ANNUAL REPORT June 30, 1995
The BlackRock
Government
Income Trust
---------------------------------
(LOGO)
<PAGE>
Letter to Shareholders
August 15, 1995
Dear Shareholder:
We are pleased to present the Annual Report for The BlackRock Government
Income Trust for the fiscal year ended June 30, 1995. The Fund is an open-end
fund whose investment objective is to seek high monthly income and to limit
the degree of fluctuation of its net asset value (NAV) resulting from
movements in interest rates by investing primarily in a portfolio of
adjustable rate securities and U.S. Government securities. The Fund is part
of the Prudential family of mutual funds and is managed by its investment
sub-adviser, BlackRock Financial Management, Inc.
The twelve month period ended June 30, 1995 was characterized by large swings
in the direction of interest rates across the yield curve (both up and down)
and proved to be a challenging investment environment for fixed income
products. Despite this unprecedented volatility, the Fund was a strong
performer within its peer group according to Lipper Analytical Services,
Inc., for one-year total return performance as of June 30, 1995.
<TABLE>
<CAPTION>
HISTORICAL PERFORMANCE1
As of June 30, 1995
One Year Since Inception 30-Day NAV
Total Return Total Return3 SEC Yield
6/30/95
<S> <C> <C> <C> <C>
Class A 6.6% 17.6% 7.50% $9.37
Class B 6.2 7.6 7.62 9.37
Class C N/A 4.7 6.97 9.37
Lipper Adjustable Rate
Mortgage Fund Average3 1.5 N/A N/A N/A
</TABLE>
1 Source: Prudential Mutual Fund Management, Inc. These figures do not take
into account sales charges. The Fund charges a maximum sales load of 3.00%
for Class A shares. Class B and Class C shares are subject to a contingent
deferred sales charge of 1% over a period of one year.
2 These are the average returns of 81 funds for the twelve months in the
adjustable rate mortgage category, as determined by Lipper Analytical
Services, Inc.
3 Inception of Class A 9/9/91: Class B 9/1/92: Class C 11/1/94.
1
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS1
As of June 30, 1995
One Year Since Inception2
<S> <C> <C>
Class A 3.4% 3.5%
Class B 5.2 2.6
Class C N/A 3.7
</TABLE>
1 Source: Prudential Mutual Fund Management, Inc. These figures take into
account applicable sales charges.
2 Inception of Class A 9/9/91: Class B 9/1/92: Class C 11/1/94.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. Past performance is no guarantee of future results. Investment
return and principal value will fluctuate so that an investor's shares when
redeemed may be worth more or less than their original cost.
The Fixed Income Markets
For most of 1994, inflationary fears drove the prices of fixed income
securities down across all parts of the yield curve. The yield of the
2-year Treasury note (the Treasury security that most closely reflects
the interest rate sensitivity of the Fund) increased nearly two percentage
points from June 1994 through December 1994, reaching a four year high of
7.73% on December 26, 1994. During this period the Federal Reserve adopted
a preemptive stance to contain the threat of inflation. The Fed's vigilance
towards containing inflation was highlighted by seven increases in the Fed
funds rate (the overnight lending rate that banks charge each other to borrow
cash) between February 1994 and February 1995.
In contrast to the rapid and substantial increase in interest rates during
1994, the fixed income markets rallied sharply in the first and second
quarters of 1995. The bond market rally, which has caused interest rates
to decline as prices have increased, has been fueled largely by modest
inflationary data and the perception that the Federal Reserve's proactive
attempts to contain inflation and provide a "soft landing" for the economy
(modest economic growth with little or no inflation) may have been
successful. The market rally has led to yields on maturities of less than
2 years to trade below the 5.75% Fed funds target during the second quarter
of 1995.
Although the Federal Reserve recently eased its monetary stance by lowering
the Fed funds rate by 25 basis points on July 7, we remain attentive to the
fact that lower interest rates, a weak dollar and a rising stock market have
the potential to re-ignite growth (and inflation) in the second half of the
year.
Mortgages tend to underperform Treasuries in volatile interest rate
environment due to concerns over changes in the expected average lives
of mortgage products -- including extension risk when prepayments are slower
than expected and contraction risk when prepayments are faster than
2
<PAGE>
expected. As a result, mortgage securities underperformed their Treasury
counterparts during the latter half of 1994 as rates rose dramatically.
During the first quarter of 1995 mortgages outperformed their Treasury
counterparts as fear of extension risk dissipated and prepayment concerns
remained in check.
In response to heightened concerns over increased prepayments in the second
quarter, the Fund looked to modestly lighten its mortgage exposure to seek
to reduce the portfolio's sensitivity to prepayments while still deriving
the yield advantage of the mortgage sector.
While the first six months of 1995 were characterized by extremely high
levels of interest rate volatility, we expect that levels of volatility
should moderate over the next few months. As a result, ARMs should become
more valuable. In the asset-backed securities market (ABS), a slowdown in
new issuance from first quarter 1995 levels has resulted in strong performance
relative to other short duration products.
Strategy and Performance
The Fund's flexible investment strategy provides for diversification across a
number of sectors in the short duration market, including agency pass-through
securities, ARMs, CMOs, fixed- and floating-rate asset-backed securities and
Treasuries.
BlackRock manages the Fund using a "targeted duration" approach such that
the Fund's duration is approximately 1 1/2 to 2 years. That duration target
should create a fund with the price, or net asset value sensitivity, between
a 2- and 3-year Treasury. Changes in the prices and yields of these Treasury
securities affect the value of the Fund's securities. In addition to interest
rates, the Fund's net asset value is affected by the rate of prepayments of
the mortgage securities in its portfolio.
Your Fund seeks to add value and enhance performance by rotating its exposure
to different sectors of the fixed-income and short duration markets, while
controlling its effective duration and price sensitivity. Coming off of
the weak performance of fixed-income markets in 1994, your Fund was able to
take advantage of relatively strong performance in the ARM and CMO markets
as spreads tightened relative to Treasuries. However, with the tremendous
rally and decline in interest rates during the first half of 1995, your Fund
increased its exposure to Treasuries to capture this sector's performance,
as ARMs and other mortgage-backed securities lagged in performance.
