The
BlackRock
Government
Income Trust
SEMI
ANNUAL
REPORT
Dec. 31, 1997
(LOGO)
<PAGE>
The BlackRock Government Income Trust
Performance At A Glance.
U.S. interest rates declined (and bond prices
rose) as inflation inched up by
the smallest amount in more than a decade. This
favorable economic climate and
investor demand for bonds that provided higher
yields than U.S. Treasury
securities helped bolster prices of mortgage
backed securities. For the six
months ended December 31, 1997, the Trust's A-
shares posted an after expense
total return of 2.99% versus its Lipper
Adjustable-Rate Mortgage Fund peer
group average of 2.84%.
Historical Investment Results1
As of 12/31/97
<TABLE>
<CAPTION>
Six One
Five Since
Months Year
Years Inception2
<S> <C> <C>
<C> <C>
Class A 2.99%
5.83% 24.89% 35.31%
Class C 2.84
5.27 N/A 18.63
Lipper Adjustable Rate
Mortgage Fund Avg.3 2.84
6.07 27.05 ***
</TABLE>
Average Annual Total Returns1
As of 12/31/97
<TABLE>
<CAPTION>
One
Five Since
Year
Years Inception2
<S> <C>
<C> <C>
Class A 2.65%
3.90% 4.39%
Class C 4.27
N/A 5.52
</TABLE>
Dividends
& Yields
As of
12/31/97
<TABLE>
<CAPTION>
Total Dividends
30-Day
Paid for Six Mos.
SEC Yield
<S> <C>
<C>
Class A $0.25
4.16%
Class C $0.23
4.30
</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.
1 Source: Prudential Investments Fund Management
and Lipper Analytical
Services. The cumulative total returns do not
take into account sales charges.
The average annual total 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.
2 Inception dates: Class A, 9/9/91; Class C,
11/1/94.
3 These are the average returns for all funds in
the Lipper Adjustable Rate
Mortgage Fund average for one- and five-year
periods since inception of Class
A shares on 9/9/91.
***Lipper Since Inception returns are: Class A,
35.17%; and Class C, 21.59%
for all funds in each share class.
How Investments Compared.
(As of 12/31/97)
(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 yields 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.
U.S. Taxable Money 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
Portfolio
Manager's Report
(PHOTO)
The BlackRock Government Income Trust is an open-
end bond fund whose
investment objective is to limit the degree of
fluctuation of its net asset
value (NAV), resulting from movements in
interest rates, and provide high
monthly income. The Trust pursues its investment
objective by investing
primarily in a portfolio of adjustable rate
mortgage-backed securities (ARMs),
U.S. government securities, and asset backed
securities (ABS). The Fund is
part of the Prudential family of mutual funds
and is managed by its investment
sub-adviser, BlackRock Financial Management,
Inc. There can be no assurance
that the Fund will achieve its investment
objective.
Trust Merges.
On January 30, 1998, the BlackRock Government
Income Trust merged with the
Prudential Government Securities Trust -- Short
Intermediate Term Series.
Class A and Class C shares of your Fund were
exchanged at net asset value for
Class A shares of the Government Securities
Trust Series.
Strategy Session.
Conditions Were Favorable.
The U.S. economy continued its strong growth
during the third and fourth
quarters, fueled by increased consumer spending
and low unemployment. The
primary inflation indicators, consumer and
producer prices, remained subdued
throughout the reporting period and the
unemployment rate remained low.
This healthy economic environment prompted the
Federal Reserve to leave the
federal funds rate (what banks charge each other
for overnight loans)
unchanged at 5.50%. Although the U.S. economy
seems to have entered a new era
of strong growth spurred by increases in
productivity, the low unemployment
rate still threatens to exert wage pressures on
the economy.
The bull market trend of 1997 continued into the
fourth quarter, leading
yields to finish the year at new lows. The
positive momentum has continued
into the early days of 1998 based, in part, on
the possibility of early
elimination of the budget deficit and on
comments by Fed Chairman Alan
Greenspan that deflation was an issue. New home
sales recently hit a new
cyclical peak, the employment picture remained
very strong and consumer
confidence and spending also remained high.
