BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC
N-30D, 1996-12-27
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- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
                          ANNUAL REPORT TO SHAREHOLDERS
                          REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------



                                                               November 30, 1996



Dear Trust Shareholder:

      Interest  rate  volatility in the domestic  fixed income  markets was once
again a major factor over the past twelve months. Significant swings in the pace
of U.S.  economic  growth  influenced  the bond market's  performance,  as every
release of economic  data led to market  participant  speculation  regarding the
direction of Federal Reserve monetary policy.

      Despite strong growth and rising wage pressures, the Fed's decision not to
raise  interest  rates at their two most recent  policy  meetings  has  markedly
increased the stakes in the bond market. The rationale behind the Fed's decision
not to raise  interest  rates  appears  to focus on the  benign  inflation  data
released  during the third quarter.  Should  economic  growth slow and inflation
remain  benign,  the Fed will be proven correct in their inaction and the market
would be expected to rally significantly. On the other hand, signs of a stronger
economy could result in weaker bond prices as the likelihood of a Fed tightening
would increase.

      BlackRock  maintains a positive view on the bond market.  On balance,  the
outlook for moderate inflation remains intact,  suggesting that further declines
in  interest  rates  are  likely.  In  addition  to this  favorable  fundamental
backdrop,  foreign  demand  for U.S.  bonds  has  increased  due to the  renewed
attractiveness of the U.S. bond market on a global basis.

      This  annual  report is  designed  to help you stay  informed  about  your
investment and represents our ongoing  commitment to improving our communication
with  you.  We hope  you find  this  report  useful  now and in the  future.  We
appreciate  your confidence and look forward to helping you reach your long-term
investment goals.


Sincerely,



/s/ Laurence D. Fink                      /s/ Ralph L. Schlosstein
- --------------------                       -------------------------
Laurence D. Fink                           Ralph L. Schlosstein
Chairman                                   President

                                       1
<PAGE>


      November 30, 1996

Dear Shareholder:

      We are  pleased to  present  the annual  report  for The  BlackRock  North
American  Government  Income Trust Inc.  (the "Trust") for the fiscal year ended
October 31, 1996. We would like to take this  opportunity  to review the Trust's
stock price and net asset value (NAV) performance, summarize market developments
in the  United  States  and  Canada  and  discuss  recent  portfolio  management
activity.

      The Trust is a  non-diversified,  actively  managed  closed-end  bond fund
whose shares are traded on the New York Stock  Exchange  under the symbol "BNA".
The Trust's  investment  objective is to provide high monthly income  consistent
with the preservation of capital. The Trust seeks this objective by investing in
Canadian and U.S.  dollar-denominated  investment grade fixed income securities,
with at  least  65% of the  Trust's  assets  to be  Canadian  dollar-denominated
securities (primarily Canadian provincial debt, Canadian Treasury securities and
Canadian  mortgage-backed  securities).  The U.S.  portion of the  portfolio  is
expected  to consist  primarily  of  mortgage-backed  securities  backed by U.S.
Government  agencies  (such as Fannie Mae,  Freddie Mac or Ginnie Mae) and, to a
lesser extent, U.S. Government securities, asset-backed securities and privately
issued mortgage-backed securities. All of the Trust's assets must be rated "BBB"
by Standard & Poor's or "Baa" by Moody's at the time of purchase or be issued or
guaranteed by the Canadian or U.S.
Governments or their agencies.

      The table below  summarizes the performance of the Trust's stock price and
NAV over the period:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
                                                10/31/96      10/31/95        CHANGE          HIGH           LOW
<S>                                              <C>           <C>            <C>           <C>            <C>
  Stock Price                                    $10.125       $10.125          --           $10.375        $9.25
  Net Asset Value (NAV)                          $12.33        $11.36          8.54%         $12.33        $10.99
  Currency Exchange Rate                         $0.7462       $0.7464        (0.03%)        $0.7466       $0.7232
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


THE CANADIAN AND U.S. FIXED INCOME MARKETS

      Canadian fixed income  securities  significantly  outperformed  their U.S.
counterparts during the past twelve months, as investor interest strengthened in
response to Canada's positive inflation environment.  Additionally,  low federal
and provincial  budget  deficits and higher trade  surpluses  helped support the
Canadian  dollar,  whose value in relation to the U.S.  dollar  remained  fairly
stable  despite  continued  efforts  by the Bank of Canada (in the form of short
term interest rate cuts) to stimulate the sluggish Canadian economy.  The strong
performance of the Canadian fixed income markets can be seen in the narrowing of
the yield  differentials,  or spreads,  between  Canadian  and U.S.  bonds.  For
example,  on October 31, 1995, the Canadian  10-year Treasury yielded 7.52%, 150
basis points (1.50%) higher than the U.S. 10-year  Treasury's yield of 6.02%. On
October 31,  1996,  the spread had narrowed to 7 basis  points,  as the Canadian
10-year closed at 6.43%.

      The  performance  of the U.S.  fixed  income  markets  was  influenced  by
significant  swings in the pace of U.S.  economic growth.  Throughout the fourth
quarter of 1995 and through the first six weeks of 1996, weak  inflationary data
and sluggish  retail demand  spurred two reductions of short term interest rates
totaling  50 basis  points  (0.50%) by the  Federal  Reserve to 5.25%.  Economic
growth began to pick up in mid-February, however, and accelerated throughout the
second quarter of 1996.  More recently,  the pace of economic growth has slowed,
allowing the Fed to leave short term  interest  rates  unchanged at their August
and September policy meetings.

      Yields of most maturity U.S.  Treasuries  posted  minimal net changes over
the past  twelve  months.  As an example,  the yield of the  10-Year  note ended
October 1996 at 6.34%,  32 basis points higher than the October 31, 1995 closing
yield  of  6.02%.   However,  the  modest  net  change  in  yield  levels  masks
considerable  intra-year  movements.   After  falling  to  a  low  of  5.52%  in
mid-January, the yield of the 10-year Treasury rose to 7.05% in July in response
to  stronger  economic  data  before  rallying to 6.34% at the end of the fiscal
year. The market for  mortgage-backed  securities MBS posted strong  performance

                                       2
<PAGE>

versus the broader  investment  grade bond market during 1996.  Prepayments,  as
measured by the MBA  Refinancing  Index,  displayed  considerable  stability  as
homeowners  refinanced  their mortgages at a relatively  steady rate. An equally
important   contributor  to  mortgage   performance   was  a  strong   technical
environment, as new issue supply declined from its May peak.

THE TRUST'S PORTFOLIO AND INVESTMENT STRATEGY

      BlackRock actively manages the Trust's portfolio holdings  consistent with
BlackRock's  overall market outlook and the Trust's investment  objectives.  The
total  Portfolio's  duration  (or  interest  rate  sensitivity)  is  managed  to
approximate  the duration of the U.S.  10-year  Treasury;  this means that for a
given change in interest rates,  the movement in the Trust's NAV can be expected
to  approximate  the price  movement of the 10-year  Treasury  note. The Trust's
Canadian and U.S. holdings are managed as two separate  portfolios.  The Trust's
Canadian exposure has generally  remained between 65% and 75% of the portfolio's
assets;  however,  this  allocation  may be adjusted in relation to  BlackRock's
views and  expectations  regarding  interest  rates and changes in the  currency
exchange  rates  between the U.S.  and  Canadian  dollar.  The  following  chart
compares the Trust's current and October 31, 1995 asset composition.

- --------------------------------------------------------------------------------
     COMPOSITION                         OCTOBER 31, 1996    OCTOBER 31, 1995
   Canadian Portfolio Allocation                76%                 72%
   Ontario                                      19%                 14%
   Canadian Government Securities               15%                 11%
   Canadian Mortgages                            8%                 10%
   Quebec                                        7%                  3%
   Saskatchewan                                  6%                  5%
   British Columbia                              6%                  5%
   New Brunswick                                 5%                  3%
   New Foundland                                 3%                  6%
   Manitoba                                      3%                  5%
   Nova Scotia                                   2%                  2%
   Prince Edward Island                          2%                  1%
   Alberta                                      --                   7%
- --------------------------------------------------------------------------------
   U.S. Portfolio Allocation                    24%                 28%
   FHA Project Loans                             7%                  7%
   Stripped Mortgage-Backed Securities           5%                  3%
   Agency Mortgage Pass-Throughs                 4%                  4%
   Agency Multiple Class Mortgage
     Pass-Throughs                               4%                  3%
   Non-Agency Multiple Class Mortgage
     Pass-Throughs                               3%                  7%
   Adjustable Rate Mortgage Securities           1%                  1%
   U.S. Government Securities                   --                   3%
- --------------------------------------------------------------------------------


      Within the U.S. portion of the portfolio,  the Trust took advantage of the
strong 1996 year-to-date  total return  performance of the U.S.  mortgage-backed
securities (MBS) market by reducing total mortgage exposure, particularly in the
pass-through and adjustable-rate  mortgage (ARM) sectors.  The Trust's remaining
mortgage holdings  emphasize seasoned  securities,  which have weathered several
interest  rate cycles and are  expected  to provide  more  prepayment  stability
should interest rates decline significantly.

                                       3
<PAGE>

      The  Canadian  portfolio  was  managed to  contribute  a higher than usual
proportion of the duration (market exposure) of the total portfolio,  reflecting
BlackRock's  positive  relative  outlook  for the  Canadian  market.  The  Trust
benefited from the  outperformance  of Canadian  provincial issues that occurred
during  the  year.  Recently,  the Trust  has  begun to  reduce  its  provincial
exposure,  particularly in shorter maturity  issues,  as the outlook for further
outperformance appeared limited.  Additionally,  the portfolio's Canadian dollar
denominated  leverage was  particularly  effective  due to the  steepness in the
Canadian yield curve  throughout the period,  which  significantly  enhanced the
Trust's income and total return characteristics.

      The Trust's  Board of Directors  has  announced  that the Trust expects to
offset  approximately  70% of its current year's (1996)  investment  income with
prior Canadian  currency  losses,  which in 1995 caused 100% of the Trust's 1995
distributions  to not be  subject to current  income  taxation.  While the Trust
would be earning its dividend from ordinary  income,  the ability to offset such
income with currency losses will result in the reclassification of approximately
70% of all ordinary  income  dividends as a return of capital  which will not be
subject to federal, state and local income tax. As with 1995's return of capital
distributions, shareholders will be required to reduce their original cost basis
by the  amount of return of  capital  distributions  received  for  purposes  of
determining  capital  gain or loss on any  future  sale  of  shares.  Final  tax
information will be sent to shareholders in January 1997.

      We look  forward to  continuing  to manage  the Trust to benefit  from the
opportunities  available to investors in the fixed income  markets as well as to
maintain the Trust's ability to meet its investment objectives. We thank you for
your  investment in the BlackRock  North American  Government  Income Trust Inc.
Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you
have specific questions which were not addressed in this report. Sincerely,






/s/ Robert S. Kapito                        /s/ Michael P. Lustig
- ------------------------                    ----------------------
Robert S. Kapito                            Michael P. Lustig
Vice Chairman and Portfolio Manager         Principal and Portfolio Manager
BlackRock Financial Management, Inc.        BlackRock Financial Management, Inc.


- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
- --------------------------------------------------------------------------------
Symbol on New York Stock Exchange:                                  BNA
Initial Offering Date:                                      December 20, 1991
Closing Stock Price as of 10/31/96:                            $    10.125
Net Asset Value as of 10/31/96:                                $    12.33
Yield on Closing Stock Price as of 10/31/96 ($10.125)1:              8.30%
Current Monthly Distribution per Share2:                       $     0.07
Current Annualized Distribution per Share2:                    $     0.84
- --------------------------------------------------------------------------------

1Yield on Closing Stock Price is  calculated by dividing the current  annualized
 distribution per share by the closing stock price per share.
2The distribution is not constant and is subject to change.

                                       4

<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996
- --------------------------------------------------------------------------------
 S&P/
MOODY'S     PRINCIPAL
RATINGS*     AMOUNT                                                      VALUE
(UNAUDITED)   (000)         DESCRIPTION                                 (NOTE 1)
- --------------------------------------------------------------------------------

                         LONG-TERM INVESTMENTS--129.9%
                         UNITED STATES SECURITIES--30.7%
                         MORTGAGE PASS-THROUGHS--13.8%
                         Federal Home Loan Mortgage
                          Corporation,

               $ 9,669    6.50%, 3/01/26 .........................  $  9,263,784
                 5,750    7.50%, 12/01/99 ........................     5,769,723
                         Federal Housing Administration,
                          GMAC,
                 2,239    Series 37, 7.43%, 5/01/22 ..............     2,281,464
                 1,365    Series 44, 7.43%, 8/01/22 ..............     1,387,538
                 1,697    Series 59, 7.43%, 7/01/21 ..............     1,732,565
                   746    Series 65, 7.43%, 2/01/23 ..............       761,118
                          Merrill,
                 3,024    Series 29, 7.43%, 10/01/20 .............     3,086,874
                25,287    Series 42, 7.43%, 9/01/22 ..............    25,757,499
                 2,306    Reilly, Series B-11, 7.40%, 4/01/21 ....     2,347,841
                 2,380    Westmore Project 8240,
                           7.25%, 4/01/21 ........................     2,409,598
                          Government National Mortgage
                           Association,
                 4,210##  6.00%, 12/15/08 - 4/15/09, 15 year .....     4,090,169
                 2,859    8.00%, 4/15/24 - 11/15/25 ..............     2,923,718
                                                                     -----------
                                                                      61,811,891
                                                                     -----------
                          MULTIPLE CLASS MORTGAGE
                          PASS-THROUGHS--10.4%
AAA             16,000##  Community Program Loan Trust,
                           Collateralized Mortgage Obligation,
                           Series 1987-A, Class A4, 10/01/18 ......   13,740,000
                         Federal Home Loan Mortgage
                           Corporation, Multiclass
                           Mortgage Participation
                           Certificates,
                 8,000    Series 120, Class 120-H, 2/15/21 .......     8,354,960
                    73    Series 1363, Class 1363-E,
                           8/15/22 (ARM) .........................     2,185,430
                 9,675    Series 1379, Class 1379-P,
                           8/15/18 (I) ...........................     1,107,843
                 1,033    Series 1530, Class 1530-OA,
                           6/15/23 (ARM) .........................       589,051


- --------------------------------------------------------------------------------
 S&P/
MOODY'S     PRINCIPAL
RATINGS*     AMOUNT                                                      VALUE
(UNAUDITED)   (000)         DESCRIPTION                                 (NOTE 1)
- --------------------------------------------------------------------------------

                         Federal National Mortgage Association,
                          REMIC Pass-Through Certificates,
               $ 8,166    Trust 1989-90, Class 90-E, 12/25/19 ....   $ 8,687,261
                 1,390    Trust G1993-27, Class 27-SE,
                           8/25/23 ...............................       734,348
                 1,233    Trust 1993-120, Class 120-SN
                           3/25/23 (ARM) .........................       794,607
                 1,889    Trust 1993-183, Class 183-SE, 
                           10/25/23 (ARM) ........................     1,492,151
                   524    Trust 1993-201, Class 201-A,
                           1/25/23 ...............................       469,873
                 1,862    Trust 1993-201, Class 201-SC  
                           10/25/23 (ARM) ........................     1,319,826
                 2,100    Trust 1996-14, Class 14-M, 10/25/21 ....     1,683,937
                49,701    Trust 1996-43, Class 43-SA (ARM) .......     1,894,857
Aaa              4,738   G. E. Capital Mortgage Services,
                          Trust 1993-13, Class A2, 10/25/08 ......       281,298
AAA              3,000   ML Trust XXXVI, Collateralized Mortgage
                          Obligation, Series 36, Class D,
                           11/01/18 ..............................     3,153,330
                                                                      ----------
                                                                      46,488,772
                                                                      ----------
                         STRIPPED MORTGAGE-BACKED
                         SECURITIES--6.1%
                         Federal Home Loan Mortgage Corporation,
                 8,667    Series 1254, Class 1254-Z,
                           4/15/22 (I/O) .........................     2,713,520
                    75#   Series 1434, Class 1434-M, 12/15/22
                           (I/0) .................................     4,970,250
                 4,134    Series 1570, Class 1570-C, 8/15/23
                           (P/O) .................................     1,976,035
                 5,620+   Series 1571, Class 1571-E, 8/15/23
                           (P/O) .................................     2,599,053
                         Federal National Mortgage Association,
                 3,700@   Trust 2, Class 2,  2/01/17  (I/O) ......     1,123,315
                 5,913@   Trust 11, Class 2, 2/01/17 (I/0) .......     1,799,920
                 4,560@   Trust 116, Class 2, 12/25/21 (I/0) .....     1,349,397
                 10,914   Trust G-233, Class 2 8/01/23 (I/O) .....     3,519,732
                     42   Trust 1991-24, Class 24-O, 3/25/21
                           (I/O) .................................     1,984,533
                     20   Trust G1992-5, Class 5-E, 1/25/22
                           (I/O) .................................     1,064,942
                  1,998   Trust 1992-48, Class 48-J, 4/25/07
                           (I/O) .................................       725,193
                  2,627   Trust 1994-22, Class 22-E, 1/25/24
                           (P/O) .................................     1,733,517
                  3,321   Trust 1996-38, Class 38-E
                            8/25/23  (P/O), ......................     1,425,774
                                                                      ----------
                                                                      26,985,181
                                                                      ----------
                       See Notes to Financial Statements.

                                       5
<PAGE>
- --------------------------------------------------------------------------------
 S&P/
MOODY'S     PRINCIPAL
RATINGS*     AMOUNT                                                 VALUE
(UNAUDITED)   (000)         DESCRIPTION                            (NOTE 1)
- --------------------------------------------------------------------------------

                      U.S GOVERNMENT SECURITIES--0.4%
                      U.S. Treasury Notes,
              $ 150+   6.50%, 5/31/01. ...........................     $ 152,461
                750    7.00%, 7/15/06 ............................       783,045
                610    7.25%, 8/15/04 ............................       645,551
                                                                     -----------
                                                                       1,581,057
                                                                     -----------
                      Total United States Securities
                       (cost $133,729,643) .......................   136,866,901
                                                                     -----------

                      Canadian Securities--99.2%
                      Canadian Government Securities--19.6%
                      Canadian TreasuryNotes,
           C$15,000+   7.50%, 3/01/01 ............................    12,088,185
             17,000    7.50%, 9/01/00 ............................    13,659,110
             75,000    8.50%, 3/01/00 ............................    61,889,774
                                                                     -----------
                      Total Canadian Government
                      Securities                                      87,637,069
                                                                     -----------

                      CANADIAN MORTGAGES--9.8%
                      Conduit for Mortgage Obligation,
             9,000++** 6.95%, 9/01/98 ............................     6,965,900
             3,000++** 8.25%, 5/01/98 ............................    10,144,307
            25,955+  NHA Mortgage Backed Securities
                       Corporation, Household Trust,
                       7.75%, 6/01/99 ............................    20,383,521
                      Shoppers,
              1,815    9.125%, 4/01/02 ...........................     1,476,191
              5,767    9.125%, 5/01/02 ...........................     4,690,831
                                                                     -----------
                      Total Canadian Mortgages                        43,660,750
                                                                     -----------


                      CANADIAN PROVINCIAL SECURITIES--69.8%
                      BRITISH COLUMBIA--8.3%
             40,000+  British Columbia Province,
                       8.50%, 8/23/13 ............................    33,884,465
              4,000   Municipal Finance Authority,
                       7.75%, 12/01/05 ...........................     3,232,977
                                                                     -----------
                                                                      37,117,442
                                                                     -----------

                      MANITOBA--3.6%
              3,000   City of Winnipeg,
                       9.375%, 2/11/13 ...........................     2,673,852
             15,000   Manitoba Province,
                      9.375%, 11/15/04 ...........................    13,344,527
                                                                     -----------
                                                                      16,018,379
                                                                     -----------


                       NEW BRUNSWICK--6.7%
                      New Brunswick Province,
             20,000    7.50%, 12/15/05 ...........................    15,920,296
             14,600    10.125%, 10/31/11 .........................    14,075,339
                                                                     -----------
                                                                      29,995,635
                                                                     -----------

- --------------------------------------------------------------------------------
 S&P/
MOODY'S     PRINCIPAL
RATINGS*     AMOUNT                                                  VALUE
(UNAUDITED)   (000)         DESCRIPTION                             (NOTE 1)
- --------------------------------------------------------------------------------


                      NEWFOUNDLAND--4.3%
           C$23,000   Newfoundland Province,
                       8.45%, 2/05/26 .......................     $ 19,000,458
                                                                   -----------

                      NOVA SCOTIA--3.1%
             15,000+  Nova Scotia Province,
                       9.60%, 1/30/22 .......................       13,946,004
                                                                   -----------

                      ONTARIO--24.5%
             10,000+  Hamilton Wentworth Regional
                       Muncipality
                       7.00%, 6/06/01 .......................        7,871,959
             10,000+  Ontario Hydro,
                       8.90%, 8/18/22 .......................        8,772,422
                      Ontario Province,
             25,000+   7.50%, 1/19/06 .......................       19,882,462
             25,000+   8.00%, 6/02/26 .......................       20,092,318
             25,000+   8.10%, 9/08/23 .......................       20,289,864
             28,500    9.75%, 10/29/01 ......................       24,790,225
             10,000   Toronto Metropolitan Municipality
                       7.75%, 12/01/05 ......................        7,886,875
                                                                   -----------
                                                                   109,586,125
                                                                   -----------

                      PRINCE EDWARD ISLAND--2.4%
             13,000+  Prince Edward Island Province,
                       8.50%, 10/27/15 .......................      10,862,877
                                                                   -----------

                      Quebec--9.7%
                      Hydro Quebec,
             18,600+   10.25%, 5/15/03 .......................      15,079,004
              7,250    10.75%, 3/27/04 .......................       5,842,412
                      Quebec Province,
             10,000    7.50%, 12/01/03 .......................       7,926,422
             18,700    10.25%, 5/04/01 .......................      14,392,651
                                                                   -----------
                                                                    43,240,489
                                                                   -----------
                      SASKATCHEWAN--7.2%
                      Saskatchewan Province,
             34,500+   7.50%, 12/19/05 .......................      27,473,064

              5,000    11.00%, 1/09/01 .......................       4,497,422
                                                                   -----------
                                                                    31,970,486
                                                                   -----------
                      Total Canadian Provincial
                       Securities ............................     311,737,895
                                                                   -----------
                      Total Canadian Securities
                       (cost $419,948,461) ...................     443,035,714
                                                                   -----------
                      Total Long-Term Investments
                       (cost $553,678,104) ...................     579,902,615
                                                                   -----------
                       See Notes to Financial Statements.

