SEMI ANNUAL REPORT
December 31, 1995
The BlackRock
Government
Income Trust
(LOGO)
<PAGE>
Dear Shareholder:
Letter to Shareholders
February 11, 1996
We are pleased to present the Semi-Annual Report for The BlackRock Government
Income Trust for the period ended December 31, 1995. The Fund is part of the
Prudential family of open-end mutual funds and is managed by its investment
sub-adviser, BlackRock Financial Management, Inc. The investment objective
of the Fund is to seek high monthly income and to limit the degree of
fluctuation in net asset value (NAV) arising from changes in interest
rates. The Fund seeks to achieve its objective by managing a portfolio
comprised primarily of U.S. government securities and adjustable rate
mortgage securities (ARMS).
<TABLE>
HISTORICAL INVESTMENT RESULTS1
Period Ended December 31, 1995
<CAPTION>
1 Year Since Inception 30-Day NAV
Total Return Total Return3 SEC Yield
12/31/95
<S> <C> <C> <C> <C>
Class A 8.4% 21.7% 5.5%
$9.40
Class B 4 7.5 10.5 N/A
$9.38
Class C 7.7 7.9 5.1
$9.40
Lipper Adjustable Rate 4.7 N/A N/A N/A
Mortgage Fund Average2
</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 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 63 funds for 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; and Class C 11/1/94.
4 Last day of investment operations of Class B shares was November 27, 1995.
As of 11/1/94, the Fund no longer offered Class B shares. Then existing
Class B shares were exchanged into Class A shares without CDSC liability.
1
<PAGE>
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of December 31, 1995
One Year Since Inception2
Class A 5.1% 3.9%
Class B 3 6.5 3.0
Class C 6.7 6.8
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.
3 Last day of investment operations of Class B shares was November 27, 1995.
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
The fixed income markets continued to rally during the third and fourth
quarters of 1995 and dramatically changed the landscape for fixed income
investors, as interest rates declined sharply and the value of fixed income
securities increased. Data has shown that U.S. economic growth has
substantially slowed from the torrid pace of 1994 and inflation has
remained subdued. This combination presents a very favorable environment
for fixed income investors. Over the past six months, yields declined across
the Treasury yield curve, led by the performance of longer maturity issues.
The yield of the 30-year Treasury bond declined 67 basis points (0.67%) over
the six-month period, and fell below 6.00% for the first time since October
1993 to close the year at 5.95%. The performance of shorter maturities kept
pace, as the yield of the 2-year Treasury note (the security which most
closely reflects the interest rate sensitivity of The BlackRock Government
Income Trust) fell 64 basis points (0.64%) from its levels at the end of
June 1995, to close at 5.15% on December 29, 1995.
The Federal Reserve reversed its policy of tight monetary control for
the first time in almost two years by lowering the Fed funds target rate
by 25 basis points (0.25%) on July 7 in response to economic reports citing
a moderate but sustainable rate of growth in the U.S. economy during the
first half of 1995. During July and early August, the bond market rally
temporarily halted as stronger economic data dampened expectations for a
quick follow-up reduction. However, as the third quarter progressed, the
economy again showed signs of sluggish growth and interest rates returned
to their 1995 lows in anticipation of another Fed ease by year-end. The
Fed lowered short-term rates by a quarter point on December 19 and again
on January 31, 1996 to the current target level of 5.25%.
Despite a drop in short-term interest rate volatility, which should have
had a beneficial effect on the market for adjustable rate mortgages (ARMs),
these securities underperformed expectations due to an increase in
2
<PAGE>
refinancing activity and relatively high levels of supply. Consequently,
ARMs were trading at attractive buying levels relative to other short-duration
fixed income products at the end of the year. Asset-backed securities (ABS)
also cheapened in November of 1995 due to record levels of new issuance in
the fourth quarter, creating a buying opportunity.
BlackRock Financial Management maintains a positive outlook for the
performance of fixed income securities in 1996. Economic data continues
to suggest that the U.S. economy is growing at a slower rate than in 1995,
and in addition, inflationary expectations remain very low. We believe
that the Federal Reserve is biased towards further easing its monetary
stance. Most importantly, investor confidence in fixed income securities
has rebounded and should provide for strong continued demand for these
securities.
