- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
May 31, 1998
Dear Shareholder:
Domestic bonds provided investors with modest total returns during the
past six months, as interest rates generally fell. Supporting the bond market
was favorable inflation news and the belief that the Federal Reserve is unlikely
to raise short-term interest rates in the immediate future.
U.S. economic growth has remained relatively robust, spurred by lower
interest rates and strong consumer demand. However, the economic weakness of
Asia looms large. While the fallout from the Asian fiscal crisis probably has
yet to materialize in the U.S., we expect a "slowdown" in Asia's economies to
slow U.S. growth in 1998. While we expect that interest rates will be fairly
stable in the near-term, our longer-term outlook for the bond market remains
optimistic, based on the fundamentally favorable backdrop of low inflation, a
currently high level of real yields, and declining Treasury borrowing.
As you may know, the five investment management firms that comprised the
PNC Asset Management Group have consolidated under BlackRock, resulting in a
$118 billion money management firm. We look forward to using our global
investment management expertise to present exciting investment opportunities to
closed-end fund shareholders in the future.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- -------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
May 31, 1998
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock North
American Government Income Trust Inc. ("the Trust") for the six months ended
April 30, 1998. 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 its objective by investing in
Canadian and U.S. dollar-denominated investment grade fixed income securities,
with approximately 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" by Moody's at 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>
-------------------------------------------------------
4/30/98 10/31/97 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------
STOCK PRICE $10.5625 $10.5625 -- $10.8125 $10.4375
- -------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $12.45 $12.47 (0.16)% $12.62 $12.17
- -------------------------------------------------------------------------------------------
CURRENCY EXCHANGE RATE $0.6993 $0.7095 (1.44)% $0.7152 $0.6821
- -------------------------------------------------------------------------------------------
10-YEAR U.S. TREASURYNOTE 5.67% 5.83% (0.16)% 5.96% 5.36%
- -------------------------------------------------------------------------------------------
</TABLE>
THE U.S. AND CANADIAN FIXED INCOME MARKETS
The first four months of 1998 have witnessed continued rapid expansion of
the U.S. economy. GDP growth is estimated at an annual rate of 4.2%, far
exceeding the historical non-inflationary level of 2%. Despite the strong
economic growth, inflation stayed surprisingly subdued. After rising only 1.7%
in 1997, inflation inched higher at a 0.2% annual rate for the first quarter of
1998. One explanation for the absence of inflation in the U.S. economy stems
from the aftermath of the Asian crisis. U.S. exports to Asia have slowed, while
the strength of the dollar caused cheaper Asian imports to flood the U.S. market
and exert downward price pressure on domestic goods.
The Treasury market rallied during the fourth quarter of 1997 and into
1998 before giving back some gains during the past few months. For the
semi-annual period, the yield of the 10-year Treasury security fell from 5.83%
on October 31, 1997 to 5.67% on April 30, 1998. The strong performance of the
Treasury market was in response to moderating economic growth, low inflation and
a "flight to quality" from investors seeking a safe haven in U.S. Treasury
securities. Continued expectations that the Asian crisis will slow economic
growth and force the Fed to leave the Federal funds rate unchanged provided
additional support to the bond market. With Treasury supply waning due to
surplus in the federal budget and increased foreign demand for Treasuries due to
their U.S. government backing and relatively attractive yields, we anticipate a
positive environment for Treasuries for the balance of 1998.
After underperforming U.S. Treasuries in the fourth quarter of 1997,
Canadian bonds rebounded in early 1998. Sharp declines in world equity and
currency markets placed pressure on the Canadian dollar in late 1997, causing
the Bank of Canada to continually raise short-term interest rates in an attempt
to halt Canadian dollar weakness. However, overall economic conditions in Canada
remain favorable. The Bank of Canada estimated that the Asian fiscal crisis will
have only a nominal impact on the Canadian economy, since Canadian exports to
Japan and the Asian region only account for 8% of
2
<PAGE>
total economic output. Additionally, the monetary policies of the Bank of Canada
continue to foster strong growth with annual inflation levels in the 1-2% range.