                                           6
    <PAGE>


- --------------------------------------------------------------------------------
 S&P/
MOODY'S     PRINCIPAL
RATINGS*     AMOUNT                                           VALUE
(UNAUDITED)   (000)         DESCRIPTION                      (NOTE 1)
- --------------------------------------------------------------------------------

                  SHORT-TERM INVESTMENTS--49.7%
                  MoneyMarket Investments
       $ 34,000   Dreyfus CashManagement Plus
                   Incorporated .........................  $ 34,000,000
         76,000   Dreyfus Money Market Dividend
                   Receipt ..............................    37,802,390
        150,000   Fidelity Instituional CashPortfolios,
                   Money Market Portfolio, Class A ......   150,000,000
                                                            -----------
                  Total Short-Term Investments
                   (cost $221,802,390) ..................   221,802,390
                                                            -----------

                  Total Investments, before investment
                   sold short--179.6%
                   (cost $775,480,494) ..................   801,705,005

                  INVESTMENT SOLD SHORT--(0.6%)
          2,500   United States Treasury Bonds,
                   6.75%, 8/15/26
                   (proceeds $2,478,906) ................   (2,529,675)
                                                            -----------
                  Total Investments, net of investment
                   sold short--179.0% ...................   799,175,330
                  Liabilities in excess of other
                   assets--(79.0%) ...................... (352,780,885)
                                                            -----------
                  NET ASSETS--100% ...................... $ 446,394,445
                                                            ===========

<PAGE>


================================================================================
                              KEY TO ABBREVIATIONS
             ARM-- Adjustable Rate Mortgage.
             CMO-- Collateralized Mortgage Obligation.
               I-- Denotes a CMO with interest only characteristics.
             I/O-- Interest Only.
             P/O-- Principal Only.
           REMIC-- Real Estate Mortgage Investment Conduit.
================================================================================

   * Using the higher of Standard & Poor's or Moody's rating.
  ** Private placement securities restricted as to resale. See Note 3.
   + (Partial)  principal  amount  pledged as  collateral  for reverse
     repurchase agreements.
  ++ Entire  principal  amount  pledged as  collateral  for  reverse  repurchase
     agreements.
   @ Entire principal amount pledged as collateral for futures transactions.
   # Entire principal amount pledged as collateral for mortgage swaps.
  ## $12,062,915 of principal amount pledged as collateral for mortgage swaps.


See Notes to Financial Statements.

                                       7
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996
- --------------------------------------------------------------------------------

ASSETS
Investments, at value (cost $775,480,494) (Note 1) .........      $ 801,705,005
Cash .......................................................            236,114
Canadian dollars, at value (cost $5,802,485) ...............          6,425,185
Receivable for investments sold ............................         43,080,987
Interest receivable ........................................         10,820,338
Deposits with brokers for securities sold short ............          2,553,125
Forward currency contracts--amount receivable
   from counterparties .....................................            500,106
Unrealized appreciation on Canadian dollar swap
   spreadlock (Notes 1 & 3) ................................             43,976
Other assets ...............................................              1,659
                                                                  -------------
                                                                    865,366,495
                                                                  -------------


LIABILITIES
Reverse repurchase agreements (Note 4) .....................        217,134,721
Payable for investments purchased ..........................        187,636,673
Dollar roll payable ........................................          7,562,827
Unrealized depreciation on mortgage swap
   (Notes 1 & 3) ...........................................          2,771,861
Investments sold short, at value
   (proceeds $2,478,906) ...................................          2,529,675
Due to broker-variation margin .............................            183,371
Dividends payable ..........................................            230,240
Advisory fee payable (Note 2) ..............................            221,559
Interest payable ...........................................            256,734
Administration fee payable (Note 2) ........................             36,927
Other accrued expenses .....................................            407,462
                                                                  -------------
                                                                    418,972,050
                                                                  -------------
Net Assets .................................................      $ 446,394,445
                                                                  -------------
Net assets were comprised of:
   Common stock, at par (Note 5) ...........................      $     362,071
   Paid-in capital in excess of par ........................        443,708,250
                                                                  -------------
                                                                    444,070,321
   Accumulated net realized loss on investments ............        (59,995,962)
   Net unrealized appreciation on
     investments ...........................................         58,203,197
   Accumulated net realized and unrealized
     foreign currency gain .................................          4,116,889
                                                                  -------------
   Net assets, October 31, 1996 ............................      $ 446,394,445
                                                                  =============

Net asset value per share:
   ($446,394,445 / 36,207,093 shares of
   common stock issued and outstanding) ....................             $12.33
                                                                  =============


<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------


NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
   $6,962,306 and net of interest expense of
   $15,010,024)                                $ 37,722,738
                                               ------------
Expenses
   Investment advisory .....................      2,472,119
   Administration ..........................        412,020
   Reports to shareholders .................        340,000
   Custodian ...............................        330,000
   Audit ...................................         85,000
   Directors ...............................         80,000
   Transfer agent ..........................         20,000
   Miscellaneous ...........................        225,032
                                               ------------
     Total operating expenses ..............      3,964,171
                                               ------------
   Net investment income ...................     33,758,567
                                               ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
   Investments .............................     35,655,429
   Futures .................................      (824,595)
   Short sales .............................       (238,497)
   Foreign currency ........................    (25,324,566)
                                               ------------
                                                  9,267,771
                                               ------------
Net change in unrealized appreciation
   (depreciation) on:
   Investments .............................      1,248,786
   Futures .................................       (635,983)
   Short sales .............................         91,629
   Options .................................        (11,165)
   Foreign currency ........................     23,264,206
                                               ------------
                                                 23,957,473
                                               ------------
Net gain on investments and foreign currency
   transactions ............................     33,225,244
                                               ------------

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ..................   $ 66,983,811
                                               ============


See Notes to Financial Statements.

                                       8
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1996
- --------------------------------------------------------------------------------

INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities:
   Interest received .............................   $    59,079,084
   Operating expenses paid .......................        (3,932,532)
   Interest expense paid on reverse repurchase
     agreements ..................................       (15,615,242)
   Purchases of short-term portfolio investments
     including options, net ......................      (183,304,399)
   Purchases of long-term portfolio investments ..    (1,052,920,780)
   Proceeds from disposition of long-term
     portfolio investments .......................     1,213,467,151
   Variation margin on futures ...................        (1,084,782)
                                                     ---------------
   Net cash flows provided by operating activities        15,688,500
                                                     ---------------
Cash flows used for financing activities:
   Increase in reverse repurchase agreements .....        14,431,867)
   Cash dividends paid ...........................       (31,946,454)
                                                     ---------------

   Net cash flows used for financing activities ..       (17,514,587)
                                                     ---------------
Net realized and unrealized foreign currency gain          6,477,901
                                                     ---------------
Net Increase in cash .............................         4,651,814
   Cash at beginning of year .....................         2,009,485
                                                     ---------------
Cash at end of year ..............................         6,661,299
                                                     ===============

RECONCILIATION OF NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS (INCLUDING FOREIGN
CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting
  from operations .................................. $  66,983,811
                                                     -------------
Increase in investments ..........................    (169,532,229)
Net realized gain ................................      (9,267,771)
Increase in unrealized appreciation ..............     (23,957,473)
Decrease in deposits with brokers as
   collateral for investments sold short .........      29,944,919
Increase in interest receivable ..................        (615,984)
Increase in receivable for investments sold ......     (43,080,987)
Decrease in receivable for forward
   currency contracts ............................       2,398,723
Increase in appreciation on Canadian dollar
   swap spreadlock ...............................         (43,976)
Decrease in other assets .........................          14,040
Increase in variation  margin payable ..........           375,796)
Increase in payable for investments  purchased ...     180,849,006
Increase in dollar roll  payable ................        7,562,827
Increase  in  depreciation  on mortgage  swap ..           150,832
Decrease in payable for securities sold short ....     (25,289,818
Decrease in interest payable .....................        (605,218)
Decrease in payable for call options .............        (214,360
Increase in accrued expenses and other liabilities          16,362
                                                     -------------
   Total adjustments .............................     (51,295,311)
                                                     -------------
Net cash flows provided by operating activities ..   $  15,688,500
                                                     =============


<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------

INCREASE (DECREASE)                        YEAR           YEAR
IN NET ASSET                               ENDED          ENDED
                                        OCTOBER 31,     OCTOBER 31,
                                            1996           1995
                                          ---------      ---------


Operations:

   Net investment income ..........   $  33,758,567    $  32,154,387

   Net realized gain (loss) on
     investments, futures, short
     sales and foreign currency
     transactions .................       9,267,771      (14,375,527)

   Net change in unrealized
     appreciation/depreciation
     on investments, futures, short
     sales, options and foreign
     currency .....................      23,957,473       64,068,308
                                      -------------    -------------

   Net increase in net
     assets resulting from
     operations ...................      66,983,811       81,847,168

Dividends and distributions:

   Dividends from net investment
     income .......................     (10,532,288)            --

   Return of capital distributions      (21,352,044)     (35,301,618)
                                      -------------    -------------

   Total increase .................      35,099,479       46,545,550


NET ASSETS

   Beginning of year ..............     411,294,966      364,749,416
                                      -------------    -------------
   End of year ....................   $ 446,394,445    $ 411,294,966
                                      =============    =============


See Notes to Financial Statements.