Strategy and Performance
The Fund's flexible investment strategy provides for diversification across
several sectors in the short-duration market, including agency pass-through
securities, ARMs, collateralized mortgage obligations (CMOs), fixed-and
floating-rate asset backed securities and U.S. Treasury securities. The
Fund's assets are allocated to reflect the investment sub-adviser's relative
value analysis of different securities and sectors. In searching for relative
value opportunities, BlackRock Financial Management targets securities and
sectors within the short duration market that are attractively priced and
have potential for appreciation in value.
BlackRock manages the portfolio using a targeted duration approach in
order to achieve a volatility of net asset value (NAV) roughly comparable
to the 2-year Treasury. Duration is a measure of price sensitivity of a
fixed income security in response to a given change in interest rates. By
investing in a portfolio of short duration products, the Fund targets a
duration between 1 to 2 years. In addition, since the portfolio maintains
exposure to short average life mortgage-backed securities and ARMs, the
Fund's NAV is also sensitive to changes in the rate of prepayments and
refinancing on these securities.
Active Portfolio Management
Given the strength of the fixed income markets and the decline in interest
rates, the net asset value of The BlackRock Government Income Trust increased
$0.03 over the third and fourth quarters and a total of $0.19 during 1995.
Over the past six months, the Fund maintained its allocation to adjustable
rate mortgages at roughly 70% of net assets. BlackRock believes that these
securities offer substantial relative value and should benefit from strong
demand for short duration securities. ARMs are mortgage-backed
3
<PAGE>
securities whose coupons periodically adjust in relation to changes
in given interest rate benchmarks or indices, typically making the value
of these securities less sensitive to fluctuations in interest rates than
fixed-rate securities. Some examples of these indices are the 1-year
Constant Maturity Treasury Index, 6-month London Interbank Offered Rate
(LIBOR) and the 11th District Cost of Funds Index. As the levels of these
indices change, the coupon of the related ARM will adjust according to the
terms of the specific security, including limitations related to interest
rate caps. As discussed previously, ARMs remain cheap relative to other
short duration securities and the Fund has continued to hold onto its
position in anticipation of future positive performance.
The Fund also reduced its position in Treasury securities from 15% to
1% as of December 31, 1995, selling into the strength of the markets and
capturing the performance of this sector as the market rallied. In contrast,
the fixed-rate asset backed market has been trading at attractive levels,
and the Fund increased exposure to these securities from 4% to 21% over
the third and fourth quarters.
Outlook for 1996
Market participants remain attentive to the politically-charged debate
surrounding the Federal budget proposals. Congressional and White House
leaders have been unable to agree upon a credible 7-year balanced budget
agreement, and appear resigned to let this debate linger as we move into
an election year. This is likely to create some volatility in the fixed
income markets during early 1996, as investors anticipate possible effects
of the ultimate budget resolution on the values of Treasury and U.S.
government securities. BlackRock is attuned to these political issues,
but we remain positive on the fixed income markets as moderate economic
and inflationary data set the stage for continued decline in interest
rates and further strong performance for fixed income securities.
We look forward to managing the Fund throughout the year to seek to
benefit from the opportunities presented to investors in the markets
consistent with the Fund's investment objectives.