3
<PAGE>
Active Portfolio Management
In recent weeks the portfolio has increased its allocation to short average
life sequential pay CMOs. These securities, also referred to as "plain
vanilla" CMOs, offer a relatively high degree of prepayment protection while
yielding approximately 100 basis points over Treasury securities with a
comparable duration. Additionally, the Fund allocated approximately 6%
of net assets to Small Business Administration (SBA) floating-rate securities.
The underlying assets of these securities are loans made to small businesses
which are backed by the full faith and credit of the U.S. Government.
These securities are similar to ARMs in that they have coupons which
periodically adjust to a spread over a specified index, however, these
securities have no lifetime or periodic caps and offer excellent prepayment
protection.
Allocation to agency-backed (GNMA, FNMA, FHLMC) ARMs is approximately
60% of net assets. GNMA ARMs performed particularly well relative to other
short duration products as increased demand met with a sharp decrease in
supply during the first quarter of 1995. As spreads continued to tighten
(GNMA ARMs increased in price relative to other short duration securities),
the Fund decreased its allocation in favor of floating-rate assets-backed
securities. Recently, as ARM spreads have widened (have become cheaper)
relative to other short duration products, the Fund has been adding to its
position.
Outlook
Although the recent market rally has afforded fixed income investors an
opportunity to partially recoup losses suffered in 1994, we remain cautiously
optimistic concerning the near-term future of the bond market. Investor
sentiment clearly indicates that the inflationary fears that consumed the
market during most of 1994 have dissipated. However, the steep decline in
interest rates could stimulate a resurgence in consumption and increase the
potential for increased inflationary pressures. In addition, the momentum
with which the economy entered 1995 and the continued weakness of the dollar
could prove the arrival of a soft landing to be premature.
Should the levels of inflation remain low, BlackRock expects the performance
of the fixed income markets to remain strong and looks for a possible
stabilization of interest rates towards year end. The Fund's portfolio
will continue to be actively managed to add value by both taking advantage
of price dislocations in the short duration market and through sector
rotation.
4
<PAGE>
The Sub-Adviser
As Investment Sub-Adviser, BlackRock is responsible for making the day-to-day
investment decisions for the portfolio. BlackRock was formed in 1988 to
provide asset management services with respect to fixed income securities
to both institutional and individual investors and currently manages over
$33 billion of fixed income securities through several open-end funds, 21
closed-end funds and more than 95 institutional client accounts. We encourage
shareholders with questions about The BlackRock Government Income Trust to
call your Prudential Financial Adviser or BlackRock's representatives at
(800) 227-7236.
Sincerely,
Richard A. Redeker
President
Scott Amero
Portfolio Manager
5
<PAGE>
Portfolio of Investments as
of June 30, 1995 THE BLACKROCK GOVERNMENT INCOME TRUST
------------------------------------------------------------
------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--134.6%
------------------------------------------------------------
Mortgage Pass-Throughs--94.4%
Federal Home Loan Mortgage
Corporation,
$ 1,215 7.50%, 6/01/00 $ 1,231,686
5,075 9.00%, 9/01/05 - 11/01/05, 15 Year 5,277,146
1,027 7.375%, 3/01/06, Multi-family 1,029,602
991 6.128%, 2/01/18, 1 year CMT, ARM 980,945
2,402 6.912%, 9/01/23, 1 year CMT, ARM 2,514,224
2,358 6.207%, 10/01/24, 1 year CMT, ARM 2,442,346
Federal National Mortgage
Association,
2,279 8.00%, 3/01/08 2,350,057
3,438 8.50%, 6/01/08 - 1/01/16 3,600,791
1,293 7.857%, 12/01/20, 3 year CMT, ARM 1,322,645
1,638 7.447%, 12/01/22, 1 Year CMT, ARM 1,689,487
2,400 6.627%, 11/01/24, 1 year CMT, ARM 2,433,750
996 5.693%, 2/01/25, 6 month CD, ARM 1,001,670
Government National Mortgage
Association,
3,295(d) 7.25%, 1/15/05 - 4/15/06 3,351,343
2,212 6.50%, 2/20/21, 1 year CMT, ARM 2,238,320
2,968(b) 7.00%, 7/20/24 - 4/20/25, 1 year
CMT, ARM 3,020,399
4,796(c) 7.50%, 1/20/25 - 3/20/25, 1 year
CMT, ARM 4,917,230
1,686 8.50%, 4/20/25, 1 year CMT, ARM 1,753,063
2,980 7.50%, 4/20/25, 1 year CMT, ARM 3,056,861
1,957 6.50%, 5/20/25, 1 Year CMT, ARM 1,980,070
------------
Total Mortgage Pass-Throughs
(cost $46,216,306) 46,191,635
------------------------------------------------------------
Multiple Class Mortgage Pass-Throughs--22.1%
1,480 Collateralized Mortgage Obligation,
Trust 59, Class G, 9.00%, 7/01/17 1,491,454
1,633 Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
Series 124, Class A, Floating Rate
REMIC, 8.50%, 3/15/97 1,659,954
Federal National Mortgage
Association, REMIC Pass-Through
Certificates,
$ 1,559 11.50%, 4/01/09 $ 1,726,352
783 Trust 1991-49, Class D, 8.00%,
5/25/05 786,017
1,061 Trust 1990-60, Class J, 9.00%,
6/25/17 1,067,932
513 Residential Funding Mtg. Sec. I,
I/0,
Series 1992-S2, Class A17, 7.96%,
1/25/22 452
1,350 Resolution Trust Corporation,
Multiclass Mortgage Participation
Certificates, Series 1992-9, Class
A, 8.00%, 7/25/29 1,359,887
Small Business Administration,
1,359 7.25%, 8/25/16, ARM 1,377,879
1,326 7.375%, 9/25/16, ARM 1,349,757
------------
Total Multiple Class Mortgage
Pass-Throughs (cost $14,124,472) 10,819,684
------------------------------------------------------------
U.S. Government Securities--14.5%
U.S. Treasury Notes,
6,200(c) 6.00%, 6/30/96 6,215,500
870(c) 6.625%, 3/31/97 881,284
------------
Total U.S. Government Securities
(cost $7,022,319) 7,096,784
------------------------------------------------------------
Asset-Backed Securities--3.6%
700 First Chicago Master Trust,
Series 1991-D, 8.40% 713,125
1,000 National Credit Card Trust,
Series 1989-4, 9.45% 1,028,120
------------
Total Asset-Backed Securities
(cost $1,744,091) 1,741,245
Total Long-Term Investments
(cost $69,107,188) 65,849,348
--------------------------------------------------------------------------------
----- 6 See Notes to Financial Statements.