                                       9
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                         YEAR ENDED OCTOBER 31,         DECEMBER 27, 1991*
                                                             ------------------------------------------     THROUGH
                                                                1996        1995        1994       1993  OCTOBER 31, 1992
                                                                ----        ----        ----       ----    -------------

PER SHARE OPERATING PERFORMANCE:
<S>                                                           <C>         <C>          <C>        <C>        <C>
Net asset value, beginning of period                          $ 11.36     $ 10.07      $ 12.34    $ 13.13    $ 14.10
                                                             --------    --------     --------   --------   --------
   Net investment income (net of interest expense of $.41,
     $.35, $.26, $.20, and $.14, respectively)                    .93         .89         1.09       1.21       1.03
   Net realized and unrealized gain (loss) on investments and
     foreign currency transactions                                .92        1.37        (2.28)      (.80)      (.99)
                                                             --------    --------     --------   --------   --------
Net increase (decrease) from investment operations               1.85        2.26        (1.19)       .41        .04
                                                             --------    --------     --------   --------   --------
Less dividends and distributions:
   Dividends from net investment income                          (.29)         --        (1.03)     (1.20)      (.98)
   Return of capital distributions                               (.59)       (.97)        (.05)        --         --
                                                             --------    --------     --------   --------   --------
       Total dividends and distributions                         (.88)       (.97)       (1.08)     (1.20)      (.98)

                                                             --------    --------     --------   --------   --------
Capital charge with respect to issuance of shares                  --          --           --         --       (.03)
                                                             --------    --------     --------   --------   --------
Net asset value, end of period**                              $ 12.33     $ 11.36      $ 10.07    $ 12.34    $ 13.13#
                                                             --------    --------     --------   --------   --------
Per share market value, end of period**                       $ 101/8     $ 101/8       $ 91/8    $ 127/8    $ 131/2
                                                             ========    ========     ========   ========   ========
TOTAL INVESTMENT RETURN+                                        9.48%      22.88%      (21.62%)     4.68%      2.40%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses (a)                                           .97%        .96%        1.01%       .98%.      .90%+++
Net investment income                                           8.24%       8.58%        9.92%      9.72%      9.09%+++
SUPPLEMENTAL DATA:
Average net assets (in thousands)                            $409,644    $374,975     $397,651   $452,740   $482,326
Portfolio turnover                                               151%         78%          70%       155%       314%
Net assets, end of period (in thousands)                     $446,394    $411,295     $364,749   $446,614   $475,220
Reverse repurchase agreements outstanding,
   end of period (in thousands)                              $217,135    $202,703     $142,450   $201,122   $219,362
Asset coverage++                                              $ 3,056     $ 3,028      $ 3,561    $ 3,221    $ 3,166
</TABLE>

- ----------
   * Commencement of investment operations.
  ** NAV and market value  published in The Wall Street  Journal each Monday.
   # Net asset  value  immediately   after  closing of first  public   offering
     was $14.07.
 (a) The ratios of operating  expenses,  including interest expense,  to average
     net  assets  were  4.63%,  4.34%,  3.36%,  2.55% and 2.11% for the  periods
     indicated above, respectively.
   + Total investment  return is calculated  assuming a purchase of common stock
     at the  current  market  price on the first  day and a sale at the  current
     market  price  on the  last  day of each  period  reported.  Dividends  and
     distributions  are  assumed,  for  purposes  of  this  calculation,  to  be
     reinvested at prices obtained under the Trust's dividend reinvestment plan.
     Total  investment  return does not  reflect  brokerage  commissions.  Total
     investment  returns  for  periods  of  less  than  one  full  year  are not
     annualized.
  ++ Per $1,000 of reverse repurchase agreement outstanding.
 +++ Annualized.

The information above represents the audited  operating  performance for a share
of common stock  outstanding,  total  investment  return,  ratios to average net
assets and other  supplemental  data,  for each of the periods  indicated.  This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.


                       See Notes to Financial Statements.

                                       10
<PAGE>

- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. ACCOUNTING        The BlackRock North American  Government  Income Trust
POLICIES                  Inc.,  (the  "Trust"),  a  Maryland  corporation,   is
                          non-diversified,   closed-end   management  investment
company. The investment objective of the Trust is to achieve high monthly income
consistent  with  preservation  of  capital.  The  ability  of  issuers  of debt
securities  held by the  Trust to meet  their  obligations  may be  affected  by
economic  developments in a specific  country,  industry or region. No assurance
can be given that the Trust's investment objective will be achieved.

   The following is a summary of significant accounting policies followed by the
Trust.

BASIS OF  PRESENTATION:  The  financial  statements of the Trust are prepared in
accordance with United States generally accepted accounting principles using the
United States dollar as both the functional and reporting currency.

SECURITIES VALUATION: In valuing the Trust's assets, quota-
tions of foreign  securities in a foreign  currency are converted to U.S. dollar
equivalents   at  the  then   current   currency   value.   The   Trust   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
Trust's Board of Directors.  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 it
trades unless the Trust's Board of Directors 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 Trust's Board of Directors. Any securities or other assets 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 Trust's Board of Directors.

   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, if their term to maturity from date of purchase was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
their original term to maturity from date of purchase exceeded 60 days.

   In  connection  with  transactions  in  repurchase  agreements,  the  Trust'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
Trust may be delayed or limited.

OPTION  SELLING/PURCHASING:  When the Trust  sells or  purchases  an option,  an
amount  equal to the  premium  received  or paid by the Trust is  recorded  as a
liability or an asset and is  subsequently  adjusted to the current market value
of the option  written or purchased.  Premiums  received or paid from writing or
purchasing  options  which  expire  unexercised  are treated by the Trust on the
expiration date as realized gains or losses.  The difference between the premium
and the  amount  paid or  received  on  effecting  a  closing  purchase  or sale
transaction, including brokerage commissions, is also treated as a realized gain
or loss. If an option is exercised, the premium paid or received is added to the
proceeds from the sale or cost of the purchase in determining  whether the Trust
has realized a gain or a loss on investment  transactions.  The Trust, as writer
of an option, may have no control over whether the underlying  securities may be
sold  (call) or  purchased  (put) and as a result  bears the  market  risk of an
unfavorable change in the price of the security underlying the written option.

   Options,  when used by the Trust,  help in  maintaining a targeted  duration.
Duration is a measure of the price  sensitivity  of a security or a portfolio to
relative changes in interest rates. For instance,  a duration of "one"means that
a portfolio's or a security's price would be expected to change by approximately
one percent  with a one percent  change in interest  rates,  while a duration of
five  would  imply  that the price  would  move  approximately  five  percent in
relation to a one percent change in interest rates.

   Option  selling and  purchasing is used by the Trust to  effectively  "hedge"
more  volatile  positions  so that  changes in interest  rates do not change the
duration of the portfolio  unexpectedly.  In general,  the Trust uses options to
hedge a long or short position or an overall portfolio that is longer or shorter
than the benchmark security. A call option gives the purchaser of the option the
right (but not  obligation)  to buy, and  obligates the seller to sell (when the
option is exercised), the underlying posi-

                                       11
<PAGE>

tion at the exercise  price at any time or at a specified time during the option
period. A put option gives the holder the right to sell and obligates the writer
to buy  the  underlying  position  at the  exercise  price  at any  time or at a
specified  time  during the option  period.  Put  options  can be  purchased  to
effectively  hedge  a  position  or a  portfolio  against  price  declines  if a
portfolio is long.  In the same sense,  call options can be purchased to hedge a
portfolio that is shorter than its benchmark  against price  changes.  The Trust
can also sell (or write) covered call options and put options to hedge portfolio
positions.

   The main risk that is associated with  purchasing  options is that the option
expires without being exercised.  In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the  opportunity  for a profit
if the  market  value of the  underlying  position  increases  and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the  market  value  of the  underlying  position  decreases  and the  option  is
exercised.  In addition,  as with futures  contracts,  the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.

FINANCIAL  FUTURES  CONTRACTS:  A futures  contract is an agreement  between two
parties to buy and sell a financial instrument for a set price on a future date.
Initial margin deposits are made upon entering into futures contracts and can be
either  cash or  securities.  During the period the  futures  contract  is open,
changes  in the  value  of the  contract  are  unrealized  gains  or  losses  by
"marking-to-market" on a daily basis to reflect the market value of the contract
at the  end of  each  day's  trading.  Variation  margin  payments  are  made or
received,  depending upon whether unrealized gains or losses are incurred.  When
the contract is closed,  the Trust  records a realized gain or loss equal to the
difference  between the proceeds from (or cost of) the closing  transaction  and
the Trust's basis in the contract.

   Financial  futures  contracts,  when used by the Trust, help in maintaining a
targeted duration.  Duration is a measure of the price sensitivity of a security
or a portfolio to relative changes in interest rates.  For instance,  a duration
of "one" means that a  portfolio's  or a  security's  price would be expected to
change by approximately one percent with a one percent change in interest rates,
while a duration of "five"  would imply that the price would move  approximately
five  percent in  relation to a one percent  change in interest  rates.  Futures
contracts  can be sold to  effectively  shorten  an  otherwise  longer  duration
portfolio.  In the same sense,  futures contracts can be purchased to lengthen a
portfolio that is shorter than its duration  target.  Thus, by buying or selling
futures contracts,  the Trust can effectively "hedge" more volatile positions so
that  changes in  interest  rates do not change the  duration  of the  portfolio
unexpectedly.

   The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio  securities or securities the Trust intends to
purchase  against  fluctuations in value caused by changes in prevailing  market
interest  rates.  Should  interest  rates move  unexpectedly,  the Trust 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.  The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market.  In addition,  since futures are used to shorten or lengthen a
portfolio's  duration,  there is a risk that the portfolio may have  temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.

FORWARD CURRENCY  CONTRACTS:  The Trust enters into forward  currency  contracts
primarily to facilitate settlement of purchases and sales of foreign securities.
A forward  contract is a commitment to purchase or sell a foreign  currency at a
future date (usually the security  transaction  settlement date) at a negotiated
forward  rate.  In the event that a security  fails to settle  within the normal
settlement  period, the forward currency contract is renegotiated at a new rate.
The gain or loss arising from the difference between the settlement value of the
original and renegotiated  forward  contracts is isolated and is included in net
realized losses from foreign currency transactions.  Risks may arise as a result
of the  potential  inability  of the  counterparties  to meet the terms of their
contract. Forward currency contracts, when used by the Trust, help to manage the
overall exposure to the foreign currency backing many of the investments held by
the Trust (The Canadian dollar).  Forward currency contracts are not meant to be
used to eliminate all of the exposure to the Canadian dollar,  rather they allow
the Trust to limit its exposure to foreign  currency within a narrow band to the
objectives of the Fund.

FOREIGN CURRENCY TRANSLATION: Canadian dollar ("C$") amounts are translated into
United States dollars on the following basis:

   (i) market value of investment  securities,  other assets and liabilities--at
    the New York City noon rates of exchange.

   (ii) purchases and sales of investment  securities,  income and  expenses--at
    the  rates  of  exchange   prevailing  on  the  respective   dates  of  such
    transactions.

   The Trust  isolates  that portion of the results of  operations  arising as a
result of changes in the foreign  exchange rates from the  fluctuations  arising
from changes in the market prices of securities held at year end. Similarly, the
Trust  isolates  the  effect of  changes  in  foreign  exchange  rates  from the
fluctuations  arising from changes in the market prices of portfolio  securities
sold during the period.

   Net realized and unrealized  foreign  exchange  losses of $2,060,360  include
realized  foreign  exchange  gains  and  losses  from  sales and  maturities  of
portfolio securities, maturities of

                                       12
<PAGE>

reverse repurchase  agreements,  sales of foreign currencies,  currency gains or
losses   realized   between  the  trade  and  settlement   dates  on  securities
transactions,  the  difference  between  the amounts of  interest  and  discount
recorded  on the Trust's  books and the US dollar  equivalent  amounts  actually
received or paid and changes in unrealized  foreign exchange gains and losses in
the value of portfolio  securities and other assets and liabilities arising as a
result of changes in the exchange rate.