Sincerely,
Richard A. Redeker
President
Scott Amero
Portfolio Manager
4
<PAGE>
Portfolio of Investments as of
December 31, 1995 (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------------------
<C> <S> <C> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C> <C> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--143.2%
------------------------------------------------------------
Mortgage Pass-Throughs--110.8%
Federal Home Loan Mortgage
Corporation,
$ 995 8.50%, 2/01/00 $ 1,021,949
1,125 7.50%, 6/01/00 1,151,837
4,285(b) 9.00%, 9/01/05 - 11/01/05, 15 Year 4,513,053
891 7.375%, 3/01/06, Multi-family 912,502
917 6.679%, 2/01/18, 1 year CMT, ARM 925,270
1,974 7.902%, 9/01/23, 1 year CMT, ARM 2,024,180
Federal National Mortgage
Association,
3,520(b) 8.00%, 9/01/01 - 3/01/08 3,649,765
3,148 8.50%, 6/01/08 - 1/01/16 3,338,439
3,363 6.632%, 4/01/19, ARM 3,388,302
1,269 7.858%, 12/01/20, 3 year CMT, ARM 1,307,410
1,370(c) 7.589%, 12/01/22, 1 year CMT, ARM 1,400,198
781 7.193%, 7/01/24, 1 year CMT, ARM 800,485
1,778 6.821%, 12/01/24, 1 year CMT, ARM 1,816,714
1,313 7.075%, 1/01/25, 1 year CMT, ARM 1,346,873
1,246(c) 7.405%, 1/01/25, 1 year CMT, ARM 1,279,163
1,432 6.337%, 9/01/25, 1 year CMT, ARM 1,469,109
Government National Mortgage
Association,
3,033(d) 7.25%, 4/15/06 3,132,968
2,077(c) 6.50%, 2/20/21, 1 year CMT, ARM 2,113,989
1,822(b) 7.25%, 7/20/24, 1 year CMT, ARM 1,865,849
4,309(c) 7.50%, 1/20/25 - 3/20/25, 1 year
CMT, ARM 4,404,625
2,640(c) 7.50%, 4/20/25, 1 year CMT, ARM 2,700,507
1,500 8.50%, 4/20/25, 1 year CMT, ARM 1,536,831
1,956 6.50%, 10/20/25 - 11/20/25, 1 year
CMT, ARM 1,985,207
------------
Total Mortgage Pass-Throughs
(cost $47,840,583) 48,085,225
- ------------------------------------------------------------
Multiple Class Mortgage Pass-Throughs--10.1%
952 Collateralized Mortgage Obligation
Trust, Trust 59, Class G, 9.00%,
7/01/17 957,051
$ 688 Federal Home Loan Mortgage
Corporation, Muliticlass
Mortgage Participation
Certificates, Series 124, Class
A, 8.50%, 3/15/97 $ 694,730
Federal National Mortgage
Association,
REMIC Pass-Through Certificates,
1,441 11.50%, 4/01/09 1,606,886
444 Trust 1991-49, Class D, 8.00%,
5/25/05 444,377
660 Trust 1990-60, Class J, 9.00%,
6/25/17 662,800
452 Residential Funding Mtg. Sec. I,
I/O, Series 1992-S2, Class A17,
3.80%, 1/25/22 398
4 Small Business Administration,
7.25%, 8/25/16, ARM 4,553
------------
Total Multiple Class Mortgage
Pass-Throughs (cost $7,835,411) 4,370,795
- ------------------------------------------------------------
Asset-Backed Securities--21.1%
967 Chase Manhattan Grantor Trust,
Series 1995-B, Class A, Auto
Loan Pass-Through Certificate,
5.90% 970,227
1,730 Daimler Benz Auto Grantor Trust,
Series 1995-B, Class A, 5.85% 1,734,227
1,247 Ford Credit Grantor Trust,
Series 94-B, Class A, 7.30% 1,270,607
1,415 GMAC 1995 Auto Grantor Trust,
Series 95-A, Class A, 7.15% 1,438,105
1,495(b) NationsBank Auto Grantor Trust,
Series 1995-A, Class A, 5.85% 1,504,902
2,250 Nissan Auto Receivables, Series
1995-A,
Class A, 6.10% 2,261,648
------------
Total Asset-Backed Securities
(cost $9,139,391) 9,179,716
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 5 -----
<PAGE>
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Portfolio of Investments as of December 31, 1995 (Unaudited)
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
U.S Government Security--1.2%
$ 500(b) U.S. Treasury Note,
6.125%, 9/30/00
(cost $513,609) $ 515,000
------------
Total Long-Term Investments
(cost $65,328,994) 62,150,736
SHORT-TERM INVESTMENTS--2.1%
- ------------------------------------------------------------
Discount Note--1.9%
810 Federal Farm Credit Bank,
5.75%, 1/02/96
(cost $809,871) 809,871
- ------------------------------------------------------------
Call Options Purchased--0.2%
Contracts(a)
- ---------
39 U.S. Treasury Bond Futures, Mar.
'96,
expiring 2/17/96 @ 112.00
(cost $61,781) 109,078
------------
Total Short-Term Investments
(cost $871,652) 918,949
- ------------------------------------------------------------
Total Investments--145.3%
(cost $66,200,646; Note 4) 63,069,685
Liabilities in excess of other
assets (Note 5)--(45.3%) (19,665,882)
------------
Net Assets--100% $ 43,403,803
------------
------------
</TABLE>
- ---------------
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.
