BLACKROCK
CLOSED-END FUNDS
Annual Report
October 31, 2002
BlackRock Income Trust
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World class
institutional
asset management
at a personal level
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NOT FDIC May Lose Value
INSURED No Bank Guarantee
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TABLE OF CONTENTS
Letter to Shareholders ................................................. 1
Portfolio Managers' Report ............................................. 2
Trust Summary .......................................................... 4
Portfolio of Investments ............................................... 5
Financial Statements
Statement of Assets and Liabilities ................................. 10
Statement of Operations ............................................. 11
Statement of Cash Flows ............................................. 12
Statements of Changes in Net Assets ................................. 13
Financial Highlights ................................................... 14
Notes to Financial Statements .......................................... 15
Independent Auditors' Report ........................................... 20
Directors Information .................................................. 21
Tax Information ........................................................ 23
Dividend Reinvestment Plan ............................................. 23
Investment Summary ..................................................... 24
Additional Information ................................................. 26
Glossary ............................................................... 26
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PRIVACY PRINCIPLES OF THE TRUST
The Trust is committed to maintaining the privacy of shareholders and to
safeguarding its non-public personal information. The following information is
provided to help you understand what personal information the Trust collects,
how we protect that information and why, in certain cases, we may share
information with select other parties.
Generally, the Trust does not receive any non-public personal information
relating to its shareholders, although certain non-public personal information
of shareholders may become available to the Trust. The Trust does not disclose
any non-public personal information about its shareholders or former
shareholders to anyone, except as permitted by law or as is necessary in order
to service shareholder accounts (for example, to a transfer agent or third party
administrator).
The Trust restricts access to non-public personal information about its
shareholders to BlackRock employees with a legitimate business need for the
information. The Trust maintains physical, electronic and procedural safeguards
designed to protect the non-public personal information of its shareholders.
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LETTER TO SHAREHOLDERS
November 30, 2002
Dear Shareholder:
We are pleased to report that during the fiscal year, the Trust continued
to provide monthly income, as well as the opportunity to invest in a diversified
portfolio of fixed income securities.
The Trust is actively managed, which means that the management team is
continuously monitoring the fixed income markets and adjusting the portfolio to
gain exposure to various issuers, revenue sources and security types. This
strategy enables the Trust to move among different sectors, credits and coupons
to capitalize on changing market conditions.
During the fiscal year, the fixed income markets showed strength as large
numbers of individual investors, concerned about the economic environment and
substantial volatility in the stock market, pursued opportunities in bonds. For
the year ended October 31, 2002, the LEHMAN AGGREGATE INDEX, a broad measure of
the fixed income market, had a total return of 5.89%(1). Within the fixed income
universe, mortgages and Treasuries were noteworthy performers. For the year
ended October 31, 2002, the LEHMAN MORTGAGE INDEX returned 6.30% and the LEHMAN
TREASURY INDEX returned 6.28%(2). Mortgages and Treasuries fared well over the
year due to their strong credit profile. Many investors sought investments with
higher quality ratings amidst volatile market conditions.
The following table shows the Trust's yield, closing market price per
share and net asset value ("NAV") per share as of October 31, 2002.
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MARKET
TRUST YIELD(3) PRICE NAV
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BlackRock Income Trust (BKT) 7.59% $8.07 $8.13
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BlackRock, Inc. ("BlackRock"), a world leader in asset management, has a
proven commitment to fixed income. As of September 30, 2002, BlackRock managed
$163 billion in bonds including 16 open-end and 40 closed-end funds. At
BlackRock, we are recognized for our emphasis on risk management and proprietary
analytics and for our reputation managing money for the world's largest
institutional investors. Individual investors in our closed-end and open-end
funds benefit from the same investment management skills and resources as the
world's largest institutional investors. BlackRock Advisors, Inc., which manages
the Trust, is a wholly-owned subsidiary of BlackRock, Inc.
This report contains a summary of market conditions for the year, a review
of the strategy used by your Trust's managers, the Trust's audited financial
statements and a listing of the portfolio's holdings.
On behalf of BlackRock, we thank you for your continued trust and assure
you that we remain committed to excellence in managing your assets.
Sincerely,
/s/ LAURENCE D. FINK /s/ RALPH L. SCHLOSSTEIN
------------------------- --------------------------
Laurence D. Fink Ralph L. Schlosstein
Chief Executive Officer President
BlackRock Advisors, Inc. BlackRock Advisors, Inc.
(1) The LEHMAN AGGREGATE INDEX is designed to measure the performance of the
U.S. investment grade fixed rate bond market. The index is unmanaged and
cannot be purchased directly.
(2) The LEHMAN MORTGAGE INDEX is designed to measure the mortgage-backed
pass-through securities of Ginnie Mae ("GNMA"), Fannie Mae ("FNMA") and
Freddie Mac ("FHLMC"). The LEHMAN TREASURY INDEX is designed to measure
long-term public obligations of the U.S. Treasury. The indexes are
unmanaged and cannot be purchased directly.
(3) Yield is based on market price.
1
PORTFOLIO MANAGERS' REPORT
November 30, 2002
Dear Shareholder:
We are pleased to present the audited annual report for the following
BlackRock closed-end Trust:
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PRIMARY
TRUST EXCHANGE
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BLACKROCK INCOME TRUST (BKT) NYSE
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The annual report reviews the Trust's market price and NAV performance,
summarizes developments in the relevant fixed income markets and discusses
recent portfolio management activity for the year ended October 31, 2002.
THE FIXED INCOME MARKETS
Fixed income markets displayed considerable vigor during the fiscal year.
For the year ended October 31, 2002, the LEHMAN AGGREGATE INDEX, a broad measure
of the fixed income market, returned 5.89%. The Index returned an even more
impressive 8.05% year-to-date, despite giving back some gains in October, when
the equity markets posted one of the strongest monthly gains in 15 years.
Over the period (the Trust's fiscal year), several high profile corporate
credit scandals, ongoing economic weakness, as well as continued geopolitical
issues, most notably concerns over the possible war in the Middle East and the
ongoing threats of terrorism, weighed on the markets. Accordingly, the bond
market priced in various scenarios of potential action by the Federal Reserve
(the "Fed"). These expectations ranged from a tightening of up to 175 basis
points ("bps") by the end of 2002, to the conviction that the Fed's next move
would be yet another easing. Indeed, a week after the conclusion of the fiscal
year, the Federal Open Market Committee ("FOMC") elected to further reduce
interest rates by 50 bps. In their decision, the FOMC cited the existence of
greater uncertainty and geopolitical risks, which are, "currently inhibiting
spending, production, and employment."
Uncertainty and volatility remain the primary themes in the U.S. markets,
as the underlying economic data appears inconclusive of either a sustainable
market recovery or a "double-dip" scenario. Many fundamental economic factors
began the period with optimistic readings, but more recent data point towards an
economic recovery that is far from certain. GDP growth began the first quarter
of 2002 on a strong note (+5.0%), as inventory rebuilding was a major
contributor. However, the barometer of the nation's total output of goods and
services has noticeably dropped off since then. GDP growth rose marginally
during the third quarter of 2002 and has lagged expectations over the past two
quarters. In addition, manufacturing data, as measured by the Institute of
Supply Managers Index, indicates that business confidence is weak and the
prospects for growth remain sluggish. Consumer confidence, which remained strong
through the summer months and reached historical highs, also significantly
declined and stood at a nine-year low by the end of the period. The Consumer
Confidence measure, which has suffered five consecutive months of declining
numbers, suggests concern regarding the strength of the highly leveraged
consumer. Job growth advanced from the initial drop-off seen post-September
11th, but remained mostly flat during the year. Jobless claims are also a
noticeable source of interest as the unemployment rate peaked at 6% in April and
remains at elevated levels. The U.S. trade balance is another topic of concern
and the dollar has come under pressure, owing in part to a widening gap in the
trade deficit. Some encouraging data has surfaced during the period, most
notably in the form of housing starts. Spurred on by historically low interest
rates, new residential home building has persevered. Also, the Consumer Price
Index has continued to emerge with statistics suggestive of a benign
inflationary environment. Although this alleviated the impetus for the Fed to
raise interest rates during the period, concern has surfaced surrounding a
possible deflationary atmosphere. Indeed, with the conflicting and often
negative economic data offered towards the end of the period, the markets had
positioned themselves in anticipation of the next move by the FOMC to be their
12th consecutive rate reduction of the current easing cycle.
The uncertainty in the overall marketplace was evidenced by volatility in
the Treasury market over the fiscal year. As we entered the period, the market
was positioned for aggressive Federal Reserve easing. Expectations of a
prolonged economic slowdown caused the yield curve to reach its steepest level
in almost a decade. The market then reversed its expectations amid signs of an
improving economy. As a result, Treasury bonds suffered, leading to a drop in
prices and a corresponding rise in yields. When the prospects of a near-term
economic recovery faded over the second half of the period, Treasuries rallied
strongly. Year-to-date, the Treasury market returned 10.05%, as measured by the
LEHMAN TREASURY INDEX. Yields of short and intermediate maturities, specifically
in the two- to five-year range, have declined faster than those of longer
maturity issues due to risk aversion and expectations for short-term rates to
fall. However, rates have fallen across the curve in 2002 and the 10-year yield
touched 3.5%, a low not seen since the early 1960s. The equity market rally in
early October pushed yields back up and the 10-year note finished the period
just under 4.0%. Over the final month of the fiscal year, volatility continued
to remain high in the Treasury market given the apparent willingness of
investors to assume more risk. As of October 31, 2002, the 10-year Treasury was
yielding 3.89% versus 4.23% a year earlier.
