- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
May 30, 1997
Dear Trust Shareholder:
Domestic bond investors have experienced higher interest rates in the face
of a resilient stock market and stronger economic growth over the past six
months. However, as a pre-emptive strike at inflation, the Federal Reserve
raised the Federal funds target rate one-quarter of a point at their March
policy meeting.
BlackRock expects that both production and consumption will continue to be
strong in the coming months. However, the combined effects of higher interest
rates and already rising consumer debt should lead to more moderate economic
growth later in 1997. Despite inflation remaining relatively low, strong
consumer confidence and robust industrial activity suggest that the potential
for future inflation exists. Therefore, BlackRock currently maintains a cautious
fundamental outlook for bonds. While we believe that one or two additional
interest rate increases by the Fed may still be necessary to temper economic
growth, it does not appear that 1997 will be a repeat of the dramatic rise in
short term interest rates that the market witnessed in 1994.
This report provides the Trust's portfolio managers an opportunity to
provide you with detailed market commentary and review the major themes that
have occurred in the portfolio over the past six months. We hope that you find
this report informative and look forward to serving your financial needs in the
future.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- ------------------------- --------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
<PAGE>
May 30, 1997
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock North
American Government Income Trust Inc. (the "Trust") for the six months ended
April 30, 1997. 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:
- --------------------------------------------------------------------------------
4/30/97 10/31/96 CHANGE HIGH LOW
- --------------------------------------------------------------------------------
STOCK PRICE $9.875 $10.125 (2.47%) $10.50 $9.625
- --------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $11.80 $12.33 (4.30%) $12.56 $11.68
- --------------------------------------------------------------------------------
CURRENCY EXCHANGE RATE $0.7157 $0.7462 (4.09%) $0.7517 $0.7134
- --------------------------------------------------------------------------------
10-YEAR U.S. TREASURY NOTE 6.71% 6.36% +35bp 6.97% 6.04%
- --------------------------------------------------------------------------------
THE U.S. AND CANADIAN FIXED INCOME MARKETS
Stronger economic data and accompanying inflation fears caused U.S.
Treasury yields to rise for the majority of the six month period between
November 1, 1996 and April 30, 1997. After reaching their lowest levels since
March of 1996, Treasury yields began rising in December after Federal Reserve
Chairman Alan Greenspan's mention of "irrational exuberance" in the financial
markets. Data indicating continued economic strength characterized the first
four months of 1997. Although inflationary measures such as commodity, producer
and consumer prices remained relatively stable, tight labor markets and strong
consumer confidence led the Federal Reserve to raise the Federal funds rate by
25 basis points (1/4%) at their March 25 monetary policy meeting to
pre-emptively fight inflation. Hints of moderating economic growth during April
proved to be a more accommodating environment for bonds, as Treasury yields fell
towards month-end in response to a strong dollar, rising stock market and
optimism for a balanced-budget agreement.
For the six month period, the yield of the 10-year Treasury note rose
0.37% to end April at 6.71%. However, the 10-year's yield reached a high of
6.98% in mid-April before falling the last two weeks of the month as the
likelihood decreased for another interest rate hike by the Federal Reserve at
their May meeting. Over the period, spread product (bonds that offer yield
spreads over Treasuries) outperformed Treasuries. In particular, the market for
mortgage-backed securities ("MBS")posted good relative performance primarily due
to low interest rate volatility and subdued refinancing concerns. Over the
period, the MBSmarket as measured by the Lehman Mortgage Index returned 2.63%
versus the Treasury market's return (measured by the Merrill Lynch 7-10 year
Treasury Index)of 0.76%.
2
<PAGE>
Canadian bonds outperformed their U.S. counterparts for much of the
period, as 10-year Canadian yields fell to even levels with U.S. Treasuries in
late 1996. Strength in the Canadian dollar prompted Bank of Canada reductions in
short term interest rates during the fourth quarter 1996. The Bank of Canada was
not compelled to raise short-term rates in tandem with the March U.S. rate
increase, as the Canadian economy showed signs of sufficient unemployment to
ward off inflation. In March, the Canadian yield curve flattened as the market
came under pressure due to a weakening of the Canadian dollar. Going forward,
the Canadian market looks relatively attractive due to moderate economic growth
and no real signs of inflation, but a potential interest rate increase could be
on the horizon, should U.S. interest rates continue to rise. The recent call for
elections in Canada on June 2, 1997 should have no medium-term impact on the
Canadian market, even though modest currency fluctuation in the short-term may
arise.
For the six month period, the Trust slightly underperformed U.S.
Treasuries, posting a -0.97% return versus the 0.76% total return of the Merrill
Lynch 7-10 Year Treasury Index. This underperformance was largely attributable
to the decline in the currency exchange rate between the U.S. and Canadian
dollars. For example, the Canadian dollar was worth nearly $0.75 U.S. dollars on
October 31, 1996; at the end of April 1997, the exchange rate was less than
$0.72 U.S. dollars.
