(ICON)
The
BlackRock
Government
Income Trust
ANNUAL
REPORT
June 30, 1997
(LOGO)
<PAGE>
The BlackRock Government Income Trust
Performance At A Glance.
Treasury yields fluctuated during the twelve
months ended June 30, 1997. After
declining for much of the second half of 1996,
interest rates rose in the face
of a resilient stock market and stronger economic
growth for the first few
months of 1997. However, bond investors were
comforted by more moderate
economic data released during the second quarter
which allowed the bond market
to recapture some of its losses. Mortgage-backed
securities and asset-backed
securities outperformed Treasuries over the year
as investors sought higher
yielding securities.
<TABLE>
<CAPTION>
Historical
Investment
Results1
As of 6/30/97
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 6.2%
22.9% 31.2%
Class C 5.6 N/A
15.2
Lipper Adjustable Rate
Mortgage Fund Avg.3 6.5 18.0
***
</TABLE>
<TABLE>
<CAPTION>
Average
Annual Total
Returns1
As of 6/30/97
One Five
Since
Year Years
Inception2
<S> <C> <C>
<C>
Class A 3.0%
3.6% 4.2%
Class C 4.6 N/A
5.5
</TABLE>
<TABLE>
<CAPTION>
Dividends]
& Yields
As of 6/30/97
Total Dividends
30-Day
Paid for 12 Mos.
SEC Yield
<S> <C>
<C>
Class A $0.50
7.96%
Class C $0.45
7.41
</TABLE>
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.
1Source: Prudential Investments Fund Management,
LLC. Historical investment
results do not take into account sales charges.
Average annual returns do take
into account applicable 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.
2Inception dates: Class A, 9/9/91 and Class C,
11/1/94.
3These are the average returns of all funds for
one year, five years and since
inception of each share class as determined by
Lipper Analytical Services.
***Lipper Since Inception returns are: Class A,
29.5% and Class C, 12.0% for
all funds in each Lipper share class.
How Investments Compared.
(As of 6/30/97)
(GRAPH)
U.S. General General U.S.
Growth Bond Muni Debt Taxable
Funds Funds Funds Money Funds
Source: Lipper Analytical Services. Financial
markets change, so a mutual
fund's past performance should never be used to
predict future results. The
risks to each of the investments listed above are
different -- we provide 12-
month total returns for several Lipper mutual fund
categories to show you that
reaching for higher returns means tolerating more
risk. The greater the risk,
the larger the potential reward or loss. In
addition, we've included historical
20-year average annual returns. These returns
assume the reinvestment of
dividends.
U.S. Growth Funds will fluctuate a great deal.
Investors have received higher
historical total returns from stocks than from
most other investments. Smaller
capitalization stocks offer greater potential for
long-term growth but may be
more volatile than larger capitalization stocks.
General Bond Funds provide more income than stock
funds, which can help smooth
out their total returns year by year. But their
prices still fluctuate
(sometimes significantly) and their returns have
been historically lower than
those of stock funds.
General Municipal Debt Funds invest in bonds
issued by state governments,
state agencies and/or municipalities. This
investment provides income that is
usually exempt from federal and state income
taxes.
Money Market Funds attempt to preserve a constant
share value; they don't
fluctuate much in price but, historically, their
returns have been generally
among the lowest of the major investment
categories.
<PAGE>
Scott Amero, Fund Manager
(PHOTO)
Portfolio Manager's Report
The BlackRock Government Income Trust is an open-
end bond fund whose investment
objective is to provide low volatility of net
asset value and high monthly
income. The Trust invests primarily in adjustable
rate mortgage-backed
securities (ARMs), U.S. Government securities,
asset-backed securities (ABS)
and short duration mortgage-backed securities
(MBS). The Fund is part of the
Prudential family of mutual funds and is managed
by its investment sub-adviser,
BlackRock Financial Management, Inc.
Our Style.
We seek low volatility of net asset value while
producing high monthly income.
In pursuing this objective, the Trust's assets are
actively managed and reflect
the adviser's relative value analysis of
individual securities and sectors.
There can be no assurance that the Fund will
achieve its investment objective.
Strategy Session.
Low Volatility Buoys Markets.
Over the year, investor demand for bonds that
offer higher yields allowed
adjustable rate mortgages (ARMs) and asset-backed
securities (ABS) to post
excellent relative performance primarily due to
low interest rate volatility
and subdued refinancing concerns.
Over the period, the ARM market, as measured by
the Lehman Brothers ARM Index,
returned 8.08% versus the Treasury market's return
(measured by the Lehman
Brothers 1-3 year Treasury Index) of 6.55%. ARMs
benefited from improving
fundamental conditions over the past two years, as
interest rate volatility
has generally remained at historically low levels.
As a result, older ARMs
traded at or near all-time tight yield spreads
versus comparable maturity
Treasuries.
The ABS market has also benefited from low
volatility, as the best performing
ABS of 1996 were those securities backed by home
equity loans. ABS' positive
performance carried into 1997, as a pause in the
pace of issuance caused yield
spreads to tighten even further.