2
For the year ended October 31, 2002, the LEHMAN MORTGAGE INDEX returned
6.30% versus 5.89% for the LEHMAN AGGREGATE INDEX. Two historically high levels
of mortgage refinancing bound the period. As mortgage refinancing spiked in
November 2001, lower coupon mortgages outperformed higher coupons, which were
more sensitive to general market instability and high levels of refinancing. As
the period progressed, higher coupon mortgages outperformed lower coupons, and
30-year mortgages outperformed 15-years. Lower coupons suffered amidst continued
low interest rates, threats of supply and prepayments and rising volatility. In
the final month of the period, lower coupons and 15-year mortgages returned to
favor as the MBA REFINANCING INDEX again spiked to an all-time high. Mortgages
outperformed Treasuries for the fiscal year on a duration-adjusted basis. Strong
demand for mortgages has been sparked in part by the steepness of the yield
curve and their high credit quality profile, as banks have been reluctant to
assume credit risk in the corporate market.
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 objective.
BlackRock's investment strategy emphasizes a relative value approach, which
allows the Trust to capitalize upon changing market conditions by rotating
sectors, credits and coupons.
During the course of the annual period, the Trust raised its monthly
dividend payment. Effective with the dividend payable September 30, 2002, the
Trust's new annualized dividend was raised to $0.6125 from the previously
annualized rate of $0.5625.
Additionally, the Trust employs leverage to enhance its income by borrowing
at short-term rates and investing the proceeds in longer maturity issues which
typically have higher yields. As of October 31, 2002, the Trust was leveraged
29% of managed assets. The degree to which the Trust can benefit from its use of
leverage may affect its ability to pay high monthly income.
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets. We thank you
for your investment and continued confidence in the Trust. Please feel free to
call our marketing center at (800) 227-7BFM (7236) if you have any specific
questions that were not addressed in this report.
Sincerely,
/s/ ROBERT S. KAPITO /s/ KEITH T. ANDERSON
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Robert S. Kapito Keith T. Anderson
Vice Chairman and Portfolio Manager Managing Director and
BlackRock Advisors, Inc. Chief Investment Officer - Fixed Income
BlackRock Advisors, Inc.
/s/ MICHAEL P. LUSTIG
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Michael P. Lustig
Portfolio Manager
BlackRock Advisors, Inc.
3
TRUST SUMMARY AS OF OCTOBER 31, 2002
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BLACKROCK INCOME TRUST
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TRUST INFORMATION
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Symbol on New York Stock Exchange: BKT
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Initial Offering Date: July 22, 1988
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Closing Market Price as of 10/31/02: $8.07
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Net Asset Value as of 10/31/02: $8.13
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Yield on Closing Market Price as of 10/31/02 ($8.07):(1) 7.59%
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Current Monthly Distribution per Share:(2) $0.0510
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Current Annualized Distribution per Share:(2) $0.6125
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(1) Yield on closing market price is calculated by dividing the current
annualized distribution per share by the closing market price.
(2) The distribution is not constant and is subject to change.
The table below summarizes the changes in the Trust's market price and NAV:
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10/31/02 10/31/01 CHANGE HIGH LOW
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MARKET PRICE $8.07 $7.26 11.16% $8.31 $7.20
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NET ASSET VALUE (NAV) $8.13 $8.06 0.87% $8.20 $7.91
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10-YEAR TREASURY NOTE 3.89% 4.23% (8.04)% 5.43% 3.57%
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The following chart shows the Trust's asset composition:
SECTOR BREAKDOWN
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COMPOSITION OCTOBER 31, 2002 OCTOBER 31, 2001
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Mortgage Pass-Throughs 48% 6%
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U.S. Government and Agency Securities 16 17
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Inverse Floating Rate Mortgages 9 31
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Interest Only Mortgage-Backed Securities 8 17
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Principal Only Mortgage-Backed Securities 8 12
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FHAProject Loans 5 7
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Agency Multiple Class Mortgage Pass-Throughs 2 5
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Commercial Mortgage-Backed Securities 2 3
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Adjustable Rate Mortgages 1 --
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Non-Agency Multiple Class Mortgage Pass-Throughs 1 2
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4
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
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BLACKROCK INCOME TRUST
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
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LONG-TERM INVESTMENTS--131.2%
MORTGAGE PASS-THROUGHS--62.4%
Federal Home Loan Mortgage Corp.,
$ 48,899@ 5.50%, 10/01/16 - 5/01/17, 15 Year ..................................................... $50,526,951
430 6.50%, 5/01/29 - 5/01/30 ............................................................... 445,975
102 7.50%, 2/01/23 ......................................................................... 107,646
324 8.00%, 11/01/15 ........................................................................ 341,521
317 8.50%, 10/01/06 - 3/01/08, 15 Year ..................................................... 342,898
700 9.00%, 9/01/20 ......................................................................... 776,504
Federal National Mortgage Association,
114,672@ 5.50%, 12/01/13 - 9/01/17, 15 Year ..................................................... 118,334,245
39,996@ 6.00%, 11/01/31 - 10/01/32 ............................................................. 41,108,298
43,467@ 6.50%, 2/01/26 - 5/01/31 ............................................................... 45,038,266
46,160@ 7.00%, 6/01/26 - 2/01/32 ............................................................... 48,239,991
5,350 7.50%, 11/01/14, 18 Year Multifamily ................................................... 6,131,979
48 7.50%, 2/01/22 - 9/01/23 ............................................................... 51,160
1,461 8.00%, 5/01/08 - 5/01/22, Multifamily .................................................. 1,565,948
651 9.497%, 6/01/24, Multifamily ........................................................... 703,952
16 9.50%, 1/01/19 - 6/01/20 ............................................................... 17,083
Government National Mortgage Association,
338 7.00%, 10/15/17 ........................................................................ 355,394
2,694 7.50%, 8/15/21 - 12/15/23 .............................................................. 2,862,993
1,984 8.00%, 10/15/22 - 2/15/29 .............................................................. 2,136,185
156 9.00%, 6/15/18 - 9/15/21 ............................................................... 168,217
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319,255,206
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FEDERAL HOUSING ADMINISTRATION--6.5%
2,944 Beachtree, Series 87430, 10.25%, 6/01/32 ................................................. 2,936,174
GMAC,
2,029 Series 33, 7.43%, 9/01/21 .............................................................. 2,175,887
1,964 Series 46, 7.43%, 3/01/22 .............................................................. 2,106,791
1,105 Series 51, 7.43%, 2/01/23 .............................................................. 1,184,916
2,703 Series 56, 7.43%, 11/01/22 ............................................................. 2,899,438
617 Merrill, Series 54, 7.43%, 2/01/23 ....................................................... 661,789
937 Reilly, Series 41, 8.767%, 12/01/18 ...................................................... 979,108
2,780 Tuttle Grove, 7.25%, 10/01/35 ............................................................ 2,860,877
USGI,
3,944 Polaris, Series 982, 7.43%, 11/01/21 ................................................... 4,229,901
591 Series 87, 7.43%, 12/01/22 ............................................................. 633,653
2,892 Series 99, 7.43%, 10/01/23 ............................................................. 3,102,637
2,512 Series 6302, 7.43%, 12/01/21 ........................................................... 2,709,440
6,387 Yorkville, Series 6094, 7.43%, 6/01/21 ................................................. 6,850,715
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33,331,326
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AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--3.2%
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
11,300 Series T-11, Class A-9, 1/25/28 ........................................................ 9,737,794
970 Series 19, Class 19-F, 3/15/20 ......................................................... 1,017,201
192 Series 1347, Class 1347-HC, 12/15/21 ................................................... 192,765
Federal National Mortgage Association, REMIC Pass-Through Certificates,
1,146 Trust 1990-12, Class 12-G, 2/25/20 ..................................................... 1,164,591
1,638 Trust 1992-43, Class 43-E, 4/25/22 ..................................................... 1,753,264
2,500 Government National Mortgage Association, REMIC Pass-Through Certificates,
Trust 2001-33, Class 33-PB, 7/20/31 .................................................... 2,639,752
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16,505,367
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NON-AGENCY MULTIPLE CLASS MORTGAGE PASS-THROUGHS--1.7%
AAA 5,585 Bank One Mortgage-Backed Pass-Through Certificates, Series 2000-1, Class 2A, 3/15/15 ..... 5,747,475
AAA 1,090 Countrywide Home Loan Mortgage Certificates, Series 1997-1, Class A6, 3/25/27 ............ 1,088,028
AAA 1,563 Summit Mortgage Trust, Series 2000-1, Class B1, 12/28/12** ............................... 1,598,458
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8,433,961
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See Notes to Financial Statements.