A projected balanced budget for fiscal year 1998/1999 coupled with a more stable
political environment in Quebec contributed to a rally in the bond market
towards the end of the period.
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, 1997 asset composition:
------------------------------------------------------------------------
COMPOSITION APRIL 30, 1998 OCTOBER 31, 1997
------------------------------------------------------------------------
CANADIAN PORTFOLIO ALLOCATION 48% 65%
------------------------------------------------------------------------
Canadian Corporate Bonds 16% 15%
------------------------------------------------------------------------
Canadian Government Securities 6% 17%
------------------------------------------------------------------------
Ontario 6% 8%
------------------------------------------------------------------------
New Brunswick 4% 4%
------------------------------------------------------------------------
Canadian Mortgages 3% 5%
------------------------------------------------------------------------
Saskatchewan 3% 3%
------------------------------------------------------------------------
New Foundland 3% 3%
------------------------------------------------------------------------
Nova Scotia 3% 2%
------------------------------------------------------------------------
Prince Edward Island 2% 2%
------------------------------------------------------------------------
Quebec 1% 4%
------------------------------------------------------------------------
British Columbia 1% 1%
------------------------------------------------------------------------
Manitoba 0% 1%
------------------------------------------------------------------------
------------------------------------------------------------------------
U.S. PORTFOLIO ALLOCATION 52% 35%
------------------------------------------------------------------------
U.S. Government Securities 24% 9%
------------------------------------------------------------------------
Agency Multiple Class Mortgage
Pass-Throughs 8% 4%
------------------------------------------------------------------------
FHA Project Loans 6% 5%
------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage
Pass-Throughs 4% 3%
------------------------------------------------------------------------
Interest Only Mortgage-Backed Securities 3% 4%
------------------------------------------------------------------------
Principal Only Mortgage-Backed Securities 3% 3%
------------------------------------------------------------------------
Inverse-Floating Rate Mortgages 2% 5%
------------------------------------------------------------------------
Agency Mortgage Pass-Throughs 2% 2%
------------------------------------------------------------------------
The Trust substantially reduced its exposure to both Canadian bonds and
the Canadian dollar during the semi-annual period. Canadian bonds (primarily
Canadian Government and Provincials) were sold after outperforming their U.S.
counterparts. For example, Canadian bonds historically have offered higher
yields than U.S. Treasuries. During the period, however, Canadian yields have
traded through (lower than) U.S. yields. Accordingly, the Trust purchased U.S.
Treasuries, which we believe offered better relative value. Within Canada, the
Trust has emphasized longer maturity holdings due to our belief that the
Canadian yield curve will flatten, a result of longer maturity securities
outperforming shorter maturity ones. Additionally, the Trust reduced its
currency exposure to the Canadian dollar due to our belief that Canadian
short-term yields are currently too low to support a sustained Canadian dollar
rally. We will, however, be looking to add Canadian dollar exposure to the Trust
upon opportunity.
3
<PAGE>
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 Director and Portfolio Manager
BlackRock Financial Management, Inc. BlackRock Financial Management, Inc.