Despite strong growth, current and future
inflation both appear to be
remarkably controlled, with producer prices
continuing to decline and 1997's
year-over-year core CPI at a 30-year low. In
addition, Asian currency
devaluations are expected to lower foreign
import prices. Treasury yields
fell during the period. The yield of the two-
year Treasury security fell
from 6.07% on June 30, 1997 to 5.65% at year
end.
Prepayment Fears Surface.
Declining interest rates began to ignite
prepayment fears in the mortgage
market, causing yield spreads to widen. The
fundamental
continued on page 1
<PAGE>
Strategy Session.
continued from preceeding page
factors that contribute to mortgage valuations
clearly have worsened,
particularly since the recent decline in
interest rates has brought about a
third of the mortgage sector into a
"refinancable" position.
ARMs continued to post underperformance versus
short duration Treasuries, as
the flat yield curve is expected to result in
very fast prepayments in the
ARM sector as homeowners refinance from
adjustable-rate into fixed-rate
mortgages. Asset backed securities have
recently underperformed; however,
in our view, the ABS sector's recent
underperformance represents an
opportunity. The sector's credit problems are
limited in scope and pose little
threat to issuers' ability to pay. In addition,
as a generally high credit
quality sector insulated from the effects of
Asian instability and with little
prepayment risk, ABS are expected to improve in
valuation.
Looking Ahead.
Our short- and long-term outlook for the bond
market remains optimistic, based
on the fundamentally favorable backdrop of
softening gross domestic product,
low inflation and declining Treasury borrowing.
One risk factor we plan to monitor, however, is
the extent to which corporate
and homeowner refinancings will stimulate
growth, possibly dampening the
market's current euphoria. Although domestic
fundamentals are strong,
BlackRock expects that recessions in the
emerging Asian economies and Japan
will slow U.S. growth in the first half of 1998.
Inflation is expected to remain subdued over the
long term based on direct and
indirect factors: commodity and import price
deflation; and blunted demand for
U.S. exports may cut into corporate
profitability forcing reduced demand for
new hires. This in turn may relieve some of the
current wage pressure in the
labor markets. Although "real" interest rates
look high with inflation at such
low levels, we do not anticipate a change in
monetary targets in the near
future.
- ------------------------------------------------
- -------------------------------
1
<PAGE>
Portfolio of Investments as of December 31, 1997
(Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description
Value (Note 1)
<C> <S>
<C>
- ------------------------------------------------
- ------------
LONG-TERM INVESTMENTS--94.7%
- ------------------------------------------------
- ------------
Asset-Backed Securities--9.0%
$ 301 Chevy Chase Auto Receivables Trust,
Series 1996-2, Class A, 5.90%,
7/15/03
$ 300,269
409 EQCC Home Equity Loan Trust,
Series 1994-1, Class A, 5.80%,
3/15/09
405,008
500 First USA Credit Card Master Trust,
Series 1994-8, Class A, 6.115%,
6/15/04
502,344
500 MBNA Master Credit Card Trust,
Series 1996-M, Class A,
6.005%(a), 4/15/09
498,125
300 Sears Credit Account Master Trust,
Series 1995-3, Class A,
7.00%(a),
10/15/04
306,215
300 SMS Student Loan Trust,
Series 1997-A, Class A,
6.03%(a),
10/27/25
295,406
- -----------
Total asset-backed securities
(cost $2,301,170)
2,307,367
- ------------------------------------------------
- ------------
Collateralized Mortgage Obligation Residuals--
13.4%
Federal National Mortgage
Association,
1,173 Series 1993-210, Class FB, 6.525%,
10/25/23
1,180,403
910 Trust I, Class 2, 11.50%, 4/01/09
1,024,725
Residential Asset Securitization
Trust, Incorporated, Mortgage
Certificate,
330 Series 1996-A8, Class A1, 8.60%,
12/25/26
335,501
332 Series 1997-A1, Class A1, 7.00%,
3/25/27
333,143
325 Salomon Brothers, Mortgage
Securities VII,
Series 1996-6B, Class A1,
6.537%(a),
6/30/26
311,949
$ 287 Salomon Brothers, Mortgage
Securities VII,
Series 1996-6G, Class A1,
6.438%(a),
9/30/27
$ 265,862
- -----------
Total collateralized mortgage
obligation residuals
(cost $3,400,714)
3,451,583