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Portfolio of Investments as of June 30, 1995
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
SHORT-TERM INVESTMENTS--4.7%
------------------------------------------------------------
Repurchase Agreement--3.1%
$ 1,520 Lehman Brothers, Inc., 6.15%, dated
6/30/95, due 7/3/95 in the amount
of $1,520,779 (cost $1,520,000;
collateralized by $1,450,000 U.S.
Treasury Note, 7.75%, due 11/30/99,
value including accrued
interest--$1,560,168) $ 1,520,000
------------------------------------------------------------
Discount Note--1.5%
730 Federal National Mortgage
Association, 5.90%, 7/07/95 (cost
$729,282) 729,282
------------------------------------------------------------
Call Options Purchased--0.1%
Contracts(a)
---------
13 U.S. Treasury Bond Future, Dec. '95,
expiring 11/19/95 @ 114.00
(cost $43,141) 34,125
------------
Total Short-Term Investments
(cost $2,292,423) 2,283,407
------------------------------------------------------------
Total Investments--139.3%
(cost $71,399,611; Note 4) 68,132,755
Liabilities in excess of
other assets (Note 5)--(39.3%) (19,210,450)
------------
Net Assets--100% $ 48,922,305
------------
------------
---------------
ARM--Adjustable Rate Mortgage.
CMT--Constant Maturity Treasury.
I/O--Interest Only.
REMIC--Real Estate Mortgage Investment Conduit.
(a) One contract equals $1,000 face value.
(b) Portion of principal amount pledged as collateral for
reverse repurchase agreements.
(c) Entire principal amount pledged as collateral for
reverse repurchase agreements.
(d) Entire principal amount pledged as collateral for
futures transactions.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
Statement of Assets and Liabilities THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S>
<C>
Assets
June 30, 1995
Investments, at value (cost
$71,399,611).................................................................
..... $68,132,755
Cash.........................................................................
................................. 67,673
Receivable for investments
sold.........................................................................
...... 6,407,604
Interest
receivable...................................................................
........................ 928,409
Receivable for Fund shares
sold.........................................................................
...... 14,829
Deferred organization expenses and other
assets...............................................................
34,934
-----------
Total
assets.......................................................................
........................ 75,586,204
-----------
Liabilities
Reverse repurchase
agreements...................................................................
.............. 19,872,000
Payable for investments
purchased....................................................................
......... 6,219,169
Payable for Fund shares
reacquired...................................................................
......... 209,654
Dividends
payable......................................................................
....................... 77,059
Due to broker-variation
margin.......................................................................
......... 25,807
Interest
payable......................................................................
........................ 20,378
Management fee
payable......................................................................
.................. 20,350
Distribution fee
payable......................................................................
................ 6,210
Accrued expenses and other
liabilities..................................................................
...... 213,272
-----------
Total
liabilities..................................................................
........................ 26,663,899
-----------
Net
Assets.......................................................................
............................. $48,922,305
-----------
-----------
Net assets were comprised of:
Shares of beneficial interest, at
par......................................................................
$ 52,215
Paid-in capital in excess of
par...........................................................................
56,285,356
-----------
56,337,571
Distributions in excess of net investment
income...........................................................
(159,383)
Accumulated net realized loss on
investments...............................................................
(3,988,929)
Net unrealized depreciation on
investments.................................................................
(3,266,954)
-----------
Net assets, June 30,
1995.........................................................................
............ $48,922,305
-----------
-----------
Class A:
Net asset value and redemption price per share
($46,449,586 / 4,957,567 shares of beneficial interest issued and
outstanding).......................... $9.37
Maximum sales charge (3.0% of offering
price)..............................................................
.29
Maximum offering price to
public.......................................................................
.... $9.66
Class B:
Net asset value, offering price and redemption price per share
($2,465,598 / 263,153 shares of beneficial interest issued and
outstanding)............................. $9.37
Class C:
Net asset value, offering price and redemption price per share
($7,121 / 760 shares of beneficial interest issued and
outstanding)..................................... $9.37
</TABLE>
--------------------------------------------------------------------------------
----- 8 See Notes to Financial Statements.