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, 1996 asset composition.
- --------------------------------------------------------------------------------
COMPOSITION APRIL 30, 1997 OCTOBER 31, 1996
- --------------------------------------------------------------------------------
Canadian Portfolio Allocation 66% 76%
- --------------------------------------------------------------------------------
Canadian Government Securities 14% 15%
- --------------------------------------------------------------------------------
Ontario 10% 19%
- --------------------------------------------------------------------------------
Canadian Corporate Bonds 7% --
- --------------------------------------------------------------------------------
Canadian Mortgages 6% 8%
- --------------------------------------------------------------------------------
Quebec 5% 7%
- --------------------------------------------------------------------------------
New Brunswick 5% 5%
- --------------------------------------------------------------------------------
Saskatchewan 4% 6%
- --------------------------------------------------------------------------------
British Columbia 4% 6%
- --------------------------------------------------------------------------------
New Foundland 3% 3%
- --------------------------------------------------------------------------------
Manitoba 3% 3%
- --------------------------------------------------------------------------------
Nova Scotia 3% 2%
- --------------------------------------------------------------------------------
Prince Edward Island 2% 2%
- --------------------------------------------------------------------------------
U.S. PORTFOLIO ALLOCATION 34% 24%
- --------------------------------------------------------------------------------
FHA Project Loans 7% 7%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage
Pass-Throughs 6% 4%
- --------------------------------------------------------------------------------
Adjustable Rate Mortgage Securities 5% 1%
- --------------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 5% 5%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage
Pass-Throughs 4% 3%
- --------------------------------------------------------------------------------
U.S. Government Securities 4% --
- --------------------------------------------------------------------------------
Agency Mortgage Pass-Throughs 3% 4%
- --------------------------------------------------------------------------------
3
<PAGE>
Over the past six months, the Trust's Canadian dollar exposure has
remained fairly constant between 65%-75% of total portfolio assets. This
allocation was predicated upon the Canadian bond market's strong performance and
excellent fundamental factors (particularly fiscal and political), which
suggested further strength. The major shifts within the Trust's Canadian
holdings were a reduction in Canadian mortgage-backed securities (MBS)and
provincial bonds and an increase in investment grade corporate bonds. As a
relative value manager, BlackRock seeks to overweight sectors which we believe
offer the best potential total returns and underweight sectors which have
already posted good returns. For example, the shift away from Canadian
provincial bonds was a recognition of their excellent performance, which
resulted in their historical yield advantage over comparable maturity U.S. bonds
dramatically decreasing. The sale of provincials raised cash to invest in
corporate bonds, which offered the Trust an opportunity to increase its income
earning potential.
In the U.S. Portion of the portfolio, the Trust's main emphasis was on
selecting well-structured MBSin an attempt to enhance the Trust's income. One
area of emphasis for the Trust was the collateralized mortgage obligation (CMO)
sector, which has recently experienced a significant increase in new issuance.
Much of this new issuance is a result of increased demand from financial
institutions (such as banks and insurance companies), which could bode well for
the future performance of all U.S. mortgage securities.
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.
/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 April 30, 1997: $9.875
- --------------------------------------------------------------------------------
Net Asset Value as of April 30, 1997: $11.80
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of April 30, 1997 ($9.875)1: 8.51%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.07
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.84
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current
annualized distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
S&P/ PRINCIPAL
MOODYS AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--126.9%
UNITED STATES SECURITIES--42.5%
MORTGAGE PASS-THROUGHS--12.7%
Federal Home Loan Mortgage
Corporation,
$ 9,564 6.50%, 04/01/26 - 1/01/99 ............. $ 9,037,386
Federal Housing Administration,
GMAC,
2,220 Series 37, 7.43%, 5/01/22 ............. 2,232,561
1,355 Series 44, 7.43%, 8/01/22 ............. 1,363,955
1,685 Series 59, 7.43%, 7/01/21 ............. 1,691,016
739 Series 65, 7.43%, 2/01/23 ............. 742,040
Merrill,
3,000 Series 29, 7.43%, 10/01/20 ............ 3,011,086
25,092 Series 42, 7.43%, 9/01/22 ............. 25,217,836