- ------------------------------------------------
- ------------
Mortgage Pass-Throughs--28.5%
Federal Home Loan Mortgage
Corporation,
1,963 9.00%, 9/01/05 - 11/01/05, 15 Year
2,026,234
425 7.375%, 3/01/06, Multi-family
430,362
737 Federal Housing Administration,
GMAC Commercial Mortgage,
7.465%, 7/25/19
742,136
Federal National Mortgage
Association,
1,227 8.00%, 3/01/08
1,266,569
2,053 8.50%, 6/01/08 - 1/01/16
2,151,194
704 Government National Mortgage
Association, II,
7.50%, 1/20/25, 1 year CMT, ARM
723,685
- -----------
Total mortgage pass-throughs
(cost $7,406,792)
7,340,180
- ------------------------------------------------
- ------------
Multiple Class Mortgage Pass-Throughs--6.7%
845 Federal Home Loan Mortgage
Corporation,
Series 19, Class F, 6.57%,
6/01/28
849,098
Federal National Mortgage
Association,
888 Trust 1996-T6, Class C, 6.20%,
2/26/01
883,930
- -----------
Total multiple-class mortgage
pass-throughs
(cost $1,883,559)
1,733,028
- -----------
</TABLE>
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 2
<PAGE>
Portfolio of Investments as of December 31, 1997
(Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Principal
Amount
(000) Description
Value (Note 1)
<C> <S>
<C>
- ------------------------------------------------
- ------------
U.S. Government Securities--37.1%
United States Treasury Notes,
$ 300 6.25%, 5/31/99
$ 302,438
2,950 5.875%, 7/31/99
2,959,219
500 6.375%, 5/15/00
507,656
4,750 6.00%, 8/15/00
4,786,367
1,000 5.75%, 9/30/99 - 11/30/02
1,001,328
- -----------
Total U.S. government securities
(cost $9,529,161)
9,557,008
- -----------
Total long-term investments
(cost $24,521,396)
24,389,166
- -----------
SHORT-TERM INVESTMENTS--3.9%
- ------------------------------------------------
- ------------
Cash Agency
$ 1,000 Federal Home Loan Mortgage Disc.
Notes,
6.00%, 1/2/98
(cost $999,833)
$ 999,833
- -----------
- ------------------------------------------------
- ------------
Total Investments--98.6%
(cost $25,521,229; Note 4)
25,388,999
Other assets in excess of
liabilities--1.4%
357,643
- -----------
Net Assets--100%
$25,746,642
- -----------
- -----------
</TABLE>
- ---------------
ARM--Adjustable Rate Mortgage
CMT--Constant Maturity Treasury
(a) Rate shown reflects current rate of variable
rate instruments.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 3
<PAGE>
Statement of Assets and Liabilities
(Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Assets
December 31, 1997
- -----------------
<S>
<C>
Investments, at value (cost
$25,521,229)....................................
............................ $25,388,999
Cash............................................
................................................
........ 43,429
Interest
receivable......................................
...............................................
379,035
Receivable for investments
sold............................................
.............................
72,224
- -----------------
Total
assets..........................................
...............................................
25,883,687
- -----------------
Liabilities
Payable for Fund shares
reacquired......................................
................................
122,809
Management fee
payable.........................................
.........................................
11,020
Dividends
payable.........................................
..............................................
3,216
- -----------------
Total
liabilities.....................................
...............................................
137,045
- -----------------
Net
Assets..........................................
................................................
.... $25,746,642
- -----------------
- -----------------
Net assets were comprised of:
Shares of beneficial interest, at
par.............................................
................... $ 27,441
Paid-in capital in excess of
par.............................................
........................ 33,015,375
- -----------------
33,042,816
Distributions in excess of net investment
income..........................................
........... (93,471)
Accumulated net realized loss on
investments.....................................
.................... (7,138,516)
Net unrealized depreciation on
investments.....................................