<PAGE>
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Operations
------------------------------------------------------------
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
June 30,
Net Investment Income 1995
-----------
<S> <C>
Income
Interest (net of interest expense of
$522,011)................................. $ 4,029,913
-----------
Expenses
Management fee............................... 296,623
Distribution fee--Class A.................... 84,590
Distribution fee--Class B.................... 15,335
Distribution fee--Class C.................... 6
Custodian's fees and expenses................ 107,000
Transfer agent's fees and expenses........... 85,000
Registration fees............................ 44,000
Audit fee.................................... 33,000
Reports to shareholders...................... 33,000
Legal fees................................... 30,000
Trustees' fees............................... 30,000
Amortization of deferred organization
expense................................... 27,000
Miscellaneous................................ 580
-----------
Total expenses............................ 786,134
-----------
Net investment income........................... 3,243,779
-----------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Security transactions........................ (693,346)
Financial futures contracts.................. (601,248)
Short sale transactions...................... 40,888
-----------
(1,253,706)
-----------
Net change in unrealized appreciation
(depreciation) on:
Securities................................... 1,811,003
Financial futures contracts.................. (103,451)
Short sales.................................. (25,203)
-----------
1,682,349
-----------
Net gain on investments......................... 428,643
-----------
Net Increase in Net Assets
Resulting from Operations....................... $ 3,672,422
-----------
-----------
</TABLE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended
June 30,
Increase (Decrease) in Cash 1995
------------
<S> <C>
Cash flows provided by operating activities:
Interest received............................ $ 4,795,026
Operating expenses paid...................... (917,715)
Interest expense paid........................ (523,150)
Purchase of short-term portfolio investments,
net....................................... (2,292,423)
Purchase of long-term portfolio
investments............................... (173,235,978)
Proceeds from disposition of long-term
portfolio investments..................... 199,806,156
Variation margin on futures.................. (639,049)
Other........................................ (1,186)
------------
Net cash provided by operating activities.... 26,991,681
------------
Cash flows used for financing activities:
Proceeds from shares sold.................... 1,340,405
Payments on shares redeemed.................. (29,547,716)
Cash dividends paid(a)....................... (1,368,570)
Net proceeds from issuance of reverse
repurchase agreements..................... 11,572,000
------------
Net cash used for financing activities....... (18,003,881)
------------
Net increase in cash............................ 8,987,800
Cash at beginning of year....................... (8,920,127)
------------
Cash at end of year............................. $ 67,673
------------
------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided by Operating Activities
Net increase in net assets resulting from
operations................................... $ 3,672,422
------------
Decrease in investments......................... 20,205,730
Net realized loss............................... 1,253,706
Decrease in unrealized depreciation............. (1,682,349)
Decrease in receivable for investments sold..... 6,529,615
Decrease in interest receivable................. 399,869
Decrease in deposit with brokers for investments
sold short................................... 3,284,063
Decrease in other assets........................ 25,814
Decrease in investments sold short.............. (3,251,008)
Decrease in payable for investments purchased... (3,352,111)
Decrease in interest payable.................... (1,139)
Decrease in accrued expenses and other
liabilities..................................... (158,581)
Increase in due to broker variation margin...... 65,650
------------
Total adjustments............................ 23,319,259
------------
Net cash provided by operating activities....... $ 26,991,681
------------
------------
</TABLE>
---------------
(a) Non-cash financing activity not included herein consists of reinvestment of
dividends and distributions of $1,891,073.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
<PAGE>
Statement of Changes in Net Assets THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------
Increase (Decrease) in Net Assets
1995 1994
------------ ------------
<S>
<C> <C>
Operations:
Net investment
income....................................................................
$ 3,243,779 $ 4,768,026
Net realized loss on investments and foreign currency
transactions....................... (1,253,706) (2,063,529)
Net change in unrealized appreciation/depreciation on
investments........................ 1,682,349 (1,602,332)
------------ ------------
Net increase in net assets resulting from
operations..................................... 3,672,422
1,102,165
------------ ------------
Net equalization
debits.....................................................................
(13,333) (61,820)
------------ ------------
Dividends and distributions (Note 1):
Dividends from net investment income:
Class
A...............................................................................
(3,086,267) (3,960,210)
Class
B...............................................................................
(147,139) (201,804)
Class
C...............................................................................
(42) --
------------ ------------
(3,233,448) (4,162,014)
------------ ------------
Tax return of capital distributions:
Class
A...............................................................................
(15,142) (703,286)
Class
B...............................................................................
(722) (35,838)
Class
C...............................................................................
-- --
------------ ------------
(15,864) (739,124)
------------ ------------
Fund share transactions (Note 6):
Net proceeds from shares
subscribed......................................................
1,294,788 6,405,954
Net asset value of shares issued in reinvestment of dividends and
distributions.......... 1,891,073 2,827,310
Cost of shares
reacquired................................................................
(28,430,251) (51,193,373)
------------ ------------
Net decrease in net assets from Fund share
transactions.................................. (25,244,390)
(41,960,109)
------------ ------------
Total
decrease.....................................................................
......... (24,834,613) (45,820,902)
Net Assets
Beginning of
year...........................................................................
73,756,918 119,577,820
------------ ------------
End of
year.........................................................................
........ $ 48,922,305 $ 73,756,918
------------ ------------
------------ ------------
</TABLE>
--------------------------------------------------------------------------------
----- 10 See Notes to Financial Statements.
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
The BlackRock Government Income Trust, (the ``Fund'') is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company. The Fund was organized as an unincorporated business trust in
Massachusetts on June 13, 1991 and had no operations until the issuance of
10,000 shares of beneficial interest for $100,000 on July 18, 1991 to Prudential
Mutual Fund Management, Inc. (``PMF''). Investment operations commenced on
September 9, 1991. The Fund's primary objectives are to provide low volatility
of net asset value and high monthly income, primarily through investment in U.S.
Government securities and obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. The ability of issuers of debt
securities, other than those issued or guaranteed by the U.S. Government, to
meet their obligations may be affected by economic developments in a specific
industry or region.
------------------------------------------------------------
Note 1. Accounting Policies
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
Securities Valuation: The Fund values mortgage-backed, asset-backed and other
debt securities on the basis of current market quotations provided by dealers
or
pricing services approved by the Board of Trustees. In determining the value of
a particular security, pricing services may use certain information with respect
to transactions in such securities, quotations from dealers, market transactions
in comparable securities, various relationships observed in the market between
securities, and calculated yield measures based on valuation technology commonly
employed in the market for such securities. Exchange-traded options are valued
at their last sales price as of the close of options trading on the applicable
exchanges. In the absence of a last sale, options are valued at the average of
the quoted bid and asked prices as of the close of business. Futures contracts
are valued at the last sale price as of the close of the commodities exchange
on
which they trade unless the Fund's Board of Trustees determine that such price
does not reflect its fair value, in which case it will be valued at its fair
value as determined by the Fund's Board of Trustees.
Short-term securities which mature in more than 60 days are valued at current
market quotations. Short-term securities which mature in 60 days or less are
valued at amortized cost.
Securities 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
Fund's Board of Trustees. No such securities were held by the Fund at June 30,
1995.
In connection with transactions in repurchase agreements, the Fund'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 Fund
may be delayed or limited.
Financial Futures Contracts: A financial futures contract is an agreement to
purchase (long) or sell (short) an agreed amount of securities at a set price
for delivery on a future date. Upon entering into a financial futures contract,
the Fund is required to pledge to the broker an amount of cash and/or other
assets equal to a certain percentage of the contract amount. This amount is
known as the ``initial margin''. Subsequent payments, known as ``variation
margin'', are made or received by the Fund each day, depending on the daily
fluctuations in the value of the underlying security. Such variation margin is
recorded for financial statement purposes on a daily basis as unrealized gain
or
loss. When the contract expires or is closed, the gain or loss is realized and
is presented in the statement of operations as net realized gain (loss) on
financial futures contracts.
