------------------------------------------------------------------------- Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), shareholders may elect to have all distributions of dividends and capital gains automatically reinvested by Boston EquiServe L.P. (the "Plan Agent") in Trust shares pursuant to the Plan. Shareholders who do not participate in the Plan will receive all distributions in cash paid by check in United States dollars mailed directly to the shareholders of record (or if the shares are held in street or other nominee name, then to the nominee) by the Custodian, as dividend disbursing agent. The Plan Agent serves as agent for the shareholders in administering the Plan. After the Trust declares a dividend or determines to make a capital gain distribution, the Plan Agent will, as agent for the participants, receive the cash payment and use it to buy Trust shares in the open market, on the New York Stock Exchange or elsewhere, for the participants' accounts. The Trust will not issue shares under the Plan below net asset value. Participants in the Plan may withdraw from the Plan upon written notice to the Plan Agent and will receive certificates for whole Trust shares and a cash payment will be made for any fraction of a Trust share. The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent's open market purchases in connection with the reinvestment of dividends and distributions. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income taxes that may be payable on such dividend or distributions. Experience under the Plan may indicate that changes are desirable. Accordingly, the Trust reserves the right to amend or terminate the Plan as applied to any dividend or distribution paid subsequent to written notice of the change sent to all shareholders of the Trust at least 90 days before the record date for the dividend or distribution. The Plan also may be amended or terminated by the Plan Agent upon at least 90 days' written notice to all shareholders of the Trust. All correspondence concerning the Plan should be directed to the Plan Agent at (800) 699-1BFM. The addresses are on the front of this report. - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION - -------------------------------------------------------------------------------- There have been no material changes in the Trust's investment objectives or policies that have not been approved by the shareholders, or to its charter or by-laws, or in the principal risk factors associated with investment in the Trust. There have been no changes in the persons who are primarily responsible for the day-to-day management of the Trust's portfolio. The Annual Meeting of Trust Shareholders was held May 8, 1996 to vote on the following matters: (1) To elect three Directors as follows: Director Class Term Expiring -------- ----- ---- -------- Richard E. Cavanagh ............... I 3 years 1999 James Grosfeld .................... I 3 years 1999 James Clayburn LaForce, Jr. ....... I 3 years 1999 Directors whose term of office continues beyond this meeting are Andrew F. Brimmer, Kent Dixon, Frank J. Fabozzi, Laurence D. Fink and Ralph L. Schlosstein (2) To ratify the selection of Deloitte & Touche LLP as independent public accountants of the Trust for the fiscal year ending October 31, 1996. 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 --------- ------------- ----------- Richard E. Cavanagh .......... 49,717,576 0 1,559,957 James Grosfeld ............... 49,702,986 0 1,574,547 James Clayburn LaForce, Jr. .. 49,660,346 0 1,617,187 Ratification of Deloitte & Touche LLP ...... 49,932,681 755,170 589,681 17 - -------------------------------------------------------------------------------- THE BLACKROCK INCOME TRUST INC. INVESTMENT SUMMARY - -------------------------------------------------------------------------------- The Trust's Investment Objective The Trust's investment objective is to manage a portfolio of high quality securities to achieve high monthly income consistent with preservation of capital. The Trust will seek to distribute monthly income that is greater than that obtainable on an annualized basis by investment in United States Treasury securities having the same maturity as the average dollar weighted maturity of the Trust's investments. Who Manages the Trust? BlackRock Financial Management, Inc. ("BlackRock") is the investment adviser for the Trust. BlackRock is a registered investment adviser specializing in fixed income securities. Currently, BlackRock manages over $39 billion of assets across the government, mortgage, corporate and municipal sectors. These assets are managed on behalf of institutional and individual investors in 21 closed-end funds, which trade on either the New York or American stock exchanges, several open-end funds and separate accounts for more than 80 clients in the U.S. and overseas. BlackRock is a subsidiary of PNC Asset Management Group which is a division of PNC Bank, one of the nation's largest banking organizations. What Can the Trust Invest In? The Trust will invest at least 65% of its assets in mortgage-backed securities. At least 85% of the Trust's assets must be rated at least "AAA" by Standard & Poor's or "Aaa" by Moody's at the time of purchase; of this 85% at least 80% of the Trust's assets must be rated at least "AAA" by Standard & Poor's at the time of purchase while the remaining 5% can be invested in securities at least "AAA" by Standard & Poor's, "Aaa" by Moody's or deemed "AAA" by the Advisor at the time of purchase. Additionally, 15% of the Trust's assets can be invested in securities rated at least "AA" by Standard & Poor's or "Aa" by Moody's at time of purchase. Under current market conditions, BlackRock expects that the primary investments of the Trust will be U.S. government securities, securities