ANNUAL REPORT June 30, 1996
The BlackRock
Government
Income Trust
- -------------------
(LOGO)
<PAGE>
Letter to Shareholders
August 15, 1996
Dear Shareholder:
We are pleased to present the Annual Report for The BlackRock Government
Income Trust for the fiscal year ended June 30, 1996. The Fund's
investment objective is to provide low volatility of net asset value
and to seek high monthly income. The Fund invests primarily in U.S.
government securities, and may also invest in fixed and adjustable
rate mortgage-backed securities and asset-backed securities. There
can be no assurance that the Fund will achieve its investment objective.
The Fund is part of the Prudential family of mutual funds and is managed
by its investment sub-adviser, BlackRock Financial Management, Inc.
<TABLE>
HISTORICAL INVESTMENT RESULTS1
As of June 30, 1996
<CAPTION>
One Year Since Inception 30-Day
NAV
Total Return Total Return3 SEC Yield
6/30/96
<S> <C> <C> <C> <C>
Class A 5.0% 23.5% 5.2%
$9.28
Class C 4.3% 9.2% 4.7%
$9.28
Lipper Adjustable Rate 3.3% 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% 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 57 funds for the twelve months ended
June 30, 1996, in the adjustable rate mortgage category, as determined
by Lipper Analytical Services, Inc.
3 Inception of Class A 9/9/91; Class C 11/1/94.
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS1
As of June 30, 1996
<CAPTION>
One Year Since Inception2
<S> <C> <C>
Class A 1.8% 3.8%
Class C 3.3% 5.4%
</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 C 11/1/94.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. Past performance is not indicative 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.
1
<PAGE>
The year ended June 30, 1996, witnessed two profoundly different market
environments. After posting strong returns during 1995, the fixed income
markets have rescinded much of their gains in 1996 in response to a
strengthening U.S. economy. In these diverse market conditions,
the Fund posted strong total return performance within its peer group
(according to Lipper Analytical Services, Inc.) and provided a
relatively stable NAV. The Fund's total net assets declined from
$48,922,305 on June 30, 1995 to $37,114,848 on June 30, 1996.
The Fixed Income Markets
Except for a sharp correction in July 1995, the Treasury market rally
of 1995 continued through the middle of February 1996, as market demand
for fixed income securities remained strong due to a combination of
moderate economic growth, low absolute levels of inflation and two
reductions of the Fed funds target rate. Investor sentiment toward
the fixed income markets reversed during mid-February 1996, however,
as data indicating accelerating economic growth, in conjunction with
a sharp rise in commodity prices, rekindled inflationary concerns.
Positive news for the economy, which may indicate increased levels of
inflation, can cause bond yields to rise and prices to fall. The March
8, 1996, release of the February employment report, which showed a
surprisingly strong gain of 705,000 new jobs (subsequently revised
downward to 624,000), produced the largest one-day price decline in
U.S. bond prices in over seven years. For the first quarter of 1996,
economic growth as measured by Gross Domestic Product (GDP) grew 2.8%,
which represented a strong rebound from the 0.5% gain posted in the
fourth quarter of 1995.
Bond yields across the Treasury yield curve rose during the second quarter
of 1996 in response to accelerating economic growth, which was most clearly
seen in strong employment and manufacturing reports. Inflation remained
subdued along with commodity prices, which retreated from their first
quarter highs. The pace of economic acceleration, however, suggested
potential future price pressures. This has led market participants to
become more resolute in their belief that the Federal Reserve will
reverse their easing of monetary policy, focusing on the timing and
magnitude of a widely anticipated tightening.
2
<PAGE>
After posting net underperformance versus Treasury securities during
1995, the mortgage-backed securities (MBS) market posted strong relative
performance during the first six months of 1996, as rising interest
rates, lower interest rate volatility, declining prepayments and attractive
yields relative to other non-Treasury sectors helped spur investor demand
for mortgages. Additionally, shrinking new issue supply due to the
higher interest rate environment improved the technical environment
for MBS. Still, many investors remained on the sidelines, convinced
that even historically wide mortgage yield spreads offered inadequate
compensation for the perceived risks of owning mortgages. As a result
of this narrow participation, MBS performance in 1996 has been good
although somewhat short of expectations given the sharp rise in
interest rates.