- --------------------------------------------------------------------------------
- ----- 6 See Notes to Financial Statements.
<PAGE>
<TABLE>
Statement of Assets and Liabilities (Unaudited) THE BLACKROCK GOVERNMENT INCOME
TRUST
- --------------------------------------------------------------------------------
<CAPTION>
Assets
<S> <C>
December 31, 1995
-----------------
Investments, at value (cost
$66,200,646)................................................................
$63,069,685
Interest
receivable...................................................................
.................. 603,210
Receivable for investments
sold.........................................................................
19,715
Deferred organization expenses and other
assets.........................................................
17,976
-----------------
Total
assets.......................................................................
.................. 63,710,586
-----------------
Liabilities
Reverse repurchase
agreements...................................................................
........ 19,753,125
Payable for Fund shares
reacquired......................................................................
193,447
Interest
payable......................................................................
.................. 121,692
Dividends
payable......................................................................
................. 20,016
Management fee
payable......................................................................
............ 18,793
Due to broker-variation
margin..........................................................................
10,836
Bank
overdraft....................................................................
...................... 5,676
Distribution fee
payable......................................................................
.......... 5,653
Accrued expenses and other
liabilities..................................................................
177,545
-----------------
Total
liabilities..................................................................
.................. 20,306,783
-----------------
Net
Assets.......................................................................
....................... $43,403,803
-----------------
-----------------
Net assets were comprised of:
Shares of beneficial interest, at
par................................................................ $
46,151
Paid-in capital in excess of
par.....................................................................
50,609,726
-----------------
50,655,877
Distributions in excess of net investment
income..................................................... (191,238)
Accumulated net realized loss on
investments.........................................................
(3,874,856)
Net unrealized depreciation on
investments...........................................................
(3,185,980)
-----------------
Net assets, December 31,
1995...........................................................................
$43,403,803
-----------------
-----------------
Class A:
Net asset value and redemption price per share
($43,373,626 / 4,611,917 shares of beneficial interest issued and
outstanding).................... $9.40
Maximum sales charge (3.0% of offering
price)........................................................
.29
Maximum offering price to
public.....................................................................
$9.69
Class C:
Net asset value, offering price and redemption price per share
($30,177 / 3,211 shares of beneficial interest issued and
outstanding)............................ $9.40
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 7 -----
<PAGE>
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Operations (Unaudited)
- ------------------------------------------------------------
[S] [C]
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
Net Investment Income 1995
------------
<S> <C>
Income
Interest (net of interest expense of
$583,969)............................... $1,729,085
------------
Expenses
Management fee............................. 117,281
Distribution fee--Class A.................. 33,798
Distribution fee--Class B.................. 1,830
Distribution fee--Class C.................. 70
Custodian's fees and expenses.............. 50,000
Transfer agent's fees and expenses......... 33,000
Registration fees.......................... 30,000
Reports to shareholders.................... 20,000
Audit fee and expenses..................... 16,500
Legal fees and expenses.................... 15,500
Trustees' fees............................. 15,000
Amortization of deferred organization
expense................................. 13,500
Miscellaneous.............................. 7,067
------------
Total expenses.......................... 353,546
------------
Net investment income......................... 1,375,539
------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Security transactions...................... 184,299
Financial futures contracts................ (77,241)
Short sale transactions.................... 7,015
------------
114,073
------------
Net change in unrealized depreciation on:
Securities................................. 135,895
Financial futures contracts................ (54,921)
------------
80,974
------------
Net gain on investments....................... 195,047
------------
Net Increase in Net Assets
Resulting from Operations..................... $1,570,586
------------
------------
</TABLE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
Increase (Decrease) in Cash 1995
------------
<S> <C>
Cash flows provided by operating activities:
Interest received.......................... $ 2,759,713
Operating expenses paid.................... (256,195 )
Interest expense paid...................... (557,958 )
Sale of short-term portfolio investments,
net..................................... 1,420,771
Purchase of long-term portfolio
investments............................. (54,303,245 )