5
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
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PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
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ADJUSTABLE RATE MORTGAGES--1.7%
$ 6,767 Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
Series 1584, Class 1584-FB, 9/15/23 .................................................... $ 6,765,217
Federal National Mortgage Association, REMIC Pass-Through Certificates,
558 Trust 1991-38, Class 38-F, 4/25/21 ..................................................... 596,634
1,223 Trust 1993-256, Class 256-F, 11/25/23 .................................................. 1,088,700
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8,450,551
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INVERSE FLOATING RATE MORTGAGES--12.6%
AAA 7,735 Countrywide Funding Corp., Mortgage Certificates, Series 1993-D, Class A-15, 1/25/09 ..... 8,402,341
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
202 Series 1160, Class 1160-F, 10/15/21 .................................................... 256,533
1,017 Series 1580, Class 1580-SD, 9/15/08 .................................................... 1,049,175
75 Series 1590, Class 1590-OA, 10/15/23 ................................................... 75,054
1,791 Series 1601, Class 1601-SE, 10/15/08 ................................................... 1,830,194
1,457@ Series 1616, Class 1616-SB, 11/15/08 ................................................... 1,517,263
4,500 Series 1688, Class 1688-S, 12/15/13 .................................................... 4,595,625
8,796 Series 2488, Class 2488-YS, 8/15/32 .................................................... 8,686,056
Federal National Mortgage Association, REMIC Pass-Through Certificates,
565 Trust 1991-38, Class 38-SA, 4/25/21 .................................................... 594,108
563 Trust 1991-87, Class 87-S, 8/25/21 ..................................................... 699,976
309 Trust 1991-145, Class 145-S, 10/25/06 .................................................. 390,667
5,000 Trust 1993-79, Class 79-SE, 1/25/22 .................................................... 5,625,000
1,959 Trust 1993-93, Class 93-S, 5/25/08 ..................................................... 2,107,889
175 Trust 1993-116, Class 116-SB, 7/25/23 .................................................. 173,065
374 Trust 1993-129, Class 129-SE, 8/25/08 .................................................. 379,962
2,611 Trust 1993-170, Class 170-SC, 9/25/08 .................................................. 2,651,888
5,342 Trust 1993-196, Class 196-SC, 10/25/08 ................................................. 5,555,781
415 Trust 1993-201, Class 201-SA, 10/25/23 ................................................. 421,679
4,253 Trust 1993-214, Class 214-S, 12/25/08 .................................................. 4,438,638
1,494 Trust 1993-214, Class 214-SH, 12/25/08 ................................................. 1,660,422
985 Trust 1993-224, Class 224-SD, 11/25/23 ................................................. 998,284
2,859 Trust 1993-224, Class 224-SE, 11/25/23 ................................................. 3,022,332
2,562 Trust 1993-247, Class 247-SN, 12/25/23 ................................................. 2,898,227
524 Trust 1994-19, Class 19-SB, 1/25/24 .................................................... 523,812
195 Trust 2000-40, Class 40-FC, 6/25/29 .................................................... 194,717
AAA 716 G. E. Capital Mortgage Services, Inc., REMIC Certificate 98-12, Class 4A-3, 7/25/28 ...... 761,170
Aaa 2,519 Kidder Peabody Acceptance Corp., Series 1993-1, Class A-6, 8/25/23 ....................... 2,693,557
Aaa 743 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificates,
Series 1993-43, Class A-16, 10/25/23 ................................................... 767,043
AAA 1,158 Residential Funding Mortgage Securities Inc., Series 1993-S36, Class A-13, 10/25/08 ...... 1,282,833
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64,253,291
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INTEREST ONLY MORTGAGE-BACKED SECURITIES--10.0%
American Housing Trust,
560 Series III, Class 4, 3/25/19 ........................................................... 9,999
129 Series VII, Class 2, 11/25/20 .......................................................... 340,000
BA Mortgage Securities, Inc.,
585 Series 1997-1, Class 1-X, 7/25/26 ...................................................... 65,287
680 Series 1998-1, Class 1-2X, 5/28/13 ..................................................... 58,109
105,722 Commercial Mortgage Acceptance Corp., Series 1997-ML1, Class IO, 12/15/30 ................ 2,610,014
39,532 Credit Suisse First Boston Mortgage Securities Corp. Trust, Series 1997-C1,
Class C1-AX, 6/20/29** ................................................................. 2,383,355
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
14,833 Series G-13, Class 13-PP, 5/25/21 ...................................................... 885,949
52,288 Series G-60, Class 60-HS, 4/25/24 ...................................................... 2,965,737
16,641 Series 204, Class 204-IO, 5/1/29 ....................................................... 2,537,800
1 Series 1238, Class 1238-J, 1/15/07 ..................................................... 4,662
84 Series 1494, Class 1494-PL, 3/15/22 .................................................... 251,722
174 Series 1632, Class 1632-S, 4/15/23 ..................................................... 1,115
2,978 Series 1706, Class 1706-IA, 10/15/23 ................................................... 371,322
687 Series 1720, Class 1720-PK, 1/15/24 .................................................... 106,674
See Notes to Financial Statements.
6
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------------------------------------------------------
INTEREST ONLY MORTGAGE-BACKED SECURITIES--(CONT'D)
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates, (cont'd)
$ 33,016 Series 1809, Class 1809-SC, 12/15/23 .................................................... $ 1,511,513
76 Series 1882, Class 1882-PJ, 4/15/22 ..................................................... 14
28,278 Series 1914, Class 1914-PC, 12/15/11 .................................................... 368,751
22,106 Series 2002, Class 2002-HJ, 10/15/08 .................................................... 1,222,512
2,240 Series 2037, Class 2037-IB, 12/15/26 .................................................... 116,466
5,717 Series 2050, Class 2050-PI, 12/15/11 .................................................... 376,493
4,338 Series 2063, Class 2063-PI, 4/15/12 ..................................................... 143,696
18,000 Series 2080, Class 2080-PL, 1/15/27 ..................................................... 753,750
32 Series 2099, Class 2099-JB, 9/15/22 ..................................................... 700,492
172 Series 2102, Class 2102-KI, 9/15/28 ..................................................... 538
6,818 Series 2138, Class 2138-PI, 3/15/11 ..................................................... 284,512
10,527 Series 2289, Class 2289-S, 2/15/31 ...................................................... 1,378,406
5,523 Series 2296, Class 2296-IO, 8/15/27 ..................................................... 111,007
11,714 Series 2296, Class 2296-SA, 3/15/16 ..................................................... 757,758
7,768 Series 2315, Class 2315-CF, 7/15/20 ..................................................... 114,099
7,359 Series 2358, Class 2358-IB, 7/15/21 ..................................................... 527,703
9,277 Series 2444, Class 2444-ST, 9/15/29 ..................................................... 718,975
Federal National Mortgage Association, REMIC Pass-Through Certificates,
3 Trust G-50, Class 50-G, 12/25/21 ........................................................ 54,632
978 Trust G92-5, Class 5-H, 1/25/22 ......................................................... 162,580
2 Trust G92-12, Class 12-C, 2/25/22 ....................................................... 53,870
3,480 Trust G92-60, Class 60-SB, 10/25/22 ..................................................... 67,067
10,005 Trust 301, Class 301-2, 4/1/29 .......................................................... 1,321,720
16,816 Trust 302, Class 302-2, 6/1/29 .......................................................... 2,653,803
9,442 Trust 1993-199, Class 199-SB, 10/25/23 .................................................. 755,368
2,053 Trust 1993-201, Class 201-JC, 5/25/19 ................................................... 26,180
186 Trust 1993-202, Class 202-QA, 6/25/19 ................................................... 858
14,786 Trust 1994-33, Class 33-SG, 3/25/09 ..................................................... 1,185,195
12,371 Trust 1996-68, Class 68-SC, 1/25/24 ..................................................... 1,356,932
16,051 Trust 1997-37, Class 37-SE, 10/25/22 .................................................... 305,381
4,600 Trust 1997-50, Class 50-SI, 4/25/23 ..................................................... 91,995
35,476 Trust 1997-65, Class 65-SB, 3/25/24 ..................................................... 473,953
9,003 Trust 1997-76, Class 76-SP, 12/25/23 .................................................... 320,726
51,000 Trust 1997-90, Class 90-M, 1/25/28 ...................................................... 12,507,240
708 Trust 1998-25, Class 25-PG, 3/18/22 ..................................................... 2,656
3,976 Trust 1999-W4, Class W4-IO, 12/25/28 .................................................... 550,388
25,991 Trust 2000-2, Class 2-ID, 3/25/23 ....................................................... 60,917
4,873 Trust 2002-19, Class 19-PI, 8/25/12 ..................................................... 307,614
5,806 Trust 2002-62, Class 62-IL, 3/25/24 ..................................................... 774,677
309 First Boston Mortgage Securities Corp., Series 1987-C, Class IO, 4/25/17 .................. 61,020
39,395 GMAC Commercial Mortgage Securities, Inc., Trust 1997-C1, Class C1-X, 7/15/29 ............. 2,638,989
33,297 Goldman Sachs Mortgage Securities Corp., Mortgage Participation Certificates,
Series 1998-5, Class 5-IO, 6/19/27** .................................................... 686,760
3,796 Government National Mortgage Association, REMIC Pass-Through Certificates,
Trust 2001-7, Class 7-PS, 1/20/28 ....................................................... 578,885
20,626 Hanover Grantor Trust, Series 1999-A, Class A1-IO, 8/28/27** .............................. 206,257
13,693 Headlands Mortgage Securities, Inc., Mortgage Certificates, Series 1997-1,
Class 1-X1, 3/25/27 ..................................................................... 8,558
355 Kidder Peabody Acceptance Corp., Series B, Class B-A2, 4/22/18 ............................ 70,509
9,352 Merrill Lynch Mortgage Investors, Inc., Mortgage Pass-Through Certificates,
Series 95-C2, Class C2-IO, 6/15/21 ...................................................... 216,268
14,989 Morgan Stanley Capital 1, Inc., Series 1997-HF1, Class HF1-X, 7/15/29** ................... 750,522
48,394 Prudential Home Mortgage Securities Co., Mortgage Pass-Through Certificates,
Series 1994-5, Class 5-A9, 2/25/24 ...................................................... 30,246
1 Prudential Securities, Inc., Trust 15, Class 15-1G, 5/20/21 ............................... 55,713
214 Residential Funding Mortgage Securities Inc., Series 2001-S5, Class A-9, 3/25/31 .......... 1,337
34,766 Small Business Administration, Series 2000-1, Class 1-IO, 4/1/15 .......................... 695,321
5 Structured Asset Securities Corp., Series 1991-2, Class 2-GA, 12/20/21 .................... 6,873
329,815 Vendee Mortgage Trust, Trust 1999-2, Class 1-IO, 5/15/29 .................................. 515,171
-----------
51,234,611
-----------
See Notes to Financial Statements.
