- --------------------------------------------------------------------------------
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