Sale of long-term portfolio investments.... 58,273,624
Variation margin on futures................ (147,133 )
Other...................................... 3,458
------------
Net cash provided by operating
activities.............................. 7,193,035
------------
Cash flows used for financing activities:
Proceeds from shares sold.................. 442,557
Payments on shares redeemed................ (6,981,596 )
Cash dividends paid(a)..................... (608,470 )
Net payments for reduction in reverse
repurchase agreements................... (118,875 )
------------
Net cash used for financing activities..... (7,266,384 )
------------
Net decrease in cash.......................... (73,349 )
Cash at beginning of period................... 67,673
------------
Cash at end of period......................... $ (5,676 )
------------
------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided by Operating Activities
Net increase in net assets resulting from
operations................................. $ 1,570,586
------------
Decrease in investments....................... 5,258,117
Net realized gain............................. (114,073 )
Decrease in unrealized depreciation........... (80,974 )
Decrease in receivable for investments sold... 6,387,889
Decrease in interest receivable............... 325,199
Decrease in other assets...................... 16,958
Decrease in payable for investments
purchased.................................. (6,219,169 )
Increase in interest payable.................. 26,011
Increase in accrued expenses and other
liabilities................................... 37,462
Decrease in due to broker-variation margin.... (14,971 )
------------
Total adjustments.......................... 5,622,449
------------
Net cash provided by operating activities..... $ 7,193,035
------------
------------
</TABLE>
- ---------------
(a) Non-cash financing activity not included herein consists of reinvestment of
dividends and distributions of $850,764.
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
<TABLE>
Statement of Changes in Net Assets (Unaudited) THE BLACKROCK GOVERNMENT INCOME
TRUST
- --------------------------------------------------------------------------------
<CAPTION>
Six Months
Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets
1995 1995
<S> <C>
------------ ------------
Operations:
Net investment
income....................................................................
$ 1,375,539 $ 3,243,779
Net realized gain (loss) on investment
transactions...................................... 114,073
(1,253,706)
Net change in unrealized depreciation on
investments..................................... 80,974
1,682,349
------------ ------------
Net increase in net assets resulting from
operations..................................... 1,570,586
3,672,422
------------ ------------
Net equalization
debits.....................................................................
(5,203) (13,333)
------------ ------------
Dividends and distributions (Note 1):
Dividends from net investment income:
Class
A...............................................................................
(1,322,367) (3,086,267)
Class
B...............................................................................
(52,681) (147,139)
Class
C...............................................................................
(491) (42)
------------ ------------
(1,375,539) (3,233,448)
------------ ------------
Distributions in excess of net investment income:
Class
A...............................................................................
(25,622) --
Class
B...............................................................................
(1,021) --
Class
C...............................................................................
(9) --
------------ ------------
(26,652) --
------------ ------------
Tax return of capital distributions:
Class
A...............................................................................
-- (15,142)
Class
B...............................................................................
-- (722)
------------ ------------
-- (15,864)
------------ ------------
Fund share transactions (net of share conversions) (Note 6):
Net proceeds from shares
subscribed......................................................
427,443 1,294,788
Net asset value of shares issued in reinvestment of dividends and
distributions.......... 850,764 1,891,073
Cost of shares
reacquired................................................................
(6,959,901) (28,430,251)
------------ ------------
Net decrease in net assets from Fund share
transactions.................................. (5,681,694)
(25,244,390)
------------ ------------
Total
decrease.....................................................................
......... (5,518,502) (24,834,613)
Net Assets
Beginning of
period.........................................................................
48,922,305 73,756,918
------------ ------------
End of
period.......................................................................
........ $ 43,403,803 $ 48,922,305
------------ ------------
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 9 -----
<PAGE>
Notes to Financial Statements (Unaudited) 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 December
31, 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 option. If an option expires unexercised, the Fund realizes
a gain or loss to
- --------------------------------------------------------------------------------
- ----- 10
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
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 Net 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. Expenses
are recorded on the accrual basis which may require the use of certain estimates
by management.
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.
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 agreement, a fee at
the annual rate of .25 of 1% of the Fund's average daily net assets.