2,289 Reilly, Series B-11, 7.40%, 4/01/21 ... 2,299,821
Westmore Project 8240,
2,360 7.25%, 04/01/21 ....................... 2,360,035
Government National Mortgage
Association,
3,967 6.00%, 3/15/09, 15 year ............... 3,785,685
2,616 8.00%, 6/15/25 - 11/15/25 ............. 2,652,226
-----------
54,393,647
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--18.0%
AAA 15,352 Community Program Loan Trust,
Collaterlized Mortgage Obligation,
Series 1987-A, Class A4, 10/01/18 ..... 13,020,275
Countrywide Funding Corporation,
Aaa 3,240 Series 1993- 7, Class 7-AS3,
11/25/23 ............................. 2,704,632
AAA 1,696 Series 1993-10, Class 10-A8,
1/25/24 .............................. 1,355,417
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
7,670 Series 120, Class 120-H, 2/15/21 ...... 7,976,403
12,810 Series 1353, Class 1353-S,
8/15/07 (ARM) ........................ 1,473,110
7,670 Series 1379, Class 1379-P,
8/15/18 (I), ......................... 837,677
1,033@ Series 1530, Class 1530-OA,
6/15/23 (ARM) ........................ 633,941
1,406 Series 1609, Class 1609-LN,
11/15/23 (ARM) ....................... 1,027,672
8,335 Series 1620, Class 1620-S,
11/15/23 (ARM) ....................... 5,693,903
6,298 Series 1673, Class 1673-SC,
10/15/22 (ARM) ....................... 4,644,964
5,815 Series 1675, Class 1675-SC,
2/15/24 (ARM) ........................ 4,580,297
2,201 Series 1857, Class 1857-PB,
12/15/08 ............................. 1,713,811
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
7,597+ Trust 1989-90, Class 90-E, 12/25/19 ... 7,962,436
1,390 Trust G1993-27, Class 27-SE,
8/25/23 (ARM) ........................ 605,349
1,404 Trust 1993-44, Class 44-K,
10/25/22 ............................. 1,382,344
1,233 Trust 1993-120, Class 120-SN,
7/25/23 (ARM) ........................ 739,097
760 Trust 1993-139, Class 139-SY,
8/25/23 (ARM) ........................ 512,267
1,889 Trust 1993-183, Class 183-SE,
10/25/23 ............................. 1,310,354
1,862 Trust 1993-201, Class 201-SC,
10/25/23 (ARM) ....................... 1,293,048
3,196 Trust 1993-210, Class 210-A,
1/25/23 .............................. 2,833,183
2,351 Trust 1993-224, Class 224-SE,
11/25/23 (ARM) ....................... 1,613,051
4,550 Trust 1994-59, Class 59-SB,
3/25/24 (ARM) ........................ 2,206,973
4,159 Trust 1995-10, Class 10-B,
3/25/24 .............................. 3,627,677
2,100 Trust 1996-14, Class 14-M, 10/25/2 .... 11,671,469
1,193 Trust 1996-47, Class 47-SC,
3/25/26 (ARM) ........................ 1,181,250
3,900 Trust 1997-30, Class 30-I,
1/25/23 (I) .......................... 1,204,125
AAA 3,000 ML Trust XXXVI Collateralized
Mortgage Obligation, Series 36,
Class D, 11/01/18 ..................... 3,193,500
-----------
76,998,225
-----------
See Notes to Financial Statements.
5
<PAGE>
- --------------------------------------------------------------------------------
S&P/ PRINCIPAL
MOODYS AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
STRIPPED MORTGAGE-BACKED
SECURITIES--7.1%
Federal Home Loan Mortgage
Corporation,
$ 8,179 Series 1254, Class 1254-Z,
4/15/22 (I/O) ........................ $ 2,549,213
7,500 Series 1434, Class1434-M,
12/15/22 (I/O) ....................... 4,947,000
4,384 Series 1570, Class 1570-C,
8/15/23 (P/O) ........................ 2,047,986
5,620 Series 1571, Class 1571-E,
8/15/23 (P/O) ........................ 2,500,711
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
4,201@ Trust 116, Class 116-2,
1/01/17 (I/O) ........................ 1,294,466
10,386 Trust G-233, Class 2, 8/01/23 (I/O) ... 3,617,276
7,971 Trust 267, Class 1, 10/01/24 (P/O) .... 5,513,785
2,000 Trust G1992-5, Class 5-E,
1/25/22 (I/O) ........................ 1,074,892
1,700 Trust 1992-48, Class 48-J,
4/25/07 (I/O) ........................ 690,915
2,627 Trust 1994-22, Class 22-E,
1/25/24 (P/O) ....................... 1,653,900
3,321 Trust 1996-38, Class 38-E,
8/15/23, (P/O) ....................... 1,290,875
47,121 Trust 1996-43, Class 43-SA,
10/25/03 (I/O) ....................... 1,472,531
2,000 Trust 1996-66, Class 66-AB,
1/25/24 (P/O) ........................ 1,220,000
Aaa 4,313 G. E. Capital Mortgage Services,
Trust 1993-13, Class A2,
10/25/08 (I/O) ....................... 254,710
-----------
30,128,260
-----------
U.S GOVERNMENT SECURITIES--4.7%
3,697 Small Business Administration,
Series 1996- 20 K,
6.95%, 11/01/16 ...................... 3,638,059
U.S. Treasury Notes,
15,651+ 3.375%, 1/15/07 (TIPS) ................ 15,401,479
150 6.50%, 5/31/01 ........................ 149,789
610 7.25%, 8/15/04 ........................ 629,636
-----------
19,818,963
-----------
Total United States Securities
(cost $182,007,747) ................... 181,339,095
-----------
CANADIAN SECURITIES--84.4%
CORPORATE BONDS--8.7%
AA- C$ 4,500 Canadian Imperial Bank Commerce,
8.50%, 2/05/07 ........................ 3,468,028
Aa3 15,000 Canadian Imperial Bank, Toronto,
8.15%, 4/25/11 ........................ 11,660,702
A+ 10,000 Ford Credit Canada Limited,
5.66%, 11/19/01 ....................... 6,979,241
AA C$17,500 Navigation Canada, Series 97-1,
6.45%, 6/01/04 ........................ 12,435,773
AA 3,500 Vancouver International Airport
Authority, Series A,
6.55%, 12/07/06 ....................... 2,437,974
-----------
Total Canadian Corporate Bonds 36,981,718