7
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL ONLY MORTGAGE-BACKED SECURITIES--10.3%
Aaa $ 434 Chase Mortgage Finance Corp., Mortgage Pass-Through Certificates, Series 1994-A,
Class AP, 1/25/10 ..................................................................... $ 381,939
AAA 286 Collateralized Mortgage Obligation Trust, Trust 29, Class A, 5/23/17 .................... 259,930
Drexel Burnham Lambert, Inc.,
AAA 105 Trust K, Class K-1, 9/23/17 ........................................................... 94,384
AAA 1,134 Trust V, Class V-1, 9/1/18 ............................................................ 1,037,915
Federal Home Loan Mortgage Corp., Multiclass Mortgage Participation Certificates,
1,291 Series T-8, Class A-10, 11/15/28 ...................................................... 846,174
638 Series 1418, Class 1418-M, 11/15/22 ................................................... 490,719
3,077 Series 1571, Class 1571-G, 8/15/23 .................................................... 2,167,313
7,349 Series 1686, Class 1686-B, 2/15/24 .................................................... 6,609,666
8,423 Series 1691, Class 1691-B, 3/15/24 .................................................... 7,582,322
1,193 Series 1739, Class 1739-B, 2/15/24 .................................................... 1,106,593
553 Series 1750, Class 1750-PC, 3/15/24 ................................................... 543,524
734 Series 1857, Class 1857-PB, 12/15/08 .................................................. 718,592
1,777 Series 1896, Class 1896-PA, 11/15/23 .................................................. 1,681,141
3,273 Series 2009, Class 2009-HJ, 10/15/22 .................................................. 3,247,667
21 Series 2067, Class 2067-PO, 6/15/28 ................................................... 21,369
1,027 Series 2162, Class 2162-L, 6/15/29 .................................................... 872,707
Federal National Mortgage Association, REMIC Pass-Through Certificates,
1,428 Trust G93-2, Class 2-KB, 1/25/23 ...................................................... 1,060,282
2,534 Trust 273, Class 273-1, 7/1/26 ........................................................ 2,311,444
932 Trust 279, Class 279-1, 7/1/26 ........................................................ 828,166
209 Trust 1991-7, Class 7-J, 2/25/21 ...................................................... 188,538
348 Trust 1996-5, Class 5-NH, 4/25/24 ..................................................... 334,404
280 Trust 1996-5, Class 5-PV, 11/25/23 .................................................... 277,846
6,367 Trust 1998-26, Class 26-L, 3/25/23 .................................................... 6,111,946
1,797 Trust 1999-W4, Class W4-PO, 2/25/29 ................................................... 1,387,903
9,455 Trust 2002-13, Class 13-PR, 3/25/32 ................................................... 8,479,354
AAA 815 First Union Residential, Mortgage Certificates, Series 1999-A, Class A-1APO, 3/25/15 .... 757,525
AAA 12,744 Fund America Investors Corp., Series 1993-C, Class B, 4/29/30 ........................... 2,567,603
AAA 252 Housing Securities, Inc., Series 1993-D, Class D-8, 6/25/23 ............................. 224,818
AAA 237 Structured Mortgage Asset Trust, Series 1993-3C, Class CX, 4/25/24 ...................... 204,162
------------
52,395,946
------------
COMMERCIAL MORTGAGE-BACKED SECURITIES--2.2%
AAA 10,250 New York City Mortgage Loan Trust, Multifamily, Series 1996,
Class A-2, 6.75%, 6/25/11** ........................................................... 11,457,578
------------
U.S. GOVERNMENT AND AGENCY SECURITIES--20.5%
12,666 Overseas Private Investment Corp., 4.30% - 7.35%, 5/29/12 ............................... 13,837,367
Small Business Administration,
3,175 Series 1996-20E-1, 7.60%, 5/01/16 ..................................................... 3,550,270
3,932 Series 1996-20F-1, 7.55%, 6/01/16 ..................................................... 4,392,151
2,452 Series 1996-20G-1, 7.70%, 7/01/16 ..................................................... 2,750,482
3,093 Series 1996-20H-1, 7.25%, 8/01/16 ..................................................... 3,527,337
4,851 Series 1996-20K-1, 6.95%, 11/01/16 .................................................... 5,473,407
1,973 Series 1997-20C-1, 7.15%, 3/01/17 ..................................................... 2,186,853
2,105 Small Business Investment Companies, Series 1998-P10A-1, 6.12%, 2/01/08 ................. 2,242,326
United States Treasury Bonds,
155,700@ Zero Coupon, 11/15/24 ................................................................. 46,193,076
15,250@ 8.00%, 11/15/21 ....................................................................... 20,828,145
------------
104,981,414
------------
COLLATERALIZED MORTGAGE OBLIGATION RESIDUALS***--0.1%
45 FBC Mortgage Securities Trust 16, CMO, Series A-1, 7/01/17 .............................. 399,200
10 Federal National Mortgage Association, Trust 1988-10, Class 10-R, 5/25/03 ............... 0
------------
399,200
------------
Total long-term investments (cost $659,166,549) ......................................... 670,698,451
------------
See Notes to Financial Statements.
8
PORTFOLIO OF INVESTMENTS OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
PRINCIPAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
--------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT--3.4%
DISCOUNT NOTE
$ 17,500 Federal Home Loan Bank, 1.65%, 11/01/02 (cost $17,500,000) ............................. $ 17,500,000
-------------
TOTAL INVESTMENTS BEFORE OUTSTANDING OPTIONS WRITTEN--134.6% (COST $676,666,549) ....... 688,198,451
-------------
NOTIONAL
AMOUNT
(000)
--------
OUTSTANDING OPTIONS WRITTEN--(0.2)%
CALL OPTION--(0.2)%
$ 11,000 Interest Rate Swap, 5.50%, over 3 month LIBOR, expires 5/06/03 ......................... (831,303)
-------------
PUT OPTION
11,000 Interest Rate Swap, 6.50%, over 3 month LIBOR, expires 5/06/03 ......................... (25,663)
-------------
Total outstanding options written (premium received $456,353) .......................... (856,966)
-------------
Total investments net, of outstanding options written--134.4% .......................... 687,341,485
Other liabilities in excess of other assets--(34.4)% ................................... (175,956,345)
-------------
NET ASSETS--100% ....................................................................... $ 511,385,140
=============
----------
* Using the higher of Standard & Poor's, Moody's or Fitch's rating.
** Security is not registered under Rule 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from registration to
qualified institutional buyers. As of October 31, 2002, the Trust held 3.3%
of its net assets with a current market value of $17,082,930 in securities
restricted as to resale.
*** Illiquid security representing 0.08% of net assets.
@ Entire or partial principal amount pledged as collateral for reverse
repurchase agreements or financial futures contracts.
--------------------------------------------------------------------------------
KEY TO ABBREVIATIONS:
CMO--Collateralized Mortgage Obligation.
REMIC-- Real Estate Mortgage Investment Conduit.
--------------------------------------------------------------------------------
See Notes to Financial Statements.
9
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $676,666,549) (Note 1) ................................. $688,198,451
Cash ................................................................................ 367,605
Receivable for investments sold ..................................................... 19,681,297
Deposit with broker as collateral for securities borrowed ........................... 17,234,375
Interest receivable ................................................................. 6,822,461
Due from broker-variation margin (Notes 1 & 3) ...................................... 296,214
Interest rate caps, at value (amortized cost $356,526) (Notes 1 & 3) ................ 20
Other assets ........................................................................ 80,296
------------
732,680,719
------------
LIABILITIES
Reverse repurchase agreements (Note 4) .............................................. 205,792,264
Unrealized depreciation on interest rate swaps (Notes 1 & 3) ........................ 8,025,329
Interest payable .................................................................... 2,286,851
Interest rate floor, at value (proceeds $775,125) (Notes 1 & 3) ..................... 2,186,581
Payable for investments purchased ................................................... 1,460,612
Outstanding options written, at value (premium received $456,353) (Notes 1 & 3) ..... 856,966
Investment advisory fee payable (Note 2) ............................................ 279,834
Administration fee payable (Note 2) ................................................. 85,609
Deferred directors fees (Note 1) .................................................... 73,675
Other accrued expenses .............................................................. 247,858
------------
221,295,579
------------
NET ASSETS $511,385,140
============
Net assets were comprised of:
Par value (Note 5) ................................................................ $ 628,748
Paid-in capital in excess of par .................................................. 560,253,964
Undistributed net investment income ............................................... 35,337,135
Accumulated net realized loss ..................................................... (86,724,226)
Net unrealized appreciation ....................................................... 1,889,519
------------
Net assets, October 31, 2002 ........................................................ $511,385,140
============
NET ASSET VALUE PER SHARE:
($511,385,140 / 62,874,817 shares of common stock issued and outstanding) ......... $8.13
=====
See Notes to Financial Statements.
10
STATEMENT OF OPERATIONS YEAR ENDED OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
NET INVESTMENT INCOME
Interest income (net of interest expense of $5,135,812) .......................... $67,410,326
-----------
EXPENSES
Investment advisory .............................................................. 3,292,465
Administration ................................................................... 1,009,800
Transfer Agent ................................................................... 108,500
Custodian ........................................................................ 171,194
Reports to shareholders .......................................................... 170,000
Directors Fees ................................................................... 71,500
Registration ..................................................................... 46,000
Independent accountants .......................................................... 105,000
Legal ............................................................................ 56,000
Miscellaneous .................................................................... 202,295
-----------
Total expenses ................................................................. 5,232,754
Less fees paid indirectly (Note 2) ............................................. (6,194)
-----------
Net expenses ................................................................... 5,226,560
-----------
Net investment income .............................................................. 62,183,766
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized gain (loss) on:
Investments ...................................................................... 45,814,589
Interest rate swaps .............................................................. 5,317,249
Options written .................................................................. 3,078,667
Short sales ...................................................................... 690,026
Futures .......................................................................... (26,502,529)
-----------
28,398,002
-----------
Net change in unrealized appreciation (depreciation) on:
Investments ...................................................................... (42,464,861)
Interest rate caps ............................................................... 1,130,108
Interest rate floor .............................................................. 1,102,533
Futures .......................................................................... 551,521
Options written .................................................................. (400,613)
Interest rate swaps .............................................................. (10,204,853)
-----------
(50,286,165)
-----------
Net loss on investments ............................................................ (21,888,163)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............................... $40,295,603
===========
See Notes to Financial Statements.
