- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
November 30, 1997
Dear Trust Shareholder:
U.S. fixed income investors have been rewarded with solid total returns
over the past twelve months, as moderate economic growth and low inflation drove
Treasury yields below year-end 1996 levels by October 31, 1997.
The economy has shown some signs of slowing, which BlackRock expects may
persist as early indicators suggest that holiday spending may be tepid. We do
not see immediate signs of inflationary pressure nor do we anticipate an
imminent change in monetary policy by the Federal Reserve. Our long-term outlook
for the bond market remains optimistic, based on the fundamentally favorable
backdrop of slower economic growth, low inflation and declining Treasury
borrowing.
This report contains detailed market and portfolio strategy commentary by
your Trust's managers in addition to the Trust's audited financial statements
and a detailed portfolio listing. We thank you for your continued investment in
the Trust and wish you a successful new year.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
November 30, 1997
Dear Shareholder:
We are pleased to present the annual report for The BlackRock North
American Government Income Trust Inc. ("the Trust") for the fiscal year ended
October 31, 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 at
least "BBB" by Standard & Poor's or "Baa" Moody's at the time of purchase or be
issued or guaranteed by the Canadian or U.S.
governments or their agencies.
The table below summarizes the performance of the Trust's stock price and
NAV over the period:
<TABLE>
<CAPTION>
---------------------------------------------------------
10/31/97 10/31/96 Change High Low
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK PRICE $10.5625 $10.125 4.32% $10.75 $9.625
- ---------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $12.47 $12.33 1.14% $12.64 $11.68
- ---------------------------------------------------------------------------------------
CURRENCY EXCHANGE RATE $0.7095 $0.7462 (4.92%) $0.7517 $0.7095
- ---------------------------------------------------------------------------------------
</TABLE>
THE CANADIAN AND U.S. FIXED INCOME MARKETS
Canadian bond yields declined during the twelve months ended October 31,
1997, outperforming their U.S. counterparts. The Canadian economy staged a broad
based recovery througout 1997, with strength in both domestic demand and
exports. Despite the stronger economic growth, inflationary pressures remained
subdued, with the Consumer Price Index (a widely followed inflationary measure)
averaging less than 2%, comfortably in the lower end of the Bank of Canada's
1-3% target zone. The Canadian dollar was generally weaker over the fiscal year
despite the positive fundamental conditions. The Bank of Canada ended its
dramatic easing of monetary policy (lowering of short term interest rates) in
November 1996 and subsequently began tightening policy to help defend the
currency. The yield of the 10-year Canadian Government security declined 93
basis points (0.93%) over the twelve month period, beginning at 6.43% on October
31, 1996 and ending October 1997 at 5.50%.
In the U.S. bond market, the first half of the Trust's fiscal year was
characterized by increased concern over potential inflationary pressures.
Treasury yields rose between mid-December 1996 and mid-April 1997, as economic
data indicated a very strong economy. In an effort to subdue this growth and
pre-emptively fight inflation, the Federal Reserve raised the Federal funds rate
by 25 basis points (1/4%) to 5.50% at their March 25 FOMC policy meeting. During
the second quarter, however, signs of more moderate economic growth began to
appear which soothed investor fears over inflation. Accordingly, the Federal
Reserve left interest rates unchanged at their May 20, July 2 and September 30
policy meetings.
U.S. Treasury yields reflected investor expectations of Federal Reserve
policy activity. The yield of the 10-year note rose from a period low of 6.04%
in late November 1996 to 6.98% in mid-April 1997 in anticipation of a Federal
funds rate increase. As economic data softened, the yield of the 10-year fell
over 100 basis points from 6.98% to close at 5.83% on October 31, 1997. For the
12 month period ended October 31, 1997, the 10-year Treasury rallied, posting a
net decline of
2
<PAGE>
51 basis points (0.51%). During the period, mortgage-backed securities (MBS), as
measured by the Lehman Mortgage Index, modestly outperformed the broader
investment grade domestic bond market (represented by the Lehman Aggregate
Index) on a total return basis by 9.12% vs. 8.89%. Demand for mortgage
securities was largely concentrated in the first half of 1997, when MBS
decisively outperformed Treasuries due to low interest rate volatility and
relatively stable mortgage prepayment activity. Recently, MBS have fallen out of
favor, as declining interest rates have heightened prepayment fears and
increased interest rate volatility has had a negative impact on valuations of
mortgage securities.
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 given
a 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.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
COMPOSITION OCTOBER 31, 1997 OCTOBER 31, 1996
--------------------------------------------------------------------------
<S> <C> <C>
Canadian Portfolio Allocation 65% 76%
--------------------------------------------------------------------------
Canadian Government Securities 17% 15%
--------------------------------------------------------------------------
Canadian Corporate Bonds 15% --
--------------------------------------------------------------------------
Ontario 8% 19%
--------------------------------------------------------------------------
Canadian Mortgages 5% 8%
--------------------------------------------------------------------------
Quebec 4% 7%
--------------------------------------------------------------------------
New Brunswick 4% 5%
--------------------------------------------------------------------------
Saskatchewan 3% 6%
--------------------------------------------------------------------------
New Foundland 3% 3%
--------------------------------------------------------------------------
Nova Scotia 2% 2%
--------------------------------------------------------------------------
Prince Edward Island 2% 2%
--------------------------------------------------------------------------
British Columbia 1% 6%
--------------------------------------------------------------------------
Manitoba 1% 3%
==========================================================================
U.S. PORTFOLIO ALLOCATION 35% 24%
--------------------------------------------------------------------------
U.S. Government Securities 9% --
--------------------------------------------------------------------------
Stripped Mortgage-Backed Securities 7% 5%
--------------------------------------------------------------------------
FHA Project Loans 5% 7%
--------------------------------------------------------------------------
Adjustable Rate Mortgage Securities 5% 1%
--------------------------------------------------------------------------
Agency Multiple Class Mortgage
Pass-Throughs 4% 4%
--------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage
Pass-Throughs 3% 3%
--------------------------------------------------------------------------
Agency Mortgage Pass-Throughs 2% 4%
--------------------------------------------------------------------------
</TABLE>
During the past twelve months, the Portfolio's allocation to Canadian
bonds has been reduced from 76% on October 31, 1996 to 65% on October 31, 1997.