Performance/Portfolio Management Activity
The Fund's flexible investment strategy provides for diversification
across a number of sectors in the short duration market, including
agency pass-through securities, adjustable-rate mortgages (ARMs),
short average life collateralized mortgage obligations (CMOs), fixed-
and floating-rate asset-backed securities (ABS) and Treasuries.
BlackRock manages the Fund using a "targeted duration" approach such that
the Fund's duration is approximately equal to 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.
At fiscal year end, the Fund held approximately 24% of portfolio assets
in Treasury securities, 31% in mortgage pass-throughs and 29% in ARMs.
The remainder of the portfolio was comprised of fixed- and floating-rate
asset-backed securities and CMOs. The most significant adjustment in
the Fund's asset mix over the annual period was the significant reduction
in ARMs, which stood at nearly 50% of the portfolio on June 30, 1995.
The Fund took the opportunity to lighten ARM exposure in the rising
interest rate environment of 1996, as investor demand for ARMs increased
due to declining prepayment speeds and attractive yield spreads versus
other short duration alternatives. The Fund also capitalized upon
the strengthening of the CMO market over the past six months, which
presented an opportunity to substantially reduce holdings in the
sector given the lack of upside potential.
Additionally, the Fund increased exposure to floating-rate ABS over
the year from 0% to approximately 13%. The ABS sector has performed
well due
3
<PAGE>
to strong investor demand for finite maturity, short
duration assets with relatively stable cash flows; this allowed
yields to comparable maturity Treasuries to remain fairly stable
despite the high levels of new issuance. BlackRock has become less
positive on the sector of late, as higher losses and delinquencies
on credit cards combined with rising personal bankruptcies suggest
a deteriorating trend in ABS issuer credit quality.
Outlook
Over the near-term, employment and income gains should support the
consumer sector while manufacturing activity will be bolstered by
inventory rebuilding. Consequently, economic fundamentals appear
to remain unfavorable for bond yields. To date, inflation levels
have remained relatively subdued; however, consistently strong
employment data has provided greater reason for concern about
future cost pressures. Although Federal Reserve action to slow
economic growth has thus far been restrained, market participants
have become more resolute in their belief that the Fed will reverse
their easing of monetary policy and tighten during the latter half
of the year.
Longer-term, we believe that the above-trend growth level of the
second quarter will moderate over the balance of the year. The
level of consumer debt as a percentage of disposable income has
risen to record levels and credit card delinquencies are at a
fifteen year high. With consumers accounting for two-thirds of
GDP growth, these developments suggest constraints on future spending.
Additionally, both commercial and consumer lending have declined
sharply, further indicating an eventual slowdown in economic growth.
In this environment, we believe that the mortgage sector will continue
to find investor support due to a combination of strong fundamental
and technical conditions. Interest rate volatility decreased
substantially from its March peaks and is expected to remain
relatively steady as long as interest rates remain in a trading
range. Additionally, prepayments on mortgage-backed securities
have slowed and yields relative to other non-Treasury sectors are
attractive. Technically, new issue supply continues to move lower
in the higher interest rate environment, which should allow
mortgage prices to rise given broader investor participation.
The Sub-Adviser
As Investment Sub-Adviser, BlackRock Financial Management, Inc.
is responsible for making the day-to-day investment decisions for
the portfolio. BlackRock was formed in 1988 to provide asset
management services with
4
<PAGE>
respect to fixed income securities to both institutional
and individual investors and currently manages
over $41 billion of fixed income securities through several
open-end funds, 21 closed-end funds and separate institutional
client accounts. We encourage shareholders with questions about
The BlackRock Government Income Trust to call their Prudential
Financial Advisor or BlackRock's marketing center at (800) 227-7236.