-----------
CANADIAN MORTGAGES--8.2%
Conduit for Mortgage Obligation,
9,000 6.95%, 9/01/98 ........................ 6,592,484
10,178 8.25%, 5/01/98 ........................ 7,434,822
24,081 NHA Mortgage Backed Securities
Corporation, Household Trust,
7.75%, 6/01/99 ........................ 17,880,737
Shoppers,
811 9.125%, 4/01/02 ....................... 622,289
3,356 9.125%, 5/01/02 ....................... 2,588,526
----------
Total Canadian Mortgages 35,118,858
----------
CANADIAN GOVERNMENT SECURITIES--18.3%
CANADIAN TREASURY NOTES,
40,918++ 4.25%, 12/01/26 ....................... 29,319,340
13,500 7.25%, 6/01/07 ........................ 10,067,502
15,000+ 7.50%, 9/01/00 ........................ 11,329,349
35,575+ 8.50%, 3/01/00 ........................ 27,486,462
-----------
Total Canadian Government
Securities ............................ 78,202,653
-----------
CANADIAN PROVINCIAL SECURITIES--49.2%
BRITISH COLUMBIA--5.4%
25,000 British Columbia Province,
8.50%, 8/23/13 ........................ 20,091,267
4,000 Municipal Finance Authority,
7.75%, 12/01/05 ....................... 3,056,263
----------
23,147,530
----------
MANITOBA--3.5%
3,000 City of Winnipeg,
9.375%, 2/11/13 ....................... 2,538,296
15,000 Manitoba Province,
9.375%, 11/15/04 ...................... 12,521,832
-----------
15,060,128
-----------
NEW BRUNSWICK--6.3%
New Brunswick Province,
5,000 7.50%, 12/15/05 ....................... 3,767,001
13,000 7.625%, 7/14/00 ....................... 9,769,077
14,600 10.125%, 10/31/11 ..................... 13,298,332
-----------
26,834,410
-----------
NEWFOUNDLAND--4.3%
23,000 Newfoundland Province,
8.45%, 2/05/26 ........................ 18,225,483
-----------
See Notes to Financial Statements.
6
<PAGE>
- --------------------------------------------------------------------------------
S&P/ PRINCIPAL
MOODYS AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- --------------------------------------------------------------------------------
NOVA SCOTIA--3.1%
C$15,000++ Nova Scotia Province,
9.60%, 1/30/22 ........................$ 13,360,630
-------------
ONTARIO--13.4%
10,000 Hamilton Wentworth Regional
Municipality,
7.00%, 6/06/01 ........................ 7,397,280
Ontario Province,
8,500 7.50%, 1/19/06 ........................ 6,398,425
25,000++ 8.10%, 9/08/23 ........................ 19,443,450
20,000 9.75%, 10/29/01 ....................... 16,259,127
10,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 ....................... 7,601,646
-------------
57,099,928
-------------
PRINCE EDWARD ISLAND--2.4%
13,000++ Prince Edward Island Province,
8.50%, 10/27/15 ....................... 10,329,277
-------------
QUEBEC--6.3%
Hydro Quebec,
18,600++ 10.25%, 5/15/03 ....................... 14,053,185
7,250 10.75%, 3/27/04 ....................... 5,487,580
10,000 Quebec Province,
7.50%, 12/01/03 ....................... 7,473,157
-------------
27,013,922
-------------
SASKATCHEWAN--4.5%
Saskatchewan Province,
20,000++ 7.50%, 12/19/05 ....................... 15,106,657
5,000 11.00%, 1/09/01 ....................... 4,180,601
-------------
19,287,258
-------------
TOTAL CANADIAN PROVINCIAL SECURITIES ... 210,358,566
-------------
Total Canadian Securities
(cost $360,156,928) ................... 360,661,795
-------------
Total Long-Term Investments
(cost $542,164,675) ................... 542,000,890
-------------
SHORT-TERM INVESTMENT--01%
REPURCHASE AGREEMENT
$ 160 State Street Bank and Trust Co.,
5.15% dated 4/30/97, due
5/1/97 in the amount of
$160,023 (collateralized by
$165,000 United States
Treasury Note, 5.75%, due
12/31/98, value including
accrued interest
$167,080)
(cost $160,000) ....................... 160,000
-------------
PUT OPTIONS PURCHASED--0.1%
25,000 Interest Rate Swap,
3 month Libor Minus 8.5%, 6/15/11
expiring 6/15/01
(cost $547,500) ....................... 515,223
-------------
Total Short-Term Investments
(cost $707,500) ....................... 675,223
-------------
Total Investments, before investment
sold short--127.1%
(cost $542,872,175) ................... 542,676,113
-------------
PRINCIPAL
AMOUNT
(000)
----------
INVESTMENTS SOLD SHORT--(6.0%)
$ 5,700 United States Treasury Bonds,
6.75%, 8/15/26 ........................ (5,515,662)
United States Treasury Notes,
2,500 6.25%, 10/31/01 ....................... (2,469,525)
550 6.50%, 10/15/06 ....................... (540,975)
17,000 7.00%, 7/15/06 ........................ (17,286,790)
-------------
(PROCEEDS $26,192,224) (25,812,952)
-------------
Total Investments Net of
Investments Sold Short--121.0% ........ 516,863,161
Liabilities in excess of other
assets--(21.0%) ....................... (89,785,589)
-------------
NET ASSETS--100% ....................... $427,077,572
=============
- --------------------------------------------------------------------------------
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.
TIPS -- Treasury Inflation Protection Securities.
- --------------------------------------------------------------------------------
* Using the higher of Standard & Poor's or Moody's Rating.
+ (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.
See Notes to Financial Statements.
7
<PAGE>
- -------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $542,872,175) (Note 1) .. $542,676,113