This reallocation away from Canadian securities into U.S. bonds was largely
based on the relative attractiveness of the U.S. market. During the year,
Canadian bond yields, which historically have been higher than U.S. yields,
"traded through' U.S. yields. Simply put, investors were now offered a yield
premium to own U.S. securities.
3
<PAGE>
Accordingly, the Portfolio sold Canadian bonds and redeployed most of the
proceeds into U.S. Treasuries. Within the Canadian portion of the portfolio, the
Trust initiated a position in corporate bonds, which offered attractive yields
relative to Canadian Government or Provincial securities. In fact, Provincial
bond prices rose high enough to reduce yields to below corporate levels.
Overall, the Trust's exposure to the Canadian Provincial market was reduced from
53% to 28%.
We look forward to continuing to manage the Trust to benefit from the
opportunities available to investors in the fixed income markets as well as to
maintain the Trust's ability to meet its investment objectives. We thank you for
your investment in the BlackRock North American Government Income Trust Inc.
Please feel free to contact our marketing center at (800) 227-7BFM (7236) if you
have specific questions which were not addressed in this report.
Sincerely
/s/ Robert S. Kapito /s/ Michael P. Lustig
- -------------------- ---------------------
Robert S. Kapito Michael P. Lustig
Vice Chairman and Portfolio Manager Principal and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
<S> <C>
- ---------------------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BNA
- ---------------------------------------------------------------------------------------------
Initial Offering Date: December 20, 1991
- ---------------------------------------------------------------------------------------------
Closing Stock Price as of October 31, 1997: $10.5625
- ---------------------------------------------------------------------------------------------
Net Asset Value as of October 31, 1997: $12.47
---------------------------------------------------------------------------------------------
Yield on Closing Stock Price as of October 31, 1997 ($10.5625)1: 7.95%
- ---------------------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.07
- ---------------------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.84
- ---------------------------------------------------------------------------------------------
</TABLE>
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
OCTOBER 31, 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
RATINGS* AMOUNT VALUE
(UNAUDITED) 000) DESCRIPTION (NOTE 1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--142.1%
UNITED STATES SECURITIES--49.9%
MORTGAGE PASS-THROUGHS--11.4%
Federal Home Loan Mortgage
Corporation,
$ 9,383 6.50%, 03/01/26 ............................... $ 9,237,010
Federal Housing Administration,
GMAC
2,202 Series 37, 7.43%, 05/01/22 .................... 2,266,864
1,347 Series 44, 7.43%, 08/01/22 .................... 1,391,807
1,673 Series 59, 7.43%, 07/01/21 .................... 1,717,464
733 Series 65, 7.43%, 02/01/23 .................... 751,629
Merrill,
2,978 Series 29, 7.43%, 10/01/20 .................... 3,054,478
24,882 Series 42, 7.43%, 09/01/22 .................... 25,430,799
2,271 Reilly, Series B-11, 7.40%, 04/01/21 .......... 2,331,888
Westmore Project 8240,
2,339 7.25%, 04/01/21 ............................... 2,390,824
Government National Mortgage
Association,
2,468 8.00%, 04/15/24 - 11/15/25 .................... 2,562,000
440 Overseas Private Investment
Corporation, 6.84%, 05/29/12 .................. 443,575
-----------
51,578,338
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--17.0%
AAA 14,966 Community Program Loan Trust,
Collateralized Mortgage Obligation,
Series 1987-A, Class A4, 10/01/18 ............. 13,418,239
Countrywide Funding Corporation,
Aaa 3,240 Series 1993- 7, Class 7-AS3,
11/25/23 ..................................... 3,132,959
AAA 1,696 Series 1993-10, Class 10-A8,
01/25/24 (ARM) ............................... 1,547,306
Federal Home Loan Mortgage
Corporation, Multiclass Mortgage
Participation Certificates,
7,500++ Series 1104, Class 1104-L,
06/15/21 ..................................... 8,090,625
11,679 Series 1353, Class 1353-S,
08/15/07 (ARM) ............................... 1,397,882
5,951 Series 1379, Class 1379-P,
08/15/18 (I) ................................. 622,906
1,781 Series 1577, Class 1577-SG,
10/15/22 (ARM) ............................... 1,476,942
1,225 Series 1590, Class 1590-T,
10/15/23 (ARM) ............................... 745,959
1,406 Series 1609, Class 1609-LN,
11/15/23 (ARM) ............................... 1,243,170
6,298 Series 1673, Class 1673-SC,
10/15/22 (ARM) ............................... 5,164,633
5,815 Series 1675, Class 1675-SC,
02/15/24 (ARM) ............................... 5,702,503
Federal National Mortgage Association,
REMIC Pass-Though Certificates,
6,943 Trust 1989-90, Class 90-E,
12/25/19 ..................................... 7,482,145
1,390 Trust G1993-27, Class 27-SE,
08/25/23 (ARM) ............................... 780,739
1,070 Trust 1993-44, Class 44-K,
10/25/22 ..................................... 1,069,877
1,233 Trust 1993-120, Class 120-SN,
07/25/23 (ARM) ............................... 1,065,793
760 Trust 1993-139, Class 139-SY,
08/25/23 (ARM) ............................... 685,583
1,889 Trust 1993-183, Class 183-SE,
10/25/23 (ARM) ............................... 1,648,222
2,429 Trust 1993-189, Class 189-SB,
10/25/23 (ARM) ............................... 1,864,168
2,328 Trust 1993-201, Class 201-SC,
10/25/23 (ARM) ............................... 1,855,322
3,264 Trust 1993-210, Class 210-A,
01/25/23 ..................................... 3,080,365
3,351 Trust 1993-224, Class 224-SE,
11/25/23 (ARM) ............................... 2,708,601
1,749 Trust 1993-256, Class 256-F,
11/25/23 (ARM) ............................... 1,634,370