Sincerely,
Scott Amero
Portfolio Manager
Richard A. Redeker
President
5
<PAGE>
Portfolio of Investments
as of June 30, 1996 THE BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
------------------------------------------------------------
LONG-TERM INVESTMENTS--122.9%
------------------------------------------------------------
Asset-Backed Securities--16.9%
$ 450 Banc One Auto Grantor Trust, Series
1996-B, Class A, 6.55%, 2/15/03 $ 451,969
Chase Manhattan Grantor Trust,
Auto Loan Pass-Through
Certificates,
768 Series 1995-B, Class A, 5.90%,
11/15/01 764,212
636 Series 1996-A, Class A, 5.20%,
2/15/02 626,192
500 Chevy Chase Auto Receivables Trust,
Series 1996-1, Class A, 6.60%,
12/15/02 500,156
1,345 Daimler-Benz Auto Grantor Trust,
Series 1995-A, Class A, 5.85%,
5/15/02 1,340,091
1,440 MLCC Mortgage Investors, Inc.,
Series 1996-A, Class A, 5.8675%,
2/15/21 1,441,797
1,159 NationsBank Auto Grantor Trust,
Series 1995-A, Class A, 5.85%,
6/15/02 1,154,225
-----------
Total Asset-Backed Securities
(cost $6,294,622) 6,278,642
- ------------------------------------------------------------
Mortgage Pass-Throughs--68.6%
Federal Home Loan Mortgage
Corporation,
3,574(b) 9.00%, 9/01/05 - 11/01/05, 15 Year 3,695,563
752 7.375%, 3/01/06, Multi-family 754,441
850(b) 6.771%, 2/01/18, 1 year CMT, ARM 859,416
1,387 7.686%, 9/01/23, 1 year CMT, ARM 1,414,063
1,864 7.681%, 10/01/24, 1 year CMT, ARM 1,896,069
Federal National Mortgage
Association,
1,796(c) 8.00%, 3/01/08 1,831,831
2,763 8.50%, 6/01/08 - 1/01/16 2,859,063
1,143 7.906%, 12/01/20, 3 year CMT, ARM 1,165,548
1,144 7.241%, 9/01/25, 1 year CMT, ARM 1,178,029
Government National Mortgage
Association,
2,723(d) 7.25%, 1/15/05 - 4/15/06 2,744,814
2,964 6.50%, 2/20/21 - 2/20/23, 1 year
CMT, ARM 2,969,769
Government National Mortgage
Association, (cont'd.)
$ 500 6.50%, 12/15/2099, 1 year CMT, ARM $ 500,781
2,285(b) 7.00%, 8/20/23 - 1/20/25, 1 year
CMT, ARM 2,311,227
1,261 8.50%, 4/20/25, 1 year CMT, ARM 1,283,176
-----------
Total Mortgage Pass-Throughs
(cost $25,650,609) 25,463,790
- ------------------------------------------------------------
Multiple Class Mortgage Pass-Throughs--7.0%
351 Collateralized Mortgage Obligation
Trust, Series 59, Class G, 9.00%,
7/01/17 350,324
582 Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
(REMIC), Series 124, Class A,
8.50%, 3/15/97 581,869
Federal National Mortgage
Association,
Series I, Class 2, 11.50%,
1,272 4/01/09 1,416,042
REMIC Pass-Through Certificates,
127 Series 1990-60, Class J, 9.00%,
6/25/17 127,092
119 Series 1991-49, Class D, 8.00%,
5/25/05 118,586
372 Residential Funding Mtg. Sec. I,
I/O, Series 1992-S2, Class A17,
7.933%, 1/25/22 327
4 Small Business Administration,
6.50%, 8/25/16, ARM 4,554
-----------
Total Multiple Class Mortgage
Pass-Throughs (cost $6,109,449) 2,598,794
- ------------------------------------------------------------
U.S Government Securities--30.4%
U.S. Treasury Notes,
4,540(b) 6.125%, 3/31/98 4,543,547
1,205 5.875%, 4/30/98 1,200,482
3,100 6.00%, 5/31/98 3,093,703
2,450(b) 6.375%, 5/15/99 2,455,742
-----------
Total U.S Government Securities
(cost $11,282,238) 11,293,474
- --------------------------------------------------------------------------------
</TABLE>
- ----- 6 See Notes to Financial Statements.