backed by government agencies (such as mortgage-backed securities), privately issued mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. What is the Adviser's Investment Strategy? The Adviser will seek to meet the Trust in accordance with the Trust's investment objective by managing the assets of the Trust so as to provide high monthly income consistent with the preservation of capital. The Trust will seek to provide monthly income that is greater than that which could be obtained by investing in U.S. Treasury securities with an average life similar to that of the Trust's assets. Under current market conditions, the average life of the Trust's assets is expected to be in the range of seven to ten years. Under other market conditions, the Trust's average life may vary and may not be predictable using any formula. In seeking the investment objective, the Adviser may actively manage among various types of securities in different interest rate environments. Traditional mortgage pass-through securities make interest and principal payments on a monthly basis and can be a source of attractive levels of income to the Trust. While mortgage-backed securities in the Trust are of high credit quality, they typically offer a yield spread above Treasuries due to the uncertainty of the timing of their cash flows as they are subject to changes in the rate of prepayments when interest rates change and either a larger or smaller proportion of mortgage holders refinance their mortgages or move. While mortgage-backed securities offer the opportunity for attractive yields, they subject a portfolio to interest rate risk and prepayment exposure which result in reinvestment risk when prepaid principal must be reinvested. Multiple-class mortgage pass-through securities, or collateralized mortgage obligations (CMOs), are also an investment that may be used in the Trust's portfolio. These securities are issued in multiple classes each of which has a different coupon rate, stated maturity and prioritization on the timing of receipt of cash flows coming from interest and principal payments on the underlying mortgages. Principal prepayments can be allocated among the different classes of a CMO in a number of ways; for instance, they can be applied to each of the classes in the order of their respective stated maturities. This feature allows an investor to better plan the average life of their investment. As a result, these securities may be used by the Trust to help manage prepayment risk and align the assets of the portfolio more closely with its targeted average life. Additionally, in order to attempt to protect the portfolio from interest rate risk, the Adviser will attempt to locate securities with call protection, such as commercial mortgage-backed securities with prepayment penalties or lockouts. Securities with call protection should provide the portfolio with some degree of protection against reinvestment risk during times of lower prevailing interest rates. 18 How Are the Trust's Shares Purchased and Sold? Does the Trust Pay Dividends Regularly? The Trust's shares are traded on the New York Stock Exchange which provides investors with liquidity on a daily basis. Orders to buy or sell shares of the Trust must be placed through a registered broker or financial advisor. The Trust pays monthly dividends which are typically paid on the last business day of the month. For shares held in the shareholder's name, dividends may be reinvested in additional shares of the fund through the Trust's transfer agent, Boston EquiServe L.P. Investors who wish to hold shares in a brokerage account should check with their financial advisor to determine whether their brokerage firm offers dividend reinvestment services. Leverage Considerations in the Trust Under current market conditions, leverage increases the income earned by the Trust. The Trust employs leverage primarily through the use of reverse repurchase agreements and dollar rolls. Leverage permits the Trust to borrow money at short-term rates and reinvest that money in longer-term assets which typically offer higher interest rates. The difference between the cost of the borrowed funds and the income earned on the proceeds that are invested in longer term assets is the benefit to the Trust from leverage. In general, the portfolio is typically leveraged at approximately 33-1/3% of total assets. Leverage also increases the duration (or price volatility of the net assets) of the Trust, which can improve the performance of the fund in a declining rate environment, but can cause net assets to decline faster than the market in a rapidly rising rate environment. BlackRock's portfolio managers continuously monitor and regularly review the Trust's use of leverage and the Trust may reduce, or unwind, the amount of leverage employed should BlackRock consider that reduction to be in the best interests of shareholders. Special Considerations and Risk Factors Relevant to the Trust The Trust is intended to be a long-term investment and is not a short-term trading vehicle. Investment Objective. Although the objective of the Trust is to provide high monthly income consistent with preservation of capital, there can be no assurance that this objective will be achieved. Dividend Considerations. Dividends paid by the Trust are likely to vary over time as fixed income market conditions change. Future dividends may be higher or lower than the dividend the Trust is currently paying. Leverage. The Trust utilizes leverage through reverse repurchase agreements and dollar rolls, which involves special risks. The Trust's net asset value and market value may be more volatile due to its use of leverage. Market Price of Shares. The shares of closed-end investment companies such as the Trust trade on the New York Stock Exchange (NYSE symbol: BKT) and as such are subject to supply and demand influences. As a result, shares may trade at a discount or a premium to their net asset value. Mortgage-Backed and Asset-Backed Securities. The cash flow and yield characteristics of these securities differ from traditional debt securities. The major differences typically include more frequent payments and the possibility of prepayments which will change the yield to maturity of the security. Illiquid Securities. The Trust may invest in securities that are illiquid, although under current market conditions the Trust expects to do so to only a limited extent. These securities involve special risks. Antitakeover Provisions. Certain antitakeover provisions will make a change in the Trust's business or management more difficult without the approval of the Trust's Board of Directors and may have the effect of depriving shareholders of an opportunity to sell their shares at a premium above the prevailing market price. 19 - -------------------------------------------------------------------------------- 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. Discount: When a fund's net asset value is greater than its stock price the fund is said to be trading at a discount. Dividend: This is income generated by securities in a portfolio and distributed to shareholders after the deduction of expenses. This Trust declares and pays dividends on a monthly basis. Dividend Reinvestment: Shareholders may elect to have all distributions of dividends and capital gains automatically reinvested into additional shares of the Trust. FHA: Federal Housing Administration, a government agency that facilitates a secondary mortgage market by providing an agency that guarantees timely payment of interest and principal on mortgages. FHLMC: Federal Home Loan Mortgage Corporation, a publicly owned, federally chartered corporation that facilitates a secondary mortgage market by purchasing mortgages from lenders such as savings institutions and reselling them to investors by means of mortgage-backed securities. Obligations of FHLMC are not guaranteed by the U.S. government, however; they are backed by FHLMC's authority to borrow from the U.S. government. Also known as Freddie Mac. FNMA: Federal National Mortgage Association, a publicly owned, federally chartered corporation that facilitates a secondary mortgage market by purchasing mortgages from lenders such as savings institutions and reselling them to investors by means of mortgage-backed securities. Obligations of FNMA are not guaran teed by the U.S. government, however; they are backed by FNMA's authority to borrow from the U.S. government. Also known as Fannie Mae. GNMA: Government National Mortgage Association, a government agency that facilitates a secondary mortgage market by providing an agency that guarantees timely payment of interest and principal on mortgages. GNMA's obligations are supported by the full faith and credit of the U.S. Treasury. Also known as Ginnie Mae. Government Securities: Securities issued or guaranteed by the U.S. government, or one of its agencies or instrumentalities, such as GNMA (Government National Mortgage Association), FNMA (Federal National Mortgage Association) and FHLMC (Federal Home Loan Mortgage Corporation). Interest-Only Securities (I/O): Mortgage securities that receive only the interest cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. 20 Market Price: Price per share of a security trading in the secondary market. For a closed-end fund, this is the price at which one share of the fund trades on the stock exchange. If you were to buy or sell shares, you would pay or receive the market price. Mortgage Dollar Rolls: A mortgage dollar roll is a transaction in which the Trust sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (although not the same) securities on a specified future date. During the "roll" period, the Trust does not receive principal and interest payments on the securities, but is compensated for giving up these payments by the difference in the current sales price (for which the security is sold) and lower price that the Trust pays for the similar security at the end date as well as the interest earned on the cash proceeds of the initial sale. Mortgage Pass-Throughs: Mortgage-backed securities issued by Fannie Mae, Freddie Mac or Ginnie Mae. Multiple-Class Pass-Throughs: Collateralized Mortgage Obligations. Net Asset Value (NAV): Net asset value is the total market value of all securities held by the Trust, plus income accrued on its investments, minus any liabilities including accrued expenses, divided by the total number of outstanding shares. It is the underlying value of a single share on a given day. Net asset value for the Trust is calculated weekly and published in Barron's on Saturday and The Wall Street Journal each Monday. Principal-Only Securities (P/O): Mortgage securities that receive only the principal cash flows from an underlying pool of mortgage loans or underlying pass-through securities. Also known as a STRIP. Project Loans: Mortgages for multi-family, low- to middle-income housing. Premium: When a fund's stock price is greater than its net asset value, the fund is said to be trading at a premium. REMIC: A real estate mortgage investment conduit is a multiple-class security backed by mortgage-backed securities or whole mortgage loans and formed as a trust, corporation, partnership, or segregated pool of assets that elects to be treated as a REMIC for federal tax purposes. Generally, Fannie Mae REMICs are formed as trusts and are backed by mortgage-backed securities. Residuals: Securities issued in connection with collateralized mortgage obligations that generally represent the excess cash flow from the mortgage assets underlying the CMO after payment of principal and interest on the other CMO securities and related administrative expenses. Reverse Repurchase Agreements: In a reverse repurchase agreement, the Trust sells securities and agrees to repurchase them at a mutually agreed date and price. During this time, the Trust continues to receive the principal and interest payments from that security. At the end of the term, the Trust receives the same securities that were sold for the same initial dollar amount plus interest on the cash proceeds of the initial sale. Stripped Mortgage Arrangements in which a pool of assets is Backed Securities: separated into two classes that receive different proportions of the interest and principal distribution from underlying mortgage-backed securities. IO's and PO's are examples of STRIPs. 