In searching for relative value, we targeted
securities and market sectors
that have underperformed and have strong
potential, we believe, for price
appreciation. During the reporting period, the
Fund substantially increased
its holdings in floating- and fixed-rate ABS and
collateralized mortgage
obligations (CMOs). The move towards floating-rate
ABS was prompted by an
increase in floating-rate supply over the past
year. ABS issuers, particularly
credit cards, have chosen to issue floating-rate
securities, which has led to
wider yield spreads versus Treasuries than offered
by fixed-rate ABS.
The increased weightings to these sectors was
primarily financed by selling
Treasury securities and reducing the Fund's ARM
holdings, which had performed
well.
<PAGE>
What Went Well.
Over the past six months we have sought to enhance
return by carefully
balancing our exposure to Treasuries, asset-backed
securities (fixed and
floating rate), adjustable rate mortgages (ARMs),
collateralized mortgage
obligations (CMOs), and other mortgage-backed
securities (MBS).
During the second quarter of 1997 this meant
reducing our ARM exposure to 19%
of total investments as of June 30, 1997, from 26%
at year-end 1996. We did so
because we believed that the combination of lower
interest rates, which could
result in a higher rate of prepayments, and
potentially higher interest rate
volatility that could hurt ARM performance over
the short term. As it turned
out, ARMs did slightly underperform short-duration
Treasuries during the
second quarter.
Conversely, we added to our CMO holdings because
we believe they would enhance
yield and total return, given the Federal
Reserve's current neutral monetary
policy. CMO holdings comprised 13% of total
investments as of June 30, 1997
compared to 8% on December 31, 1996.
Five Largest Holdings.
10.4% U.S. Treasury Note
6.375%, 5/15/00
6.4% FHLMC
9.00%, 9/01/05-11/01/05
6.1% FNMA
8.50%, 6/01/08-1/01/16
5.8% GNMA II
7.25%, 4/15/06
4.1% GNMA II
7.125%, 9/20/23
Expressed as a percentage of total investments as
of 6/30/97.
Portfolio Breakdown.
Expressed as a percentage of total
investments.
As Of 6/30/97
As Of 12/31/96
(PIE CHART)
(PIE CHART)
Looking Ahead.
Our outlook for the bond market is cautiously
optimistic. Over the short term,
we believe that the recent rally may continue,
since inflation news has been
positive and U.S. securities appear cheap relative
to their global
counterparts. Additionally, Federal Reserve
Chairman Greenspan appears to be
comfortable allowing the economy to expand in the
absence of rising
inflationary pressures. Thus, we do not foresee
another tightening in the
immediate future in the absence of a visible
inflation shock. However, recent
wage increases, the buoyant stock market and
record levels of consumer
confidence could lead to stronger consumer
spending and overall economic
growth. Therefore, an uninterrupted decline in
yields is by no means a
certainty.
- --------------------------------------------------
- -----------------------------
1
<PAGE>
Portfolio of Investments
as of June 30, 1997 THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
LONG-TERM INVESTMENTS--131.7%
- --------------------------------------------------
- ----------
Asset-Backed Securities--38.8%
$ 766 AFC Mortgage Loan Trust,
Series 1997-1, Class A,
5.9075%(c), 3/25/27
$ 765,621
1,000 Chase Credit Card Master Trust,
Series 1996-4, Class A,
5.8175%(c), 7/15/06
998,750
800 Chase Manhattan Auto Owner Trust,
Series 1996-C, Class A3, 5.95%,
11/15/00
796,750
753(b) Chase Manhattan Grantor Trust,
Series 1996-B, Class A, 6.61%,
9/15/02
756,841
Chevy Chase Auto Receivable Trust,
378 Series 1996-2, Class A, 5.90%,
7/15/03
375,232
900 Series 1997-2, Class A, 6.35%,
1/15/04
899,297
500 Discover Card Master Trust,
Series 1996-4, Class A,
6.0625%(c), 10/16/13
505,234
490 EQCC Home Equity Loan Trust,
Series 1994-1, Class A, 5.80%,
3/15/09
476,759
First USA Credit Card Master Trust,
500 Series 1994-6, Class A, 6.0375%(c),
10/15/03
503,985
500 Series 1997-4, Class A, 5.8975%(c),
2/17/10
500,078
700 Ford Credit Auto Lease Trust,
Series 1996-1, Class A2, 5.80%,
5/15/99
699,125
921 GMAC Grantor Trust,
Series 1997-A, Class A, 6.50%,
4/15/02
923,014
874 Merrill Lynch Credit Corporation,
Mortgage Loan,
Series 1996-B, Class A,
6.0875%(c), 7/15/21
877,369
$ 900 Olympic Automobile Receivables
Trust,
Series 1997-A, Class A2, 6.125%,
8/15/00
$ 901,407
500 Peoples Bank Credit Card Master
Trust,
Series 1996-1, Class A,
5.8375%(c), 11/15/04
500,547
Salomon Brothers,
Mortgage Trust Certificate,
417 Series 1996-6B, Class A1, 6.10% (c),
6/30/26
416,306
408 Series 1996-6G, Class A1, 6.00% (c),
9/30/27
407,189
- -----------
Total asset-backed securities
(cost $11,302,951)
11,303,504
- -----------
- --------------------------------------------------
- ----------
Mortgage Pass-Throughs--53.1%
Federal Home Loan Mortgage
Corporation,
2,419(a) 9.00%, 9/01/05 - 11/01/05, 15 Year
2,492,059
519 7.375%, 3/01/06, Multi-family
521,271
743 Federal Housing Administration,
GMAC Commercial Mortgage,
7.465%, 7/25/19
750,929
Federal National Mortgage