- -------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
- -------------------------------------------------------------------------------
Symbol on New York Stock Exchange: BNA
- -------------------------------------------------------------------------------
Initial Offering Date: December 20, 1991
- -------------------------------------------------------------------------------
Closing Stock Price as of April 30, 1998: $10.5625
- -------------------------------------------------------------------------------
Net Asset Value as of April 30, 1998: $12.45
- -------------------------------------------------------------------------------
Yield on Closing Stock Price as of April 30, 1998 ($10.5625)1: 7.95%
- -------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $0.07
- -------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $0.84
- -------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
- -------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
LONG-TERM INVESTMENTS--133.4%
UNITED STATES SECURITIES--68.8%
MORTGAGE PASS-THROUGHS--11.2%
$ 9,369++ Federal Home Loan Mortgage Corp.,
6.50%, 01/01/28 - 02/01/28 ............... $ 9,282,050
Federal Housing Administration, GMAC,
2,182 Series 37, 7.43%, 05/01/22 ................ 2,243,754
1,335 Series 44, 7.43%, 08/01/22 ................ 1,377,857
1,660 Series 59, 7.43%, 07/01/21 ................ 1,707,765
726 Series 65, 7.43%, 02/01/23 ................ 746,600
Merrill,
2,951 Series 29, 7.43%, 10/01/20 ................ 3,033,298
24,354 Series 42, 7.43%, 09/01/22 ................ 25,141,920
2,252 Reilly, Series B-11, 7.40%,
04/01/21 .................................. 2,309,429
2,317 Westmore Project 8240, 7.25%,
04/01/21 .................................. 2,367,000
2,136 Government National Mortgage
Association,
8.00%, 04/15/24 - 11/15/25 ................ 2,216,361
-----------
50,426,034
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS--15.9%
Countrywide Funding Corporation,
Aaa 3,240 Series 1993-7, Class 7-AS3,
11/25/23 (ARM) ............................ 3,240,294
AAA 1,696 Series 1993-10, Class 10-A8,
01/25/24 (ARM) ............................ 1,594,483
12,776 DLJ Mortgage Acceptance Corp.,
Series 1998-2, Class A1,
6.75%, 04/25/28 ........................... 12,648,240
Federal Home Loan Mortgage
Corp., Multiclass Mortgage
Participation Certificates,
7,500@@ Series 1104, Class 1104-L,
06/15/21 .................................. 8,067,375
10,342 Series 1353, Class 1353-S,
08/15/07 (I) .............................. 1,100,416
4,772 Series 1379, Class 1379-P,
08/15/18 (I) .............................. 443,575
1,225 Series 1590, Class 1590-T,
10/15/23 (ARM) ............................ 772,420
1,406 Series 1609, Class 1609-LN,
11/15/23 (ARM) ............................ 1,262,297
Federal Home Loan Mortgage
Corp., Multiclass Mortgage
Participation Certificates,
1,165 Series 1988,Class 1988-SB,
09/15/27 (ARM) ............................ 1,166,712
Federal National Mortgage Association,
REMIC Pass-Though
Certificates,
5,969 Trust 1989-90, Class 90-E,
12/25/19 ................................... 6,370,785
1,390 Trust 1993-27, Class 27-SE,
08/25/23 (ARM) ............................. 954,713
347 Trust 1993-44, Class 44-K,
10/25/22 ................................... 346,226
1,140 Trust 1993-139, Class 139-SY,
08/25/23 (ARM) ............................. 1,095,548
2,328 Trust 1993-201, Class 201-SC,
10/25/23 (ARM) ............................. 2,117,657
4,005 Trust 1993-210, Class 210-A,
01/25/23 ................................... 3,805,625
3,351++ Trust 1993-224, Class 224-SE
11/25/23 (ARM) ............................. 2,686,220
1,550 Trust 1993-256, Class 256-F,
11/25/23 (ARM) ............................. 1,428,657
4,921 Trust 1995, Class 1995-10-B,
03/25/24 ................................... 4,776,921
2,100 Trust 1996-14, Class 14-M,
10/25/21 ................................... 1,798,776
23,646 Trust 1997-90, Class 90-M,
01/25/28 (I) ............................... 9,569,241
10,952 Trust 1998-16, Class PK,
12/18/21 (I) ............................... 2,053,493
4,500 Trust 1998-25, Class 25-PG,
03/18/22 (I) ............................... 1,046,250
AAA 3,253 PNC Mortgage Securities Corp.,
Mortgage Pass Through,
Series 1997-6, Class 6-A2, 07/25/27 ........ 3,249,885
-----------
71,595,809
-----------
COMMERCIAL MORTGAGE
BACKED SECURITIE0.7%AAA 8,917
Credit Suisse First Boston
Mortgage Corp.,
Trust 1997-C1, Class C1-AX,
06/20/29 (I/O) ............................. 978,045
AAA 19,291 GMAC Commercial Mortgage Securities
Inc., Mortgage Certificate
Trust 1997-C1, C1-Class X,
07/15/27 (I/O) ............................. 1,838,676
See Notes to Financial Statements.