21 - -------------------------------------------------------------------------------- BLACKROCK FINANCIAL MANAGEMENT, INC. SUMMARY OF CLOSED-END FUNDS - -------------------------------------------------------------------------------- Taxable Trusts - -------------------------------------------------------------------------------------------------- Stock Maturity Perpetual Trusts Symbol Date ------ -------- The BlackRock Income Trust Inc. BKT N/A The BlackRock North American Government Income Trust Inc. BNA N/A Term Trusts The BlackRock 1998 Term Trust Inc. BBT 12/98 The BlackRock 1999 Term Trust Inc. BNN 12/99 The BlackRock Target Term Trust Inc. BTT 12/00 The BlackRock 2001 Term Trust Inc. BLK 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 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 or consult with your financial advisor. 22 - -------------------------------------------------------------------------------- BLACKROCK FINANCIAL MANAGEMENT, INC. AN OVERVIEW - -------------------------------------------------------------------------------- BlackRock Financial Management (BlackRock) is a registered investment adviser which specializes in managing high quality fixed income securities, both taxable and tax exempt. BlackRock currently manages over $41 billion of assets across the government, mortgage, corporate and municipal sectors. These assets are managed on behalf of many individual investors in twenty-one closed-end funds traded on either the New York or American stock exchanges, and several open-end funds and on behalf of more than 80 institutional clients in the United States and overseas. BlackRock's institutional investor base includes Chrysler Corporation Master Retirement Trust, General Retirement System of the City of Detroit, State Treasurer of Florida, Ford Motor Company Pension Plan, General Electric Pension Trust and Unisys Corporation Master Trust. BlackRock was formed in April 1988 by fixed income professionals who sought to create an asset management firm specializing in managing fixed income securities for individuals and institutional investors. The professionals at BlackRock have extensive experience creating, analyzing and trading a variety of fixed income instruments, including the most complex structured securities. In fact, individuals at BlackRock are responsible for many of the major innovations in the mortgage-backed and asset-backed securities markets, including the creation of the 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 significant emphasis it places on the development of proprietary analytical capabilities. A quarter of the professionals at BlackRock work full-time in the design, maintenance and use of such systems which are otherwise not generally available to investors. BlackRock's proprietary analytical tools are used for evaluating, investing in and designing investment strategies and portfolios of fixed income securities, including mortgage securities, corporate debt securities or tax-exempt securities and a variety of hedging instruments. BlackRock has developed investment products which respond to investors' needs and has been responsible for several major innovations in closed-end funds. 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 AAAf rating by Standard & Poor's, and the first closed-end fund to invest primarily in North American Government securities. BlackRock's closed-end funds currently have dividend reinvestment plans which are designed to provide an ongoing source of demand for the stock in the secondary market. BlackRock manages a ladder of alternative investment vehicles, with each fund 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 you may have about your BlackRock funds and thank you for the continued trust you place in our abilities. If you would like further information please do not hesitate to call BlackRock at (800) 227-7BFM 23 BlackRock Directors Laurence D. Fink, Chairman Andrew F. Brimmer Richard E. Cavanagh Kent Dixon Frank J. Fabozzi James Grosfeld James Clayburn La Force, Jr. 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 Kevin J. Mahoney, Assistant Treasurer Karen H. Sabath, Secretary Investment Adviser BlackRock Financial Management, Inc. 345 Park Avenue New York, NY 10154 (800) 227-7BFM Administrator Prudential Mutual Fund Management, Inc. One Seaport Plaza New York, NY 10292 Custodian State Street Bank and Trust Company One Heritage Drive North Quincy, MA 02171 Transfer Agent Boston EquiServe L.P. 150 Royall Street Canton, MA 02021 (800) 699-1BFM Independent Auditors Deloitte & Touche LLP Two World Financial Center New York, NY 10281-1434 Legal Counsel Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, NY 10022 The accompanying financial statements as of April 30, 1996 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 Mutual Fund Management, Inc. 32nd floor One Seaport Plaza New York, NY 10292 (800) 227-7BFM 09247F-10-0 The BlackRock Income Trust Inc. - ------------------- Semi-Annual Report April 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----