Association,
1,414(a) 8.00%, 3/01/08
1,446,392
704 8.50%, 12/01/10
732,475
2,289 8.50%, 6/01/08 - 1/01/16
2,375,130
894 7.179%, 9/01/28, ARM
917,357
Government National Mortgage
Association, II
1,500 5.50%, 12/20/99, 1 year CMT, ARM,
TBA
1,482,975
2,230(a) 7.25%, 4/15/06
2,257,127
1,540 7.125%, 9/20/23, 1 year CMT, ARM
1,577,854
888(a) 7.50%, 1/20/25, 1 year CMT, ARM
914,290
- -----------
Total mortgage pass-throughs
(cost $15,596,599)
15,467,859
- -----------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 2
<PAGE>
Portfolio of Investments
as of June 30, 1997 THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description Value
(Note 1)
<C> <S>
<C>
- --------------------------------------------------
- ----------
Multiple Class Mortgage Pass-Throughs--25.9%
Residential Asset Security Trust,
Incorporated,
Mortgage Certificate,
$ 416 Series 1996-A8, Class A1, 8.00%,
12/25/26
$ 422,354
374 Series 1997-A1, Class A1, 7.00%,
3/25/27
375,983
Federal Home Loan Mortgage
Corporation,
906 Series 1561, Class ZB, 6.00%,
8/15/06
893,220
969 Series 19, Class F, 6.57%, 6/01/28,
ARM
977,866
Federal National Mortgage
Association,
950 Trust 1996-T6, Class C, 6.20%,
2/26/01
936,409
864 Trust 1993-192, Class 192-Z, 5.75%,
8/25/06
849,246
500 Trust 1994-12, Class 12-PE, 5.75%,
4/25/07
490,480
1,029 Trust I, Class-2, 11.50%, 4/01/09
1,158,182
1,439 Trust 1997-15, Class 15-FA, 6.02%,
4/25/27, ARM
1,437,989
- -----------
Total multiple class mortgage
pass-throughs
(cost $7,476,182)
7,541,729
- -----------
U.S Government Securities--13.9%
$ 4,040(a) United States Treasury Note,
6.375%, 5/15/00
(cost $4,063,101)
$ 4,055,150
- -----------
Total long-term investments
(cost $38,438,833)
38,368,242
- -----------
SHORT-TERM INVESTMENTS--1.8%
- --------------------------------------------------
- ----------
Repurchase Agreement--1.8%
540 State Street Bank & Trust Company,
5.60%, due 7/1/97 in the amount
of $540,084 (cost $540,000 value
of collateral including accrued
interest is $558,892)
540,000
- -----------
- --------------------------------------------------
- ----------
Total Investments--133.5%
(cost $38,978,833; Note 4)
38,908,242
Liabilities in excess of other
assets--(33.5%)
(9,776,144)
- -----------
Net Assets--100%
$29,132,098
- -----------
- -----------
</TABLE>
- ---------------
ARM--Adjustable Rate Mortgage
CMT--Constant Maturity Treasury
TBA-- Securities purchased on a delayed delivery
basis with an approximate
principal amount and maturity date. The
actual principal amount and the
maturity date will be determined upon
settlement.
(a) All or a portion of principal amount pledged
as collateral for reverse
repurchase agreements.
(b) All or a portion of principal amount pledged
as collateral for futures
transactions.
(c) Rate shown reflects current rate of variable
rate instruments.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 3
<PAGE>
Statement of Assets and Liabilities THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Assets
June 30, 1997
- -------------
<S>
<C>
Investments, at value (cost
$38,978,833)......................................
.............................. $38,908,242
Cash..............................................
..................................................
........ 1,652
Receivable for investments
sold..............................................
............................... 1,394,221
Interest
receivable........................................
.................................................
329,074
Receivable for Fund shares
sold..............................................
............................... 20,527
Due from broker-variation
margin............................................
................................ 6,628
- -------------
Total
assets............................................
.................................................
40,660,344
- -------------
Liabilities
Reverse repurchase
agreements........................................
.......................................
7,624,875
Payable for investments
purchased.........................................
..................................
3,683,488
Payable for Fund shares
reacquired........................................
..................................
66,819
Dividends
payable...........................................
................................................
34,924
Management fee
payable...........................................
...........................................
12,077
Interest
payable...........................................
.................................................
9,343
Distribution fee
payable...........................................
.........................................
3,632
Accrued
expenses..........................................
..................................................
93,088
- -------------
Total
liabilities.......................................
.................................................
11,528,246
- -------------
Net
Assets............................................
..................................................