5
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
COMMERCIAL MORTGAGE
BACKED SECURITIE (CONT'D)
AAA $ 6,110 Morgan Stanley Capital 1 Inc.,
Trust 1997-HF1, Class HF1-X,
06/15/17 (I/O) ................................ $ 537,484
-----------
3,354,205
-----------
STRIPPED MORTGAGE-BACKED
SECURITIES--8.5%
Federal Home Loan Mortgage Corp.,
4,525++ Series 184, Class 184-IO,
12/01/26 (I/O) ............................... 1,193,579
6,619 Series 1254, Class 1254-Z,
4/15/22 (I/O) ................................ 1,631,830
7,500 Series 1434, Class1434-M,
12/15/22 (I/O) ............................... 3,892,695
4,573 Series 1506, Class 1506-L,
5/15/08 (I/O) ................................ 860,497
5,787 Series 1570, Class 1570-C,
8/15/23 (P/O) ................................ 3,731,500
6,752 Series 1850, Class 1850-SA,
2/15/24 (I/O) ................................ 1,031,811
1,636 Series 1857, Class 1857-PB1,
12/15/08 (P/O) ............................... 1,419,296
5,000 Series 1900, Class 1900-SV,
8/15/08 (I/O) ................................ 870,300
21,102 Series 1965, Class 1965-SA,
3/15/24 (I/O) ................................ 2,987,221
40,020 Series 1968, Class 1968-S,
10/15/26 (I/O) ............................... 2,251,128
7,000 Series 2002, Class 2002-HJ,
10/15/08 (I/O) ............................... 1,074,062
6,297 Series 2009, Class 2009-HJ,
10/15/22 (P/O) ............................... 3,693,562
Federal National Mortgage Association,
REMIC Pass-Though Certificates,
1,999 Trust 267, Class 1,
10/01/24 (P/O) ............................. 1,678,847
2,379 Trust 279, Class 1,
7/01/26 (P/O) .............................. 2,003,895
2,000 Trust G1992-5, Class 5-E,
1/25/22 (I/O) .............................. 661,766
2,321 Trust 1994-22, Class 22-E,
1/25/24 (P/O) .............................. 1,915,023
7,500 Trust 1995-26, Class 26-SW,
2/25/24 (I/O) .............................. 1,319,531
3,321 Trust 1996-38, Class 38-E,
8/15/23 (P/O) .............................. 1,966,406
1,000 Trust 1996-44, Class 44-B,
6/25/23 (P/O) .............................. 788,750
10,224+ Trust 1997-65, Class 65-SG,
6/25/23 (I/O) .............................. 1,482,473
1,890++ Trust 1997-85, Class LE,
10/25/23 (P/O) ............................. 1,561,612
Aaa 5,755 G. E. Capital Mortgage Services,
Trust 1993-13, Class A2,
10/25/08 (I/O) .............................. 305,714
-----------
38,321,498
-----------
U.S GOVERNMENT AND
AGENCY SECURITIES--32.5%
Overseas Private Investment Corp.,
220 6.27%, 05/29/12 ............................... 217,663
440 6.84%, 05/29/12 ............................... 445,500
3,544 Small Business Administration,
Series 1996-20 K,
6.95%, 11/01/16 ............................... 3,649,416
U.S. Treasury Notes,
17,850+ 5.75%, 11/30/02 ............................... 17,894,625
28,350+ 6.25%, 6/30/02 ................................ 28,939,113
10,600++ 6.375%, 5/15/00 ............................... 10,754,018
150 6.50%, 5/31/01 ................................ 153,609
610 7.25%, 8/15/04 ................................ 658,800
U.S. Treasury Bonds,
57,553++ 6.125%, 11/15/27 .............................. 58,883,626
24,420++ 6.25%, 8/15/23 ................................ 25,099,120
-----------
146,695,490
-----------
Total United States Securities
(cost $305,840,937) ........................... 310,393,036
-----------
CANADIAN SECURITIES--64.6%
CORPORATE BONDS--21.7%
A1 C$15,000** Bell Canada,
7.00%, 9/24/27 ................................ 11,590,370
Canadian Imperial Bank Commerce,
Aa3 25,000 8.25%, 2/14/07 ................................ 18,286,304
Aa3 4,500 8.50%, 2/05/07 ................................ 3,449,543
Aa3 10,000 Canadian Imperial Bank, Toronto,
8.15%, 4/25/11 ................................ 8,086,577