Canadian dollars, at value (cost $1,728,757) ........ 2,317,147
Deposits with brokers for securities sold short ..... 25,907,188
Receivable for investments sold ..................... 20,936,305
Interest receivable ................................. 10,824,049
Interest rate caps, at value (cost $2,536,000)
(Notes 1 & 3) .................................... 2,647,370
Forward currency contracts--amount receivable
from counterparties .............................. 50,330
-------------
605,358,502
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) .............. 147,824,940
Investments sold short, at value
(proceeds $26,192,224) ........................... 25,812,952
Dollar roll payable ................................. 2,622,317
Interest payable .................................... 513,548
Bank overdraft ...................................... 486,331
Other accrued expenses .............................. 307,769
Advisory fee payable (Note 2) ....................... 209,779
Dividends payable ................................... 197,956
Due to broker-variation margin ...................... 155,812
Unrealized depreciation on forward swap
(Notes 1 &3) ..................................... 92,157
Administration fee payable (Note 2) ................. 34,963
Payable for investments purchased ................... 22,406
------------
178,280,930
------------
NET ASSETS 427,077,572
------------
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
Undistributed net investment income .............. 1,483,221
Accumulated net realized loss on investments ..... (18,373,754)
Net unrealized appreciation on investments ....... 12,879,724
Accumulated net realized and unrealized
foreign currency loss .......................... (12,981,940)
------------
Net assets, April 30, 1997 $427,077,572
============
Net asset value per share:
($427,077,572 / 36,207,093 shares of
common stock issued and outstanding) $11.80
======
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$3,257,446 and net of interest expense of
$3,408,965) ................................. $18,941,531
-----------
Expenses
Investment advisory ......................... 1,309,829
Administration .............................. 218,305
Reports to shareholders ..................... 174,000
Custodian ................................... 154,000
Audit ....................................... 42,000
Directors ................................... 36,000
Transfer agent .............................. 20,000
Miscellaneous ............................... 102,251
-----------
Total operating expenses .................. 2,056,385
-----------
Net investment income ....................... 16,885,146
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ................................. 41,309,141
Futures ..................................... 366,295
Short sales ................................. (4,875)
Foreign currency ............................ (341,543)
-----------
41,329,018
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................. (46,766,654)
Futures ..................................... 1,013,140
Short sales ................................. 430,041
Foreign currency ............................ (17,000,791)
-----------
(62,324,264)
-----------
Net loss on investments and foreign currency
transactions ................................ (20,995,246)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ...................... ($4,110,100)
===========
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities:
Interest received ................................. $ 25,604,231
Operating expenses paid ........................... (2,168,163)
Interest expense paid on reverse repurchase
agreements ...................................... (3,152,151)
Proceeds from disposition of short-term portfolio
investments including options, net .............. 221,094,890
Purchases of long-term portfolio investments ...... (476,073,050)
Proceeds from disposition of long-term
portfolio investments ........................... 315,194,288
Variation margin on futures .......................... 1,351,876
------------
Net cash flows provided by operating activities ... 81,851,921
------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ......... (69,309,781)
Cash dividends paid ............................... (15,239,057)
------------
Net cash flows used for financing activities ...... (84,548,838)
------------
Net realized and unrealized foreign currency ......... (2,133,566)
------------
Net decrease in cash ................................. (4,830,483)
Cash at beginning of period .......................... 6,661,299
------------
Cash at end of period ................................ 1,830,816
============
RECONCILIATION OF NET DECREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS (INCLUDING FOREIGN
CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net decrease in net assets resulting from operations . $ (4,110,100)
------------
Decrease in investments .............................. 240,167,212
Net realized gain .................................... (41,329,018)
Decrease in unrealized appreciation .................. 62,324,264
Increase in deposits with brokers as
collateral for investments sold short ............. (23,354,063)
Increase in interest receivable ...................... (3,711)