.... $29,132,098
- -------------
- -------------
Net assets were comprised of:
Shares of beneficial interest, at
par...............................................
..................... $ 31,168
Paid-in capital in excess of
par...............................................
.......................... 36,414,996
- -------------
36,446,164
Distributions in excess of net investment
income............................................
............. (34,924)
Accumulated net realized loss on
investments.......................................
...................... (7,213,585)
Net unrealized depreciation on
investments.......................................
........................ (65,557)
- -------------
Net assets, June 30,
1997..............................................
.....................................
$29,132,098
- -------------
- -------------
Class A:
Net asset value and redemption price per share
($29,115,935 / 3,114,609 shares of
beneficial interest issued and
outstanding)........................
$9.35
Maximum sales charge (3.0% of offering
price)............................................
................ .29
Maximum offering price to
public............................................
............................. $9.64
Class C:
Net asset value, offering price and redemption
price per share
($16,163 / 1,730 shares of beneficial
interest issued and
outstanding)................................
$9.34
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 4
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
GOVERNMENT INCOME TRUST
Statement of Operations
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year
Ended
June 30,
Net Investment Income
1997
<S>
<C>
Income
Interest and discount earned.................
$2,840,963
- ----------
Expenses
Management fee...............................
166,647
Distribution fee--Class A....................
49,853
Distribution fee--Class C....................
707
Custodian's fees and expenses................
73,000
Transfer agent's fees and expenses...........
52,000
Reports to shareholders......................
46,000
Registration fees............................
38,000
Legal fees and expenses......................
30,000
Audit fee....................................
27,000
Trustees' fees and expenses..................
22,000
Miscellaneous................................
10,897
Amortization of deferred organization
expense...................................
4,961
- ----------
Total operating expenses.................
521,065
Interest expense.............................
577,603
- ----------
Total expenses...........................
1,098,668
- ----------
Net investment income...........................
1,742,295
- ----------
Realized and Unrealized Gain
(Loss) on Investments
Net realized loss on:
Investment transactions......................
(3,334,709)
Financial futures contracts..................
(77,713)
Short sale transactions......................
(8,468)
- ----------
(3,420,890)
- ----------
Net change in unrealized depreciation on:
Investments..................................
3,617,686
Financial futures contracts..................
57,225
- ----------
3,674,911
- ----------
Net gain on investments.........................
254,021
- ----------
Net Increase in Net Assets
Resulting from Operations.......................
$1,996,316
- ----------
- ----------
</TABLE>
THE BLACKROCK GOVERNMENT INCOME TRUST
GOVERNMENT INCOME TRUST
Statement of Cash Flows
- --------------------------------------------------
- ----------
<TABLE>
<CAPTION>
Year
Ended
June 30,
Increase (Decrease) in Cash
1997
<S>
<C>
Cash flows provided by operating activities:
Interest received.......................... $
3,082,273
Operating expenses paid....................
(599,523)
Interest expense paid......................
(577,002)
Purchase of long-term portfolio
investments.............................
(98,818,537)
Sale of long-term portfolio investments....
108,255,166
Sale of short-term portfolio investments,
net.....................................
171,793
Variation margin on futures................
(43,756)
Deferred organization and other assets.....
(708)
-
- -----------
Net cash provided by operating
activities..............................
11,469,706
-
- -----------
Cash flows used for financing activities:
Net proceeds from shares subscribed........
1,187,699
Payments on shares reacquired..............
(10,525,565)
Cash dividends paid(a).....................
(748,664)
Net payments for reduction of reverse
repurchase agreements...................
(1,382,628)
-
- -----------
Net cash used for financing activities.....
(11,469,158)
-
- -----------
Net increase in cash..........................
548
Cash at beginning of year.....................
1,104
-
- -----------
Cash at end of year........................... $
1,652
-
- -----------
-
- -----------
Reconciliation of Net Increase in Net Assets
to Net Cash Provided by Operating Activities
Net increase in net assets resulting from
operations................................. $
1,996,316
-
- -----------
Decrease in investments.......................
7,706,214
Net realized loss on investment
transactions...............................
3,420,890
Decrease in unrealized depreciation...........
(3,674,911)
Increase in receivable for investments sold...
(282,620)
Decrease in interest receivable...............
223,382
Increase in due from broker-variation
margin.....................................
(6,628)
Decrease in other assets......................
4,253
Increase in payable for investments
purchased..................................
2,177,337
Increase in interest payable..................
601
Decrease in accrued expenses and other
liabilities...................................
(78,458)
Decrease in variation margin payable..........
(16,670)
-
- -----------
Total adjustments..........................
9,473,390
-
- -----------
Net cash provided by operating activities..... $
11,469,706
-
- -----------
-
- -----------
</TABLE>
- ---------------
(a) Non-cash financing activity not included
herein consists of reinvestment of
dividends and distributions of $1,031,449.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 5
<PAGE>
Statement of Changes in Net Assets THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Increase (Decrease)
Year Ended June 30,
in Net Assets
1997 1996
<S>
<C> <C>
Operations:
Net investment
income............................................
......................... $ 1,742,295 $
2,449,186
Net realized gain (loss) on investment
transactions......................................