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Portfolio of Investments as of June 30, 1996
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value (Note 1)
<C> <S> <C>
Total long-term investments
(cost $49,336,918) $45,634,700
SHORT-TERM INVESTMENTS--2.0%
- ------------------------------------------------------------
Discount Note--1.9%
$ 700 Federal Home Loan Mortgage
Association,
5.52%, 7/01/96
(cost $700,000) 700,000
- ------------------------------------------------------------
Call Options Purchased--0.1%
Contracts(a)
- ---------
9 U.S. Treasury Note Futures, Sep.
'96,
expiring 8/24/96 @ 105.00
(cost $11,793) 25,734
-----------
Total Short-Term Investments
(cost $711,793) 725,734
- ------------------------------------------------------------
Total Investments--124.9%
(cost $50,048,711; Note 4) 46,360,434
Liabilities in excess of other
assets (Note 5)--(24.9%) (9,245,586)
-----------
Net Assets--100% $37,114,848
-----------
-----------
</TABLE>
- ---------------
ARM--Adjustable Rate Mortgage
CMT--Constant Maturity Treasury
I/O--Interest Only
REMIC--Real Estate Mortgage Investment Conduit
(a) One contract equals $100,000 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) Portion of 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>
<CAPTION>
<S> <C>
Assets
June 30, 1996
-------------
Investments, at value (cost
$50,048,711)....................................................................
$46,360,434
Cash.........................................................................
............................... 1,104
Receivable for investments
sold.........................................................................
.... 1,111,601
Interest
receivable...................................................................
...................... 552,456
Receivable for Fund shares
sold.........................................................................
.... 6,589
Deferred organization expenses and other
assets.............................................................
4,253
-------------
Total
assets.......................................................................
...................... 48,036,437
-------------
Liabilities
Reverse repurchase
agreements...................................................................
............ 9,007,500
Payable for investments
purchased....................................................................
....... 1,506,151
Payable for Fund shares
reacquired...................................................................
....... 140,484
Dividends
payable......................................................................
..................... 54,787
Due to broker-variation
margin.......................................................................
....... 16,670
Management fee
payable......................................................................
................ 15,448
Interest
payable......................................................................
...................... 8,742
Distribution fee
payable......................................................................
.............. 4,667
Accrued expenses and other
liabilities..................................................................
.... 167,140
-------------
Total
liabilities..................................................................
...................... 10,921,589
-------------
Net
Assets.......................................................................
........................... $37,114,848
-------------
-------------
Net assets were comprised of:
Shares of beneficial interest, at
par....................................................................
$ 39,987
Paid-in capital in excess of
par.........................................................................
44,750,277
-------------
44,790,264
Distributions in excess of net investment
income.........................................................
(142,253)
Accumulated net realized loss on
investments.............................................................
(3,792,695)
Net unrealized depreciation on
investments...............................................................
(3,740,468)
-------------
Net assets, June 30,
1996.........................................................................
.......... $37,114,848
-------------
-------------
Class A:
Net asset value and redemption price per share
($37,048,986 / 3,991,578 shares of beneficial interest issued and
outstanding)........................ $9.28
Maximum sales charge (3.0% of offering
price)............................................................
.29
Maximum offering price to
public.........................................................................
$9.57
Class C:
Net asset value, offering price and redemption price per share
($65,862 / 7,096 shares of beneficial interest issued and
outstanding)................................ $9.28
</TABLE>
- --------------------------------------------------------------------------------
- ----- 8 See Notes to Financial Statements.