Decrease in receivable for investments sold .......... 22,144,682
Decrease in receivable for forward
currency contracts ................................ 449,776
Increase in appreciation on interest rate swaps ...... (3,773,787)
Decrease in other assets ............................. 1,659
Decrease in variation margin payable ................. (27,559)
Decrease in payable for investments purchased ........ (187,614,267)
Decrease in dollar roll payable ...................... (4,940,510)
Increase in depreciation on interest rate cap ........ (1,601,468)
Increase in unrealized depreciation
on forward swap ................................... 92,157
Increase in payable for securities sold short ........ 23,283,277
Increase in interest payable ......................... 256,814
Increase in accrued expenses and other liabilities ... (113,437)
------------
Total adjustments ................................. 85,962,021
------------
Net cash flows provided by operating activities ...... $ 81,851,921
============
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) SIX MONTHS YEAR
IN NET ASSET ENDED ENDED
APRIL 30, OCTOBER 31,
1997 1996
----------- -----------
Operations:
Net investment income ................ $ 16,885,146 $ 33,758,567
Net realized gain on investments,
futures, short sales
and foreign currency
transactions ....................... 41,329,018 9,267,771
Net change in unrealized
appreciation/depreciation
on investments, futures, short
sales, and foreign
currency ........................... (62,324,264) 23,957,473
------------- ------------
Net increase (decrease) in net
assets resulting from
operations ......................... (4,110,100) 66,983,811
Dividends and distributions:
Dividends from net investment
income ............................. (15,206,773) (10,532,288)
Return of capital distributions ...... -- (21,352,044)
------------ ------------
Total increase (decrease) ............ (19,316,873) 35,099,479
NET ASSETS
Beginning of period .................. 446,394,445 411,294,966
------------ ------------
End of period ........................ $427,077,572 $446,394,445
============ ============
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31, DECEMBER 27, 1991*
ENDED _________________________________________ THROUGH
APRIL 30, 1997 1996 1995 1994 1993 OCTOBER 31, 1992
-------------- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ........... $ 12.33 $ 11.36 $ 10.07 $ 12.34 $ 13.13 $ 14.10
-------- ------- -------- -------- -------- --------
Net investment income (net of interest
expense of $.09, $.41, $.35, $.26, $.20,
and $.14, respectively) ................... .47 .93 .89 1.09 1.21 1.03
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .............................. (.58) .92 1.37 (2.28) (.80) (.99)
-------- ------- -------- -------- -------- --------
Net increase (decrease) from investment
operations .................................. (.11) 1.85 2.26 (1.19) .41 .04
-------- ------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ........ (.42) (.29) -- (1.03) (1.20) (.98)
Return of capital distributions ............. -- (.59) (.97) (.05) -- --
-------- ------- -------- -------- -------- --------
Total dividends and distributions ....... (.42) (.88) (.97) (1.08) (1.20) (.98)
-------- ------- -------- -------- -------- --------
Capital charge with respect to issuance of
shares ...................................... -- -- -- -- -- (.03)
-------- ------- -------- -------- -------- --------
Net asset value, end of period** ............... $ 11.80 $ 12.33 $ 11.36 $ 10.07 $ 12.34 $ 13.13#
-------- ------- -------- -------- -------- --------
Per share market value, end of period** ........ $ 9 7/8 $10 1/8 $ 10 1/8 $ 9 1/8 $ 12 7/8 $ 13 1/2
======== ======= ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ....................... 1.67% 9.48% 22.88% (21.62%) 4.68% 2.40%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses (a) ......................... .94%+++ .97% .96% 1.01% .98% .90%+++
Net investment income .......................... 7.76%+++ 8.24% 8.58% 9.92% 9.72% 9.09%+++
SUPPLEMENTAL DATA:
Average net assets (in thousands) .............. $438,937 $409,644 $374,975 $397,651 $452,740 $482,326
Portfolio turnover ............................. 48% 151% 78% 70% 155% 314%
Net assets, end of period (in thousands) ....... $427,078 $446,394 $411,295 $364,749 $446,614 $475,220
Reverse repurchase agreements outstanding,
end of period (in thousands) ................ $147,825 $217,135 $202,703 $142,450 $201,122 $219,362
Asset coverage++ ............................... $ 3,889 $ 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 2.51%, 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 unaudited 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 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock North American Government Income Trust
POLICIES Inc., (the "Trust"), a Maryland corporation, is
a 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, quotations 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"
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 position 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
11
<PAGE>
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. 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"
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 Trust.