. (3,420,890) 196,234
Net change in unrealized appreciation
(depreciation) on
investments.......................
3,674,911 (473,514)
- ----------- ------------
Net increase in net assets resulting from
operations......................................
1,996,316 2,171,906
- ----------- ------------
Net equalization
debits............................................
.......................... --
(5,142)
- ----------- ------------
Dividends and distributions (Note 1):
Dividends from net investment income:
Class
A.................................................
............................... (1,718,151)
(2,374,095)
Class
B.................................................
............................... --
(51,187)
Class
C.................................................
............................... (4,281)
(1,632)
- ----------- ------------
(1,722,432) (2,426,914)
- ----------- ------------
Tax return of capital distributions:
Class
A.................................................
............................... (37,724)
(116,602)
Class
B.................................................
............................... --
(2,514)
Class
C.................................................
............................... (94)
(80)
- ----------- ------------
(37,818) (119,196)
- ----------- ------------
Fund share transactions (net of share conversions)
(Note 6):
Net proceeds from shares
subscribed........................................
............... 1,201,635
795,510
Net asset value of shares issued in
reinvestment of dividends and
distributions........... 1,031,449
1,488,750
Cost of shares
reacquired........................................
......................... (10,451,900)
(13,712,371)
- ----------- ------------
Net decrease in net assets from Fund share
transactions...................................
(8,218,816) (11,428,111)
- ----------- ------------
Total
decrease..........................................
.....................................
(7,982,750) (11,807,457)
Net Assets
Beginning of
year..............................................
.............................. 37,114,848
48,922,305
- ----------- ------------
End of
year..............................................
....................................
$29,132,098 $ 37,114,848
- ----------- ------------
- ----------- ------------
</TABLE>
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 6
<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
Investments Fund Management LLC ('PIFM').
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 determines that such price
does not reflect its fair value, in which case it
will be valued at its fair
value as determined by the 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.
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, known as '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 with respect to
securities 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
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
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 7
<PAGE>
Notes to Financial Statements THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
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.
Short Sales: The Fund may sell a security it does
not own in anticipation of a
decline in the market value of that security
(short sale). When the Fund makes a
short sale, it may borrow the security sold short
and deliver it to the
broker-dealer through which it made the short sale
as collateral for its
obligation to deliver the security upon conclusion
of the sale. The Fund may
have to pay a fee to borrow the particular
security and may be obligated to pay
over any payments received on such borrowed
securities. A gain, limited to the
price at which the Fund sold the security short,
or a loss, unlimited in
magnitude, will be recognized upon the termination
of a short sale if the market
price at termination is less than or greater than,
respectively, the proceeds
originally received.
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 effective 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.
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.
Equalization: Effective July 1, 1996, the Fund
discontinued the accounting
practice of equalization. Equalization is a
practice whereby a portion of the
proceeds from sales and costs of repurchases of
capital 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. A portion ($87,466) of undistributed net
investment income at June 30,
1996, resulting from equalization was transferred
to paid-in capital in excess
of par. Such reclassification has no effect on net
assets, results of
operations, or net asset value per share.
Deferred Organization Expenses: A total of
$135,000 was incurred in connection
with the organization of the Fund. Such amount was
deferred and amortized over a
period of sixty months ended September, 1996.
- --------------------------------------------------
- ----------
Note 2. Agreements
The Fund has a management agreement with PIFM.
Pursuant to this agreement, PIFM
has responsibility for all investment advisory
services and supervises the
subadviser's performance of such services. PIFM
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. PIFM
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 PIFM is computed daily and
payable monthly at an annual
rate of .50 of 1% of the Fund's average daily net
assets. PIFM 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 has a distribution agreement with
Prudential Securities Incorporated
('PSI') which acts as the distributor of the Class
A and Class C shares of the
Fund. The Fund compensates PSI for distributing
and servicing the Fund's Class A
and Class C shares, pursuant to plans of
distribution (the 'Class A and C
Plans'), regardless of expenses actually incurred
by them. The distribution fees
are accrued daily and payable monthly.
Pursuant to the Class A and C Plans, the Fund
compensates PSI for
distribution-related activities at an annual rate
of up to .30 of 1% and 1% of
the average daily net assets of the Class A and C
shares, respectively. Such
expenses under the Class A and Class C Plans were
.15% and .75%,
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 8
<PAGE>
Notes to Financial Statements THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
respectively, of the average daily net assets of
Class A and Class C shares for
the year ended June 30, 1997.
PSI has advised the Fund that it has received
approximately $3,900 in front-end
sales charges resulting from sales of Class A
shares during the year ended June
30, 1997. 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 C Plan, PSI advised the
Fund that for the year ended
June 30, 1997, it received approximately $600 in
contingent deferred sales
charges imposed upon certain redemptions by Class
C shareholders.
PSI and PIFM are indirect wholly-owned
subsidiaries of The Prudential Insurance
Company of America ('Prudential').
The Fund, along with other affiliated registered
investment companies (the
'Funds'), entered into a credit agreement (the
'Agreement') on December 31, 1996
with an unaffiliated lender. The maximum
commitment under the Agreement is
$200,000,000. The Agreement expires on December
30, 1997. Interest on any such
borrowings outstanding will be at market rates.