4,550 Trust 1994-59, Class 59-SB,
03/25/24 (ARM) ............................... 2,713,212
4,764 Trust 1995-10, Class 10-B,
03/25/24 ..................................... 4,561,023
2,100 Trust 1996-14, Class 14-M,
10/25/21 ..................................... 1,779,750
3,673 Trust 1997-30, Class 30-I,
01/25/23 (I) ................................. 1,033,139
-----------
76,505,433
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES--0.4%
AAA 8,977 Credit Suisse First Boston,
Mortgage Corporation
Trust 1997-C1, Class C1-AX, 144A,
6/20/29 ...................................... 1,033,741
AAA 6,160 Morgan Stanley Capital 1 Incorporated,
Trust 1997-HF1, Class HF1-X, 144A,
6/15/17 ...................................... 604,456
-----------
1,638,197
-----------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
RATINGS* AMOUNT VALUE
(UNAUDITED) 000) DESCRIPTION (NOTE 1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
STRIPPED MORTGAGE-BACKED
SECURITIES--9.4%
Federal Home Loan Mortgage
Corporation,
$ 7,602 Series 1254, Class 1254-Z,
4/15/22 (I/O) ................................ $ 2,114,582
7,500 Series 1434, Class1434-M,
12/15/22 (I/O) ............................... 4,232,903
4,573 Series 1506, Class 1506-L,
5/15/08 (I/O) ................................ 982,870
4,677 Series 1570, Class 1570-C,
8/15/23 (P/O) ................................ 2,806,560
5,620 Series 1571, Class 1571-E,
8/15/23 (P/O) ................................ 3,139,938
6,820 Series 1850, Class 1850-SA,
2/15/24 (I/O) ................................ 1,146,617
1,912 Series 1857, Class 1857-PB 1,
12/15/08 (P/O) ............................... 1,663,498
5,000 Series 1900, Class 1900-SV,
8/15/08 (I/O) ................................ 1,046,450
21,102 Series 1965, Class 1965-SA,
3/15/24 (I/O) ................................ 3,152,079
42,333 Series 1968, Class 1968-S,
10/15/26 (I/O) ............................... 2,255,529
7,000 Series 2002, Class 2002-HJ,
10/15/08 (I/O) ............................... 1,085,000
Federal National Mortgage Association,
REMIC Pass-Though Certificates,
3,829@@ Trust 116, Class 2,
1/01/17 (I/O) ................................ 1,078,136
9,754 Trust G-233, Class 2,
8/01/23 (I/O) ................................ 2,953,439
2,456 Trust 267, Class 1, 10/01/24 (P/O) ............ 1,958,418
4,415+ Trust 274, Class 1, 10/01/25 P/O) ............. 3,555,118
911 Trust 280, Class 1, 1/01/26 (P/O) ............. 736,317
2,000 Trust G1992-5, Class 5-E,
1/25/22 (I/O) ................................ 858,632
2,613 Trust 1994-22, Class 22-E,
1/25/24 (P/O) ................................ 1,939,457
7,500 Trust 1995-26, Class 26-SW,
2/25/24 (I/O) ................................ 1,342,969
3,321 Trust 1996-38, Class 38-E,
8/15/23 (P/O) ................................ 1,804,528
1,000 Trust 1996-44, Class 44-B,
6/25/23 (P/O) ................................ 772,500
10,224 Trust 1997-65, Class 65-SG,
6/25/23 (I/O) ................................ 1,731,681
Aaa 3,950 G. E. Capital Mortgage Services,
Trust 1993-13, Class A2,
10/25/08 (I/O) ............................... 218,510
------------
42,575,731
------------
U.S GOVERNMENT SECURITIES--11.7%
3,611 Small Business Administration,
Series 1996-20 K,
6.95%, 11/01/16 .............................. 3,701,918
13,100 U.S. Treasury Bond,
6.625%, 2/15/27 .............................. 13,890,061
U.S. Treasury Notes,
3,350+ 6.25%, 6/30/02 ............................... 3,413,851
10,600++ 6.375%, 5/15/00 .............................. 10,768,964
150 6.50%, 5/31/01 ............................... 153,609
19,250+ 6.625%, 5/15/07 .............................. 20,269,672
610 7.25%, 8/15/04 ............................... 657,373
------------
52,855,448
------------
Total United States Securities
(cost $213,328,701) .......................... 225,153,147
------------
CANADIAN SECURITIES--92.2%
CORPORATE BONDS--21.0%
A1 15,000 Bell Canada, 144A, 7.00%, 9/24/27 ............. 11,338,631
Canadian Imperial Bank Commerce,
Aa3 25,000 8.25%, 2/14/07 ............................... 18,909,426
Aa3 4,500 8.50%, 2/05/07 ............................... 3,554,149
Aa3 15,000 Canadian Imperial Bank, Toronto,
8.15%, 4/ 25/06 .............................. 12,255,118
A3 10,000 Credit Foncier De France,
8.50%, 3/12/03 ............................... 7,860,837
A1 12,000 Daimler Benz AG,
9.50%, 10/30/01 .............................. 9,614,407
A1 10,000 Ford Credit Canada Limited,
5.66%, 11/19/01 .............................. 7,169,262
NR 15,000 Loewen Group Incorporated,
Series 5, 144A,
6.10%, 10/01/02 .............................. 10,619,789
A2 15,000 Transport Canada Pipelines Limited,
6.89%, 8/07/28 ............................... 11,049,349
AA 3,500 Vancouver International Airport
Authority, Series A,
6.55%, 12/07/06 .............................. 2,610,565
------------
94,981,533
------------
CANADIAN MORTGAGES--6.0%
Conduit Mortgage Obligation,
9,000 6.95%, 9/01/98 ............................... 6,509,650
7,096 8.25%, 5/01/98 ............................... 5,079,069
21,332 NHAMortgage Backed Securities
Corporation, Household Trust,
7.75%, 6/01/99 ............................... 15,706,579
------------
27,295,298
------------
CANADIAN GOVERNMENT SECURITIES--25.8%
Canadian Treasury Notes,
7,000 5.50%, 2/01/00 ............................... 5,056,033
60,000+ 5.50%, 9/01/02 ............................... 43,432,788
18,000 7.25%, 6/01/07 ............................... 14,347,798
15,000 7.50%, 9/01/00 ............................... 11,387,058
10,000 8.00%, 6/01/27 ............................... 9,023,805
15,100 9.00%, 12/01/04 .............................. 13,023,060
20,000+ 9.00%, 6/01/25 ............................... 19,867,315
------------
116,137,857
------------
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
PRINCIPAL
RATINGS* AMOUNT VALUE
(UNAUDITED) 000) DESCRIPTION (NOTE 1)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
CANADIAN PROVINCIAL SECURITIES--39.4%
BRITISH COLUMBIA--2.0%