...................... (64,187)
- -----------------
Net assets, December 31,
1997............................................
...............................
$25,746,642
- -----------------
- -----------------
Class A:
Net asset value and redemption price per
share
($25,729,204 / 2,742,279 shares of
beneficial interest issued and
outstanding)....................
$9.38*
Maximum sales charge (3.0% of offering
price)..........................................
.............. .29
Maximum offering price to
public..........................................
........................... $9.67
Class C:
Net asset value, offering price and
redemption price per share
($17,438 / 1,861 shares of beneficial
interest issued and
outstanding)............................
$9.37*
</TABLE>
- ---------------
* Effective October 27, 1997, the Fund was no
longer offered for sale.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 4
<PAGE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Operations (Unaudited)
- ------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Six Months
Ended
December 31,
Net Investment Income
1997
- ------------
<S>
<C>
Income
Interest and discount earned...............
$1,038,303
- ------------
Expenses
Management fee.............................
69,037
Distribution fee--Class A..................
14,125
Distribution fee--Class C..................
42
Custodian's fees and expenses..............
42,000
Transfer agent's fees and expenses.........
26,000
Reports to shareholders....................
22,000
Legal fees and expenses....................
20,000
Registration fees..........................
13,000
Miscellaneous..............................
9,888
- ------------
Total operating expenses...............
216,092
Interest expense...........................
159,253
- ------------
Total expenses.........................
375,345
- ------------
Net investment income.........................
662,958
- ------------
Realized and Unrealized Gain
(Loss) on Investments
Net realized gain (loss) on:
Investment transactions....................
99,364
Financial futures contracts................
(33,085)
Short sale transactions....................
8,790
- ------------
75,069
- ------------
Net change in unrealized depreciation on:
Investments................................
(3,664)
Financial futures contracts................
5,034
- ------------
1,370
- ------------
Net gain on investments.......................
76,439
- ------------
Net Increase in Net Assets
Resulting from Operations.....................
$ 739,397
- ------------
- ------------
</TABLE>
THE BLACKROCK GOVERNMENT INCOME TRUST
Statement of Changes in Net Assets (Unaudited)
- ------------------------------------------------
- ------------
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended
Increase (Decrease) December
31, June 30,
in Net Assets 1997
1997
-----------
- - -----------
<S> <C>
<C>
Operations:
Net investment income........... $
662,958 $ 1,742,295
Net realized gain (loss) on
investment transactions......
75,069 (3,420,890)
Net change in unrealized
appreciation on
investments..................
1,370 3,674,911
-----------
- - ------------
Net increase in net assets
resulting from operations....
739,397 1,996,316
-----------
- - ------------
Dividends and distributions (Note
1):
Dividends from net investment
income:
Class A......................
(662,580) (1,718,151)
Class C......................
(378) (4,281)
-----------
- - ------------
(662,958) (1,722,432)
-----------
- - ------------
Distributions in excess of net
investment income:
Class A......................
(58,517) --
Class C......................
(30) --
-----------
- - ------------
(58,547) --
-----------
- - ------------
Tax return of capital
distributions:
Class A...................... -
- - (37,724)
Class C...................... -
- - (94)
-----------
- - ------------
-
- - (37,818)
-----------
- - ------------
Fund share transactions (Note 6):
Net proceeds from shares
subscribed...................
260,826 1,201,635
Net asset value of shares issued
in reinvestment of dividends
and distributions............
425,730 1,031,449
Cost of shares reacquired.......
(4,089,904) (10,451,900)
-----------
- - ------------
Net decrease in net assets from
Fund share transactions......
(3,403,348) (8,218,816)
-----------
- - ------------
Total decrease.....................
(3,385,456) (7,982,750)
Net Assets
Beginning of period................
29,132,098 37,114,848
-----------
- - ------------
End of period...................... $
25,746,642 $ 29,132,098
-----------
- - ------------
-----------
- - ------------
</TABLE>
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 5
<PAGE>
Notes to Financial Statements (Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
The BlackRock Government Income Trust (the
'Fund'), is registered under the
Investment Company Act of 1940 as a diversified,
open-end management investment
company. The Fund was organized as an
unincorporated business trust in
Massachusetts on June 13, 1991 and had no
operations until the issuance of
10,000 shares of beneficial interest for
$100,000 on July 18, 1991 to Prudential
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. Securities for which
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.