The purposes of the Agreement is
to serve as an alternative source of funding for
capital share redemptions. The
Fund has not borrowed any amounts pursuant to the
Agreement as of June 30, 1997.
The Funds pay a commitment fee at an annual rate
of .055 of 1% on the unused
portion of the credit facility. The commitment fee
is accrued and paid quarterly
on a pro-rata basis by the Funds.
- --------------------------------------------------
- ----------
Note 3. Other Transactions with Affiliates
Prudential Mutual Fund Services LLC ('PMFS'), a
wholly-owned subsidiary of PIFM,
serves as the Fund's transfer agent. During the
year ended June 30, 1997, the
Fund incurred fees of approximately $43,500 for
the services of PMFS. As of June
30, 1997, approximately $3,300 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, 1997 aggregated
$100,995,874 and $95,795,068,
respectively.
The federal income tax basis of the Fund's
investments at June 30, 1997 was
$38,984,115 and, accordingly, net unrealized
depreciation for federal income tax
purposes was $75,873 (gross unrealized
appreciation--$84,905; gross unrealized
depreciation--$160,778).
During the year ended June 30, 1997 the Fund
entered into financial futures
contracts. Details of open futures contracts at
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Value at Value at Unrealized
Number of Expiration
Trade June 30, Appreciation
Contracts Type Date
Date 1997 (Depreciation)
- --------- ---------------- ----------- -
- --------- ---------- --------------
<S> <C> <C>
<C> <C> <C>
Short position:
31 5 yr. T-Note Sept. 1997
$3,282,423 $3,282,609 $ (186)
Long position:
2 30 yr. T-Bond Sept. 1997
216,905 222,125 5,220
- -----
$5,034
- -----
- -----
</TABLE>
For federal income tax purposes, the Fund had a
capital loss carryforward at
June 30, 1997 of approximately $3,793,000 of which
$559,000 expires in 2001,
$2,044,000 expires in 2002, $742,000 expires in
2003, and $448,000 expires in
2004. The Fund will elect to treat net realized
capital losses of approximately
$3,410,400 incurred in the eight months period
ended June 30, 1997 as having
been incurred in the following fiscal year.
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.
The Fund had outstanding reverse repurchase
agreements at June 30, 1997 as
follows:
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 9
<PAGE>
Notes to Financial Statements THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Amount
Date Maturity Principal Interest
Due at
Sold Date Amount Rate
Maturity
- --------- --------- ----------- --------
- ----------
<S> <C> <C> <C>
<C>
06/13/97 07/24/97 $ 862,000 5.63%
$ 867,527
06/23/97 07/24/97 2,819,000 5.61
2,832,618
06/25/97 07/01/97 3,943,875 5.38
3,947,408
-----------
$ 7,624,875
-----------
-----------
</TABLE>
The average daily balance of reverse repurchase
agreements outstanding during
the year ended June 30, 1997 was approximately
$10,695,000 at a weighted average
interest rate of approximately 5.40%. The maximum
amount of reverse repurchase
agreements outstanding at any month-end during the
year was $15,482,969 as of
October 31, 1996.
- --------------------------------------------------
- ----------
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.
Transactions in shares of beneficial interest were
as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------- ----------
- ------------
<S> <C>
<C>
Year ended June 30, 1997:
Shares sold.......................... 121,896
$ 1,138,130
Shares issued in reinvestment
of dividends and distributions..... 110,261
1,027,696
Shares reacquired.................... (1,109,126)
(10,334,549)
----------
- ------------
Net decrease in shares outstanding... (876,969)
$ (8,168,723)
----------
- ------------
----------
- ------------
<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 B
- -------------------------------------
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)
----------
- ------------
----------
- ------------
<CAPTION>
Class C
- -------------------------------------
Year ended June 30, 1997:
Shares sold.......................... 6,842
$ 63,505
Shares issued in reinvestment
of dividends and distributions..... 403
3,753
Shares reacquired.................... (12,611)
(117,351)
----------
- ------------
Net decrease in shares outstanding... (5,366)
$ (50,093)
----------
- ------------
----------
- ------------
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
----------
- ------------
----------
- ------------
</TABLE>
- ---------------
(a) On November 28, 1995, all outstanding Class B
shares were converted to Class
A shares.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 10
<PAGE>
Financial Highlights THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
- --------------------------------------------------
- ------
Class A
- --------------------------------------------------
- ------
1997(a) 1996 1995(a) 1994(a)
1993
- ------- ------- ------- ------- --
- ------
<S>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year............
$ 9.28 $ 9.37 $ 9.29 $ 9.67 $
10.07
- ------- ------- ------- ------- --
- ------
Income from investment operations
Net investment income.........................
.49 .51 .51 .45
.64
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions...............................
.08 (.06) .09 (.35)
(.41)
- ------- ------- ------- ------- --
- ------
Total from investment operations...........
.57 .45 .60 .10
.23
- ------- ------- ------- ------- --
- ------
Less distributions
Dividends from net investment income..........