11
STATEMENT OF CASH FLOWS YEAR ENDED OCTOBER 31, 2002
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS USED FOR OPERATING ACTIVITIES
Net increase in net assets resulting from operations ........................... $40,295,603
-----------
Increase in investments ........................................................ (88,270,687)
Net realized gain .............................................................. (28,398,002)
Decrease in unrealized appreciation ............................................ 50,286,165
Decrease in interest rate caps ................................................. 2,315
Decrease in interest rate floor ................................................ (1,460,283)
Increase in deposits with brokers as collateral for securities borrowed ........ (17,234,375)
Decrease in interest receivable ................................................ 1,967,960
Decrease in due from broker-variation margin ................................... 57,348
Decrease in other assets ....................................................... 3,912
Increase in receivable for investments sold .................................... (19,476,045)
Increase in options written .................................................... 856,966
Decrease in interest rate swaps ................................................ 10,157,844
Increase in interest payable ................................................... 2,209,466
Increase in payable for investments purchased .................................. 1,460,612
Decrease in due to broker--collateral on interest rate swaps ................... (3,929,000)
Increase in other accrued expenses and liabilities ............................. 39,578
-----------
Total adjustments ............................................................ (91,726,226)
-----------
Net cash flows used for operating activities ................................... (51,430,623)
===========
INCREASE (DECREASE) IN CASH
Net cash flows used for operating activities (51,430,623) Cash flows
provided by financing activities:
Increase in reverse repurchase agreements .................................... 87,158,014
Cash dividends paid .......................................................... (35,674,911)
-----------
Net cash flows provided by financing activities ................................ 51,483,103
-----------
Net increase in cash ......................................................... 52,480
Cash at beginning of year .................................................... 315,125
-----------
Cash at end of year .......................................................... $ 367,605
===========
See Notes to Financial Statements.
12
STATEMENTS OF CHANGES IN NET ASSETS
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------
INCREASE (DECREASE) IN NET ASSETS 2002 2001
------------ ------------
OPERATIONS:
Net investment income .................................................................... $ 62,183,766 $ 34,923,300
Net realized gain (loss) ................................................................. 28,398,002 (16,446,601)
Net change in unrealized appreciation (depreciation) ..................................... (50,286,165) 69,129,322
------------ ------------
Net increase in net assets resulting from operations ..................................... 40,295,603 87,606,021
Dividends from net investment income ..................................................... (35,876,922) (35,351,946)
Net proceeds from Trust shares issued in reinvestment of dividends ....................... 202,011 --
------------ ------------
Total increase ........................................................................... 4,620,692 52,254,075
NET ASSETS
Beginning of year .......................................................................... 506,764,448 454,510,373
------------ ------------
End of year ................................................................................ $511,385,140 $506,764,448
============ ============
End of year undistributed net investment income ............................................ $ 35,337,135 $ 9,030,291
See Notes to Financial Statements.
13
FINANCIAL HIGHLIGHTS
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ----- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year .................... $ 8.06 $ 7.23 $ 7.31 $ 7.94 $ 8.12
-------- -------- -------- -------- --------
Investment operations:
Net investment income (net of interest expense
of $0.08, $0.11, $0.12, $0.16 and $0.19,
respectively) ...................................... 0.99 0.56 0.50 0.73 0.62
Net realized and unrealized gain (loss) ............ (0.35) 0.83 (0.02) (0.80) (0.24)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations .... 0.64 1.39 0.48 (0.07) 0.38
-------- -------- -------- -------- --------
Dividends from net investment income .................. (0.57) (0.56) (0.56) (0.56) (0.56)
-------- -------- -------- -------- --------
Net asset value, end of year(1)........................ $ 8.13 $ 8.06 $ 7.23 $ 7.31 $ 7.94
======== ======== ======== ======== ========
Market value, end of year(1)........................... $ 8.07 $ 7.26 $ 6.38 $ 6.13 $ 6.94
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN(2)............................. 15.35% 23.23% 14.01% (4.04)% 9.29%
======== ======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Operating expenses .................................... 1.03% 1.03% 1.05% 1.01% 1.01%
Operating expenses and interest expense ............... 2.05% 2.54% 2.78% 3.03% 3.33%
Net investment income ................................. 12.28% 7.43% 7.11% 9.54% 7.74%
SUPPLEMENTAL DATA:
Average net assets (000) .............................. $506,533 $470,185 $448,027 $482,685 $506,858
Portfolio turnover .................................... 125% 32% 114% 144% 214%
Net assets, end of year (000) ......................... $511,385 $506,764 $454,510 $459,399 $499,075
Reverse repurchase agreements outstanding,
end of year (000) .................................. $205,792 $118,634 $ 64,460 $186,451 $198,336
Asset coverage(3) ..................................... $ 3,485 $ 5,272 $ 8,095 $ 3,478 $ 3,520
----------
(1) Net asset value and market value are published in BARRON'S on Saturday and
THE WALL STREET JOURNAL on Monday.
(2) Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of the year reported. Dividends and
distributions, if any, are assumed for purposes of this calculation to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. Past
performance is no guarantee of future results.
(3) Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the audited operating performance data for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data for the years indicated. This information
has been determined based upon financial information provided in the financial
statements and market value data for the Trust's shares.
See Notes to Financial Statements.
14
NOTES TO FINANCIAL STATEMENTS
----------------------
BLACKROCK INCOME TRUST
----------------------
--------------------------------------------------------------------------------
NOTE 1. ORGANIZATION BlackRock Income Trust (the "Trust"), a Maryland
& ACCOUNTING POLICIES 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 most of its securities on the basis of
current market quotations provided by dealers or pricing services selected under
the supervision of the Trust's Board of Directors. In determining the value of a
particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. In the absence of a last sale, options are valued at the average of
the quoted bid and asked prices as of the close of business. A futures contract
is valued at the last sale price as of the close of the commodities exchange on
which it trades. Short-term securities may be valued at amortized cost. Any
securities or other assets for which such current market quotations are not
readily available are valued at fair value as determined in good faith under
procedures established by and under the general supervision and responsibility
of the Trust's Board of Directors.
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.
REPURCHASE AGREEMENTS: 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 may be used by the Trust as an attempt to manage
the duration of positions or collections of positions, so that changes in
interest rates do not adversely affect the targeted duration of the portfolio
unexpectedly. A call option gives the purchaser of the option the right (but not
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or at a
specified time during the option period. A put option gives the holder the right
to sell and obligates the writer to buy the underlying position at the exercise
price at any time or at a specified time during the option period. Put or call
options can be purchased or sold to effectively help manage the targeted
duration of the portfolio.
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 forgo the opportunity for a profit if
the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In a simple interest rate swap, one investor pays a
floating rate of interest on a notional principal amount and receives a fixed
rate of interest on the same notional principal amount for a specified period of
time. Alternatively, an investor may pay a fixed rate and receive a floating
rate. Interest rate swaps are efficient as asset/liability management tools. In
more complex swaps, the notional principal amount may decline (or amortize) over
time.
During the term of the swap, changes in the value of the swap are recognized as
unrealized gains or losses by "marking-to-market" to reflect the market value of
the swap. When the swap is terminated, the Trust will record a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract, if any.
15
The Trust is exposed to credit loss in the event of non-performance by the other
party to the swap. However, BlackRock Advisors, Inc. closely monitors swaps and
does not anticipate non-performance by any counterparty.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying the right to enter into a
previously agreed upon interest rate swap agreement at any time before the
expiration of the option. Premiums received or paid from writing or purchasing
options are recorded as liabilities or assets and are subsequently adjusted to
the current market value of the option written or purchased. Premiums received
or paid from writing or purchasing options which expires unexercised are treated
by the Trust on the expiration date as realized gains or losses. The difference
between the premium and the amount paid or received on effecting a closing
purchase or sale transaction, including brokerage commission, is also treated as
a realized gain or loss. If an option is exercised, the premium paid or received
is added to the proceeds from the sale or cost of the purchase in determining
whether the Trust has realized a gain or loss on investment transactions.
The main risk that is associated with purchasing swap options is that the swap
option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio in a manner similar to more generic options described above.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed or floating rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short-term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short-term interest rates, which the Trust experiences
primarily in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the other
party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front payment
which the Trust receives.
The Trust is exposed to credit loss in the event of non-performance by the other
party to the interest rate floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transaction fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
FINANCIAL FUTURES CONTRACTS: A futures contract is an agreement between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either cash or securities. During the period the futures contract is open,
changes in the value of the contract are recognized as unrealized gains or
losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
made or received, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Trust records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transaction and the Trust's basis in the contract.
Financial futures contracts, when used by the Trust, help in maintaining a
targeted duration. Futures contracts can be sold to effectively shorten an
otherwise longer duration portfolio. In the same sense, futures contracts can be
purchased to lengthen a portfolio that is shorter than its duration target.
Thus, by buying or selling futures contracts, the Trust may attempt to manage
duration of positions so that changes in interest rates do not change the
duration of the portfolio unexpectedly.
SHORT SALES: The Trust may make short sales of securities as a method of
managing 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
16
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 enter into any security lending transactions during the year
ended October 31, 2002.
SEGREGATION: In cases in which the Investment Company Act of 1940, as amended
and the interpretive positions of the Securities and Exchange Commission ("SEC")
require that the Trust segregate assets in connection with certain Trust
investments (e.g., when issued securities, reverse repurchase agreements or
futures contracts), the Trust will, consistent with certain interpretive letters
issued by the SEC, designate on its books and records cash or other liquid debt
securities having a market value at least equal to the amount that would
otherwise be required to be physically segregated.
FEDERAL INCOME TAXES: It is the Trust's intention to continue to meet the
requirements of the Internal Revenue Code applicable to regulated investment
companies and to distribute sufficient amounts of its taxable income to
shareholders. Therefore, no Federal income tax provision is required.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly; first from net investment income, then from realized
short-term capital gains and other sources, if necessary. Net long-term capital
gains, if any, in excess of loss carryforwards are distributed at least
annually. Dividends and distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from accounting principles
generally accepted in the United States of America.
ESTIMATES: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
DEFERRED COMPENSATION PLAN: Under a deferred compensation plan approved by the
Board of Directors on September 20, 2002, non-interested Directors may elect to
defer receipt of all, or a portion of their annual compensation and beginning on
January 1, 2003 will be required to defer a portion of their annual compensation
pursuant to the plan.