$10,000++ British Columbia Province,
8.50%, 8/23/13 ............................... $ 8,894,881
-----------
MANITOBA--0.6%
3,000 City of Winnipeg,
9.375%, 2/11/13 .............................. 2,770,466
-----------
NEW BRUNSWICK--5.4%
NEW BRUNSWICK PROVINCE,
13,000 7.625%, 7/14/00 .............................. 9,766,949
14,600 10.125%, 10/31/11 ............................ 14,433,214
-----------
24,200,163
-----------
NEWFOUNDLAND--4.6%
23,000 Newfoundland Province,
8.45%, 2/05/26 ............................... 20,617,000
-----------
NOVA SCOTIA--3.3%
15,000++ Nova Scotia Province,
9.60%, 1/30/22 ............................... 14,793,522
-----------
ONTARIO--11.6%
10,000 Hamilton Wentworth Regional
Municipality,
7.00%, 6/06/01 ............................... 7,577,961
Ontario Province,
8,500 7.50%, 1/19/06 ............................... 6,774,965
25,000++ 8.10%, 9/08/23 ............................... 21,710,363
10,000 9.75%, 10/29/01 .............................. 8,116,536
10,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 .............................. 8,058,112
-----------
52,237,937
-----------
PRINCE EDWARD ISLAND--2.5%
13,000++ Prince Edward Island Province,
8.50%, 10/27/15 ............................... 11,417,604
-----------
QUEBEC--5.9%
Hydro Quebec,
18,600 10.25%, 5/15/03 ............................... 13,593,501
7,250+ 10.75%, 3/27/04 ............................... 5,282,080
10,000 Quebec Province,
7.50%, 12/01/03 ............................... 7,827,722
-----------
26,703,303
-----------
SASKATCHEWAN--3.5%
20,000++ Saskatchewan Province,
7.50%, 12/19/05 ............................... 15,966,945
-----------
Total Canadian Securities
(cost $403,477,538) ........................... 416,016,498
-----------
Total Long-Term Investments
(cost $616,806,239) ........................... 641,169,645
-----------
SHORT-TERM INVESTMENTS--0.5%
CALL OPTION PURCHASED--0.5%
80,000 Interest Rate Swap
6.20% over 3-month LIBOR
Expires 8/13/99
(cost $1,194,000) ............................. 2,041,600
CONTRACTS #
- -----------
PUT OPTION PUCHASED--0.0%
750 U.S. Treasury Note, 6.625%
5/31/07 @ 100 expiring 3/19/98
(cost $1,119,141) .............................. 95,100
-----------
Total Short-Term Investments
(cost $2,313,141) .............................. 2,136,700
-----------
Total investments before outstanding
call option written and investments
sold short - 142.6%
(cost $619,119,380) .............................. 643,306,345
-----------
CALL OPTION WRITTEN--(0.5%)
(240,000) Interest Rate Swap
3-month LIBORover 6.10%
Expires 2/13/98
(premium $571,200) .............................. (2,080,800)
------------
INVESTMENT SOLD SHORT--(4.2%)
(17,550) U.S. Treasury Note,
7.00%, 7/15/06
(cost $18,301,359) .............................. (18,830,624)
-----------
Total Investments net of
outstanding call option written
and investment sold
short - 137.9% ................................... 622,394,921
Liabilities in excess of other
assets - (37.9%) ..................................(170,975,822)
------------
NET ASSETS--100% $451,419,099
============
</TABLE>
- -----------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
CMO -- Collateralized Mortgage Obligation.
I -- Denotes a CMO with interest only characteristics.
I/O -- Interest Only.
P/O -- Principal Only.
REMIC -- Real Estate Mortgage Investment Conduit.
- -----------------------------------------------------------
* Using the higher of Standard &Poor's or Moody's rating.
# One contract equals 100,000 face value.
+ (Partial) principal amount pledged as collateral for reverse repurchase
agreements.
++ Entire principal amount pledged as collateral for reverse repurchase
agreements.
@ (Partial) principal amount pledged as collateral for futures transactions.
@@ 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
OCTOBER 31, 1997
- -------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $619,119,380) (Note 1) $ 643,306,345
Canadian dollars, at value (cost $2,259,059) ..... 2,259,059
Cash ............................................. 81,697
Receivable for investments sold .................. 49,624,799
Deposits with brokers as collateral for
investments sold short ......................... 39,769,217
Interest receivable .............................. 10,171,746
Interest rate caps, at value
(amortized cost $2,257,660)
(Notes 1 & 3) ................................. 1,246,750
-------------
746,459,613
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ........... 206,126,069
Payable for investments purchased ................ 65,578,336
Investments sold short, at value
(proceeds $18,301,359) ........................ 18,830,624
Call option written, at value
(premium received $571,200) ................... 2,080,800
Forward currency contracts--amount payable
to counterparties ............................. 711,592
Interest payable ................................. 514,408
Advisory fee payable (Note 2) .................... 231,717
Dividends payable ................................ 174,494
Due to broker-variation margin ................... 89,363
Administration fee payable (Note 2) .............. 38,619
Other accrued expenses ........................... 664,492
-------------
295,040,514
-------------
NET ASSETS ....................................... $ 451,419,099
-------------
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 ........... 1,469,672
Accumulated net realized loss on investments .. (14,607,089)
Net unrealized appreciation on investments .... 32,616,347
Accumulated net realized and unrealized
foreign currency loss ....................... (12,130,152)
-------------
Net assets, October 31, 1997 .................. $ 451,419,099
=============
Net asset value per share:
($451,419,099 / 36,207,093 shares of
common stock issued and outstanding) .......... $12.47
======
- -------------------------------------------------------------------------------
The BlackRock North American
Government Income Trust Inc.