(.49) (.51) (.52) (.40)
(.63)
Tax return of capital distributions...........
(.01) (.03) -- (.08)
- --
- ------- ------- ------- ------- --
- ------
Total distributions........................
(.50) (.54) (.52) (.48)
(.63)
- ------- ------- ------- ------- --
- ------
Net asset value, end of year..................
$ 9.35 $ 9.28 $ 9.37 $ 9.29 $
9.67
- ------- ------- ------- ------- --
- ------
- ------- ------- ------- ------- --
- ------
TOTAL RETURN(b):..............................
6.22% 4.98% 6.55% 1.02%
2.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (000).................
$29,116 $37,049 $46,450 $69,912
$113,623
Average net assets (000)......................
$33,235 $42,598 $56,395 $91,849
$131,371
Ratios to average net assets:
Total expenses.............................
3.45% 3.74% 2.19% 1.89%
1.94%
Operating expenses, including distribution
fee.....................................
1.56% 1.47% 1.31% 1.17%
1.05%
Operating expenses, excluding distribution
fee.....................................
1.41% 1.32% 1.16% 1.05%
.95%
Net investment income......................
5.23% 5.51% 5.49% 4.94%
6.71%
For class A, B and C shares:
Portfolio turnover rate....................
225% 173% 254% 209%
228%
</TABLE>
<TABLE>
<CAPTION>
BORROWINGS (for all classes):
Amount of debt Average amount of
outstanding at end debt outstanding
Year ended
of year (000) during year (000)
- --------------------------------------------------
- ------------------- ------------------ -----
- --------------
<S>
<C> <C>
June 30,
1997..............................................
.......... $ 7,625 $10,695
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
<CAPTION>
BORROWINGS (for all classes):
Average amount of
debt per share
Average number of outstanding
shares outstanding during
Year ended
during year (000) year
- --------------------------------------------------
- ------------------- ------------------- -----
- ------------
<S>
<<C> <C>
June 30,
1997..............................................
.......... 3,571 $2.99
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
</TABLE>
- ---------------
(a) Calculated based upon weighted average shares
outstanding during the year.
(b) 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 year reported and includes
reinvestment of dividends and
distributions.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 11
<PAGE>
Financial Highlights THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
<TABLE>
<CAPTION>
Class B Class C
- --------------------------------------------------
- ----- ---------
July 1, September
1, Year
1995 1992(a)
Ended
Through Year Ended June 30, Through
June 30,
November 27, --------------------- June
30, ---------
1995(f) 1995(c) 1994(c) 1993
1997(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
$ 9.28
- ------ -------- -------- -----
- ---------
Income from investment operations
Net investment income.........................
.22 .48 .37 .47
.43
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions...............................
.02 .09 (.37) (.32)
.08
- ------ -------- -------- -----
- ---------
Total from investment operations...........
.24 .57 -- .15
.51
- ------ -------- -------- -----
- ---------
Less distributions
Dividends from net investment income..........
(.22) (.49) (.32) (.44)
(.44)
Tax return of capital distributions...........
(.01) -- (.07) --
(.01)
- ------ -------- -------- -----
- ---------
Total distributions........................
(.23) (.49) (.39) (.44)
(.45)
- ------ -------- -------- -----
- ---------
Net asset value, end of period................
$ 9.38 $ 9.37 $ 9.29 $ 9.68
$ 9.34
- ------ -------- -------- -----
- ---------
- ------ -------- -------- -----
- ---------
TOTAL RETURN(e):..............................
2.63% 6.16% (.01)% 1.39%
5.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...............
$ 0 $2,466 $3,845 $5,954
$ 16
Average net assets (000)......................
$ 1,820 $2,928 $5,778 $2,740
$ 94
Ratios to average net assets:
Total expenses.............................
3.87%(b) 2.56% 2.76% 2.89%(b)
4.05%
Operating expenses, including distribution
fee.....................................
1.52%(b) 1.68% 2.05% 1.95%(b)
2.16%
Operating expenses, excluding distribution
fee.....................................
1.32%(b) 1.16% 1.05% .95%(b)
1.41%
Net investment income......................
5.46%(b) 5.12% 4.06% 5.11%(b)
4.63%
<CAPTION>
November 1,
1994(a)
Through
June 30,
1996 1995(c)
--
- --------- ------------
<S>
<C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period..........
$ 9.37 $ 9.26
--
- --------- -----
Income from investment operations
Net investment income.........................
.45 .23
Net realized and unrealized gains (losses) on
investments and foreign currency
transactions...............................
(.06) .21
--
- --------- -----
Total from investment operations...........
.39 .44
--
- --------- -----
Less distributions
Dividends from net investment income..........
(.46) (.33)
Tax return of capital distributions...........
(.02) --
--
- --------- -----
Total distributions........................
(.48) (.33)
--
- --------- -----
Net asset value, end of period................
$ 9.28 $ 9.37
--
- --------- -----
--
- --------- -----
TOTAL RETURN(e):..............................
4.31% 4.65%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)...............
$ 66 $7,121(d)
Average net assets (000)......................