<PAGE>
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST THE BLACKROCK
GOVERNMENT INCOME TRUST
Statement of Operations Statement of
Cash Flows
- ------------------------------------------------------------
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income June 30, 1996
<S> <C>
Income
Interest................................... $ 4,079,196
-------------
Expenses
Management fee............................. 217,733
Distribution fee--Class A.................. 63,897
Distribution fee--Class B.................. 1,830
Distribution fee--Class C.................. 250
Custodian's fees and expenses.............. 85,000
Transfer agent's fees and expenses......... 68,000
Reports to shareholders.................... 53,000
Registration fees.......................... 44,000
Audit fee and expenses..................... 33,000
Trustees' fees............................. 30,000
Amortization of deferred organization
expense................................. 27,000
Legal fees and expenses.................... 20,000
Miscellaneous.............................. 10,173
-------------
Total operating expenses............... 653,883
Interest expense........................... 976,127
-------------
Total expenses......................... 1,630,010
-------------
Net investment income......................... 2,449,186
-------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions.................... (1,301)
Financial futures contracts................ 108,120
Short sale transactions.................... 89,415
-------------
196,234
-------------
Net change in unrealized depreciation on:
Investments................................ (421,421)
Financial futures contracts................ (52,093)
-------------
(473,514)
-------------
Net loss on investments....................... (277,280)
-------------
Net Increase in Net Assets
Resulting from Operations..................... $ 2,171,906
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) in Cash June 30, 1996
<S> <C>
Cash flows provided by operating activities:
Interest received.......................... $ 4,515,368
Operating expenses paid.................... (706,460)
Interest expense paid...................... (987,763)
Sale of short-term portfolio investments,
net..................................... 1,580,630
Purchase of long-term portfolio
investments............................. (105,894,564)
Sale of long-term portfolio investments.... 126,302,714
Variation margin on futures................ 46,890
Other...................................... 3,681
-------------
Net cash provided by operating
activities.............................. 24,860,496
-------------
Cash flows used for financing activities:
Proceeds from shares sold.................. 804,097
Payments on shares redeemed................ (13,787,030)
Cash dividends paid(a)..................... (1,079,632)
Net payments for reduction in reverse
repurchase agreements................... (10,864,500)
-------------
Net cash used for financing activities..... (24,927,065)
-------------
Net decrease in cash.......................... (66,569)
Cash at beginning of year..................... 67,673
-------------
Cash at end of year........................... $ 1,104
-------------
-------------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided by Operating Activities
Net increase in net assets resulting from
operations................................. $ 2,171,906
-------------
Decrease in investments....................... 21,495,041
Net realized gain............................. (196,234)
Increase in unrealized depreciation........... 473,514
Decrease in receivable for investments sold... 5,296,003
Decrease in interest receivable............... 375,953
Decrease in other assets...................... 30,681
Decrease in payable for investments
purchased.................................. (4,713,018)
Decrease in interest payable.................. (11,636)
Decrease in accrued expenses and other
liabilities................................... (52,577)
Decrease in due to broker-variation margin.... (9,137)
-------------
Total adjustments.......................... 22,688,590
-------------
Net cash provided by operating activities..... $ 24,860,496
-------------
-------------
</TABLE>
- ---------------
(a) Non-cash financing activity not included herein consists of reinvestment of
dividends and distributions of $1,488,750.
- --------------------------------------------------------------------------------
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
1996 1995
------------ ------------
<S>
<C> <C>
Operations:
Net investment
income....................................................................
$ 2,449,186 $ 3,243,779
Net realized gain (loss) on investment
transactions...................................... 196,234
(1,253,706)
Net change in unrealized depreciation on
investments..................................... (473,514)
1,682,349
------------ ------------
Net increase in net assets resulting from
operations..................................... 2,171,906
3,672,422
------------ ------------
Net equalization
debits.....................................................................
(5,142) (13,333)
------------ ------------
Dividends and distributions (Note 1):
Dividends from net investment income:
Class
A...............................................................................
(2,374,095) (3,086,267)
Class
B...............................................................................
(51,187) (147,139)
Class
C...............................................................................
(1,632) (42)
------------ ------------
(2,426,914) (3,233,448)
------------ ------------
Tax return of capital distributions:
Class
A...............................................................................
(116,602) (15,142)
Class
B...............................................................................
(2,514) (722)
Class
C...............................................................................