The Fund had a distribution agreement with Prudential Mutual Fund Distributors,
Inc. (``PMFD''), which acted as the distributor of the Class A shares of the
Fund through January 1, 1996. Effective January 2, 1996, Prudential Securities
Incorporated (``PSI'') became the distributor of the Class A shares of the Fund
and is serving under the same terms and conditions as under the arrangement with
PMFD. PSI acted as distributor of the Class B shares through November 27, 1995
and continues to act as
- --------------------------------------------------------------------------------
11 -----
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
distributor of the Class C shares of the Fund. The Fund compensates PMFD and PSI
for distributing and servicing the Fund's Class A and Class C shares, pursuant
to plans of distribution, (the ``Class A and Class C Plans'') regardless of
expenses actually incurred by them. The distribution fees are accrued daily and
payable monthly.
Pursuant to the Class A Plan, the Fund reimbursed 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 period ended December 31, 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 reimbursed 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. 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. On November 28, 1995
Class B shares converted to Class A 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 period ended December 31, 1995.
PMFD has advised the Fund that it has received approximately $4,200 in front-end
sales charges resulting from sales of Class A shares during the six months ended
December 31, 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, PSI advised the Fund that for the period ended
November 28, 1995, it received approximately $45 in contingent deferred sales
charges imposed upon certain redemptions by investors.
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 period ended December 31,
1995, the Fund incurred fees of approximately $30,000 for the services of PMFS.
As of December 31, 1995, approximately $5,000 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 period ended December 31, 1995 aggregated $54,303,245 and $49,278,215,
respectively.
The federal income tax basis of the Fund's investments at December 31, 1995 was
substantially the same as the basis for financial statement reporting purposes
and, accordingly, net unrealized depreciation for federal income tax purposes
was $3,130,961 (gross unrealized appreciation--$450,087; gross unrealized
depreciation--$3,581,048).
During the period ended December 31, 1995 the Fund entered into financial
futures contracts. Details of open futures contracts at December 31, 1995 are
as
follows:
<TABLE>
<CAPTION>
Value at Value at
Unrealized
Number of Expiration Trade December 31,
Appreciation
Contracts Type Date Date 1995
(Depreciation)
- --------- ------------------ ----------- ------------ ------------
--------------
<S> <C> <C> <C> <C>
<C>
Long position:
102 2 yr. T-Note Mar. 1996 $10,660,256 $10,694,859
$ 34,603
2 30 yr. T-Bond Mar. 1996 234,512 242,938
8,426
Short position:
48 5 yr. T-Note Mar. 1996 5,264,772 5,299,500
(34,728)
32 10 yr. T-Note Mar. 1996 3,603,680 3,667,000
(63,320)
-------
$(55,019)
-------
-------
</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 been incurred
in the current 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
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
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 December 31, 1995 as
follows:
<TABLE>
<CAPTION>
Date Amount
Entered Maturity Interest Due at
Into Date Par Rate Maturity
- --------- --------- ------------ -------- -----------
<S> <C> <C> <C> <C>
11/22/95 1/24/96 $ 13,793,000 5.85% $13,934,206
11/22/95 1/24/96 4,647,000 5.88% 4,694,818
12/22/95 1/22/96 1,000,000 5.95% 1,005,124
12/29/95 1/02/96 313,125 5.95% 313,332
------------
$ 19,753,125
------------
------------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the period ended December 31, 1995 was approximately $9,949,100 at a weighted
average interest rate of approximately 5.93%.
- ------------------------------------------------------------
Note 6. Capital
The Fund currently offers only Class A and Class C shares. Class A shares are
sold with a front-end sales charge of up to 3.0%. Class C shares are sold with
a
contingent deferred sales charge of 1% during the first year. Class B shares,
which were discontinued from being offered on November 1, 1994, automatically
convert to Class A shares upon being held longer than one year from the date of
purchase. Effective November 28, 1995, the remaining Class B shares converted
to
Class A shares.