Statement of Operations
Year Ended October 31, 1997
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$5,832,115 and net of interest expense of
$7,983,476) $ 36,212,226
------------
Expenses
Investment advisory ........................... 2,648,943
Administration ................................ 441,491
Reports to shareholders ....................... 300,000
Custodian ..................................... 280,000
Audit ......................................... 85,000
Directors ..................................... 82,000
Transfer agent ................................ 30,000
Miscellaneous ................................. 208,032
------------
Total operating expenses .................... 4,075,466
------------
Net investment income ......................... 32,136,760
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ................................... 47,235,808
Futures ....................................... (976,468)
Short sales ................................... (454,721)
Foreign currency .............................. 477,900
------------
46,282,519
------------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................... (21,732,480)
Futures ....................................... (855,385)
Short sales ................................... (478,475)
Written options ............................... (1,509,600)
Interest rate caps ............................ (1,010,910)
Foreign currency .............................. (17,394,348)
------------
(42,981,198)
------------
Net gain on investments and foreign currency
transactions .................................. 3,301,321
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................ $ 35,438,081
============
See Notes to Financial Statements.
8
<PAGE>
- -------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1997
- -------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities:
Interest received ............................... $ 51,226,065
Operating expenses paid ............................ (3,804,926)
Interest expense paid on reverse repurchase
agreements .................................... (7,725,802)
Proceeds from disposition of short-term portfolio
investments including options, net ............ 219,489,249
Purchases of long-term portfolio investments .... (754,054,555)
Proceeds from disposition of long-term
portfolio investments ......................... 535,642,412
Variation margin on futures ........................ (1,925,861)
-------------
Net cash flows provided by operating activities . 38,846,582
-------------
Cash flows used for financing activities:-
Decrease in reverse repurchase agreements ....... (11,008,652)
Cash dividends paid ............................. (30,469,173)
-------------
Net cash flows used for financing activities .... (41,477,825)
-------------
Net realized and unrealized foreign currency loss .. (1,689,300)
-------------
Net decrease in cash ............................... (4,320,543)
Cash at beginning of year .......................... 6,661,299
-------------
Cash at end of year ................................ $ 2,340,756
=============
RECONCILIATION OF NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS TO
NET CASH FLOWS (INCLUDING FOREIGN
CURRENCY) PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 35,438,081
-------------
Decrease in investments ........................... 155,826,454
Net realized gain ................................. (46,282,519)
Decrease in unrealized appreciation ............... 42,981,198
Increase in deposits with brokers as
collateral for investments sold short .......... (37,216,092)
Decrease in interest receivable ................... 648,592
Increase in receivable for investments sold ....... (6,543,812)
Decrease in receivable for forward
currency contracts ............................. 1,211,698
Decrease in depreciation on mortgage swap ......... (2,771,861)
Decrease in appreciation on Canadian dollar Swap
spreadlock ..................................... 43,976
Increase in interest rate caps .................... (1,246,750)
Decrease in other assets .......................... 1,659
Decrease in variation margin payable .............. (94,008)
Decrease in payable for investments purchased ..... (122,058,337)
Increase in payable for securities sold short ...... 16,300,949
Increase in interest payable ....................... 257,674
Increase in payable for call option ................ 2,080,800
Increase in accrued expenses and other liabilities . 268,880
-------------
Total adjustments ............................... 3,408,501
-------------
Net cash flows provided by operating activities .... $ 38,846,582
=============
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
INCREASE (DECREASE) YEAR YEAR
IN NET ASSETS ENDED ENDED
OCTOBER 31, OCTOBER 31,
1997 1996
------------- ------------
Operations:
Net investment income .................... $32,136,760 $33,758,567
Net realized gain on investments,
futures, short sales
and foreign currency
transactions .......................... 46,282,519 9,267,771
Net change in unrealized
appreciation/depreciation
on investments, futures, short
sales, options and foreign
currency ............................ (42,981,198) 23,957,473
------------ -----------
Net increase in net
assets resulting from
operations ......................... 35,438,081 66,983,811
Dividends and distributions:
Dividends from net investment
income ............................. (30,413,427) (10,532,288)
Return of capital distributions . -- (21,352,044)
------------ -----------
Total increase ..................... 5,024,654 35,099,479
NET ASSETS
Beginning of year ............... 446,394,445 411,294,966
------------ -----------
End of year ..................... $451,419,099 $446,394,445
============ ============
9
See Notes to Financial Statements.
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ..................... $ 12.33 $ 11.36 $ 10.07 $ 12.34 $ 13.13
-------- -------- -------- -------- --------
Net investment income (net of interest expense
of $.22, $.41, $.35, $.26, and $.20,
respectively) ..................................... .89 .93 .89 1.09 1.21
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ..... .09 .92 1.37 (2.28) (.80)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ..... .98 1.85 2.26 (1.19) .41
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ................ (.84) (.29) -- (1.03) (1.20)
Return of capital distributions -- (.59) (.97) (.05) --
-------- -------- -------- -------- -------
Total dividends and distributions ............... (.84) (.88) (.97) (1.08) (1.20)
-------- -------- -------- -------- --------
Net asset value, end of year* .......................... $ 12.47 $ 12.33 $ 11.36 $ 10.07 $ 12.34
======== ======== ======== ======== ========
Per share market value, end of year* ................... $10 9/16 $10 1/8 $10 1/8 $9 1/8 $12 7/8
TOTAL INVESTMENT RETURN ................................ 13.23% 9.48% 22.88% (21.62%) 4.68%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses (a) ................................. .93% .97% .96% 1.01% .98%
Net investment income .................................. 7.30% 8.24% 8.58% 9.92% 9.72%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ...................... $440,465 $409,644 $374,975 $397,651 $452,740
Portfolio turnover ..................................... 146% 151% 78% 70% 155%
Net assets, end of year (in thousands) ................. $451,419 $446,394 $411,295 $364,749 $446,614
Reverse repurchase agreements outstanding,
end of year (in thousands) .......................... $206,126 $217,135 $202,703 $142,450 $201,122
Asset coverage ......................................... $ 3,190 $ 3,056 $ 3,028 $ 3,561 $ 3,221
</TABLE>
- ------------------
* NAV and market value published in The Wall Street Journal each Monday.
(a) The ratios of operating expenses, including interest expense, to average
net assets were 2.74%, 4.63%, 4.34%, 3.36%, and 2.55% for the years
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 year 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.