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 $17,342,334 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, maturities of 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.
12
<PAGE>
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 April 30, 1997 was US$0.7157 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.
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.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate swap. However, the Trust does not anticipate
non-performance by any counterparty.
INTEREST RATE CAPS: Interest rate caps are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
excess, if any, of a floating rate over a specified fixed rate.
Interest rate caps are intended to both manage the duration of the Trust's
portfolio and its exposure to changes in short term rates. Owning interest rate
caps reduces the portfolio's duration, making it less sensitive to changes in
interest rates from a market value perspective. The effect on income involves
protection from rising short term rates, which the Trust experiences primarily
in the form of leverage.
The Trust is exposed to credit loss in the event of non-performance by the
other party to the interest rate cap. However, the Trust does not anticipate
non-performance by any counterparty.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of purchasing the right to buy a security, the purchaser of the swap
option has the right to enter into a previously agreed upon interest rate swap
agreement at any time before the expiration of the option. 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, bears the market risk of an
unfavorable change in the value of the swap contract underlying the written
option. Interest rate swap options may be used as part of an income producing
strategy reflecting the view of the Trust's management on the direction of
interest rates.
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.
13
<PAGE>
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 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 six months
ended April 30, 1997 the Trust decreased undistributed net investment income by
$195,152 increased accumulated net realized losses on investments by $48,353,
and decreased accumulated net realized and unrealized foreign currency losses by
$243,505 for realized foreign currency losses incurred during the six months
ended April 30, 1997. 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 Investments
Fund Management LLC ("PIFM"), 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 PIFM 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.
PIFM 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,
SECURITIES AND other than short-term investments, for the six
OTHER INVESTMENTS months ended April 30, 1997 aggregated
$286,601,773 and $381,352,785, 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 April 30,
1997, the Trust did not hold 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
April 30, 1997 was $530,169,407, and accordingly, net unrealized appreciation
for federal income tax purposes was $12,506,706 (gross unrealized appreciation-
$18,795,290; gross unrealized depreciation-$6,288,584).
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 April 30, 1997 are as follows:
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE APRIL 30, APPRECIATION/
CONTRACTS TYPE DATE DATE 1997 (DEPRECIATION)
- -------- ---- ---------- --------- --------- --------------
Short positions:
313 30 yr.
U.S. T-Bond June '97 $ 34,146,967 $34,205,031 $ (58,064)
112 10 Yr.
U.S. T-Note June '97 11,856,636 11,980,500 (123,864)
50 Eurodollar June '97 11,775,988 11,758,750 17,238
45 Eurodollar Sept. '97 10,584,281 10,560,938 23,343
45 Eurodollar Dec. '97 10,563,514 10,533,375 30,139
40 Eurodollar Mar. '98 9,382,790 9,351,000 31,790
40 Eurodollar June '98 9,372,790 9,339,000 33,790
35 Eurodollar Sept. '98 8,193,520 8,163,750 29,770
35 Eurodollar Dec. '98 8,183,004 8,155,000 28,004
------------ ------------ --------
$114,059,490 $114,047,344 $ 12,146
============ ============ ========
Long positions:
5 yr.
25 U.S. T-Note June '97 $ 2,669,644 $ 2,632,031 $(37,613)
============ ============ ========
Details of open forward currency contracts at April 30, 1997 are as follows:
VALUE AT VALUE AT UNREALIZED
SETTLEMENT CONTRACT SETTLEMENT APRIL 30, APPRECIATION/
DATE TO RECEIVE DATE 1997 (DEPRECIATION)
--------- ---------- ---------- ----------- --------------
Purchase:
5/21/97 C$91,000,000 $65,186,247 $65,236,577 $50,330
=========== =========== =======
The Trust entered into two interest rate caps. Under both agreements the
Trust receives the excess, if any, of a floating rate over a fixed rate. The
Trust paid a transaction fee for both agreements. Details of the caps are as
follows:
NOTIONAL VALUE AT
AMOUNT FLOATING FIXED SETTLEMENT TERMINATION APRIL 30, TRANSACTION
(000) RATE RATE DATE DATE 1997 FEE
- -------- ----------- ----- ----------- ----------- --------- -----------
$25,000 3 month LIBOR 6.00% 2/19/97 2/19/02 $1,045,902 $ 806,000
$50,000 3 month LIBOR 7.00% 4/18/98 4/18/03 $1,601,468 $1,730,000
The Trust entered into a forward swap with a notional amount of $7,727,000
which settles on June 13, 2001. Under the agreement, the Trust will receive a
fixed rate of 7.235% and will pay a floating rate. The swap terminates on June
15, 2011 and at April 30, 1997 had unrealized depreciation of $92,157.