The Fund has authorized an unlimited number of shares of beneficial interest at
$.01 par value per share divided into two classes, designated Class A and Class
C shares. Of the 4,615,128 shares issued and outstanding at December 31, 1995,
PMF owned 10,000 Class A shares.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
Class A Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Six months ended December 31, 1995:
Shares sold.......................... 40,091 $ 378,646
Shares issued in reinvestment
of dividends and distributions..... 87,334 818,072
Shares reacquired.................... (711,090) (6,668,210)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (583,665) (5,471,492)
Shares issued upon conversion from
Class B............................ 238,015 2,230,509
---------- ------------
Net decrease in shares outstanding... (345,650) $ (3,240,983)
---------- ------------
---------- ------------
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)
---------- ------------
---------- ------------
<CAPTION>
Class B
- -------------------------------------
<S> <C> <C>
Period ended November 27, 1995:(a)
Shares sold.......................... 139 $ 1,297
Shares issued in reinvestment
of dividends and distributions..... 3,471 32,417
Shares reacquired.................... (28,748) (266,771)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (25,138) (233,057)
Shares reacquired upon conversion
into Class A....................... (238,015) (2,230,509)
---------- ------------
Net decrease in shares
outstanding........................ (263,153) $ (2,463,566)
---------- ------------
---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
13 -----
<PAGE>
<PAGE>
Notes to Financial Statements (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Shares Amount
- ------------------------------------- ---------- ------------
<S> <C> <C>
Year ended June 30, 1995:
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)
---------- ------------
---------- ------------
<CAPTION>
Class C
- -------------------------------------
<S> <C> <C>
Six months ended December 31, 1995:
Shares sold.......................... 5,087 $ 47,500
Shares issued in reinvestment
of dividends and distributions..... 29 275
Shares reacquired.................... (2,665) (24,920)
---------- ------------
Net increase in shares
outstanding........................ 2,451 $ 22,855
---------- ------------
---------- ------------
November 1, 1994(b) through
June 30, 1995:
Shares sold.......................... 757 $ 7,087
Shares issued in reinvestment
of dividends and distributions..... 3 29
---------- ------------
Net increase in shares
outstanding........................ 760 $ 7,116
---------- ------------
---------- ------------
</TABLE>
- ---------------
(a) Last day of investment operations of Class B shares.
(b) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
- ----- 14
<PAGE>
<PAGE>
Financial Highlights (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- ------------------------------------------------------------------
September 9,
Six months
1991(a)
ended Year
ended June 30, through
December 31,
- -------------------------------- June 30,
1995 1995(c)
1994(c) 1993 1992
------------ -------
- ------- -------- ------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.......... $ 9.37 $ 9.29
$ 9.67 $ 10.07 $ 10.00
-------- -------
- ------- -------- ------------
Income from investment operations
Net investment income......................... .27 .51
.45 .64 .57
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions............................... .04 .09
(.35) (.41) .10
-------- -------
- ------- -------- ------------
Total from investment operations........... .31 .60
.10 .23 .67
-------- -------
- ------- -------- ------------
Less distributions
Dividends from net investment income.......... (.28) (.52)
(.40) (.63) (.57)
Tax return of capital distributions........... -- --
(.08) -- --
Distributions in excess of net realized
capital gains.............................. -- --
-- -- (.03)
-------- -------
- ------- -------- ------------
Total distributions........................ (.28) (.52)
(.48) (.63) (.60)
-------- -------
- ------- -------- ------------
Net asset value, end of period................ $ 9.40 $ 9.37
$ 9.29 $ 9.67 $ 10.07
-------- -------
- ------- -------- ------------
TOTAL RETURN(d)............................... 3.49% 6.55%
1.02% 2.40% 6.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 43,374 $46,450
$69,912 $113,623 $143,856
Average net assets (000)...................... $ 44,819 $56,395
$91,849 $131,371 $134,585
Ratios to average net assets:
Expenses, including distribution fee....... 1.50%(b) 1.31%
1.17% 1.05% 1.03%(b)
Expenses, excluding distribution fee....... 1.35%(b) 1.16%
1.05% .95% .93%(b)
Net investment income...................... 5.87%(b) 5.49%
4.94% 6.71% 6.95%(b)
For Class A, B and C shares:
Portfolio turnover rate.................... 76% 254%
209% 228% 137%
</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>
December 31, 1995.................................................... $
19,753 $19,466
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>
BORROWINGS:
Average amount of
debt per share
Average
number of outstanding
shares
outstanding during
Period Ended during
period (000) period
- ---------------------------------------------------------------------
- ------------------- -----------------
<S> <<C>
<C>
December 31, 1995.................................................... $
4,967 $2.00
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) Calculated based upon weighted average shares outstanding during
the period.
(d) 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.