++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the audited operating performance for a share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data, for each of the years indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock North American Government Income
Trust 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 60 days or less are valued at amortized
cost, if their term to maturity from date of purchase is 60 days or less.
Short-term securities with a term to maturity greater than 60 days from the date
of purchase are valued at current market quotations until maturity.
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
11
<PAGE>
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 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.
SWAP OPTIONS: Swap options are similar to options on securities except that
instead of selling or purchasing the right to buy or sell a security, the writer
or purchaser of the swap option is granting or buying 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 are recorded as liabilities or assets and are 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 commission, 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 loss on investment transactions.
The main risk that is associated with purchasing swap options is that the
swap option expires without being exercised. In this case, the option expires
worthless and the premium paid for the swap option is considered the loss. The
main risk that is associated with the writing of a swap option is the market
risk of an unfavorable change in the value of the interest rate swap underlying
the written swap option.
Swap options may be used by the Trust to manage the duration of the Trust's
portfolio reflecting the view of the Trust's management in the direction of
interest rates.
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.
12
<PAGE>
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 year.
Net realized and unrealized foreign exchange losses of $16,916,448 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, maturities of reverse repurchase agreements, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of interest and discount recorded on the Trust's books and the US dollar
equivalent amounts actually received or paid and changes in unrealized foreign
exchange gains and losses in the value of portfolio securities and other assets
and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the Canadian dollar relative to the U.S.
dollar.
The exchange rate for the Canadian dollar at October 31, 1997 was US$.7095 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 an 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.
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.
13
<PAGE>
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 or floating 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.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate cap. The asset or liability is subsequently adjusted
to the current market value of the interest rate cap purchased or sold. Changes
in the value of the interest rate cap are recognized as unrealized gains and
losses.
INTEREST RATE FLOORS: Interest rate floors are similar to interest rate swaps,
except that one party agrees to pay a fee, while the other party pays the
deficiency, if any, of a floating rate under a specified fixed or floating rate.
Interest rate floors are used by the Trust to both manage the duration of the
portfolio and its exposure to changes in short-term interest rates. Owning
interest rate floors 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 falling 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 floor. However, the Trust does not anticipate
non-performance by any counterparty.
Transactions fees paid or received by the Trust are recognized as assets or
liabilities and amortized or accreted into interest expense or income over the
life of the interest rate floor. The asset or liability is subsequently adjusted
to the current market value of the interest rate floor purchased or sold.
Changes in the value of the interest rate floor are recognized as unrealized
gains and losses.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Security transactions are
recorded on the trade date. Realized and unrealized gains and losses are
calculated on the identified cost basis. Interest income is recorded on the
accrual basis, and the Trust accretes discount or amortizes premium on
securities purchased using the interest method. Dividend income is recorded on
the ex-dividend date.
TAXES: For Federal income tax purposes, substantially all of the Trust's
Canadian transactions are accounted for using the Canadian dollar as the
functional currency. Accordingly, only realized currency gains and losses
resulting from the repatriation of Canadian dollars into United States dollars
are recognized for tax purposes.
No provision has been made for United States income or excise taxes because
it is the Trust's policy to continue to meet the requirements of the United
States Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly from net investment income, realized short-term capital
gains and other sources, if necessary. Net long-term capital gains, if any, in
excess of loss 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.
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.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public
14
<PAGE>
Accountants' Statement of Position 93-2: Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain and Return of Capital
Distributions by Investment Companies. For the year ended October 31, 1997 the
Trust decreased undistributed net investment income by $253,661, increased
accumulated net realized losses on investments by $415,746, and decreased
accumulated net realized and unrealized foreign currency losses by $669,407 for
realized foreign currency losses incurred during the year ended October 31,
1997. Net investment income, net realized gains and net assets were not affected
by this change.
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 Other Investments than short-term
OTHER INVESTMENTS ort-C investments, for the year ended October
31, 1997 aggregated $897,114,333 and $921,106,300, 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 will generally exceed 5% of its portfolio assets. At October
31, 1997, the Trust held 3.81% of its portfolio assets in securities restricted
as to resale.
The Trust may from time to time purchase in the secondary market certain
mortgage pass-through securities packaged or master serviced by PNC Mortgage
Securities Corp. (or Sears Mortgage if PNC Mortgage Securities Corp. succeeded
to rights and duties of Sears) or mortgage related securities containing loans
or mortgages originated by PNC Bank or its affiliates. It is possible under
certain circumstances, PNC Mortgage Securities Corp. or its affiliates could
have interests that are in conflict with the holders of these mortgage backed
securities, and such holders could have rights against PNC Mortgage Securities
Corp. or its affiliates.
The United States federal income tax basis of the Trust's investments at
October 31, 1997 was $605,692,799, and accordingly, net unrealized appreciation
for federal income tax purposes was $37,613,546 (gross unrealized
appreciation-$41,322,786; gross unrealized depreciation-$3,709,240).
For federal income tax purposes, the Trust had a capital loss carryforward at
October 31, 1997 of approximately $16,593,000 of which approximately $6,816,000
will expire in 2002, approximately $5,904,000 will expire in 2003 and
approximately $3,873,000 will expire in 2004. Such carryforward is after
utilization of approximately $44,533,000 to offset the Trust's net taxable gains
recognized in the year ended October 31, 1997. Accordingly, no capital gains
distribution is expected to be paid to shareholders until net gains have been
realized in excess of such amounts.
Details of open financial futures contracts at October 31, 1997 are as follows:
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE OCTOBER 31, APPRECIATION/
CONTRACTS TYPE DATE DATE 1997 (DEPRECIATION)
- -------- ---- -------- --------- ----------- -------------
Short positions:
288 30 yr.