The Fund invests in financial futures contracts in order to hedge its existing
portfolio securities, or securities the Fund intends to purchase, against
fluctuations in value caused by changes in prevailing interest rates. Should
interest rates move unexpectedly, the Fund may not achieve the anticipated
benefits of the financial futures contracts and may realize a loss. The use of
futures transactions involves the risk of imperfect correlation in movements in
the price of futures contracts, interest rates and the underlying hedged assets.
Options: The Fund may either purchase or write options in order to hedge against
adverse market movements or fluctuations in value caused by changes in
prevailing interest rates or foreign currency exchange rates with respect to
securities or currencies which the Fund currently owns or intends to purchase.
When the Fund purchases an option, it pays a premium and an amount equal to that
premium is recorded as an investment. When the Fund writes an option, it
receives a premium and an amount equal to that premium is recorded as a
liability. The investment or liability is adjusted daily to reflect the current
market value of the
--------------------------------------------------------------------------------
11 -----
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
option. If an option expires unexercised, the Fund realizes a gain or loss to
the extent of the premium received or paid. If an option is exercised, the
premium received or paid is an adjustment to the proceeds from the sale or the
cost of the purchase in determining whether the Fund has realized a gain or
loss. The difference between the premium and the amount received or paid on
effecting a closing purchase or sale transaction is also treated as a realized
gain or loss. Gain or loss on purchased options is included in net realized gain
(loss) on investment transactions. Gain or loss on written options is presented
separately as net realized gain (loss) on written option transactions.
The Fund, as a writer of an option, has no control over whether the underlying
securities may be sold (called) or purchased (put). As a result, the Fund bears
the market risk of an unfavorable change in the price of the security or
currency underlying the written option. The Fund, as purchaser of an option,
bears the risk of the potential inability of the counterparites to meet the
terms of their contracts.
Cash Flow Information: The Fund invests in securities and distributes dividends
from net investment income and from net realized gains which are paid in cash
or
are reinvested at the discretion of shareholders. These activities are reported
in the Statement of Changes in Net Assets and additional information on cash
receipts and cash payments is presented in the Statement of Cash Flows.
Accounting practices that do not affect reporting activities on a cash basis
include carrying investments at value and amortizing discounts or premiums on
debt obligations.
Securities Transactions and Investment Income: Securities transactions are
recorded on the trade date. Realized and unrealized gains and losses on sales
of
portfolio securities are calculated on the identified cost basis. Interest
income is recorded on the accrual basis and the Fund accretes discount or
amortizes premium on securities purchased using the interest method.
Net investment income (other than distribution fees), and realized and
unrealized gains or losses are allocated daily to each class of shares based
upon the relative proportion of net assets of each class at the beginning of the
day.
Equalization: The Fund follows the accounting practice known as equalization by
which a portion of the proceeds from sales and costs of reacquisitions of Fund
shares, equivalent on a per share basis to the amount of distributable net
investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment
income per share is unaffected by sales or reacquisitions of the Fund's shares.
Taxes: It is the Fund'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 Fund declares daily and pays dividends monthly
first from net investment income then from realized short-term capital gains,
if
any, and other sources, if necessary. Net long-term capital gains, if any, are
distributed at least annually. Dividends and distributions are recorded on the
ex-dividend date.
Income distributions and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
Reclassification of Capital Accounts: The effect of applying Statement of
Position 93-2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies during the year was to decrease distributions in excess of net
investment income by $15,864 and decrease paid-in capital by $15,864 due to the
reclassification of distributions in excess of net investment income (tax return
of capital distributions). Net investment income, net realized gains and net
assets were not affected by this change.
Deferred Organization Expenses: A total of $135,000 was incurred in connection
with the organization of the Fund. These costs have been deferred and are being
amortized ratably over a period of sixty months from the date the Fund commenced
investment operations.
------------------------------------------------------------
Note 2. Agreements
The Fund has a management agreement with PMF. Pursuant to this agreement, PMF
has responsibility for all investment advisory services and supervises the
subadviser's performance of such services. PMF has entered into a subadvisory
agreement with BlackRock Financial Management, Inc. (``BFM''). BFM furnishes
investment advisory services in connection with the management of the Fund. PMF
pays for the costs of the subadviser's services, the compensation of officers
of
the Fund, occupancy and certain clerical and bookkeeping costs of the Fund. The
Fund bears all other costs and expenses.
The management fee paid PMF is computed daily and payable monthly at an annual
rate of .50 of 1% of the Fund's average daily net assets. PMF pays BFM, as
compensation for its services pursuant to the subadvisory
--------------------------------------------------------------------------------
----- 12
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
agreement, a fee at the annual rate of .25 of 1% of the Fund's average daily net
assets.
On February 28, 1995, BFM was acquired by PNC Bank, N.A. Following the
acquisition, BFM became a wholly-owned corporate subsidiary of PNC Asset
Management Group, Inc., the holding company for PNC's asset management business.
The Fund has distribution agreements with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acts as the distributor of the Class A shares of the
Fund, and Prudential Securities Incorporated (``PSI''), which acts as
distributor of the Class B and Class C shares of the Fund (collectively the
``Distributors''). The Fund began offering Class C shares on November 1, 1994.
The Fund reimburses PMF and PSI for distributing and servicing the Fund's Class
A and Class B shares, pursuant to plans of distribution (the ``Class A and B
Plans''). The Fund compensates PSI for distributing and servicing the Fund's
Class C shares pursuant to a plan of distribution (the ``Class C Plan'')
regardless of expenses actually incurred. The distribution fees are accrued
daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimburses PMFD for its
distribution-related expenses with respect to Class A shares at an annual rate
of up to .30 of 1% of the average daily net assets of the Class A shares. Such
expenses under the Class A Plan were .15 of 1% of the average daily net assets
of the Class A shares for the year ended June 30, 1995. PMFD pays various
broker-dealers, including PSI and Pruco Securities Corporation (`Prusec''),
affiliated broker-dealers, for account servicing fees and other expenses
incurred by such broker-dealers.