A 10,000 Credit Foncier De France,
8.50%, 3/12/03 ................................ 7,687,374
A1 12,000 Daimler Benz AG,
9.50%, 10/30/01 ............................... 9,311,587
A1 10,000 Ford Credit Canada Limited,
5.66%, 11/19/01 ............................... 6,994,650
Greater Toronto Airport Authority,
A2 15,000 5.95%, 12/03/07 ............................... 10,680,793
A2 5,000 6.45%, 12/03/27 ............................... 3,638,239
BB+ 10,000** Loewen Group Inc.,
Series 5, 6.10%,
10/01/02 ...................................... 6,861,079
A2 15,000 Transport Canada Pipe Lines Limited,
6.89%, 8/07/28 ................................ 11,264,240
-----------
97,850,756
-----------
CANADIAN MORTGAGES--4.1%
6,960 Conduit Mortgage Obligation
6.95%, 9/01/98 ................................ 4,864,595
18,869 NHA Mortgage Backed Securities
Corp., Household Trust,
7.75%, 6/01/98 ................................ 13,452,837
-----------
18,317,432
-----------
CANADIAN GOVERNMENT
SECURITIES--7.6%
Canada Government Bonds,
25,000 5.75%, 6/01/29 ................................ 17,810,763
4,200 8.00%, 6/01/27 ................................ 3,902,406
See Notes to Financial Statements
6
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
RATINGS* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------
C$15,100 Canadian Treasury Notes,
9.00%, 12/01/04 ............................... $ 12,699,016
------------
34,412,185
------------
CANADIAN PROVINCIAL SECURITIES--31.2%
British Columbia--2.0%
10,000 British Columbia Province,
8.50%, 8/23/13 ................................ 8,882,129
------------
NEW BRUNSWICK--5.3%
New Brunswick Province,
13,000 7.625%, 7/14/00 ............................... 9,501,587
14,600 10.125%, 10/31/11 ............................. 14,393,448
------------
23,895,035
------------
NEWFOUNDLAND--4.7%
23,000 Newfoundland Province,
8.45%, 2/05/26 ................................ 21,020,322
------------
NOVA SCOTIA--3.4%
15,000 Nova Scotia Province,
9.60%, 1/30/22 ................................ 15,150,005
------------
ONTARIO--8.1%
10,000 Hamilton Wentworth Regional
Municipality, 7.00%, 6/06/01 .................. 7,315,641
25,000 Ontario Province,
7.60%, 6/02/27 ................................ 21,411,588
10,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 ............................... 7,863,002
------------
36,590,231
------------
PRINCE EDWARD ISLAND--2.5%
13,000 Prince Edward Island Province,
8.50%, 10/27/15 ............................... 11,503,766
------------
QUEBEC--1.7%
10,000 Quebec Province,
7.50%, 12/01/03 ............................... 7,645,023
------------
SASKATCHEWAN--3.5%
20,000 Saskatchewan Province,
7.50%, 12/19/05 ............................... 15,715,375
------------
140,401,886
------------
Total Canadian Securities
(cost $282,105,846) ........................... 290,982,259
------------
Total Long-Term Investments
(cost $587,946,783) ........................... 601,375,295
------------
SHORT-TERM INVESTMENTS--0.4%
CALL OPTION PURCHASED--0.4%
80,000 Interest Rate Swap, 6.20%
over 3-month LIBOR,
expires 8/13/99
(cost $1,194,000) ............................. 1,884,000
------------
REPURCHASE AGREEMENT--0.0%
145 State Street Bank & Trust Co., 5.20%,
dated 4/30/98, due 5/1/98 in the
amount of $145,021 (cost $145,000,
collateralized by $145,000
US Treasury Note, 6.625% due
7/31/01, value including accrued
interest--$147,335) ........................... 145,000
------------
Total Investments--133.8%
(cost $589,285,783) ........................... 603,404,295
Liabilities in excess of other
assets--(33.8%) ............................... (152,515,972)
------------
NET ASSETS--100% ............................... $450,888,323
============
* Using the higher of Standard &Poor's or Moody's rating.