Deferred amounts earn a return as though equivalent dollar amounts had been
invested in common shares of other BlackRock funds selected by the Directors.
This has the same economic effect as if the Directors had invested the deferred
amounts in such other BlackRock funds.
The deferred compensation plan is not funded and obligations thereunder
represent general unsecured claims against the general assets of the Trust. The
Trust may, however, elect to invest in common shares of those funds selected by
the Directors in order to match its deferred compensation obligations.
NOTE 2. AGREEMENTS The Trust has an Investment Advisory Agreement with
BlackRock Advisors, Inc. (the "Advisor"), which is a
wholly owned subsidiary of BlackRock, Inc., which in turn is an indirect,
majority-owned subsidiary of the PNC Financial Services Group, Inc. The Trust
has an Administration Agreement with Prudential Investments LLC ("PI"), an
indirect, wholly owned subsidiary of Prudential Financial, Inc.
The investment advisory fee paid to the Advisor is computed weekly and payable
monthly at an annual rate of 0.65% of the Trust's average weekly net assets. The
total dollar amounts paid to the Advisor by the Trust under the Investment
Advisory Agreement for the years ended October 31, 2002, 2001 and 2000 were
$3,292,465, $3,064,600 and $2,928,176, respectively. The administration fee paid
to PI 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. The total dollar amounts paid to PI by the Trust under the
Administration Agreement for the years ended October 31, 2002, 2001 and 2000
were $1,009,800, $942,954 and $900,977, respectively.
Pursuant to the agreements, the Advisor provides continuous supervision of the
investment portfolio and pays the compensation of officers of the Trust who are
affiliated persons of the Advisor. PI pays occupancy and certain clerical and
accounting costs of the Trust. The Trust bears all other costs and expenses
which include reimbursement to the Advisor for certain operational support
services provided to the Trust.
Pursuant to the terms of its custody agreement, BlackRock Income Trust received
an earnings credit from its custodian for positive cash balance maintained,
which is used to offset custody fees in the amount of $6,194.
NOTE 3. PORTFOLIO Purchases and sales of investment securities, other than
SECURITIES short-term investments and U.S. Government Securities, for
the year ended October 31, 2002 aggregated $379,256,162
and $184,213,519, respectively. Purchases and sales of U.S. Government
Securities for the year ended October 31, 2002 aggregated $625,774,301 and
$643,330,424, respectively.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by affiliates or
mortgage related securities containing loans or mortgages originated by PNC Bank
or its affiliates, including Midland Loan Services, Inc. It is possible under
certain circumstances, an affiliate of PNC or its affiliates, including Midland
Loan Services, Inc. could have interests that are in conflict with the holders
of these mortgage-backed securities, and such holders could have rights against
an affiliate of PNC or its affiliates, including Midland Loan Services, Inc.
The federal income tax basis of the Trust's investments at October 31, 2002 was
$676,705,370 and, accordingly, net unrealized appreciation for federal income
tax purposes was $11,493,081 (gross unrealized appreciation $31,551,621; gross
unrealized depreciation $20,058,540).
17
For federal income tax purposes, the Trust had a capital loss carryforward at
October 31, 2002 of approximately $86,133,900 of which approximately $10,359,600
will expire in 2003, approximately $27,373,200 will expire in 2004,
approximately $33,108,000 will expire in 2007, approximately $1,352,200 will
expire in 2008 and approximately $13,940,900 will expire in 2009. Accordingly,
no capital gains distribution is expected to be paid to shareholders until net
gains have been realized in excess of such amounts.
Details of open financial futures contracts at October 31, 2002 were as follows:
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE OCTOBER 31, APPRECIATION
CONTRACTS TYPE DATE DATE 2002 (DEPRECIATION)
---------- ------ ---------- ----------- ----------- ------------
Long positions:
215 5 Yr. U.S. T-Bond Dec. '02 $24,224,139 $24,452,891 $228,752
323 10 Yr. U.S. T-Bond Dec. '02 36,727,826 37,054,156 326,330
212 30 Yr. U.S. T-Bond Dec. '02 23,462,687 23,459,126 (3,561)
--------
$551,521
========
The Trust held two interest rate caps. Under all agreements, the Trust receives
the excess, if any, of a floating rate over a fixed rate. The Trust paid a
transaction fee for each cap. Transaction fees are amortized through the
termination of the agreement. Details of the caps at October 31, 2002 were as
follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE RATE DATE COST 2002 DEPRECIATION
------- -------- ---------- ---------- -------- --------- -----------
$100,000 7.25% 3-month LIBOR 4/23/03 $227,606 $10 $(227,596)
100,000 7.75% 3-month LIBOR 5/4/03 128,920 10 (128,910)
-------- --- ---------
$356,526 $20 $(356,506)
======== === =========
The Trust held one interest rate floor. Under the agreement, the Trust pays the
excess, if any, of a fixed rate over a floating rate. The Trust received a
transaction fee for the floor. Transaction fee is amortized through the
termination of the agreement. Details of the interest rate floor held at October
31, 2002 were as follows:
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE RATE DATE COST 2002 DEPRECIATION
------- ------- ---------- ---------- --------- ----------- ------------
$47,000 6.00% 1-month LIBOR 1/25/05 $(775,125) $(2,186,581) $(1,411,456)
========= =========== ===========
Details of open interest rate swaps at October 31, 2002 were as follows:
NOTIONAL UNREALIZED
AMOUNT FIXED FLOATING TERMINATION APPRECIATION
(000) RATE RATE DATE (DEPRECIATION)
------- -------- ---------- ---------- ------------
$ 24,000 3.55% (a) 3-month LIBOR 10/24/06 $524,098
100,000 3.91% (a) 3-month LIBOR 8/09/07 2,797,533
162,000 4.22% (a) 3-month LIBOR 5/04/06 1,868,994
32,000 5.46% (b) 3-month LIBOR 10/17/12 (2,649,287)
24,000 6.04% (b) 3-month LIBOR 11/15/21 (2,400,617)
80,300 6.07% (b) 3-month LIBOR 8/28/22 (8,166,050)
-----------
$(8,025,329)
===========
----------
(a) Trust pays floating interest rate and receives fixed rate.
(b) Trust pays fixed interest rate and receives floating rate.
18
Transactions in options written during the year ended October 31, 2002, were as
follows:
NOTIONAL
AMOUNT PREMIUM
(000) RECEIVED
-------- ---------
Options outstanding at October 31, 2001 -- --
Options written $483,100 $ 5,016,738
Options terminated in closing purchase transactions (380,800) (4,291,585)
Options expired (80,300) (268,800)
--------- -----------
Options outstanding at October 31, 2002 $ 22,000 $ 456,353
========= ===========
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust may enter into
reverse repurchase agreements with qualified, third party
broker-dealers as determined by and under the direction of the Trust's Board of
Directors. Interest on the value of reverse repurchase agreements issued and
outstanding is based upon competitive market rates at the time of issuance. At
the time the Trust enters into a reverse repurchase agreement, it establishes
and maintains a segregated account with the lender containing liquid investment
grade securities having a value not less than the repurchase price, including
accrued interest, of the reverse repurchase agreement.
The average daily balance of reverse repurchase agreements outstanding during
the year ended October 31, 2002 was approximately $173,501,000 at a weighted
average interest rate of approximately 1.81%.
DOLLAR ROLLS: The Trust may enter 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 will be compensated by the interest
earned on the cash proceeds of the initial sale and by the lower repurchase
price at the future date.
The Trust did not enter into any dollar roll transactions during the year ended
October 31, 2002.
NOTE 5. CAPITAL There are 200 million shares of $.01 par value common
stock authorized. Of the 62,874,817 shares outstanding at
October 31, 2002, affiliates of the Advisor owned 10,753 shares.
During the year ended October 31, 2002, the Trust issued 24,939 common shares
under the terms of its Dividend Reinvestment Plan.
NOTE 6. DIVIDENDS Subsequent to October 31, 2002, the Board of Directors of
the Trust declared dividends from undistributed earnings
of $0.0510 per share payable November 29, 2002 to shareholders of record on
November 15, 2002.
NOTE 7. COMMITMENT On October 9, 1997, the Trust entered into a commitment to
purchase an aggregate of up to $20,000,000 of Overseas
Private Investment Corp. securities prior to the commitment expiration on
September 30, 2003. To date, the Trust has purchased such securities with a
market value of $13,837,367 at October 31, 2002.
19
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Directors and Shareholders of The BlackRock Income Trust Inc.
We have audited the accompanying statement of assets and liabilities of The
BlackRock Income Trust Inc. (the "Trust"), including the portfolio of
investments, as of October 31, 2002, and the related statements of operations
and cash flows for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2002, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
BlackRock Income Trust Inc. as of October 31, 2002, the results of its
operations and its cash flows for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
December 6, 2002
20
DIRECTORS INFORMATION
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
------------------------------------------------------------------------------------------------------------------------------------
Name, address, age Andrew F. Brimmer Richard E. Cavanagh Kent Dixon
P.O. Box 4546 P.O. Box 4546 P.O. Box 4546
New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10163-4546
Age: 76 Age: 56 Age: 65
------------------------------------------------------------------------------------------------------------------------------------
Current positions held Lead Director Director Director
with the Funds Audit Committee Chairman Audit Committee Member Audit Committee Member
------------------------------------------------------------------------------------------------------------------------------------
Term of office and 3 years(2) / since inception(3) 3 years(2) / since inception(3) 3 years(2) / since inception(3)
length of time served
------------------------------------------------------------------------------------------------------------------------------------
Principal occupations President of Brimmer & President and Chief Executive Consultant/Investor. Former
during the past Company, Inc., a Washington, Officer of The Conference President and Chief Executive
five years D.C.-based economic and Board, Inc., a leading global Officer of Empire Federal
financial consulting firm, business membership Savings Bank of America and
also, Wilmer D. Barrett organization, from Banc PLUS Savings Association,
Professor of Economics, 1995-present. Former Executive former Chairman of the Board,
University of Massachusetts-- Dean of the John F. Kennedy President and Chief Executive
Amherst. Formerly member of School of Government at Officer of Northeast Savings.
the Board of Governors of the Harvard University from
Federal Reserve System. Former 1988-1995. Acting Director,
Chairman, District of Columbia Harvard Center for Business
Financial Control Board. and Government (1991-1993).