   Foreign security and currency transactions may involve certain considerations
and risks not  typically  associated  with those of domestic  origin,  including
unanticipated movements in the value of the Canadian dollar relative to the U.S.
dollar.

   The exchange  rate for the Canadian  dollar at October 31, 1996 was US$0.7462
to C$1.00.

SHORT SALES: The Trust may make short sales of securities as a method of hedging
potential  price declines in similar  securities  owned.  When the Trust 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 Trust may
have to pay a fee to borrow the  particular  securities  and may be obligated to
pay over any payments received on such borrowed  securities.  A gain, limited to
the price at which the Trust sold the security short, or a loss,unlimited  as to
dollar amount,  will be recognized  upon the  termination of a short sale if the
market price is greater or less than the proceeds originally received.

SECURITY  LENDING:  The Trust may lend its  portfolio  securities  to  qualified
institutions.  The loans are secured by least equal, at all times, to the market
value of the securities loaned. The Trust may bear the risk of delay in recovery
of, or even loss of rights in, the securities  loaned should the borrower of the
securities fail  financially.  The Trust receives  compensation  for lending its
securities  in the form of interest  on the loan.  The Trust also  continues  to
receive  interest on the securities  loaned,  and any gain or loss in the market
price of the  securities  loaned that may occur during the term of the loan will
be for the account of the Trust.

MORTGAGE  SWAPS:  Mortgage  swaps are a variation on interest  rate swaps.  In a
simple  interest  rate swap,  one investor pays a floating rate of interest on a
notional  principal  amount and  receives a fixed rate of  interest  on the same
notional  principal  amount for a specified  period of time.  Alternatively,  an
investor  may pay a fixed  rate and  receive a  floating  rate.  Rate swaps were
conceived  as  asset/liability  management  tools.  In more complex  swaps,  the
notional  principal  amount may decline (or amortize) over time.  Mortgage swaps
combine the fixed/floating concept with an amortizing feature that is indexed to
mortgage securities.  Scheduled  amortization and prepayments on the index pools
reduce the notional amount.

   During the term of the swap,  changes in the value of the swap are recognized
as unrealized gains or losses by "marking-to-market" to reflect the market value
of the swap. When the swap is terminated,  the Trust will record a realized gain
or loss  equal to the  difference  between  the  proceeds  from (or cost of) the
closing transaction and the Trust's basis in the contract, if any.
   Mortgage swaps are intended to enhance the Trust's income earning  ability by
effectively owning mortgage pass-throughs and locking-in the financing rate at a
very attractive spread to market levels.  This allows mortgage  pass-throughs to
be held more cheaply than if they were owned  outright  and  financed,  but at a
decreased level of liquidity.
   The Trust is exposed to credit  loss in the event of  non-performance  by the
other  party to the  mortgage  swap.  However,  the  Trust  does not  anticipate
non-performance  by  any  counterparty.   Swap  Spreadlock  Agreement:   A  swap
spreadlock agreement is an exchange of a one time cash payment between the Trust
and another party which is based on a specific financial index. The value of the
swap is  adjusted  daily  and the  change  in value is  recorded  as  unrealized
appreciation or  depreciation  up until the agreement  matures at which time the
cash payment,  based on the value of the swap on the maturity date, is exchanged
between the two parties.  Risks may arise upon  entering  into these  agreements
from the  potential  inability  of  counterparties  to meet  the  terms of their
contract and from  unanticipated  changes in the value of the financial index on
which the swap  agreement  is based.  The Trust uses swaps for both  hedging and
non-hedging  purposes.  For hedging purposes,  the Trust may use swaps to reduce
its exposure to interest and foreign exchange rate fluctuations.For  non-hedging
purposes,  the Trust may use swaps to take a position on anticipated  changes in
the underlying financial index.

SECURITIES   TRANSACTIONS  AND  INVESTMENT  INCOME:  Security  transactions  are
recorded  on the trade  date.  Realized  and  unrealized  gains and  losses  are
calculated  on the  identified  cost basis.  Interest  income is recorded on the
accrual  basis,  and  the  Trust  accretes  discount  or  amortizes  premium  on
securities  purchased using the interest method.  Dividend income is recorded on
the ex-dividend date.

TAXES:  For  Federal  income  tax  purposes,  substantially  all of the  Trust's
Canadian  transactions  are  accounted  for  using  the  Canadian  dollar as the
functional  currency.  Accordingly,  only  realized  currency  gains and  losses
resulting from the  repatriation of Canadian  dollars into United States dollars
are recognized for tax purposes.

   No provision  has been made for United  States income or excise taxes because
it is the  Trust's  policy to continue  to meet the  requirements  of the United
States Internal Revenue Code applicable to regulated investment companies and to
distribute   all  of  its  taxable   income  to   shareholders.

   DIVIDENDS  AND  DISTRIBUTIONS:  The Trust  declares  and pays  dividends  and
distributions  monthly from net investment income,  realized  short-term capital
gains and other sources,  if necessary.  Net long-term capital gains, if any, in
excess of loss

                                       13
<PAGE>

carryforwards  may be  distributed  annually.  Dividends and  distributions  are
recorded on the ex-dividend date.

   Income  distributions  and  capital  gain  distributions  are  determined  in
accordance with income tax regulations which may differ from generally  accepted
accounting principles.

RECLASSIFICATION  OF  CAPITAL  ACCOUNTS:  The  Trust  accounts  for and  reports
distributions  to  shareholders  in  accordance  with the American  Institute of
Certified  Public  Accountants'  Statement  of  Position  93-2:   Determination,
Disclosure,  and Financial  Statement  Presentation of Income,  Capital Gain and
Return of Capital  Distributions  by  Investment  Companies.  For the year ended
October 31, 1996 the Trust  decreased  undistributed  net  investment  income by
$1,874,235,   increased  accumulated  net  realized  losses  on  investments  by
$37,828,895,   increased  net   unrealized   appreciation   on   investments  by
$37,802,390,  decreased accumulated net realized and unrealized foreign currency
losses  by  $23,252,784  and  decreased  paid in  capital  in  excess  of par by
$21,352,044  for  realized  foreign  currency  losses,  tax  return  of  capital
distributions  and differences  between book and taxable capital losses incurred
during the year ended  October 31, 1996.  Net  investment  income,  net realized
gains and net assets were not affected by this change.

DEFERRED  ORGANIZATION  EXPENSES:  A total of $70,000 was incurred in connection
with the organization of the Trust. These costs have been deferred and are being
amortized  ratably  over a period  of  sixty  months  from  the  date the  Trust
commenced investment operations.

ESTIMATES:  The preparation of financial statements in conformity with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

NOTE 2. AGREEMENTS        The Trust has an Investment  Advisory  Agreement  with
                          BlackRock Financial Management,  Inc. (the "Adviser"),
                          a  wholly-owned  corporate  subsidiary  of  PNC  Asset
Management Group, Inc., the holding company for PNC's asset management business,
and an  Administration  Agreement with Prudential  Mutual Fund  Management,  LLC
("PMF"), an indirect, wholly-owned subsidiary of The Prudential Insurance Co. of
America.

   The  investment  advisory  fee paid to the  Adviser  is  computed  weekly and
payable  monthly at an annual  rate of 0.60% of the Trust's  average  weekly net
assets.  The  administration fee paid to PMF is also computed weekly and payable
monthly at an annual rate of 0.10% of the Trust's average weekly net assets.

   Pursuant to the agreements,  the Adviser provides  continuous  supervision of
the investment portfolio and pays the compensation of officers of the Trust. PMF
pays for occupancy and provides certain clerical and accounting  services to the
Trust. The Trust bears all other costs and expenses.


NOTE 3. PORTFOLIO         Purchases  and sales of investment  securities,  other
SECURITIES AND OTHER      than  short-term  investments,   for  the  year  ended
INVESTMENTS               October   31,   1996   aggregated   $872,071,774   and
                          $927,468,017, respectively.

The  Trust  may  invest  without  limit  in  securities  which  are not  readily
marketable,  including  those  which  are  restricted  as to  disposition  under
securities law ("restricted securities") although the Trust does not expect that
such investments willgenerally exceed 5% of its portfolio assets. At October 31,
1996, the Trust held 2.1% of its portfolio assets in securities restricted as to
resale.

   The Trust may from time to time  purchase  in the  secondary  market  certain
mortgage  pass-through  securities  packaged or master  serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage  Securities Corp.  succeeded
to rights and duties of Sears) or mortgage related  securities  containing loans
or mortgages  originated  by PNC Bank or its  affiliates.  It is possible  under
certain  circumstances,  PNC Mortgage  Securities  Corp. or its affiliates could
have interests  that are in conflict with the holders of these  mortgage  backed
securities,  and such holders could have rights against PNC Mortgage  Securities
Corp. or its affiliates.

   The United  States  federal  income tax basis of the Trust's  investments  at
October 31, 1996 was $735,921,129,  and accordingly, net unrealized appreciation
for federal income tax purposes was $65,783,876 (gross unrealized  appreciation-
$67,827,684; gross unrealized depreciation-$2,043,808).

   For federal income tax purposes, the Trust had a capital loss carryforward as
of  October  31,  1996  of  approximately  $61,126,700  of  which  approximately
$7,191,000 will expire in 2000,  approximately  $11,408,000 will expire in 2001,
approximately  $32,751,000  will expire in 2002,  approximately  $5,519,200 will
expire in 2003 and approximately $4,257,500 will expire in 2004. Accordingly, no
capital  gains  distribution  is expected to be paid to  shareholders  until net
gains have been realized in excess of such amounts.