Pursuant to the Class B Plan, the Fund reimburses PSI for its
distribution-related expenses with respect to Class B shares at an annual rate
of up to 1% of the average daily net assets of Class B shares. Prior to November
1, 1994, the Class B Plan distribution expenses were 1% of the average daily net
assets. Effective November 1, 1994 such expenses under the Class B Plan were
reduced to .20 of 1% of the average daily net assets of the Class B shares since
the Fund is not currently accepting purchase orders for Class B shares.
Pursuant to the Class C Plan, the Fund compensates PSI for its
distribution-related expenses with respect to Class C shares at an annual rate
of up to 1% of the average daily net assets of Class C shares. Such expenses
under the Class C Plan were .75 of 1% of the average daily net assets of Class
C
shares for the year ended June 30, 1995.
PMFD has advised the Fund that it has received approximately $17,300 in
front-end sales charges resulting from sales of Class A shares during the year
ended June 30, 1995. From these fees, PMFD paid such sales charges to dealers
(PSI and Prusec) which in turn paid commissions to salespersons and incurred
other distribution costs.
With respect to the Class B Plan, at any given time, the amount of expenses
incurred by PSI in distributing the Fund's shares and not recovered through the
imposition of contingent deferred sales charges in connection with certain
redemptions of shares may exceed the total payments made by the Fund pursuant
to
the Class B Plan. PSI advised the Fund that for the year ended June 30, 1995,
it
has received approximately $2,100 in contingent deferred sales charges imposed
upon certain redemptions by investors. PSI, as distributor, has also advised the
Fund that as of June 30, 1995, the amount of distribution expenses incurred by
PSI and not yet reimbursed by the Fund or recovered through contingent deferred
sales charges approximated $46,400. This amount may be recovered through future
payments under the Class B Plan or contingent deferred sales charges.
PMFD is a wholly-owned subsidiary of PMF; PSI and PMF are (indirect)
wholly-owned subsidiaries of The Prudential Insurance Company of America
(``Prudential'').
------------------------------------------------------------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services, Inc. (``PMFS''), a wholly-owned subsidiary of
PMF, serves as the Fund's transfer agent. During the year ended June 30, 1995,
the Fund incurred fees of approximately $75,000 for the services of PMFS. As of
June 30, 1995, approximately $6,100 of such fees were due to PMFS. Transfer
agent fees and expenses in the Statement of Operations include certain
out-of-pocket expenses paid to non-affiliates.
------------------------------------------------------------
Note 4. Portfolio Securities
Purchases and sales of investment securities, other than short-term investments
for the year ended June 30, 1995 aggregated $169,337,176 and $182,228,730,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1995 was
substantially the same as the basis for financial statement reporting purposes
and, accordingly, net unrealized depreciation for federal income tax purposes
was $3,266,856 (gross unrealized appreciation--$372,368; gross unrealized
depreciation--$3,639,224).
During the year ended June 30, 1995 the Fund entered into financial futures
contracts. Details of open contracts at June 30, 1995 are as follows:
--------------------------------------------------------------------------------
13 -----
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value at Value at
Unrealized
Number of Expiration Trade June 30,
Appreciation
Contracts Type Date Date 1995
(Depreciation)
--------- ----------- ----------- ----------- ----------
--------------
<S> <C> <C> <C> <C> <C>
Long
position:
30 yr. Sept.
2 T-Bond 1995 $224,203 $ 227,062 $
2,859
Short
positions:
2 yr. Sept.
16 T-Note 1995 3,312,404 3,318,250
(5,846)
5 yr. Sept.
48 T-Note 1995 5,144,712 5,152,500
(7,788)
30 yr. Dec.
7 T-Bond 1995 802,333 791,656
10,677
------
$
(98)
------
------
</TABLE>
For federal income tax purposes, the Fund had a capital loss carryforward at
June 30, 1995 of approximately $3,374,000 of which $588,000 expires in 2001,
$2,044,000 expires in 2002, and $742,000 expires in 2003. Accordingly, no
capital gains distributions are expected to be paid to shareholders until net
gains have been realized in excess of such amount.
The Fund has elected to treat approximately $533,700 of net capital losses
incurred in the eight-month period ended June 30, 1995, as having occurred in
the following fiscal year.
------------------------------------------------------------
Note 5. Borrowings
The Fund enters into reverse repurchase agreements with qualified, third party
broker-dealers as determined by and under the direction of the Board of
Trustees. Reverse repurchase agreements are a technique involving leverage and
are considered a borrowing of the Fund thereby causing the Fund's total assets
to exceed its net assets. In a reverse repurchase agreement, the Fund sells
securities and agrees to repurchase them at a mutually agreed date and price.
During this time, the Fund continues to receive the principal and interest
payments from that security. At the end of the term, the Fund receives the same
securities that were sold for the same initial dollar amount plus interest on
the cash proceeds of the initial sale. 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 Fund enters into a reverse
repurchase agreement, it establishes and maintains a segregated account with the
lender containing liquid high grade securities having a value not less than the
repurchase price, including accrued interest, of the reverse repurchase
agreement.
The Fund had outstanding reverse repurchase agreements at June 30, 1995 as
follows:
<TABLE>
<CAPTION>
Date Amount
Entered Maturity Interest Due at
Into Date Par Rate Maturity
-------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C>
6/22/95 7/25/95 $ 6,100,000 6.05% $ 6,133,830
6/26/95 7/5/95 12,500,000 6.13% 12,519,141
6/28/95 7/5/95 1,272,000 6.13% 1,273,515
------------
$ 19,872,000
------------
------------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the year ended June 30, 1995 was approximately $9,129,900 at a weighted average
interest rate of approximately 5.36%.