** Private placement restricted as to resale.
+ Partial principal amount pledged as collateral for reverse
repurchase agreements.
++ Entire principal amount pledged as collateral for reverse
repurchase agreements.
@@ Entire principal amount pledged as collateral for futures transactions.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM--Adjustable Rate Mortgage.
CMO-- Collateralized Mortgage Obligation.
I--Denotes a CMO with interest only characteristics.
I/O--Interest Only.
LIBOR--London InterBank Offer Rate.
P/O--Principal Only.
REMIC--Real Estate Mortgage Investment Conduit.
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
- ------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------
ASSETS
Investments, at value (cost $589,285,783) (Note 1) $603,404,295
Canadian dollars, at value (cost $318,822) ....... 318,822
Cash ............................................. 48,164
Receivable for investments sold .................. 22,350,757
Interest receivable .............................. 10,325,835
Interest rate caps, at value
(amortized cost $2,035,778) (Notes 1 & 3) ...... 677,200
Forward currency contracts--amount receivable
from counterparties ........................... 79,858
------------
637,204,931
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ........... 171,324,312
Payable for investments purchased ................ 12,686,979
Due to broker-variation margin ................... 1,354,013
Interest Payable ................................. 268,159
Investment advisory fee payable (Note 2) ......... 224,398
Administration fee payable (Note 2) .............. 37,400
Other accrued expenses ........................... 421,347
------------
186,316,608
------------
NET ASSETS ....................................... $450,888,323
============
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 ........... 687,539
Accumulated net realized loss on investments .. (2,116,686)
Net unrealized appreciation on investments .... 25,024,033
Accumulated net realized and unrealized
foreign currency loss ....................... (16,776,884)
-------------
Net assets, April 30, 1998 .................... $ 450,888,323
=============
NET ASSET VALUE PER SHARE:
($450,888,323 / 36,207,093 shares of
common stock issued and outstanding) .......... $ 12.45
=============
- --------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$1,658,752 and net of interest expense of
$4,769,686) ................................. $16,518,627
------------
Expenses
Investment advisory ......................... 1,341,035
Administration .............................. 224,506
Custodian ................................... 136,000
Reports to shareholders ..................... 124,000
Audit ....................................... 42,000
Directors ................................... 42,000
Transfer agent .............................. 22,000
Miscellaneous ............................... 83,597
------------
Total operating expenses .................. 2,015,138
------------
Net investment income ....................... 14,503,489
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ................................. 15,101,449
Futures ..................................... (1,406,660)
Short sales ................................. (437,595)
Written Options ............................. (811,192)
Foreign currency ............................ (5,305,711)
------------
7,140,291
------------
Net change in unrealized appreciation
(depreciation) on:
Investments .................................. (11,412,767)
Futures ...................................... 2,129,256
Short sales .................................. 529,265
Written options .............................. 1,509,600
Interest rate caps ........................... (347,668)
Foreign currency ............................. 624,434
------------
(6,967,880)
------------
Net gain on investments and foreign currency
TRANSACTIONS ........................... 172,411
------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ....................... $ 14,675,900
============
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities:
Interest received ............................... $ 22,792,976
Operating expenses paid ......................... (1,998,662)
Interest expense paid on reverse repurchase
agreements .................................... (5,284,094)
Proceeds from disposition of short-term portfolio
investments including options, net ............ 974,141