                                       14
<PAGE>

   Details  of open  financial  futures  contracts  at October  31,  1996 are as
follows:

                                  VALUE AT        VALUE AT       UNREALIZED
NUMBER OF           EXPIRATION      TRADE        OCTOBER 31,    APPRECIATION/
CONTRACTS TYPE         DATE         DATE           1996        (DEPRECIATION)
- --------  ----       --------    ---------  -----------------  --------------
Short positions:

 373   30 Yr. U.S.
       T-Note        Dec.'96    $41,680,494   $  42,149,000    $  (468,506)
 100   Canadian
       T-Bond        Dec.'96      8,164,552       8,721,086       (556,534)
  50   Eurodollar    Dec.'96     11,798,487      11,808,750        (10,263)
  50   Eurodollar    Mar.'97     11,792,237      11,805,000        (12,763)
  50   Eurodollar    Jun.'97     11,775,987      11,791,250        (15,263)
  45   Eurodollar    Sept.'97    10,584,281      10,598,625        (14,344)
  45   Eurodollar    Dec.'97     10,563,514      10,578,375        (14,861)
  40   Eurodollar    Mar.'98      9,382,790       9,396,000        (13,210)
  40   Eurodollar    Jun.'98      9,372,790       9,386,000        (13,210)
  35   Eurodollar    Sept.'98     8,193,520       8,205,750        (12,230)
  35   Eurodollar    Dec.'98      8,183,004       8,196,125        (13,121)
                               ------------   ------------     ------------
                               $141,491,656   $ 142,635,961    $(1,144,305)
                               ============   =============    ===========

Long positions:
  25   5 Yr. U.S.
       T-Note        Dec.'96   $  2,667,318    $ 2,680,859         $ 13,541
                               ============    ===========     ============

   Details  of open  forward  currency  contracts  at  October  31,  1996 are as
follows:
                           VALUE AT    VALUE AT      UNREALIZED
SETTLEMENT   CONTRACT     SETTLEMENT   OCTOBER 31,  APPRECIATION/
   DATE     TO RECEIVE      DATE         1996      (DEPRECIATION)
 ---------  ---------      ---------   --------       ----------
Purchases:
11/05/96   $134,130,000   $100,000,000   $100,111,658   $111,658
11/07/96    360,000,000    268,226,360    268,727,909    501,549
                          ------------   ------------   --------
                          $368,226,360   $368,839,567 $  613,207
                          ============   ============ ==========
SALES:
 11/07/96$  134,130,000   $100,010,439   $100,123,540 $ (113,101)
                          ============   ============ ==========


   The Trust entered into a FNMA  mortgage  swap with a notional  amount of $150
million.  Under  the  agreement,  the  Trust  receives  a fixed  rate and pays a
floating rate.  The FNMA mortgage swap settled on November 26, 1993.  Details of
the swap are as follows:

                                     CURRENT
<TABLE>
<CAPTION>
NOTIONAL                                                               UNREALIZED
AMOUNT          FIXED                                TERMINATION       APPRECIATION/
 (000)    TYPE   RATE        FLOATING RATE              DATE          (DEPRECIATION)
- -------   ---- -------- ------------------------      ----------       -----------

<S>       <C>  <C>      <C>                           <C>             <C>
$101,924  FNMA  8%1-mo. LIBOR minus 20 basis pts.      Nov. `96       $(2,771,861)
</TABLE>


   The Trust entered into a swap  spreadlock  agreement  which settled on August
19, 1996 with a notional amount of C$50 million. Under this agreement, the Trust
will mark to market the value of the contract based on the spread between the 10
year Canadian dollar swap rate and 10 year Canadian  Government Bond yield minus
13.5 basis points.  Upon the termination  date, the Trust will receive the value
of the  contract if the spread minus 13.5 basis points is greater than 1% or the
Trust will pay the value of the  contract if the spread  minus 13.5 basis points
is less than 1%. The  agreement  terminates on February 19, 1997. At October 31,
1996, unrealized appreciation was $43,976.

NOTE 4. BORROWINGS       REVERSE REPURCHASE  AGREEMENTS:  The Trust enters into
                         reverse  repurchase  agreements with qualified,  third
party  broker-dealers  as  determined  by and under the direction of the Trust's
Board of  Directors.  Interest  on the value of  reverse  repurchase  agreements
issued and  outstanding  is based upon  competitive  market rates at the time of
issuance. At the time the Trust enters into a reverse repurchase  agreement,  it
establishes and maintains a segregated account with the lender containing liquid
high  grade  securities  having a value  not less  than  the  repurchase  price,
including accrued interest, of the reverse repurchase agreement.

   The average  monthly balance of United States reverse  repurchase  agreements
outstanding during the year ended October 31, 1996 was approximately $58,677,000
at a weighted average interest rate of  approximately  5.57%.  Also, the average
monthly balance of Canadian reverse repurchase agreements outstanding during the
year ended  October 31,  1996 was  approximately,  C$165,542,000,  at a weighted
average  interest  rate of  approximately  4.91%.  The maximum  amount of United
States reverse  repurchase  agreements  outstanding at any month-end  during the
year was  $173,132,059 as of February 29, 1996, which was 29.6% of total assets.
The maximum amount of Canadian reverse repurchase agreements  outstanding at any
month-end  during the period was  approximately,  C$299,573,035 as of August 31,
1996, which was 35.7% of total assets.

DOLLAR  ROLLS:  The Trust may enter into  dollar  rolls in which the Trust sells
securities  for delivery in the current  month and  simultaneously  contracts to
repurchase  substantially similar (same type, coupon and maturity) securities on
a specified future date.  During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash  proceeds of the initial sale and by the lower  repurchase  price at
the future date.

   The average monthly balance of dollar rolls outstanding during the year ended
October  31, 1996 was  approximately  $4,331,600.  The maximum  amount of dollar
rolls outstanding at any month-end during the period was $12,959,028 as of April
30, 1996, which was 2.2% of total assets.

NOTE 5. CAPITAL          There are 200 million  shares of $.01 par value common
                         stock authorized. Of the 36,207,093 shares outstanding
at October 31, 1996, the Adviser owned 7,093 shares.

NOTE 6. DISTRIBUTIONS     Subsequent to October 31, 1996, the Board of Directors
                          of the Trust  declared  non-taxable  return of capital
distributions  of $0.07 per share payable  November 29, 1996 to  shareholders of
record on November 15, 1996.

                                       15
<PAGE>



NOTE 7. QUARTERLY DATA
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
                                                                    NET REALIZED AND
                                                                       UNREALIZED
                                                                     GAIN (LOSS) ON
                                                                     INVESTMENTS,
                                                                     SHORT SALES
                                              NET INVESTMENT          FUTURES AND
     QUARTERLY                TOTAL               INCOME           OPTIONS WRITTEN
      PERIOD                  INCOME         AMOUNT PER SHARE     AMOUNT   PER SHARE
      ------                  ------         ----------------     ------   ---------

November 1, 1994
<S>                       <C>            <C>         <C>      <C>            <C>
  to January 31, 1995      $10,026,608    $9,169,699  $.25     $(20,198,506)  $(.55)
February 1, 1995
   to April 30, 1995         8,669,818     7,823,263   .22       42,296,756    1.17
May 1, 1995
   to July 31, 1995          8,581,066     7,658,911   .21       (5,073,249)   (.14)
August 1, 1995
   to October 31, 1995       8,476,486     7,502,514   .21       32,667,780     .89
November 1, 1995
   to January 31, 1996       9,485,156     8,494,492   .23        3,322,104     .09
February 1, 1996
   to April 30, 1996         9,550,552     8,571,088   .24      (13,013,281)   (.36)
May 1, 1996
   to July 31, 1996          9,292,104     8,278,311   .23        2,834,967     .08
August 1, 1996
   to October 31, 1996       9,394,926     8,414,676   .23       40,081,454    1.11
</TABLE>

<TABLE>
<CAPTION>



                           NET INCREASE (DECREASE)
                               IN NET ASSETS        DIVIDENDS
                               RESULTING FROM          AND                         PERIOD END
     QUARTERLY                   OPERATIONS       DISTRIBUTIONS     SHARE PRICE     NET ASSET
      PERIOD               AMOUNT     PER SHARE  AMOUNT  PER SHARE  HIGH    LOW        VALUE
      ------               ------     ---------  ------  ---------  ----    ---        -----

November 1, 1994
<S>                    <C>            <C>    <C>        <C>      <C>      <C>      <C>
  to January 31, 1995   $(11,028,807)  $(.30) $9,504,225 $.2625   $ 9 1/8  $8 3/8   $  9.51
February 1, 1995
   to April 30, 1995      50,120,019    1.39   8,825,494  .2437     9 3/4   9         10.65
May 1, 1995
   to July 31, 1995        2,585,662     .07   8,485,949  .2344    10       9 3/8     10.48
August 1, 1995
   to October 31, 1995    40,170,294    1.10   8,485,950  .2344    10 3/8   9 3/8     11.36
November 1, 1995
   to January 31, 1996    11,816,596     .32   8,485,950  .2344    10 1/8   9 3/8     11.45
February 1, 1996
   to April 30, 1996      (4,442,193)   (.12)  8,191,722  .2263    10 3/8   9 3/8     11.10
May 1, 1996
   to July 31, 1996       11,113,278     .31   7,603,330  .2100     9 5/8   9 1/4     11.20
August 1, 1996
   to October 31, 1996    48,496,130    1.34   7,603,330  .2100    10 1/8   9 1/2     12.33
===========================================================================================
</TABLE>


                                       16
<PAGE>

- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
                         REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

The  Shareholders  and  Board  of  Directors  of
The  BlackRock  North  American Government Income Trust Inc.:

      We have  audited the  accompanying  statement  of assets and  liabilities,
including  the  portfolio  of  investments,  of  The  BlackRock  North  American
Government  Income Trust Inc. as of October 31, 1996 and the related  statements
of  operations  and of cash  flows for the year then ended and of changes in net
assets  for each of the two years in the  period  then  ended and the  financial
highlights  for each of the four  years in the  period  then  ended  and for the
period December 27, 1991  (commencment of investment  operations) to October 31,
1992.  These  financial   statements  and  the  financial   highlights  are  the
responsibility of the Trust's  management.  Our  responsibility is to express an
opinion on these  financial  statements  and financial  highlights  based on our
audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether the  financial  statements  and  financial
highlights are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  Our procedures included confirmation of securities owned at October
31, 1996 by  correspondence  with the custodian and brokers;  where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by  management,   as  well  as  evaluating  the  overall   financial   statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

      In our opinion, such financial statements and financial highlights present
fairly, in all material respects,  the financial position of The BlackRock North
American Government Income Trust Inc. at October 31, 1996 and the results of its
operations,  its cash  flows,  the  changes in its net assets and the  financial
highlights  for the  respective  stated  periods in  conformity  with  generally
accepted accounting principles.







/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP

New York, New York
December 6, 1996


                                       17
<PAGE>

- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
                                 TAX INFORMATION
- --------------------------------------------------------------------------------

     We wish to  advise  you as to the  federal  tax  status  of  dividends  and
distributions paid by the Trust during its fiscal year ended October 31, 1996.

     During the fiscal year ended October 31, 1996, the Trust paid dividends and
distributions of $.880625 per share of which $0.290870 represents dividends from
ordinary income and $0.589755  represents a non-taxable  return of capital.  For
federal  income tax purposes,  the  aggregate of any  dividends  and  short-term
capital  gains  distributions  you received are  reportable in your 1996 federal
income tax return as ordinary income.  Further,  we wish to advise you that your
income dividends do not qualify for the dividends received deduction.

     For the purpose of preparing  your 1996 annual  federal  income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 1997.

- --------------------------------------------------------------------------------
                           DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------

     Pursuant  to  the  Trust's   Dividend   Reinvestment   Plan  (the  "Plan"),
shareholders may elect to have all  distributions of dividends and capital gains
automatically  reinvested by State Street Bank & Trust Company the "Plan Agent")
in Trust shares pursuant to the Plan. Shareholders who do not participate in the
Plan will  receive  all  distributions  in cash  paid by check in United  States
dollars mailed directly to the shareholders of record (or if the shares are held
in street or other  nominee  name,  then to the  nominee) by the  custodian,  as
dividend disbursing agent.

     The Plan Agent serves as agent for the  shareholders in  administering  the
Plan.  After the Trust  declares a dividend or determines to make a capital gain
distribution,  the Plan Agent will, as agent for the  participants,  receive the
cash payment and use it to buy Trust shares in the open market,  on the New York
Stock Exchange or elsewhere,  for the participants' accounts. The Trust will not
issue shares under the Plan.