------------------------------------------------------------
Note 6. Capital
The Fund has issued Class A, B and C shares. Class A shares are sold with a
front-end sales charge of up to 3.0%. Class B shares were sold and Class C
shares are currently sold with a contingent deferred sales charge of 1% during
the first year.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.01 par value per share divided into three classes, designated Class A, Class
B
and Class C shares. Of the 5,221,480 shares issued and outstanding at June 30,
1995, PMF owned 10,000 Class A shares and 10 Class B shares.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
------------------------------------- ---------- ------------
<S> <C> <C>
Year ended June 30, 1995:
Shares sold.......................... 119,099 $ 1,102,305
Shares issued in reinvestment of
dividends
and distributions.................. 193,271 1,796,033
Shares reacquired.................... (2,881,336) (26,749,291)
---------- ------------
Net decrease in shares outstanding... (2,568,966) $(23,850,953)
---------- ------------
---------- ------------
Year ended June 30, 1994:
Shares sold.......................... 496,009 $ 4,718,497
Shares issued in reinvestment
of dividends and distributions..... 280,842 2,665,273
Shares reacquired.................... (5,001,428) (47,467,365)
---------- ------------
Net decrease in shares
outstanding........................ (4,224,577) $(40,083,595)
---------- ------------
---------- ------------
</TABLE>
--------------------------------------------------------------------------------
----- 14
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
------------------------------------- ---------- ------------
Year ended June 30, 1995:
<S> <C> <C>
Shares sold.......................... 20,175 $ 185,396
Shares issued in reinvestment of
dividends
and distributions.................. 10,322 95,011
Shares reacquired.................... (181,077) (1,680,960)
---------- ------------
Net decrease in shares
outstanding........................ (150,580) $ (1,400,553)
---------- ------------
---------- ------------
Year ended June 30, 1994:
Shares sold.......................... 177,366 $ 1,687,457
Shares issued in reinvestment
of dividends and distributions..... 17,092 162,037
Shares reacquired.................... (395,711) (3,726,008)
---------- ------------
Net decrease in shares
outstanding........................ (201,253) $ (1,876,514)
---------- ------------
---------- ------------
<CAPTION>
Class C
-------------------------------------
<S> <C> <C>
November 1, 1994(a) through
June 30, 1995:
Shares sold.......................... 757 $ 7,087
Shares issued in reinvestment
of dividends and distributions..... 3 29
Shares reacquired.................... -- --
---------- ------------
Net increase in shares
outstanding........................ 760 $ 7,116
---------- ------------
---------- ------------
</TABLE>
---------------
(a) Commencement of offering of Class C shares.
--------------------------------------------------------------------------------
15 -----
<PAGE>
<PAGE>
Financial Highlights THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
---------------------------------------------- Class B
September -------------------
9,
1991(a)
Year ended June 30,
through Year ended June 30,
-------------------------------- June 30, -------------------
PER SHARE OPERATING PERFORMANCE: 1995(d) 1994(d) 1993
1992 1995(d) 1994(d)
------- -------
-------- --------- ------- -------
<S> <C> <C> <C>
<C> <C> <C>
Net asset value, beginning of period.......... $ 9.29 $ 9.67 $
10.07 $ 10.00 $ 9.29 $ 9.68
------- -------
-------- --------- ------- -------
Income from investment operations
Net investment income......................... .51 .45
.64 .57 .48 .37
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions................................ .09 (.35)
(.41) .10 .09 (.37)
------- -------
-------- --------- ------- -------
Total from investment operations.......... .60 .10
.23 .67 .57 --
------- -------
-------- --------- ------- -------
Less distributions
Dividends from net investment income.......... (.52) (.40)
(.63) (.57 ) (.49) (.32)
Tax return of capital distributions........... -- (.08)
-- -- -- (.07)
Distributions in excess of net realized
capital gains............................... -- --
-- (.03 ) -- --
------- -------
-------- --------- ------- -------
Total distributions....................... (.52) (.48)
(.63) (.60 ) (.49) (.39)
------- -------
-------- --------- ------- -------
Net asset value, end of period................ $ 9.37 $ 9.29 $
9.67 $ 10.07 $ 9.37 $ 9.29
------- -------
-------- --------- ------- -------
------- -------
-------- --------- ------- -------
TOTAL RETURN(g)............................... 6.55% 1.02%
2.40% 6.69 % 6.16% (.01)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $46,450 $69,912
$113,623 $143,856 $ 2,466 $ 3,845
Average net assets (000)...................... $56,395 $91,849
$131,371 $134,585 $ 2,928 $ 5,778
Ratios to average net assets:(h)
Expenses, including distribution fee........ 1.31% 1.17%
1.05% 1.03 %(b) 1.68% 2.05%
Expenses, excluding distribution fee........ 1.16% 1.05%
.95% .93 %(b) 1.16% 1.05%
Net investment income....................... 5.49% 4.94%
6.71% 6.95 %(b) 5.12% 4.06%
Portfolio turnover rate....................... 254% 209%
228% 137 % 254% 209%
<CAPTION>
Class C
------------
September 1, November 1,
1992(c) 1994(e)
through through
June 30, June 30,
PER SHARE OPERATING PERFORMANCE: 1993 1995(d)
------------ ------------
<S> <C> <C>
Net asset value, beginning of period.......... $ 9.97 $ 9.26
----- -----
Income from investment operations
Net investment income......................... .47 .23
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions................................ (.32) .21
----- -----
Total from investment operations.......... .15 .44
----- -----
Less distributions
Dividends from net investment income.......... (.44) (.33)
Tax return of capital distributions........... -- --
Distributions in excess of net realized
capital gains............................... -- --
----- -----
Total distributions....................... (.44) (.33)
----- -----
Net asset value, end of period................ $ 9.68 $ 9.37
----- -----
----- -----
TOTAL RETURN(g)............................... 1.39% 4.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $5,954 $7,121(f)
Average net assets (000)...................... $2,740 $1,335(f)
Ratios to average net assets:(h)
Expenses, including distribution fee........ 1.95%(b) 1.91%(b)
Expenses, excluding distribution fee........ .95%(b) 1.16%(b)
Net investment income....................... 5.11%(b) 4.89%(b)
Portfolio turnover rate....................... 228% 254%
</TABLE>
<TABLE>
<CAPTION>
BORROWINGS:
Amount
of debt Average amount of
outstanding at end debt outstanding
Period Ended of
period (000) during period (000)
---------------------------------------------------------------------
------------------ -------------------
<S> <C>
<C>
June 30, 1995........................................................ $
19,872 $ 9,130
June 30, 1994........................................................
8,300 18,840
June 30, 1993........................................................
24,386 34,892
June 30, 1992........................................................