$ 33 $1,335(d)
Ratios to average net assets:
Total expenses.............................
4.10% 2.24%(b)
Operating expenses, including distribution
fee.....................................
2.07% 1.91%(b)
Operating expenses, excluding distribution
fee.....................................
1.32% 1.16%(b)
Net investment income......................
4.91% 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.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 12
<PAGE>
Report of Independent Accountants THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
To the Shareholders and Board of Trustees of
The BlackRock Government Income Trust:
In our opinion, the accompanying statement of
assets and liabilities, including
the portfolio of investments, and the related
statements of operations, of cash
flows and of changes in net assets and the
financial highlights present fairly,
in all material respects, the financial position
of The BlackRock Government
Income Trust (the 'Fund') at June 30, 1997, and
the results of its operations,
the changes in its net assets and the financial
highlights for the year then
ended, in conformity with generally accepted
accounting principles. These
financial statements and financial highlights
(hereafter referred to as
'financial statements') are the responsibility of
the Fund's management; our
responsibility is to express an opinion on these
financial statements based on
our audit. We conducted our audit of these
financial statements in accordance
with generally accepted auditing standards which
require that we plan and
perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An
audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements, assessing the accounting principles
used and significant estimates
made by management, and evaluating the overall
financial statement presentation.
We believe that our audit, which included
confirmation of securities at June 30,
1997 by correspondence with the custodian and
brokers, provides a reasonable
basis for the opinion expressed above. The
accompanying statement of changes in
net assets for the year ended June 30, 1996 and
financial highlights for each of
the periods ending prior to the fiscal year ended
June 30, 1997 were audited by
other independent accountants, whose opinion dated
August 15, 1996 was
unqualified.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
August 21, 1997
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 13
<PAGE>
Change of Independent Accountants THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
Effective March 1, 1997, Deloitte & Touche LLP was
terminated as the Fund's
independent accountants. For the years ended June
30, 1996, 1995, 1994, 1993 and
the period ended June 30, 1992, Deloitte & Touche
LLP expressed an unqualified
opinion on the Fund's financial statements. There
were no disagreements between
Fund management and Deloitte & Touche LLP prior to
their termination. The Board
of Trustees approved the termination of Deloitte &
Touche LLP and the
appointment of Price Waterhouse LLP as the Fund's
independent accountants.
Tax Information THE
BLACKROCK GOVERNMENT INCOME TRUST
- --------------------------------------------------
- ------------------------------
IMPORTANT NOTICE FOR ALL SHAREHOLDERS
As of the Fund's fiscal and tax year-end (June 30,
1997) total dividends and
distributions to shareholders exceeded taxable
income by $37,818 ($.01 per Class
A share and $.01 per Class C share) based on total
dividends and distributions
of $1,760,250 ($.50 per Class A share, and $.45
per Class C share). Therefore, a
non-taxable distribution to shareholders, commonly
referred to as a return of
capital, resulted.
IMPORTANT NOTICE FOR CERTAIN SHAREHOLDERS
(Unaudited)
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 23.3% 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.
- --------------------------------------------------
- ------------------------------
See Notes to Financial Statements. 14
<PAGE>
Comparing A $10,000 Investment.
The BlackRock Government Income Trust vs.
the Lehman Brothers 1-3 Year Government Index.
[]The BlackRock Government Income Trust
- --Lehman Bros. 1-3 Year Government Index
Average Annual
Total Returns
With Sales Load
4.2% Since Inception
3.6% for 5 Years
3.0% for 1 Year
Class A
Without Sales Load (GRAPH)
4.8% Since Inception
4.2% for 5 Years
6.2% for 1 Year
Average Annual
Total Returns
With Sales Load
5.5% Since Inception
4.6% for 1 Year
Class C
Without Sales Load (GRAPH)
5.5% Since Inception
5.6% for 1 Year
Past performance is not indicative of future
results. Investment return and
principal value will fluctuate so an investor's
shares, when redeemed, may be
worth more or less than their original cost. The
charts on the right are
designed to give you an idea how much the Fund's
returns can fluctuate from
year to year by measuring the best and worst
calendar years in terms of total
annual return since inception of each share class.
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 Brothers 1-3 Year
Government Index (Lehman Government Index) by
portraying the initial account
values on September 9, 1991 for Class A 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, in
the accompanying tables it has been assumed (a)
that the maximum applicable
front-end 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, 1997; (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.
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<PAGE>
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
http://www.prudential.com
Trustees
Eugene C. Dorsey
Douglas H. McCorkindale
Thomas T. Mooney
Richard A. Redeker
Officers
Richard A. Redeker, President
Thomas A. Early, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, Secretary
Deborah A. Garfield, Assistant Secretary
Manager
Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
Subadviser
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
Distributor
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 LLC
P.O. Box 15005
New Brunswick, NJ 08906
Independent Accountants
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610-4795
The views expressed in this report and information
about the Fund's portfolio
holdings are for the period covered by this report
and are subject to change
thereafter.
This report is not authorized for distribution to
prospective investors unless
preceded or accompanied by a current prospectus.
09247Y208 MF152E
09247Y109 Cat. #4445620