U.S. T-Bond Dec. '97 $ 32,403,767 $34,119,000 $(1,715,234)
61 Eurodollar Dec. '97 14,325,230 14,375,413 (50,183)
56 Eurodollar Mar. '98 13,142,506 13,194,300 (51,794)
56 Eurodollar June '98 13,128,306 13,185,900 (57,794)
51 Eurodollar Sep. '98 11,944,636 11,999,025 (54,389)
51 Eurodollar Dec. '98 11,929,320 11,986,275 (56,955)
-----------
$(1,986,349)
===========
Details of open forward currency contracts at October 31, 1997 are as
follows:
VALUE AT VALUE AT UNREALIZED
SETTLEMENT CONTRACT SETTLEMENT OCTOBER 31, APPRECIATION/
DATE TO RECEIVE DATE 1997 (DEPRECIATION)
- ---------- ---------- ---------- ----------- --------------
Purchase:
11/25/97 C$4,150,000 $ 2,943,242 $ 2,948,291 $ 5,049
11/25/97 15,000,000 10,730,128 10,656,474 (73,654)
11/25/97 71,500,000 51,438,848 50,795,861 (642,987)
----------- ----------- ----------
$65,112,218 $64,400,626 $(711,592)
=========== =========== ==========
15
<PAGE>
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:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FLOATING FIXED SETTLEMENT TERMINATION OCTOBER 31, TRANSACTION
(000) RATE RATE DATE DATE 1997 FEE
- ------ -------------- ----- ---------- ----------- ----------- -----------
<C> <C> <C> <C> <C> <C> <C>
$25,000 3 month LIBOR 6.00% 2/19/97 2/19/02 $ 511,250 $ 693,443
$50,000 3 month LIBOR 7.00% 4/18/97 4/18/03 735,500 1,564,217
---------- ----------
$1,246,750 $2,257,660
========== ==========
</TABLE>
Details of open swaption agreements at October 31, 1997 are as follows:
VALUE
NOTIONAL AT
AMOUNT FIXED FLOATING TERMINATION COST/ OCTOBER 31,
(000) TYPE RATE RATE DATE (PREMIUM) 1997
------ ---- ----- ------ -------- ------- ------
Purchased:
80,000 Call 6.20% 3 month LIBOR 8/13/99 $1,194,000 $ 2,041,600
Written:
(240,000) Call 6.10% 3 month LIBOR 2/13/98 $ (571,200) $(2,080,800)
NOTE 4. BORROWINGS REVERSE REPURCHASE AGREEMENTS: The Trust
enters into reverse repurchase agreements
with qualified, third party broker-dealers as determined by and under the
direction of the Trust's Board of Directors. Interest on the value of reverse
repurchase agreements issued and outstanding is based upon competitive market
rates at the time of issuance. At the time the Trust enters into a reverse
repurchase agreement, it establishes and maintains a segregated account with
the lender containing liquid high grade securities having a value not less than
the repurchase price, including accrued interest, of the reverse repurchase
agreement.
The average monthly balance of United States reverse repurchase agreements
outstanding during the year ended October 31, 1997 was approximately $49,240,696
at a weighted average interest rate of approximately 5.29%. Also, the average
monthly balance of Canadian reverse repurchase agreements outstanding during the
year ended October 31, 1997 was approximately C$195,094,437, at a weighted
average interest rate of 3.24%.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date.
The average monthly balance of dollar rolls outstanding during the year ended
October 31, 1997 was approximately $2,678,886. The maximum amount of dollar
rolls outstanding at any month-end during the period was $2,755,375 as of
October 31, 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, 1997, the Adviser owned 7,093 shares.
NOTE 6. DISTRIBUTIONS Subsequent to October 31, 1997, the Board of
Directors of the Trust declared dividends from
undistributed earnings of $0.07 per share payable November 28, 1997 to
shareholders of record on November 14, 1997.
16
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of The BlackRock North American
Government Income Trust Inc.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The BlackRock North American
Government Income Trust Inc. as of October 31, 1997 and the related statements
of operations and of cash flows for the year then ended, the statement of
changes in net assets for the two years then ended, and financial highlights for
each of the five years then ended. These financial statements and the financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1997 by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock North
American Government Income Trust Inc. at October 31, 1997 and the results of its
operations, its cash flows, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
December 12, 1997
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during its fiscal year ended October 31, 1997.
During the fiscal year ended October 31, 1997, the Trust paid dividends
and distributions of $.84 per share from ordinary income. For federal income tax
purposes, the aggregate of any dividends and short-term capital gains
distributions you received are reportable in your 1997 federal income tax return
as ordinary income. Further, we wish to advise you that your income dividends do
not qualify for the dividends received deduction.
For the purpose of preparing your 1997 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form 1099
DIV which will be mailed to you in January 1998.
- --------------------------------------------------------------------------------
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 taxes 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 Financial Management
at (800) 227-7BFM. The addresses are on the front of this report.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by
the shareholders, or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust.
There have been no changes in the persons who are primarily responsible for the
day-to-day management of the Trust's portfolio.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The Trust's investment objective is to manage a portfolio of high grade
securities to achieve high monthly income consistent with preservation of
capital. The Trust will seek to achieve its objective by investing in Canadian
and U.S. dollar-denominated securities.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is the investment adviser for
the Trust. BlackRock is a registered investment adviser specializing in fixed
income securities. Currently, BlackRock manages over $50 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 125 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.
19
<PAGE>
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD?
Does the Trust Pay Dividends Regularly? The Trust's shares are traded on the New
York Stock Exchange which provides investors with liquidity on a daily basis.
Orders to buy or sell shares of the Trust must be placed through a registered
broker or financial advisor. The Trust pays monthly dividends which are
typically paid on the last business day of the month. For shares held in the
shareholder's name, dividends may be reinvested in additional shares of the
Trust through the Trust's transfer agent, State Street Bank & Trust Company.
Investors who wish to hold shares in a brokerage account should check with their
financial advisor to determine whether their brokerage firm offers dividend
reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331/3% of total assets.
Leverage also increases the duration (or price volatility of the net assets) of
the Trust, which can improve the performance of the fund in a declining rate
environment, but can cause net assets to decline faster than the market in a
rapidly rising rate environment. BlackRock's portfolio managers continuously
monitor and regularly review the Trust's use of leverage and the Trust may
reduce, or unwind, the amount of leverage employed should BlackRock consider
that reduction to be in the best interest of shareholders.
SPECIAL CONSIDERATIONS AND RISK FACTORS RELEVANT TO THE TRUST
THE TRUST IS INTENDED TO BE A LONG-TERM INVESTMENT AND IS NOT A SHORT-TERM
TRADING VEHICLE.