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 six months ended April 30, 1997 was approximately
$14,607,000 at a weighted average interest rate of approximately 5.56%. Also,
the average monthly balance of Canadian reverse repurchase agreements
outstanding during the six months ended April 30, 1997 was approximately
C$216,461,000, at a weighted average interest rate of approximately 3.13%. The
maximum amount of United States reverse repurchase agreements outstanding at any
month-end during the period was $32,044,313 as of February 28, 1997, which was
5.3% of total assets. The maximum amount of Canadian reverse repurchase
agreements outstanding at any month-end during the period was approximately,
C$347,377,101 as of March 31, 1997, which was 31.5% 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 six months
ended April 30, 1997 was approximately $2,626,313. The maximum amount of dollar
rolls outstanding at any month-end during the period was $2,646,000 as of April
30, 1997, which was .4% 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 April 30, 1997, the Board of Directors of
the Trust declared dividends from undistributed earnings
of $0.07 per share payable May 30, 1997 to shareholders
of record on May 15, 1997.
15
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT TRUST INC.
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 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 dividends 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 FinancialManagement 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.
The Annual Meeting of Trust Shareholders was held April 15, 1997 to vote
on the following matters:
(1)To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
------- ----- ----- --------
Frank J.Fabozzi ............. II 3 years 2000
Ralph L.Schlosstein ......... II 3 years 2000
Walter F. Mondale ........... II 3 years 2000
Directors whose term of office continues beyond this meeting are Andrew
F. Brimmer, Kent Dixon, Laurence D. Fink, Richard E. Cavanagh, James
Grosfeld, and James Clayburn La Force, Jr.
(2)To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending October 31, 1997.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
---------- ------------- -----------
<S> <C> <C> <C>
Frank J. Fabozzi ................ 23,695,193 0 530,747
Ralph L.Schlosstein ............. 23,696,252 0 529,688
Walter F. Mondale ............... 23,656,603 0 569,338
Ratification of Deloitte &
Touche LLP .................... 23,697,218 322,326 206,376
</TABLE>
16
<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 $48 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 75%. 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.
17
<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.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
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.
19
<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.
20
<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.
21
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management (BlackRock) is a registered investment
adviser which specializes in managing high quality fixed income securities, both
taxable and tax exempt. BlackRock currently manages over $48 billion of assets
across the government, mortgage, corporate and municipal sectors. These assets
are managed on behalf of many individual investors in twenty-one closed-end
funds traded on either the New York or American stock exchanges, and several
open-end funds and on behalf of more than 100 institutional clients in the
United States and overseas.
BlackRock was formed in April 1988 by fixed income professionals who
sought to create an asset management firm specializing in managing fixed income
securities for individuals and institutional investors. The professionals at
BlackRock have extensive experience creating, analyzing and trading a variety of
fixed income instruments, including the most complex structured securities. In
fact, individuals at BlackRock are responsible for many of the major innovations
in the mortgage-backed and asset-backed securities markets, including the
creation of the CMO, the floating rate CMO, the senior/subordinated pass-through
and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
significant emphasis it places on the development of proprietary analytical
capabilities. A quarter of the professionals at BlackRock work full-time in the
design, maintenance and use of such systems which are otherwise not generally
available to investors. BlackRock's proprietary analytical tools are used for
evaluating, investing in and designing investment strategies and portfolios of
fixed income securities, including mortgage securities, corporate debt
securities or tax-exempt securities and a variety of hedging instruments.
BlackRock has developed investment products which respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. BlackRock introduced the first closed-end mortgage fund, the first
taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAAf rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
BlackRock's closed-end funds currently have dividend reinvestment plans which
are designed to provide an ongoing source of demand for the stock in the
secondary market. BlackRock manages a ladder of alternative investment vehicles,
with each fund having specific investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
you may have about your BlackRock funds and thank you for the continued trust
you place in our abilities.
IF YOU WOULD LIKE FURTHER INFORMATION
PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM
22
<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.
Walter F. Mondale
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
Frank Smith, ASSISTANT TREASURER
Karen H. Sabath, SECRETARY
INVESTMENT ADVISER
BlackRock Financial Management, Inc.
345 Park Avenue
New York, NY 10154
(800) 227-7BFM
ADMINISTRATOR
Prudential Investments 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
The accompanying financial statements as of April 30, 1997 were not audited
and accordingly, no opinion is expressed on them.
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 Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, N.J. 07102-4077
(800) 227-7BFM
[RECYCLE LOGO] Printed on recycled paper 092475-10-2
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The BLACKROCK
North American
Government
Income Trust Inc.
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Semi-Annual Report
April 30, 1997