     Participants  in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive  certificates  for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.

     The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions  will be paid by the Trust.  However,  each participant will pay a
pro rata  share of  brokerage  commissions  incurred  with  respect  to the Plan
Agent's open market  purchases in connection with the  reinvestment of dividends
and  distributions.  The automatic  reinvestment of dividends and  distributions
will not relieve  participants  of any federal income tax that may be payable on
such dividend or distributions.

     Experience  under  the  Plan  may  indicate  that  changes  are  desirable.
Accordingly,  the Trust  reserves  the right to amend or  terminate  the Plan as
applied to any dividend or distribution paid subsequent to written notice of the
change sent to all  shareholders of the Trust at least 90 days before the record
date  for the  dividend  or  distribution.  The  Plan  also  may be  amended  or
terminated  by the Plan  Agent  upon at least 90  days'  written  notice  to all
shareholders  of the Trust.  All  correspondence  concerning  the Plan should be
directed to the Plan Agent at (800) 699-1BFM or BlackRock  Financial  Management
at (800) 227-7BFM. The addresses are on the front of this report.

- --------------------------------------------------------------------------------
                             ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

     There have been no material changes in the Trust's investment objectives or
policies  that have not been approved by the  shareholders  or to its charter or
by-laws or in the  principal  risk factors  associated  with  investment  in the
Trust.  There have been no changes in the persons who are primarily  responsible
for the day-to-day management of the Trust's portfolio.

                                       18
<PAGE>

- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
                               INVESTMENT SUMMARY
- --------------------------------------------------------------------------------

THE TRUST'S INVESTMENT OBJECTIVE
The  Trust's  investment  objective  is to  manage  a  portfolio  of high  grade
securities  to achieve high  monthly  income  consistent  with  preservation  of
capital.  The Trust will seek to achieve its  objective by investing in Canadian
and U.S.dollar-denominated securities.

WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is the investment adviser for
the Trust.  BlackRock is a registered  investment adviser  specializing in fixed
income  securities.  Currently,  BlackRock  manages  over $43  billion of assets
across the government,  mortgage,  corporate and municipal sectors. These assets
are managed on behalf of institutional and individual investors in 21 closed-end
funds  traded  on  either  the New York or  American  stock  exchanges,  several
open-end  funds and separate  accounts for more than 100 clients in the U.S. and
overseas.  BlackRock is a subsidiary  of PNC Asset  Management  Group which is a
division of PNC Bank, one of the nation's largest banking organizations.

WHAT CAN THE TRUST INVEST IN?
The Trust will  invest  primarily  in  securities  issued or  guaranteed  by the
federal   governments  of  Canada  and  the  United  States,   their   political
subdivisions  (which  include the  Canadian  provinces)  and their  agencies and
instrumentalities.  The Trust's investments will be either government securities
or  securities  rated  "BBB" or higher at the time of  investment  by Standard &
Poor's or "A2" by Moody's,  or securities which BlackRock deems as of comparable
quality. Under current market conditions,  it is expected that the percentage of
the Trust's assets  invested in Canadian  dollar-denominated  securities will be
between  65% and 80%.  Examples  of types of  securities  in which the Trust may
invest include  Canadian and U.S.  government or government  agency  residential
mortgage-backed   securities,   privately  issued  mortgage-backed   securities,
Canadian  provincial debt securities,  U.S.  Government  securities,  commercial
mortgage-backed  securities,  asset-backed  securities and other debt securities
issued by Canadian  and U.S.  corporations  and other  entities.  Under  current
market conditions,  BlackRock expects that the primary  investments of the Trust
to be Canadian mortgage-backed securities,  Canadian provincial debt securities,
U.S. government securities,  securities backed by U.S. government agencies (such
as residential  mortgage-backed  securities),  privately issued  mortgage-backed
securities  and  commercial  mortgage-backed  securities.

WHAT IS THE ADVISER'S INVESTMENT  STRATEGY?
The  Adviser  will  seek to meet the  Trust's  investment
objective  by  managing  the asset of the Trust so as to  provide  high  monthly
income  consistent  with the  preservation  of  capital.  The Trust will seek to
provide  monthly  income  that is greater  than that which  could be obtained by
investing in U.S.  Treasury  securities  with an average life similar to that of
the Trust's  assets.  In seeking the investment  objective,  BlackRock  actively
manages the  Trust's  assets in  relation  to market  conditions  and changes in
general economic  conditions in Canada and the U.S.,  including its expectations
regarding  interest rate changes and changes in currency  exchange rates between
the U.S.  dollar  and the  Canadian  dollar,  to attempt  to take  advantage  of
favorable  investment  opportunities  in each country.  As such,  the allocation
between  Canadian  and U.S.  securities  will  change  from time to time.  Under
current market conditions, the average life of the Trust's assets is expected to
be in the  range of seven to ten  years.  Under  other  market  conditions,  the
Trust's  average  life may vary and may not be  predictable  using any  formula.

While the Adviser has the opportunity to hedge against currency risks associated
with  Canadian  securities,  the Trust is  intended  to provide  exposure to the
Canadian marketplace. As a result,  historically,  currency hedging has not been
widely practiced by the Trust. However, BlackRock will attempt to limit interest
rate risk by  constantly  monitoring  the  duration (or price  sensitivity  with
respect to changes in interest rates) of the Trust's assets so that it is within
the range of U.S. Treasury  securities with average lives of seven to ten years.
In doing  so,  the  Adviser  will  attempt  to  locate  securities  with  better
predictability of cash flows such as U.S. commercial mortgage-backed securities.
In addition, the Canadian mortgage-backed  securities in which the Trust invests
are not  prepayable,  contributing  to the  predictability  of the Trust's  cash
flows.  Traditional  residential  U.S.  mortgage  pass-through  securities  make
interest  and  principal  payments  on a  monthly  basis  and can be a source of
attractive  levels  of  income  to the  Trust.  While  the U.S.  mortgage-backed
securities in the Trust are of high credit quality, they typically offer a yield
spread over  Treasuries due to the uncertainty of the timing of their cash flows
as they are  subject to  prepayment  exposure  when  interest  rates  change and
mortgage holders  refinance their mortgages or move. While U.S.  mortgage-backed
securities  do offer the  opportunity  for  attractive  yields,  they  subject a
portfolio  to  interest  rate  risk and  prepayment  exposure  which  result  in
reinvestment risk when prepaid principal must be reinvested.

                                       19
<PAGE>

HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD?

Does the Trust Pay Dividends  Regularly?  The Trust's
shares are traded on the New York Stock Exchange  which provides  investors with
liquidity  on a daily  basis.  Orders to buy or sell shares of the Trust must be
placed through a registered broker or financial advisor.  The Trust pays monthly
dividends  which are typically  paid on the last business day of the month.  For
shares held in the shareholder's name, dividends may be reinvested in additional
shares of the Trust  through the Trust's  transfer  agent,  State  Street Bank &
Trust Company.  Investors who wish to hold shares in a brokerage  account should
check with their  financial  advisor to determine  whether their  brokerage firm
offers dividend  reinvestment  services.

LEVERAGE CONSIDERATIONS  IN THE TRUST

Under current  market  conditions,  leverage  increases the income earned by the
Trust.  The  Trust  employs  leverage  primarily  through  the  use  of  reverse
repurchase  agreements  and dollar rolls.  Leverage  permits the Trust to borrow
money at short-term  rates and reinvest that money in  longer-term  assets which
typically offer higher interest  rates.  The difference  between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically  leveraged at approximately  331/3% of total assets.

Leverage also increases the duration (or price  volatility of the net assets) of
the Trust,  which can improve the  performance  of the fund in a declining  rate
environment,  but can cause net  assets to decline  faster  than the market in a
rapidly rising rate environment.  BlackRock's  portfolio  managers  continuously
monitor and  regularly  review the  Trust's  use of  leverage  and the Trust may
reduce,  or unwind,  the amount of leverage  employed should BlackRock  consider
that reduction to be in the best interest of shareholders.

SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST

The Trust is  intended  to be a  long-term  investment  and is not a  short-term
trading vehicle.

INVESTMENT  OBJECTIVE.  Although  the  objective of the Trust is to provide high
monthly  income  consistent  with  preservation  of  capital,  there  can  be no
assurance that this objective will be achieved.

DIVIDEND  CONSIDERATIONS.  The income and dividends paid by the Trust are likely
to vary over time as fixed income market conditions change. Future dividends may
be higher or lower than the dividend the Trust is currently paying.

CURRENCY  EXCHANGE RATE  CONSIDERATIONS.  Because the Trust's net asset value is
expressed in U.S. dollars, and the Trust invests a substantial percentage of its
assets in Canadian  dollar-denominated  assets,  any change in the exchange rate
between these two  currencies  will have an effect on the net asset value of the
Trust. As a result, if the U.S. dollar appreciates  against the Canadian dollar,
the Trust's net asset value would decrease if not offset by other gains.

LEVERAGE.  The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls,  which  involves  special  risks.  The Trust's net asset value and
market value may be more volatile due to its use of leverage.

MARKET PRICE OF SHARES.  The shares of closed-end  investment  companies such as
the Trust trade on the New York Stock  Exchange  (NYSE symbol:  BNA) and as such
are subject to supply and demand influences.  As a result, shares may trade at a
discount or a premium to their net asset value.

MORTGAGE-BACKED   AND   ASSET-BACKED   SECURITIES.   The  cash  flow  and  yield
characteristics of these securities differ from traditional debt securities. The
major  differences  typically include more frequent payments and the possibility
of prepayments on certain U.S. mortgage-backed  securities which will change the
yield to maturity of the security.

ILLIQUID  SECURITIES.  The Trust may  invest in  securities  that are  illiquid,
although  under current  market  conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.

NON-U.S.  SECURITIES.  The Trust may invest a portion of its assets in  non-U.S.
dollar-denominated  securities  which  involve  special  risks such as currency,
political and economic risks,  although under current market conditions does not
do so.

ANTITAKEOVER  PROVISIONS.  Certain antitakeover provisions will make a change in
the Trust's  business or management  more difficult  without the approval of the
Trust's Board of Directors and may have the effect of depriving  shareholders of
an  opportunity  to sell their shares at a premium above the  prevailing  market
price.

                                       20
<PAGE>

- --------------------------------------------------------------------------------
            THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUSTINC.
                                    GLOSSARY
- --------------------------------------------------------------------------------


ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES (ARMS):                             Mortgage     instruments     with
                                               interest  rates  that  adjust  at
                                               periodic  intervals  at  a  fixed
                                               amount over the market  levels of
                                               interest  rates as  reflected  in
                                               specified   indexes.   ARMS   are
                                               backed by mortgage  loans secured
                                               by real property.

ASSET-BACKED SECURITIES:                       Securities   backed  by   various
                                               types  of  receivables   such  as
                                               automobile    and   credit   card
                                               receivables.