Formerly Partner (principal)
of McKinsey & Company, Inc.
(1980- 1988). Former Executive
Director of Federal Cash
Management, White House Office
of Management and Budget
(1977-1979). Co-author, THE
WINNING PERFORMANCE (best
selling management book
published in 13 national
editions).
------------------------------------------------------------------------------------------------------------------------------------
Number of portfolios 44(4) 44(4) 44(4)
overseen within the
fund complex
------------------------------------------------------------------------------------------------------------------------------------
Other Directorships held Director of CarrAmerica Realty Trustee Emeritus, Wesleyan Former Director of ISFA (the
outside of the fund Corporation and Borg-Warner University, Trustee: Drucker owner of INVEST, a national
complex Automotive. Formerly member of Foundation, Airplanes Group, securities brokerage service
the Board of Governors of the Aircraft Finance Trust (AFT) designed for banks and thrift
Federal Reserve System. and Educational Testing institutions).
Formerly Director of AirBorne Service (ETS). Director, Arch
Express, BankAmerica Chemicals, Fremont Group and
Corporation (Bank of America), The Guardian Life Insurance
Bell South Corporation, Company of America.
College Retirement Equities
Fund (Trustee), Commodity
Exchange, Inc. (Public
Governor), Connecticut Mutual
Life Insurance Company, E.I.
Dupont de Nemours & Company,
Equitable Life Assurance
Society of the United States,
Gannett Company, Mercedes-Benz
of North America, MNC
Financial Corporation
(American Security Bank), NMC
Capital Management, Navistar
International Corporation, PHH
Corp. and UAL Corporation
(United Airlines).
------------------------------------------------------------------------------------------------------------------------------------
For "Interested Director"
Relationships, events or
transactions by reason of
which the Director is an
interested person as
defined in Section 2(a)
(19)(1940 Act)
------------------------------------------------------------------------------------------------------------------------------------
(1) Interested Director as defined by Section 2(a)(19) of the Investment
Company Act of 1940.
(2) The Board of Directors is classified into three classes of which one class
is elected annually. Each Director serves a three-year term concurrent with
the class from which he is elected.
(3) Commencement of investment operations July 29, 1988.
(4) The fund complex currently consists of 44 separate closed-end funds, each
with one investment portfolio.
(5) Except during the period 8/12/93 through 4/15/97, and except during the
period 10/31/02 through 11/02/02.
21
---------------------------------------------------------------------------------- ------------------------------------------------
INDEPENDENT DIRECTORS (CONTINUED) INTERESTED DIRECTORS(1)
---------------------------------------------------------------------------------- ------------------------------------------------
Frank J. Fabozzi James Clayburn La Force, Jr. Walter F. Mondale Ralph L. Schlosstein(1) Robert S. Kapito(1)
P.O. Box 4546 P.O. Box 4546 P.O. Box 4546 40 East 52nd Street 40 East 52nd Street
New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10163-4546 New York, NY 10154 New York, NY 10154
Age: 54 Age: 73 Age: 74 Age: 51 Age: 45
---------------------------------------------------------------------------------- ------------------------------------------------
Director Director Director Chairman of the Board President and Director
------------------------------------------------------------------------------- -------------------------------------------------
3 years(2) / 3 years(2) / 3 years(2) / since 3 years(2) / 3 years(2) / since
since inception(3) since inception(3) inception(3,5) since inception(3) August 22, 2002
------------------------------------------------------------------------------- -------------------------------------------------
Consultant. Editor Dean Emeritus of The Partner, Dorsey & Director since 1999 Vice Chairman of
of THE JOURNAL OF John E. Anderson Whitney, a law firm and President of BlackRock, Inc. Head
PORTFOLIO MANAGEMENT Graduate School of (December BlackRock, Inc. of the Portfolio
and Adjunct Management, 1996-present, since its formation Management Group.
Professor of Finance University of September in 1998 and of Also a member of the
at the School of California since 1987-August 1993). BlackRock, Inc.'s Management
Management at Yale July 1, 1993. Acting Formerly U.S. predecessor entities Committee, the
University. Author Dean of The School Ambassador to Japan since 1988. Member Investment Strategy
and editor of of Business, Hong (1993-1996). of the Management Group, the Fixed
several books on Kong University of Formerly Vice Committee and Income and Global
fixed income Science and President of the Investment Strategy Operating Committees
portfolio Technology United States, U.S. Group of BlackRock, and the Equity
management. Visiting 1990-1993. From 1978 Senator and Attorney Inc. Formerly, Investment Strategy
Professor of Finance to September 1993, General of the State Managing Director of Group. Responsible
and Accounting at Dean of The John E. of Minnesota. 1984 Lehman Brothers, for the portfolio
the Sloan School of Anderson Graduate Democratic Nominee Inc. and Co-head of management of the
Management, School of for President of the its Mortgage and Fixed Income,
Massachusetts Management, United States. Savings Institutions Domestic Equity and
Institute of University of Group. Currently, International
Technology from 1986 California. Chairman of each of Equity, Liquidity,
to August 1992. the closed-end and Alternative
Trusts in which Investment Groups of
BlackRock Advisors, BlackRock. Currently
Inc. acts as President and a
investment advisor. Trustee of each of
the closed-end
Trusts in which
BlackRock Advisors,
Inc. acts as
investment advisor.
---------------------------------------------------------------------------------- ------------------------------------------------
44(4) 44(4) 44(4) 44(4) 44(4)
---------------------------------------------------------------------------------- ------------------------------------------------
Director, Guardian Director, Jacobs Chairman and Chairman of the Hope
Mutual Funds Group. Engineering Group, President of the and Heroes
(18 portfolios) Inc., Payden & Rygel BlackRock Provident Children's Cancer
Investment Trust, Institutional Funds Fund. President of
Provident Investment (10 portfolios) and the Board of
Counsel Funds. Director of Directors of the
Anthricite Capital, Periwinkle National
Inc. and several of Theatre for Young
BlackRock's Audiences. Director
alternative of icruise.com,
investment vehicles. Corp.
Currently, a Member
of the Visiting
Board of Overseers
of the John F.
Kennedy School of
Government at
Harvard University,
the Financial
Institutions Center
Board of the Wharton
School of the
University of
Pennsylvania, a
Trustee of Trinity
School in New York
City and a Trustee
of New Visions for
Public Education in
New York City.
Formerly, a Director
of Pulte Corporation
and a Member of
Fannie Mae's
Advisory Council.
---------------------------------------------------------------------------------- ------------------------------------------------
Director and Vice Chairman of the
President of the Advisor
Advisor.
---------------------------------------------------------------------------------- ------------------------------------------------
22
TAX INFORMATION
--------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends paid by the
Trust during its fiscal year ended October 31, 2002.
During the fiscal year ended October 31, 2002, the Trust paid dividends of
$0.5708 per share from net investment income. For federal income tax purposes,
the dividends you received are reportable in your 2002 federal income tax return
as ordinary income. Further, we wish to advise you that your income dividends do
not qualify for the dividends received deduction.
For the purpose of preparing your 2002 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 2003.
DIVIDEND REINVESTMENT PLAN
--------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), shareholders
may elect to have all distributions of dividends and capital gains reinvested by
EquiServe Trust Company, N.A. (the "Plan Agent") in Trust shares pursuant to the
Plan. shareholders who do not participate in the Plan will receive all
distributions in cash paid by check in United States dollars mailed directly to
the shareholders of record (or if the shares are held in street or other nominee
name, then to the nominee) by the transfer agent, as dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will acquire shares for the participants' accounts,
depending upon the circumstances described below, either (i) through receipt of
unissued but authorized shares from the Trust ("newly issued shares") or (ii) by
purchase of outstanding shares on the open market, on the New York Stock
Exchange or elsewhere ("open-market purchases"). If, on the dividend payment
date, the net asset value per share is equal to or less than the market price
per share plus estimated brokerage commissions (such condition being referred to
herein as "market premium"), the transfer agent will invest the dividend amount
in newly issued shares on behalf of the participants. The number of newly issued
shares to be credited to each participant's account will be determined by
dividing the dollar amount of the dividend by the net asset value per share (but
in no event less than 95% of the then current market price per share) on the
date the shares are issued. If, on the dividend payment date, the net asset
value per share is greater than the market value per share (such condition being
referred to herein as "market discount"), the transfer agent will invest the
dividend amount in shares acquired on behalf of the participants in open-market
purchases.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
The Trust reserves the right to amend or terminate the Plan as applied to any
dividend or distribution paid subsequent to written notice of the change sent to
all shareholders of the Trust at least 90 days before the record date for the
dividend or distribution. The Plan also may be amended or terminated by the Plan
Agent upon at least 90 days' written notice to all shareholders of the Trust.
All correspondence concerning the Plan should be directed to the Plan Agent at
(800) 699-1BFM or 150 Royall Street, Canton, MA 02021.
23
INVESTMENT SUMMARY
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
BlackRock Income Trust's investment objective is to manage a portfolio of high
quality securities to achieve high monthly income consistent with preservation
of capital. The Trust will seek to distribute monthly income that is greater
than that obtainable on an annualized basis by investment in United States
Treasury securities having the same maturity as the average dollar weighted
maturity of the Trust's investments.
WHO MANAGES THE TRUST?
BlackRock Advisors, Inc. (the "Advisor") manages the Trust. The Advisor is a
wholly owned subsidiary of BlackRock, Inc. ("BlackRock"), which is one of the
largest publicly traded investment management firms in the United States with
$246 billion of assets under management as of September 30, 2002. BlackRock
manages assets on behalf of institutional and individual investors worldwide
through a variety of equity, fixed income, liquidity and alternative investment
products. In addition, BlackRock provides risk management and investment system
services to a growing number of institutional investors under the BLACKROCK
SOLUTIONS name. Clients are served from the Company's headquarters in New York
City, as well as offices in Boston, Edinburgh, Hong Kong, San Francisco, Tokyo
and Wilmington. BlackRock is majority-owned by The PNC Financial Services Group,
Inc. (NYSE:PNC) and by BlackRock employees.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest at least 65% of its assets in mortgage-backed securities.