INVESTMENT OBJECTIVE. Although the objective of the Trust is to provide high
monthly income consistent with preservation of capital, there can be no
assurance that this objective will be achieved.
DIVIDEND CONSIDERATIONS. The income and dividends paid by the Trust are likely
to vary over time as fixed income market conditions change. Future dividends may
be higher or lower than the dividend the Trust is currently paying.
CURRENCY EXCHANGE RATE CONSIDERATIONS. Because the Trust's net asset value is
expressed in U.S. dollars, and the Trust invests a substantial percentage of its
assets in Canadian dollar-denominated assets, any change in the exchange rate
between these two currencies will have an effect on the net asset value of the
Trust. As a result, if the U.S. dollar appreciates against the Canadian dollar,
the Trust's net asset value would decrease if not offset by other gains.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BNA) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments on certain U.S. mortgage-backed securities which will change the
yield to maturity of the security.
ILLIQUID SECURITIES. The Trust may invest in securities that are illiquid,
although under current market conditions the Trust expects to do so to only a
limited extent. These securities involve special risks.
NON-U.S. SECURITIES. The Trust may invest a portion of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
20
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME 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
Mortgage-backed securities which
separate mortgage pools into short,
medium, and long-term securities with
different priorities for receipt of
principal and interest. Each class is
paid a fixed or floating rate of
interest at regular intervals. Also
known as multiple-class mortgage pass-
throughs.
Discount: When a fund's net asset value is
greater than its stock price the
fund is said to be trading at a
discount.
Dividend: This is income generated by
securities in a portfolio and
distributed to shareholders after the
deduction of expenses. This Trust
declares and pays dividends on a
monthly basis.
Dividend Reinvestment: Shareholders may elect to have all
distributions of dividends and
capital gains automatically reinvested
into additional shares of the Trust.
FHA: Federal Housing Administration, a
government agency that facilitates
a secondary mortgage market by
providing an agency that guarantees
timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation,
a publicly owned, federally chartered
corporation that facilitates a
secondary mortgage market by purchasing
mortgages from lenders such as
savings institutions and reselling
them to investors by means of
mortgage-backed securities. Obligations
of FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the
U.S. government. Also known as Freddie
Mac.
FNMA: Federal National Mortgage Association,
a publicly owned, federally chartered
corporation that facilitates a
secondary mortgage market by purchasing
mortgages from lenders such as savings
institutions and reselling them to
investors by means of mortgage-backed
securities. Obligations of FNMA are
not guaranteed by the U.S. government,
however; they are backed by FNMA's
authority to borrow from the U.S.
government. Also known as Fannie Mae.
GNMA: Government National Mortgage
Association, a government agency that
facilitates a secondary mortgage market
by providing an agency that guarantees
timely payment of interest and
principal on mortgages. GNMA's
obligations are supported by the full
faith and credit of the U.S. Treasury.
Also known as Ginnie Mae.
21
<PAGE>
Government Securities: Securities issued or guaranteed by the
U.S. government, or one of its agencies
or instrumentalities, such as GNMA
(Government National Mortgage
Association), FNMA (Federal National
Mortgage Association) and FHLMC
(Federal Home Loan Mortgage
Corporation).
Interest-Only Securities (I/O): Mortgage securities that receive only
the interest cash flows from an
underlying pool of mortgage loans
or underlying pass-through securities.
Also known as a STRIP.
Market Price: Price per share of a security trading
in the secondary market. For a closed-
end fund, this is the price at which
one share of the fund trades on the
stock exchange. If you were to buy or
sell shares, you would pay or receive
the market price.
Mortgage Dollar Rolls: A mortgage dollar roll is a transaction
in which the Trust sells mortgage-
backed securities for delivery in the
current month and simultaneously
contracts to repurchase substantially
similar (although not the same)
securities on a specified future date.
During the "roll" period, the Trust
does not receive principal and interest
payments on the securities, but is
compensated for giving up these
payments by the difference in the
current sales price (for which the
security is sold) and lower price that
the Trust pays for the similar security
at the end date as well as the interest
earned on the cash proceeds of the
initial sale.
Mortgage Pass-Throughs: Mortgage-backed securities issued by
Fannie Mae, Freddie Mac or Ginnie Mae.
Multiple-Class Pass-Throughs: Collateralized Mortgage Obligations.
Net Asset Value (NAV): Net asset value is the total market
value of all securities and other
assets held by the Trust, plus income
accrued on its investments, minus any
liabilities including accrued
expenses, divided by the total number
of outstanding shares. It is the
underlying value of a single share on
a given day. Net asset value for the
Trust is calculated weekly and
published in BARRON'S on Saturday and
THE WALL STREET JOURNAL each Monday.
Principal-Only Securities (P/O): Mortgage securities that receive only
the principal cash flows from an
underlying pool of mortgage loans
or underlying pass-through securities.
Also known as a STRIP.
Project Loans: Mortgages for multi-family, low- to
middle-income housing.
Premium: When a fund's stock price is greater
than its net asset value, the fund is
said to be trading at a premium.
Residuals: Securities issued in connection with
collateralized mortgage obligations
that generally represent the excess
cash flow from the mortgage assets
underlying the CMO after payment of
principal and interest on the other CMO
securities and related administrative
expenses.
Reverse Repurchase Agreements: In a reverse repurchase agreement, the
Trust sells securities and agrees to
repurchase them at a mutually agreed
date and price. During this time, the
Trust continues to receive the
principal and interest payments from
that security. At the end of the term,
the Trust receives the same securities
that were sold for the same initial
dollar amount plus interest on the cash
proceeds of the initial sale.
Stripped Mortgage Backed Securities: Arrangements in which a pool of assets
is separated into two classes that
receive different proportions of the
interest and principal distribution
from underlying mortgage-backed
securities. IO's and PO's are examples
of STRIPS.
22
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
TAXABLE TRUSTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
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 (7236)
or consult with your financial advisor.
</TABLE>
23
<PAGE>
[logo]
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
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
Printed on recycled paper 092475-10-2
THE
NORTH AMERICAN
GOVERNMET
INCOME TRUST INC.
===========================
ANNUAL REPORT
OCTOBER 31, 1997
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