CANADIAN MORTGAGE SECURITIES:                  Canadian   Mortgage   instruments
                                               which  are   guaranteed   by  the
                                               Canadian     Mortgage     Housing
                                               Corporation   (CMHC),  a  federal
                                               agency  backed by the full  faith
                                               and   credit   of  the   Canadian
                                               Government.

CLOSED-END FUND:                               Investment      vehicle     which
                                               initially  offers a fixed  number
                                               of shares  and  trades on a stock
                                               exchange.  The fund  invests in a
                                               portfolio   of    securities   in
                                               accordance    with   its   stated
                                               investment     objectives     and
                                               policies.

COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS):                   Mortgage-backed  securities which
                                               separate   mortgage   pools  into
                                               short-,  medium-,  and  long-term
                                               securities     with     different
                                               priorities    for    receipt   of
                                               principal  and   interest.   Each
                                               class is paid a fixed or floating
                                               rate  of   interest   at  regular
                                               intervals.    Also    known    as
                                               multiple-class           mortgage
                                               pass-throughs.

DISCOUNT:                                      When a fund's net asset  value is
                                               greater  than its stock price the
                                               fund is said to be  trading  at a
                                               discount.

DIVIDEND:                                      This  is  income   generated   by
                                               securities  in  a  portfolio  and
                                               distributed to shareholders after
                                               the  deduction of expenses.  This
                                               Trust declares and pays dividends
                                               on a monthly basis.

DIVIDEND REINVESTMENT:                         Shareholders  may  elect  to have
                                               all  distributions  of  dividends
                                               and capital  gains  automatically
                                               reinvested into additional shares
                                               of the Trust.

FHA:                                           Federal Housing Administration, a
                                               government       agency      that
                                               facilitates a secondary  mortgage
                                               market  by  providing  an  agency
                                               that guarantees timely payment of
                                               interest    and    principal   on
                                               mortgages.

FHLMC:                                         Federal   Home   Loan    Mortgage
                                               Corporation,  a  publicly  owned,
                                               federally  chartered  corporation
                                               that   facilitates   a  secondary
                                               mortgage   market  by  purchasing
                                               mortgages  from  lenders  such as
                                               savings      institutions     and
                                               reselling  them to  investors  by
                                               means     of      mortgage-backed
                                               securities.  Obligations of FHLMC
                                               are not  guaranteed  by the  U.S.
                                               government,   however;  they  are
                                               backed by  FHLMC's  authority  to
                                               borrow from the U.S.  government.
                                               Also known as Freddie Mac.

FNMA:                                          Federal     National     Mortgage
                                               Association,  a  publicly  owned,
                                               federally  chartered  corporation
                                               that   facilitates   a  secondary
                                               mortgage   market  by  purchasing
                                               mortgages  from  lenders  such as
                                               savings      institutions     and
                                               reselling  them to  investors  by
                                               means     of      mortgage-backed
                                               securities.  Obligations  of FNMA
                                               are not  guaranteed  by the  U.S.
                                               government,   however;  they  are
                                               backed  by  FNMA's  authority  to
                                               borrow from the U.S.  government.
                                               Also known as Fannie Mae.

GNMA:                                          Government    National   Mortgage
                                               Association,  a government agency
                                               that   facilitates   a  secondary
                                               mortgage  market by  providing an
                                               agency  that  guarantees   timely
                                               payment of interest and principal
                                               on mortgages.  GNMA's obligations
                                               are  supported  by the full faith
                                               and credit of the U.S.  Treasury.
                                               Also known as Ginnie Mae.


                                       21
<PAGE>

GOVERNMENT SECURITIES:                         Securities  issued or  guaranteed
                                               by the U.S. government, or one of
                                               its          agencies          or
                                               instrumentalities,  such  as GNMA
                                               (Government   National   Mortgage
                                               Association),    FNMA    (Federal
                                               National  Mortgage   Association)
                                               and  FHLMC   (Federal  Home  Loan
                                               Mortgage Corporation).

INTEREST-ONLY                                  Securities    (I/O):     Mortgage
                                               securities  that receive only the
                                               interest   cash   flows  from  an
                                               underlying pool of mortgage loans
                                               or    underlying     pass-through
                                               securities.
                                               Also known as a STRIP.

MARKET PRICE:                                  Price  per  share  of a  security
                                               trading in the secondary  market.
                                               For a  closed-end  fund,  this is
                                               the  price at which  one share of
                                               the  fund  trades  on  the  stock
                                               exchange.  If you  were to buy or
                                               sell  shares,  you  would  pay or
                                               receive the market price.

MORTGAGE DOLLAR ROLLS:                         A  mortgage   dollar  roll  is  a
                                               transaction  in which  the  Trust
                                               sells mortgage-backed  securities
                                               for delivery in the current month
                                               and  simultaneously  contracts to
                                               repurchase  substantially similar
                                               (although     not    the    same)
                                               securities on a specified  future
                                               date.  During the "roll"  period,
                                               the   Trust   does  not   receive
                                               principal  and interest  payments
                                               on   the   securities,   but   is
                                               compensated  for  giving up these
                                               payments by the difference in the
                                               current  sales  price  (for which
                                               the  security  is sold) and lower
                                               price that the Trust pays for the
                                               similar  security at the end date
                                               as well as the interest earned on
                                               the cash  proceeds of the initial
                                               sale.

MORTGAGE PASS-THROUGHS:                        Mortgage-backed securities issued
                                               by  Fannie  Mae,  Freddie  Mac or
                                               Ginnie Mae.

MULTIPLE-CLASS PASS-THROUGHS:                  Collateralized           Mortgage
                                               Obligations.

NET ASSET VALUE (NAV):                         Net  asset  value  is  the  total
                                               market  value  of all  securities
                                               and  other  assets  held  by  the
                                               Trust, plus income accrued on its
                                               investments,       minus      any
                                               liabilities   including   accrued
                                               expenses,  divided  by the  total
                                               number of outstanding  shares. It
                                               is  the  underlying  value  of  a
                                               single  share on a given day. Net
                                               asset  value  for  the  Trust  is
                                               calculated  weekly and  published
                                               in BARRON'S  on Saturday  and THE
                                               WALL STREET JOURNAL each Monday.

PRINCIPAL-ONLY SECURITIES(P/O):                Mortgage  securities that receive
                                               only  the  principal  cash  flows
                                               from   an   underlying   pool  of
                                               mortgage   loans  or   underlying
                                               pass-through   securities.   Also
                                               known as a STRIP.

PROJECT LOANS:                                 Mortgages for multi-family,  low-
                                               to middle-income housing.

PREMIUM:                                       When  a  fund's  stock  price  is
                                               greater than its net asset value,
                                               the fund is said to be trading at
                                               a premium.

RESIDUALS:                                     Securities  issued in  connection
                                               with   collateralized    mortgage
                                               obligations     that    generally
                                               represent  the  excess  cash flow
                                               from    the    mortgage    assets
                                               underlying  the CMO after payment
                                               of principal  and interest on the
                                               other CMO  securities and related
                                               administrative expenses.

REVERSE REPURCHASE AGREEMENTS:                 In    a    reverse     repurchase
                                               agreement,    the   Trust   sells
                                               securities    and    agrees    to
                                               repurchase  them  at  a  mutually
                                               agreed  date  and  price.  During
                                               this time, the Trust continues to
                                               receive   the    principal    and
                                               interest   payments   from   that
                                               security. At the end of the term,
                                               the  Trust   receives   the  same
                                               securities that were sold for the
                                               same initial  dollar  amount plus
                                               interest on the cash  proceeds of
                                               the initial sale.

STRIPPED MORTGAGE BACKED SECURITIES:           Arrangements  in  which a pool of
                                               assets  is  separated   into  two
                                               classes  that  receive  different
                                               proportions  of the  interest and
                                               principal    distribution    from
                                               underlying        mortgage-backed
                                               securities.  IO's  and  PO's  are
                                               examples of STRIPS.

                                       22

<PAGE>

- --------------------------------------------------------------------------------
                      BLACKROCK FINANCIAL MANAGEMENT, INC.
                           SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------




TAXABLE TRUSTS
- --------------------------------------------------------------------------------


                                                                      MATURITY
PERPETUAL TRUSTS                                       STOCK SYMBOL     DATE
                                                         ---------     -----
The BlackRock Income Trust Inc.                             BKT         N/A
The BlackRock North American Government Income Trust Inc.   BNA         N/A


Term Trusts
The BlackRock 1998 Term Trust Inc.                          BBT         12/98
The BlackRock 1999 Term Trust Inc.                          BNN         12/99
The BlackRock Target Term Trust Inc.                        BTT         12/00
The BlackRock 2001 Term Trust Inc.                          BLK         06/01
The BlackRock Strategic Term Trust Inc.                     BGT         12/02
The BlackRock Investment Quality Term Trust Inc.            BQT         12/04
The BlackRock Advantage Term Trust Inc.                     BAT         12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc.   BCT         12/09



TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------


                                                                        MATURITY
PERPETUAL TRUSTS                                          STOCK SYMBOL   DATE
                                                          ------------   -----
The BlackRock Investment Quality Municipal Trust Inc.              BKN   N/A
The BlackRock California Investment Quality Municipal Trust Inc.   RAA   N/A
The BlackRock Florida Investment Quality Municipal Trust           RFA   N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc.   RNJ   N/A
The BlackRock New York Investment Quality Municipal Trust Inc.     RNY   N/A


Term Trusts
The BlackRock Municipal Target Term Trust Inc.                     BMN   12/06
The BlackRock Insured Municipal 2008 Term Trust Inc.               BRM   12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc.    BFC   12/08
The BlackRock Florida Insured Municipal 2008 Term Trust            BRF   12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc.      BLN   12/08
The BlackRock Insured Municipal Term Trust Inc.                    BMT   12/10




                      If you would like further information
                    please do not hesitate to call BlackRock
                        at (800) 227-7BFM or consult with
                             your financial advisor.

                                       23
<PAGE>

BLACKROCK

DIRECTORS
Laurence D. Fink, Chairman
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
Ralph L. Schlosstein

OFFICERS
Ralph L. Schlosstein, President
Scott Amero, Vice President
Keith T. Anderson, Vice President
Michael C. Huebsch, Vice President
Robert S. Kapito, Vice President
Richard M. Shea, Vice President/Tax
Henry Gabbay, Treasurer
James Kong, Assistant Treasurer
Karen H. Sabath, Secretary

INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM

ADMINISTRATOR
Prudential Mutual Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, N.J. 07102-4077

CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company
One Heritage Drive
North Quincy, MA 02171
(800) 699-1BFM

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2 World Financial Center
New York, NY 10281

LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022

   This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.



                          THE BLACKROCK NORTH AMERICAN
                          GOVERNMENT INCOME TRUST INC.
                    c/o Prudential Mutual Fund Management LLC
                              Gateway Center Three
                               100 Mulberry Street
                             Newark, N.J. 07102-4077
                                 (800) 227-7BFM



Printed on recycled paper                                          092475-10-2






                                 THE BLACKROCK
                                 NORTH AMERICAN
                                   GOVERNMENT
                               INCOME TRUST INC.
================================================================================
                                 ANNUAL REPORT
                                OCTOBER 31, 1996



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