20,109 9,939
<CAPTION>
---------------
<CAPTION>
BORROWINGS:
Average amount of
debt per share
Average
number of outstanding
shares
outstanding during
Period Ended during
period (000) period
---------------------------------------------------------------------
------------------- -----------------
<S> <C>
<C>
June 30, 1995........................................................
6,389 $1.43
June 30, 1994........................................................
10,234 1.84
June 30, 1993........................................................
13,517 2.58
June 30, 1992........................................................
13,458 .74
</TABLE>
---------------
(a) Commencement of investment operations.
(b) Annualized.
(c) Commencement of offering of Class B shares.
(d) Calculated based upon weighted average shares outstanding during the
period.
(e) Commencement of offering of Class C shares.
(f) Figures are actual and not rounded to nearest thousand.
(g) Total return does not consider the effects of sales loads. Total return
is calculated assuming a purchase of shares on the first day and a sale
on the last day of each period reported and includes reinvestment of
dividends and distributions. Total return for periods of less than one
full year are not annualized.
(h) Because of the event referred to in ``e'' and the timing of such, the
ratios for Class C shares are not necessarily comparable to that of
Class A or B shares and are not necessarily indicative of future ratios.
--------------------------------------------------------------------------------
See Notes to Financial Statements. 16 -----
<PAGE>
<PAGE>
Report of Independent Accountants THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
The Shareholders and
Board of Trustees of
The BlackRock Government Income Trust:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of The BlackRock Government Income Trust as of
June 30, 1995, the related statements of operations and of cash flows for the
year then ended and of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended and for the period September 9, 1991 (commencement of
investment operations) to June 30, 1992. These financial statements and
financial highlights are the responsibility of the Fund'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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1995, 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock
Government Income Trust as of June 30, 1995, the results of its operations, its
cash flows, the changes in its net assets and the financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
August 21, 1995
Tax Information THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS
We are required by Massachusetts and Oregon to inform you that dividends which
have been derived from interest on federal obligations are not taxable to
shareholders providing the mutual fund meets certain requirements mandated by
the respective state's taxing authorities. We are pleased to report that 17.6%
of the dividends paid by the BlackRock Government Income Trust qualify for such
deduction.
For more detailed information regarding your state and local taxes, you should
contact your tax adviser or the state/local taxing authorities.
--------------------------------------------------------------------------------
17 -----
<PAGE>
<PAGE>
Supplemental Proxy Information THE BLACKROCK GOVERNMENT INCOME TRUST
--------------------------------------------------------------------------------
There was a special meeting of Shareholders of The BlackRock Government Income
Trust Fund (The ``Fund'') held on February 23, 1995 at the offices of Prudential
Securities Incorporated, One Seaport Plaza, New York, New York. The meeting was
held for the following purposes:
(1) To approve an amended Management Agreement between the Fund and Prudential
Mutual Fund Management, Inc. which will take effect after the closing of the
acquisition of BlackRock Financial Management L.P. (the Subadviser) by PNC
Bank, N.A.;
Votes For 4,708,273 Votes Against 95,398 Votes Withheld 53,686
(2) To approve a new Subadvisory Agreement between the Fund, Prudential Mutual
Fund Management, Inc. and BlackRock Financial Management, Inc. which will
take effect after the closing of the acquisition of the Subadviser by PNC
Bank, N.A.;
Votes For 4,715,088 Votes Against 99,348 Votes Withheld 42,921
(3) There was no other business voted upon at the Special Meeting of
Shareholders.
--------------------------------------------------------------------------------
----- 18
<PAGE>
<PAGE>
Past performance is not predictive of future performance and an investor's
shares, when redeemed, may be worth more or less than their original cost.
These graphs are furnished to you in accordance with SEC regulations. They
compare a $10,000 investment in The BlackRock Government Income Trust (Class A,
Class B and Class C) with a similar investment in the Lehman Bros. 1-3 Year
Government Index (Lehman Government Index) by portraying the initial account
values on September 9, 1991 for Class A shares, September 1, 1992 for Class B
shares and November 1, 1994 for Class C shares and subsequent account values at
the end of each fiscal year (June 30), as measured on a quarterly basis,
beginning in 1991 for Class A, in 1992 for Class B shares and in 1994 for Class
C shares. For purposes of the graphs and, unless otherwise indicated, the
accompanying tables, it has been assumed that (a) the maximum sales charge was
deducted from the initial $10,000 investment in Class A shares; (b) The maximum
applicable contingent deferred sales charge was deducted from the value of the
investment in Class B and Class C shares assuming full redemption on June 30,
1995; (c) all recurring fees (including management fees) were deducted; and (d)
all dividends and distributions were reinvested. The Fund is currently not
accepting purchase orders for Class B shares.
The Lehman Government Index is a weighted index comprised of securities
issued or backed by the U.S. Government and its agencies with a remaining
maturity of one to three years. The Lehman Government Index is an unmanaged
index and includes the reinvestment of all dividends, but does not reflect the
payment of transaction costs and advisory fees associated with an investment in
the Fund. The securities which comprise the Lehman Government Index may differ
substantially from the securities in the Fund's portfolio. The Lehman Government
Index is not the only index that may be used to characterize performance of
government security funds and other indices may portray different comparative
performance.
--------------------------------------------------------------------------------
19 -----
<PAGE>
Trustees
Edward D. Beach
Delayne Dedrick Gold
Stanley E. Shirk
Stephen Stoneburn
Nancy H. Teeters
Officers
Richard A. Redeker, President
Robert F. Gunia, Vice President
Eugene S. Stark, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Ellyn C. Acker, Assistant Secretary
Manager
Prudential Mutual Fund Management, Inc.
One Seaport Plaza
New York, NY 10292
Subadviser
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Distributors
Prudential Mutual Fund Distributors, Inc.
Prudential Securities Incorporated
One Seaport Plaza
New York, NY 10292
Custodian
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
Transfer Agent
Prudential Mutual Fund Services, Inc.
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Deloitte & Touche LLP
Two World Financial Center
New York, NY 10281
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
Prudential Mutual Funds
One Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
09247Y208
09247Y307 MF 152E
09247Y109 (LOGO) Cat# 4445620