(80) --
------------ ------------
(119,196) (15,864)
------------ ------------
Fund share transactions (net of share conversions) (Note 6):
Net proceeds from shares
subscribed......................................................
795,510 1,294,788
Net asset value of shares issued in reinvestment of dividends and
distributions.......... 1,488,750 1,891,073
Cost of shares
reacquired................................................................
(13,712,371) (28,430,251)
------------ ------------
Net decrease in net assets from Fund share
transactions.................................. (11,428,111)
(25,244,390)
------------ ------------
Total
decrease.....................................................................
......... (11,807,457) (24,834,613)
Net Assets
Beginning of
year...........................................................................
48,922,305 73,756,918
------------ ------------
End of
year.........................................................................
........ $ 37,114,848 $ 48,922,305
------------ ------------
------------ ------------
</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,
1996.
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
- --------------------------------------------------------------------------------
11 -----
<PAGE>
<PAGE>
Notes to Financial Statements 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.
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 ending September, 1996.
- ------------------------------------------------------------
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 distributor of the Class C shares of the Fund. The
distribution fees are accrued daily and payable monthly.
Pursuant to the Class A Plan, the Fund reimbursed PMFD and PSI 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
- --------------------------------------------------------------------------------
- ----- 12
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
average daily net assets of the Class A shares for the year ended June 30, 1996.
PSI pays various broker-dealers, including Pruco Securities Corporation
(``Prusec''), an affiliated broker-dealer, 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, all
outstanding 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 year ended June 30, 1996.
PSI has advised the Fund that it has received approximately $7,700 in front-end
sales charges resulting from sales of Class A shares during the year ended June
30, 1996. From these fees, PSI paid such sales charges to dealers which in turn
paid commissions to salespersons and incurred other distribution costs.
With respect to the Class B and C Plans, PSI advised the Fund that for the year
ended June 30, 1996, 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 year ended June 30, 1996,
the Fund incurred fees of approximately $57,000 for the services of PMFS. As of
June 30, 1996, 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 year ended June 30, 1996 aggregated $101,181,546 and $102,992,358,
respectively.
The federal income tax basis of the Fund's investments at June 30, 1996 was
substantially the same as the basis for financial statement reporting purposes
and, accordingly, net unrealized depreciation for federal income tax purposes
was $3,688,277 (gross unrealized appreciation--$211,384; gross unrealized
depreciation--$3,899,661).
During the year ended June 30, 1996 the Fund entered into financial futures
contracts. Details of open futures contracts at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Value at Value at
Unrealized
Number of Expiration Trade June 30,
Appreciation
Contracts Type Date Date 1996
(Depreciation)
- --------- ------------------ ----------- ----------- -----------
--------------
<S> <C> <C> <C> <C>
<C>
Long position:
51 2 yr. T-Note Sep. 1996 $10,441,695 $10,504,406
$ 62,711
Short positions:
48 5 yr. T-Note Sep. 1996 5,006,772 5,076,000
(69,228)
14 10 yr. T-Note Sep. 1996 1,469,934 1,505,000
(35,066)
3 30 yr. T-Bond Sep. 1996 317,986 328,594
(10,608)
-------
$(52,191)
-------
-------
</TABLE>
For federal income tax purposes, the Fund had a capital loss carryforward at
June 30, 1996 of approximately $3,822,000 of which $588,000 expires in 2001,
$2,044,000 expires in 2002, $742,000 expires in 2003, and $448,000 expires in
2004. Accordingly, no capital gains distributions are expected to be paid to
shareholders until net gains have been realized in excess of such amount.
- ------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
13 -----
<PAGE>
<PAGE>
Notes to Financial Statements THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
The Fund had outstanding reverse repurchase agreements at June 30, 1996 as
follows:
<TABLE>
<CAPTION>
Date Amount
Entered Maturity Interest Due at
Into Date Par Rate Maturity
- --------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C>
06/24/96 07/24/96 $ 5,929,000 5.43% $5,955,829
06/24/96 07/01/96 402,000 5.25% 404,410
06/25/96 07/02/96 1,414,000 5.40% 1,415,485
06/26/96 07/10/96 1,262,500 5.30% 1,265,102
-----------
$ 9,007,500
-----------
-----------
</TABLE>
The average daily balance of reverse repurchase agreements outstanding during
the year ended June 30, 1996 was approximately $15,626,200 at a weighted average
interest rate of approximately 5.75%.