At least 85% of the Trust's assets must be rated at least "AAA" by Standard &
Poor's or "Aaa" by Moody's at the time of purchase (up to 5% can be unrated but
deemed by the Advisor to be of comparable quality). Additionally, 15% of the
Trust's assets can be invested in securities rated at least "AA" by Standard &
Poor's or "Aa" by Moody's at time of purchase. Under current market conditions,
BlackRock expects that the primary investments of the Trust will be U.S.
Government securities, securities backed by government agencies (such as
mortgage-backed securities), privately issued mortgage-backed securities,
commercial mortgage-backed securities and asset-backed securities.
WHAT IS THE ADVISOR'S INVESTMENT STRATEGY?
The Advisor will seek to meet the Trust's investment objective by managing the
assets of the Trust so as to provide high monthly income consistent with the
preservation of capital. The Trust will seek to provide monthly income that is
greater than that which could be obtained by investing in U .S. Treasury
securities with an average life similar to that of the Trust's assets. Under
current market conditions, the average life of the Trust's assets is expected to
be in the range of seven to ten years. Under other market conditions, the
Trust's average life may vary and may not be predictable using any formula. In
seeking the investment objective, the Advisor may actively manage among various
types of securities in different interest rate environments.
Traditional mortgage pass-through securities make interest and principal
payments on a monthly basis and can be a source of attractive levels of income
to the Trust. While mortgage-backed securities in the Trust are of high credit
quality, they typically offer a yield spread above Treasuries due to the
uncertainty of the timing of their cash flows as they are subject to changes in
the rate of prepayments when interest rates change and either a larger or
smaller proportion of mortgage holders refinance their mortgages or move. While
mortgage-backed securities offer the opportunity for attractive yields, they
subject a portfolio to interest rate risk and prepayment exposure which result
in reinvestment risk when prepaid principal must be reinvested.
Multiple-class mortgage pass-through securities, or collateralized mortgage
obligations (CMOs), are also an investment that may be used in the Trust's
portfolio. These securities are issued in multiple classes each of which has a
different coupon rate, stated maturity and prioritization on the timing of
receipt of cash flows coming from interest and principal payments on the
underlying mortgages. Principal prepayments can be allocated among the different
classes of a CMO in a number of ways; for instance, they can be applied to each
of the classes in the order of their respective stated maturities. This feature
allows an investor to better plan the average life of their investment.
Additionally, in order to protect the portfolio from interest rate risk, the
Advisor will attempt to locate securities with call protection, such as
commercial mortgage-backed securities with prepayment penalties or lockouts.
Securities with call protection should provide the portfolio with some degree of
protection against reinvestment risk during times of lower prevailing interest
rates.
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 Trust through its transfer agent, EquiServe Trust
Company, N.A. 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
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.
Leverage also increases the duration (or price volatility of the net assets with
respect to changes in interest rates) of the Trust, which can improve the
performance of the Trust in a declining rate environment, but can cause net
assets to decline faster in a rapidly rising interest rate environment. The
Advisor's portfolio managers continuously monitor and regularly review the
Trust's use of
24
leverage and the Trust may reduce, or unwind, the amount of leverage employed
should the Advisor consider that reduction to be in the best interests of the
shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST
The trust is intended to be a long-term investment and is not a short-term
trading vehicle.
DIVIDEND CONSIDERATIONS. Dividends paid by the Trust are likely to vary over
time as fixed income market conditions change. Future dividends may be higher or
lower than the dividend the Trust is currently paying.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
INVERSE FLOATING RATE MORTGAGE-BACKED SECURITIES. ARMs with interest rates that
adjust at periodic intervals in the opposite direction from the market rate of
interest to which they are indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate may vary by a magnitude that
exceeds the magnitude of the change in the index rate of interest.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BKT) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their NAV.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments which will change the yield to maturity of the security.
CORPORATE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
ZERO COUPON SECURITIES. Such securities receive no cash flows prior to maturity;
therefore, interim price movement on the securities are generally more sensitive
to interest rate movements than securities that make periodic coupon payments.
These securities appreciate in value over time and can play an important role in
helping the Trust achieve its primary objective.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
25
ADDITIONAL INFORMATION
--------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objective 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.
Quarterly performance and other information regarding the Trust may be
found on BlackRock's website, which can be accessed at
http://www.blackrock.com/funds/cefunds.html. This reference to BlackRock's
website is intended to allow investors public access to quarterly information
regarding the Trust and is not intended to incorporate BlackRock's website into
this report.
Certain of the officers of the Trust listed on the inside back cover of
the Report to Shareholders are also officers of the Advisor. They serve in the
following capacities for the Advisor: Robert S. Kapito--Director and Vice
Chairman, Henry Gabbay and Anne Ackerley--Managing Directors.
GLOSSARY
--------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE- Mortgage instruments with interest rates that
BACKED 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 Mortgage-backed securities which separate
OBLIGATIONS (CMOS): mortgage pools into short-, medium-, and
long-term securities with different priorities
for receipt of principal and interest. Each
class is paid a fixed or floating rate of
interest at regular intervals. Also known as
multiple-class mortgage pass-throughs.
COMMERCIAL MORTGAGE Mortgage-backed securities secured or backed
BACKED SECURITIES (CMBS): by mortgage loans on commercial properties.
DISCOUNT: When a fund's net asset value is greater than
its stock price the fund is said to be trading
at a discount.
DIVIDEND: Income generated by securities in a portfolio
and distributed to shareholders after the
deduction of expenses. This Trust declares and
pays dividends on a monthly basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all dividends
and distributions of capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that guarantees
timely payment of interest and principal on
mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
Government, however; they are backed by
FHLMC's authority to borrow from the U.S.
Government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Administration, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
Government, however; they are backed by FNMA's
authority to borrow from the U.S. Government.
Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
U.S. Government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known as
Ginnie Mae.
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
Government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and
FHLMC.
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS that
receive only the interest cash flows from an
underlying pool of mortgage loans or
underlying pass-through securities. Also known
as a strip.
INVERSE-FLOATING RATE MORTGAGE: Mortgage instruments with coupons that adjust
at periodic intervals according to a formula
which sets inversely with a market level
interest rate index.
26
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.
NET ASSET VALUE (NAV): Net asset value is the total market value of
all securities and other assets held by the
Trust, plus income accrued on its investments,
minus any liabilities including accrued
expenses, divided by the total number of
outstanding shares. It is the underlying value
of a single share on a given day. Net asset
value for the Trust is calculated weekly and
published in BARRON'S on Saturday and THE WALL
STREET JOURNAL on Monday.
PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as strips.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
PREMIUM: When a fund's stock price is greater than its
net asset value, the fund is said to be
trading at a premium.
REMIC: A real estate mortgage investment conduit is a
multiple-class security backed by
mortgage-backed securities or whole mortgage
loans and formed as a trust, corporation,
partnership, or segregated pool of assets that
elects to be treated as a REMIC for Federal
tax purposes. Generally, FNMA REMICs are
formed as trusts and are backed by
mortgage-backed securities.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from
the mortgage assets underlying the CMO after
payment of principal and interest on the other
CMO securities and related administrative
expenses.
REVERSE REPURCHASE In a reverse repurchase agreement, the Trust
AGREEMENTS: sells securities and agrees to repurchase them
at a mutually agreed date and price. During
this time, the Trust continues to receive the
principal and interest payments from that
security. At the end of the term, the Trust
receives the same securities that were sold
for the same initial dollar amount plus
interest on the cash proceeds of the initial
sale.
STRIPPED MORTGAGE-BACKED Arrangements in which a pool of assets is
SECURITIES: separated into two classes that receive
different proportions of the interest and
principal distributions from underlying
mortgage-backed securities. IO's and PO's are
examples of strips.
27
BlackRock Income Trust
Directors
Ralph L. Schlosstein, CHAIRMAN(1)
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
Robert S. Kapito1
James Clayburn La Force, Jr.
Walter F. Mondale
Officers
Robert S. Kapito, PRESIDENT(1)
Richard M. Shea, VICE PRESIDENT/TAX
Henry Gabbay, TREASURER
James Kong, ASSISTANT TREASURER
Anne Ackerley, SECRETARY
Investment Advisor
BlackRock Advisors, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
(800) 227-7BFM
Administrator
Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
(800) 699-1BFM
Independent Accountants
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
Legal Counsel
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Legal Counsel - Independent Directors
Debevoise & Plimpton
919 Third Avenue
New York, NY 10022
BlackRock Income Trust
c/o Prudential Investments LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares. Statements and other
information contained in this report are as dated and are subject to change.
(1) Laurence D. Fink has resigned his positions as Director and Chairman of the
Board effective August 22, 2002 and will continue as Chairman and Chief
Executive Officer of BlackRock, Inc. and Chief Executive Officer of
BlackRock Advisors, Inc. The Board of Directors elected Ralph L.
Schlosstein as the new Chairman of the Board, elected Robert S. Kapito as
the new President of the Trust and appointed Robert S. Kapito as a new
Director of the Board effective August 22, 2002.
The Trust will mail only one copy of shareholder documents, including annual and
semi-annual reports and proxy statements, to shareholders with multiple accounts
at the same address. This practice is commonly called "householding" and is
intended to reduce expenses and eliminate duplicate mailings of shareholder
documents. Mailings of your shareholder documents may be householded
indefinitely unless you instruct us otherwise. If you do not want the mailing of
these documents to be combined with those for other members of your household,
please contact the Trust at (800) 227-7BFM.
================================================================================
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of Trust shares. Statements and other
information contained in this report are as dated and are subject to change.
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