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 which approximates
market value.
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
- ------------------------------------------------
- --------------------------------
6
<PAGE>
Notes to Financial Statements (Unaudited) 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.
Securities Transactions and Net Investment
Income: Securities transactions are
recorded on the trade date. Realized gains and
losses from security transactions
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.
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 PSI. 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%, respectively,
of the average daily net assets of Class A and C
shares, respectively, for the
period July 1, 1997 through October 26, 1997.
Effective October 27, 1997, PSI
suspended the continous offering of Fund shares
in conjunction with a proposed
reorganization (Note 7) and distribution fees
were eliminated for the period
October 27, 1997 through December 31, 1997.
PSI has advised the Fund that it has received
approximately $200 in front-end
sales charges resulting from sales of Class A
shares during the six months ended
December 31, 1997. From these fees, PSI paid
such sales charges to dealers which
in turn paid commissions to salespersons and
incurred other distribution costs.
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'), has a credit agreement (the
'Agreement') with an unaffiliated lender.
The maximum commitment under the Agreement is
- ------------------------------------------------
- --------------------------------
7
<PAGE>
Notes to Financial Statements (Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
$200,000,000. 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 during the six months
ended December 31, 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. The Agreement
expired on December 30, 1997 and has
been extended through December 29, 1998 under
the same terms.
- ------------------------------------------------
- ------------
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
six months ended December 31,
1997, the Fund incurred fees of approximately
$17,800 for the services of PMFS.
As of December 31, 1997, approximately $3,000 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 nonaffiliates.
- ------------------------------------------------
- ------------
Note 4. Portfolio Securities
Purchases and sales of investment securities,
other than short-term investments
for the six months ended December 31, 1997
aggregated $31,497,668 and
$38,785,950, respectively.
The federal income tax basis of the Fund's
investments at December 31, 1997 was
substantially the same as for financial
reporting purposes and, accordingly, net
unrealized depreciation for federal income tax
purposes was $132,230 (gross
unrealized appreciation--$105,263; gross
unrealized depreciation--$237,493).
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 month period
ended June 30, 1997 as having been
incurred in the current 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 average daily balance of reverse repurchase
agreements outstanding during
the six months ended December 31, 1997 was
approximately $3,046,000 at a
weighted average interest rate of approximately
5.54%. The maximum amount of
reverse repurchase agreements outstanding at any
month-end during the period was
$9,521,250 as of September 30, 1997.
- ------------------------------------------------
- ------------
Note 6. Capital
The Fund offered only Class A and Class C
shares. Class A shares were sold with
a front-end sales charge of up to 3%. Class C
shares were 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.
The Fund had 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, were
being offered.
Transactions in shares of beneficial interest
for the six months ended December
31, 1997 and the year ended June 30, 1997 were
as follows:
<TABLE>
<CAPTION>
Class A Shares
Amount
- ------------------------------------- ---------
- - ------------
<S> <C>
<C>
Six months ended December 31, 1997:
Shares sold..........................
18,408 $ 260,000
Shares issued in reinvestment
of dividends and distributions.....
45,361 425,310
Shares reacquired....................
(436,099) (4,089,880)
---------
- - ------------
Net decrease in shares outstanding...
(372,330) $ (3,404,570)
---------
- - ------------
---------
- - ------------
</TABLE>
- ------------------------------------------------
- --------------------------------
8
<PAGE>
Notes to Financial Statements (Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
<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 C
- -------------------------------------
Six months ended December 31, 1997:
Shares sold..........................
89 $ 826
Shares issued in reinvestment
of dividends and distributions.....
45 420
Shares reacquired....................
(3) (24)
---------
- - ------------
Net increase in shares outstanding...