- ------------------------------------------------------------
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%. 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
converted to Class A shares upon being held longer than one year from the date
of purchase. On 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 three classes, of which two classes,
designated Class A and Class C shares, are currently being offered. Of the
3,998,674 shares issued and outstanding at June 30, 1996, 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>
Year ended June 30, 1996:
Shares sold.......................... 75,957 $ 711,331
Shares issued in reinvestment
of dividends and distributions..... 155,658 1,455,287
Shares reacquired.................... (1,435,603) (13,420,680)
---------- ------------
Net decrease in shares outstanding
before conversion.................. (1,203,988) (11,254,062)
Shares issued upon conversion from
Class B............................ 237,999 2,230,509
---------- ------------
Net decrease in shares outstanding... (965,989) $ (9,023,553)
---------- ------------
---------- ------------
<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)
---------- ------------
---------- ------------
<CAPTION>
Class B
- -------------------------------------
<S> <C> <C>
Period ended November 28, 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)
---------- ------------
---------- ------------
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>
Year ended June 30, 1996:
Shares sold.......................... 8,898 $ 82,882
Shares issued in reinvestment
of dividends and distributions..... 103 1,046
Shares reacquired.................... (2,665) (24,920)
---------- ------------
Net increase in shares
outstanding........................ 6,336 $ 59,008
---------- ------------
---------- ------------
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) On November 28, 1995, all outstanding Class B shares were converted to Class
A shares.
(b) Commencement of offering of Class C shares.
- --------------------------------------------------------------------------------
- ----- 14
<PAGE>
<PAGE>
Financial Highlights THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class A
- -------------------------------------------------------------
September 9,
1991(a)
Year ended June
30, through
- -------------------------------------------- June 30,
1996 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......................... .51 .51
.45 .64 .57
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions............................... (.06) .09
(.35) (.41) .10
------- -------
- ------- -------- ------------
Total from investment operations........... .45 .60
.10 .23 .67
------- -------
- ------- -------- ------------
Less distributions
Dividends from net investment income.......... (.51) (.52)
(.40) (.63) (.57)
Tax return of capital distributions........... (.03) --
(.08) -- --
Distributions in excess of net realized
capital gains.............................. -- --
- -- -- (.03)
------- -------
- ------- -------- ------------
Total distributions........................ (.54) (.52)
(.48) (.63) (.60)
------- -------
- ------- -------- ------------
Net asset value, end of period................ $ 9.28 $ 9.37 $
9.29 $ 9.67 $ 10.07
------- -------
- ------- -------- ------------
------- -------
- ------- -------- ------------
TOTAL RETURN(d):.............................. 4.98% 6.55%
1.02% 2.40% 6.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $37,049 $46,450
$69,912 $113,623 $143,856
Average net assets (000)...................... $42,598 $56,395
$91,849 $131,371 $134,585
Ratios to average net assets:
Total expenses............................. 3.74% 2.19%
1.89% 1.94% 1.34%(b)
Operating expenses, including distribution
fee..................................... 1.47% 1.31%
1.17% 1.05% 1.03%(b)
Operating expenses, excluding distribution
fee..................................... 1.32% 1.16%
1.05% .95% .93%(b)
Net investment income...................... 5.51% 5.49%
4.94% 6.71% 6.95%(b)
For Class A, B and C shares:
Portfolio turnover rate.................... 173% 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>
June 30, 1996........................................................ $
9,008 $15,626
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>
June 30, 1996........................................................