- --------------------------------------------------------------------------------
See Notes to Financial Statements. 15 -----
<PAGE>
Financial Highlights (Unaudited) THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
- ------------------------------------------------------ ------------
July 1,
September 1,
1995
1992(a) Six months
through Year
ended June 30, through ended
November 27,
- ------------------- June 30, December 31,
1995(f)
1995(c) 1994(c) 1993 1995(c)
-------------
- ------- ------- ------------ ------------
<S> <C> <C>
<C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 9.37 $
9.29 $ 9.68 $ 9.97 $ 9.37
--------
- ------- ------- ------ --------
Income from investment operations
Net investment income................................ .22
.48 .37 .47 .24
Net realized and unrealized gains (losses) on
investments and foreign currency transactions..... .02
.09 (.37 ) (.32) .04
--------
- ------- ------- ------ --------
Total from investment operations.................. .24
.57 -- .15 .28
--------
- ------- ------- ------ --------
Less distributions
Dividends from net investment income................. (.23)
(.49 ) (.32 ) (.44) (.25)
Tax return of capital distributions.................. --
- -- (.07 ) -- --
Distributions in excess of net realized capital
gains............................................. --
- -- -- -- --
--------
- ------- ------- ------ --------
Total distributions............................... (.23)
(.49 ) (.39 ) (.44) (.25)
--------
- ------- ------- ------ --------
Net asset value, end of period....................... $ 9.38 $
9.37 $ 9.29 $ 9.68 $ 9.40
--------
- ------- ------- ------ --------
--------
- ------- ------- ------ --------
TOTAL RETURN(e)...................................... 2.63%
6.16 % (.01 )% 1.39% 3.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...................... $ 0
$2,466 $3,845 $5,954 $ 30,177(d)
Average net assets (000)............................. $ 1,820
$2,928 $5,778 $2,740 $ 18,610(d)
Ratios to average net assets:
Expenses, including distribution fee.............. 1.52%(b)
1.68 % 2.05 % 1.95%(b) 2.10%(b)
Expenses, excluding distribution fee.............. 1.32%(b)
1.16 % 1.05 % .95%(b) 1.35%(b)
Net investment income............................. 5.68%(b)
5.12 % 4.06 % 5.11%(b) 5.22%(b)
- ---------------
<CAPTION>
November 1,
1994(a)
through
June 30,
1995(c)
------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period................. $ 9.26
-----
Income from investment operations
Net investment income................................ .34
Net realized and unrealized gains (losses) on
investments and foreign currency transactions..... .10
-----
Total from investment operations.................. .44
-----
Less distributions
Dividends from net investment income................. (.33)
Tax return of capital distributions.................. --
Distributions in excess of net realized capital
gains............................................. --
-----
Total distributions............................... (.33)
-----
Net asset value, end of period....................... $ 9.37
-----
-----
TOTAL RETURN(e)...................................... 4.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...................... $7,121(d)
Average net assets (000)............................. $1,335(d)
Ratios to average net assets:
Expenses, including distribution fee.............. 1.91%(b)
Expenses, excluding distribution fee.............. 1.16%(b)
Net investment income............................. 4.89%(b)
- ---------------
</TABLE>
(a) Commencement of offering of shares.
(b) Annualized.
(c) Calculated based upon weighted average shares outstanding during the
period.
(d) Figures are actual and not rounded to nearest thousand.
(e) 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.
(f) Last day of investment operations of Class B shares. On November
28, 1995, all existing Class B shares were converted to Class A shares.
- --------------------------------------------------------------------------------
- ----- 16 See Notes to Financial Statements.
<PAGE>
Important Information THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
As of the Fund's fiscal period end (December 31, 1995) total dividends and
distributions to shareholders exceeded taxable income by $26,652 (approximately
$.006 per share). Since a final determination as to whether an overdistribution
of taxable income, commonly referred to as a return of capital, cannot be
performed until after the Fund's fiscal year end (June 30, 1996), we wish to
caution investors as to this possibility at this time.
- --------------------------------------------------------------------------------
17 -----
<PAGE>
Trustees
Edward D. Beach
Delayne Dedrick Gold
Harry A. Jacobs, Jr.
Richard A. Redeker
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 FundsOne Seaport Plaza
New York, NY 10292
Toll free (800) 225-1852
The accompanying financial statements, as of December 31, 1995, were not
audited and, accordingly, no opinion is expressed on them.
This report is not authorized for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
09247Y208
09247Y307 MF 152E2
09247Y109 Cat# 4445612
(LOGO)