131 $ 1,222
---------
- - ------------
---------
- - ------------
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)
---------
- - ------------
---------
- - ------------
</TABLE>
Note 7. Subsequent Event
On October 27, 1997, the Trustees approved an
Agreement and Plan of
Reorganization and Liquidation for the Fund (the
'Plan of Reorganization') which
provides for the transfer of substantially all
of the assets and liabilities of
the Fund to Prudential Government Securities
Trust, Short-Intermediate Term
Series. Class A and Class C shares of the Fund
will be exchanged at net asset
value for Class A shares of equivalent value of
Prudential Government Securities
Trust, Short-Intermediate Term Series. The Fund
will then cease operations.
The shareholders of the Fund approved the Plan
on January 23, 1998 and the
reorganization was effective on January 30,
1998. The Fund and
Short-Intermediate Term Series each bore their
pro rata share of the costs of
the reorganization, including costs of proxy
solicitation.
- ------------------------------------------------
- --------------------------------
9
<PAGE>
Financial Highlights (Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Class A
---
- ------------------------------------------------
- --------------------
Six
Months
Ended Year Ended June
30,
June 30, ----------------------------------
- ----------------------
1997(a) 1997(a) 1996 1995(a)
1994(a) 1993
---
- ------- ------- ------- -------
- ------- --------
<S> <C>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $
9.35 $ 9.28 $ 9.37 $ 9.29 $
9.67 $ 10.07
---
- ------- ------- ------- -------
- ------- --------
Income from investment operations
Net investment income......................
.23 .49 .51 .51
.45 .64
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................
.05 .08 (.06) .09
(.35) (.41)
---
- ------- ------- ------- -------
- ------- --------
Total from investment operations........
.28 .57 .45 .60
.10 .23
---
- ------- ------- ------- -------
- ------- --------
Less distributions
Dividends from net investment income.......
(.23) (.49) (.51) (.52)
(.40) (.63)
Distributions in excess of net investment
income
(.02) -- -- --
- -- --
Tax return of capital distributions........
- -- (.01) (.03) --
(.08) --
---
- ------- ------- ------- -------
- ------- --------
Total distributions.....................
(.25) (.50) (.54) (.52)
(.48) (.63)
---
- ------- ------- ------- -------
- ------- --------
Net asset value, end of period............. $
9.38 $ 9.35 $ 9.28 $ 9.37 $
9.29 $ 9.67
---
- ------- ------- ------- -------
- ------- --------
---
- ------- ------- ------- -------
- ------- --------
TOTAL RETURN(b):...........................
5.83% 6.22% 4.98% 6.55%
1.02% 2.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $
25,729 $29,116 $37,049 $46,450
$69,912 $113,623
Average net assets (000)................... $
27,373 $33,235 $42,598 $56,395
$91,849 $131,371
Ratios to average net assets:
Total expenses..........................
2.71%(c) 3.45% 3.74% 2.19%
1.89% 1.94%
Operating expenses, including
distribution fee.....................
1.56%(c) 1.56% 1.47% 1.31%
1.17% 1.05%
Operating expenses, excluding
distribution fee.....................
1.46%(c) 1.41% 1.32% 1.16%
1.05% .95%
Net investment income...................
4.80%(c) 5.23% 5.51% 5.49%
4.94% 6.71%
For Class A, B and C shares:
Portfolio turnover rate.................
100% 225% 173% 254%
209% 228%
</TABLE>
<TABLE>
<CAPTION>
BORROWINGS (for all classes):
Amount of debt Average amount of
outstanding at end debt outstanding
Period ended
of period (000) during period (000)
- ------------------------------------------------
- --------------------- ------------------ -
- ------------------
<S>
<C> <C>
December 31,
1997............................................
........ -- $ 3,046
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
Period ended
during period (000) period
- ------------------------------------------------
- --------------------- ------------------- -
- ----------------
<S>
<C> <C>
December 31,
1997............................................
........ 2,907 $1.05
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 period.
(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 period reported and
includes reinvestment of dividends and
distributions. Total returns for periods of
less than a full year are not
annualized.
(c) Annualized.