4,550 $3.43
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>
<PAGE>
Financial Highlights THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
B Class C
- ------------------------------------------------------ -----------
July 1,
September 1,
1995
1992(a) Year ended
through Year ended
June 30, through ended
November 27,
- ------------------- June 30, June 30,
1995(f) 1995(c)
1994(c) 1993 1996
------------- -------
------- ------------ -----------
<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 .45
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions............................... .02 .09
(.37 ) (.32) (.06)
------------- -------
------- ------------ -----------
Total from investment operations........... .24 .57
-- .15 .39
------------- -------
------- ------------ -----------
Less distributions
Dividends from net investment income.......... (.22) (.49 )
(.32 ) (.44) (.46)
Tax return of capital distributions........... (.01) --
(.07 ) -- (.02)
Distributions in excess of net realized
capital gains.............................. -- --
-- -- --
------------- -------
------- ------------ -----------
Total distributions........................ (.23) (.49 )
(.39 ) (.44) (.48)
------------- -------
------- ------------ -----------
Net asset value, end of period................ $ 9.38 $ 9.37
$ 9.29 $ 9.68 $ 9.28
------------- -------
------- ------------ -----------
------------- -------
------- ------------ -----------
TOTAL RETURN(e):.............................. 2.63% 6.16 %
(.01 )% 1.39% 4.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............... $ 0 $2,466
$3,845 $5,954 $ 66
Average net assets (000)...................... $ 1,820 $2,928
$5,778 $2,740 $ 33
Ratios to average net assets:
Total expenses............................. 3.87%(b) 2.56 %
2.76 % 2.89%(b) 4.10%
Operating expenses, including distribution
fee..................................... 1.52%(b) 1.68 %
2.05 % 1.95%(b) 2.07%
Operating expenses, excluding distribution
fee..................................... 1.32%(b) 1.16 %
1.05 % .95%(b) 1.32%
Net investment income...................... 5.46%(b) 5.12 %
4.06 % 5.11%(b) 4.91%
<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......................... .23
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions............................... .21
-----
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:
Total expenses............................. 2.24%(b)
Operating expenses, including distribution
fee..................................... 1.91%(b)
Operating 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) Amounts 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 outstanding Class B shares were converted to Class A shares.
- --------------------------------------------------------------------------------
- ----- 16 See Notes to Financial Statements.
<PAGE>
<PAGE>
Independent Auditor's Report 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, 1996, 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 four 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,
1996, 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, 1996, 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 15, 1996
Tax Information THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS
We are required by Massachusetts, Missouri 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 9.2% 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.
Important Information THE BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------------------------------------
As of the Fund's fiscal and tax year-end (June 30, 1996) total dividends and
distributions to shareholders exceeded taxable income by $119,196 ($.03 per
Class A share, $.01 per Class B share, and $.02 per Class C share) based on
total dividends and distributions of $2,546,110 ($.54 per Class A share, $.23
per Class B share, and $.48 per Class C share). Therefore, a non-taxable
distribution to shareholders, commonly referred to as a return of capital,
resulted.
- --------------------------------------------------------------------------------
17 -----
<PAGE>
The BlackRock Government Income Trust
Comparison of a Change in Value of a $10,000 Investment in The BlackRock
Government Income Trust and the Lehman Bros. 1-3 Year Gov't Index
Average Annual Total Returns
With Sales Load
1 Year Since Inception (9/9/91)
1.8% 3.8%
Class A
Without Sales Load (GRAPH)
1 Year Since Inception (9/9/91)
5.0% 4.5%
Average Annual Total Returns
With Sales Load
1 Year Since Inception (11/1/94)
3.3% 5.4%
Class C
Without Sales Load (GRAPH)
1 Year Since Inception (11/1/94)
4.3% 5.4%
- --The BlackRock Government Income Trust
---Lehman Brothers 1-3 Year Government Index
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 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 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 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 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 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.
All outstanding Class B shares of the Fund were converted into Class
A shares effective November 28, 1995. Class B shares are no longer
being offered. Accordinly, no chart is shown with respect to Class B
shares.
<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. Vogin, 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 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
This report is not authorized for distribution to prospective
investors unless preceded or accompanied by a current prospectus.
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