- ------------------------------------------------
- --------------------------------
See Notes to Financial Statements. 10
<PAGE>
Financial Highlights (Unaudited) THE
BLACKROCK GOVERNMENT INCOME TRUST
- ------------------------------------------------
- --------------------------------
<TABLE>
<CAPTION>
Class B
Class C
---
- ------------------------------------------------
- ---- ------------------------
July 1,
September 1, Year
1995 1992(e)
Six Months Ended
Through Year Ended June 30,
Through Ended June 30,
November 27, ---------------------
June 30, June 30, ---------
1995(f) 1995(a) 1994(a)
1993 1997(a) 1997(a)
---
- --------- -------- -------- --------
- ---- ---------- ---------
<S> <C>
<C> <C> <C> <C>
<C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period....... $
9.37 $ 9.29 $ 9.68 $ 9.97
$ 9.34 $ 9.28
- ------ -------- -------- -----
- ---------- ---------
Income from investment operations
Net investment income......................
.22 .48 .37 .47
.21 .43
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions............................
.02 .09 (.37) (.32)
.05 .08
- ------ -------- -------- -----
- ---------- ---------
Total from investment operations........
.24 .57 -- .15
.26 .51
- ------ -------- -------- -----
- ---------- ---------
Less distributions
Dividends from net investment income.......
(.22) (.49) (.32) (.44)
(.21) (.44)
Distributions in excess of net investment
income..................................
- -- -- -- --
(.02) --
Tax return of capital distributions........
(.01) -- (.07) --
- -- (.01)
- ------ -------- -------- -----
- ---------- ---------
Total distributions.....................
(.23) (.49) (.39) (.44)
(.23) (.45)
- ------ -------- -------- -----
- ---------- ---------
Net asset value, end of period............. $
9.38 $ 9.37 $ 9.29 $ 9.68
$ 9.37 $ 9.34
- ------ -------- -------- -----
- ---------- ---------
- ------ -------- -------- -----
- ---------- ---------
TOTAL RETURN(b):...........................
2.63% 6.16% (.01)% 1.39%
5.27% 5.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000)............ $
0 $2,466 $3,845 $5,954
$ 17 $ 16
Average net assets (000)................... $
1,820 $2,928 $5,778 $2,740
$ 17 $ 94
Ratios to average net assets:
Total expenses..........................
3.87%(c) 2.56% 2.76%
2.89%(c) 3.09%(c) 4.05%
Operating expenses, including
distribution fee.....................
1.52%(c) 1.68% 2.05%
1.95%(c) 1.94%(c) 2.16%
Operating expenses, excluding
distribution fee.....................
1.32%(c) 1.16% 1.05%
.95%(c) 1.45%(c) 1.41%
Net investment income...................
5.46%(c) 5.12% 4.06%
5.11%(c) 4.45%(c) 4.63%
<CAPTION>
November 1,
Year 1994(e)
Ended Through
June 30, June 30,
1996 1995(a)
---
- -------- ------------
<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)
Distributions in excess of net investment
income..................................
- -- --
Tax return of capital distributions........
(.02) --
---
- -------- -----
Total distributions.....................
(.48) (.33)
---
- -------- -----
Net asset value, end of period............. $
9.28 $ 9.37
---
- -------- -----
---
- -------- -----
TOTAL RETURN(b):...........................
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%(c)
Operating expenses, including
distribution fee.....................
2.07% 1.91%(c)
Operating expenses, excluding
distribution fee.....................
1.32% 1.16%(c)
Net investment income...................
4.91% 4.89%(c)
</TABLE>
- ---------------
(a) Calculated based upon weighted average
shares outstanding during the period.
(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 period reported and
includes reinvestment of dividends and
distributions. Total return for periods of
less than a full year are not
annualized.
(c) Annualized.
(d) Amounts are actual and not rounded to
nearest thousand.
(e) Commencement of offering of shares.
(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. 11
<PAGE>
(This page has been left blank
intentionally.)
<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
Robert F. Gunia, Vice President
Grace C. Torres, Treasurer
Stephen M. Ungerman, Assistant Treasurer
S. Jane Rose, 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.
The accompanying financial statements as of
December 31, 1997 were not audited
and, accordingly, no opinion is expressed on
them.
This report is not authorized for distribution
to prospective investors unless
preceded or accompanied by a current prospectus.
<PAGE>
(LOGO)
Prudential Mutual Funds
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 225-1852
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