Purchases of long-term portfolio investments .... (450,287,450)
Proceeds from disposition of long-term
portfolio investments ......................... 481,724,064
Variation margin on futures ..................... 1,987,246
------------
Net cash flows provided by operating activities . 49,908,221
------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ....... (34,801,757)
Cash dividends paid ............................. (15,381,170)
------------
Net cash flows used for financing activities .... (50,182,927)
------------
Net realized and unrealized foreign currency loss .. (1,699,064)
------------
Net decrease in cash and foreign currency .......... (1,973,770)
Cash and foreign currency, at beginning of period .. 2,340,756
------------
Cash and foreign currency, at end of period ........ $ 366,986
============
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 $ 14,675,900
------------
Decrease in investments ............................ 41,773,525
Net realized gain .................................. (7,140,291)
Decrease in unrealized appreciation ................ 6,967,880
Decrease in deposits with brokers as
collateral for investments sold short ........... 39,769,218
Increase in interest receivable .................... (154,089)
Decrease in receivable for investments sold ........ 27,274,041
Increase in receivable for forward
currency contracts .............................. (791,450)
Decrease in interest rate caps ..................... 569,550
Increase in variation margin payable ............... 1,264,650
Decrease in payable for investments purchased ...... (52,891,357)
Decrease in payable for securities sold short ...... (18,830,624)
Decrease in interest payable ....................... (514,408)
Decrease in payable for call option ................ (2,080,800)
Increase in accrued expenses and other liabilities . 16,476
------------
Total adjustments ............................... 35,232,321
------------
Net cash flows provided by operating activities .... $ 49,908,221
============
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
INCREASE (DECREASE) SIX MONTHS YEAR
IN NET ASSETS ENDED ENDED
APRIL 30, OCTOBER 31,
1998 1997
--------- ---------
Operations:
Net investment income .................... $ 14,503,489 $ 32,136,760
Net realized gain on investments,
futures, short sales, written
options and foreign currency
transactions ........................... 7,140,291 46,282,519
Net change in unrealized
appreciation (depreciation)
on investments, futures, short
sales, options, interest rate caps
and foreign currency ................... (6,967,880) (42,981,198)
------------ ------------
Net increase in net
assets resulting from
operations ............................. 14,675,900 35,438,081
Dividends and distributions:
Dividends from net investment
income ................................. (15,206,676) (30,413,427)
------------ ------------
Total increase (decrease) ................ (530,776) 5,024,654
NET ASSETS
Beginning of period ...................... 451,419,099 446,394,445
------------ ------------
End of period ............................ $450,888,323 $451,419,099
============ ============
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED OCTOBER 31,
ENDED --------------------------------------------------
APRIL 30, 1998 1997 1996 1995 1994 1993
------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period .......... $ 12.47 $ 12.33 $ 11.36 $ 10.07 $ 12.34 $ 13.13
-------- -------- -------- -------- -------- --------
Net investment income (net of interest
expense of $0.13, $0.22, $0.41, $0.35,
$0.26, and $0.20, respectively) .......... 0.40 0.89 0.93 0.89 1.09 1.21
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ............................. -- 0.09 0.92 1.37 (2.28) (0.80)
-------- -------- -------- -------- -------- --------
Net increase (decrease) from investment
operations ................................... 0.40 0.98 1.85 2.26 (1.19 )0.41
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ....... (0.42) (0.84) (0.29) -- (1.03) (1.20)
Return of capital distributions ............ -- -- (0.59) (0.97) (0.05) --
-------- -------- -------- -------- -------- -------
Total dividends and distributions ...... (0.42) (0.84) (0.88) (0.97) (1.08) (1.20)
-------- -------- -------- -------- -------- --------
Net asset value, end of period* ............... $ 12.45 $ 12.47 $ 12.33 $ 11.36 $ 10.07 $ 12.34
======== ======== ======== ======== ======== ========
PER SHARE MARKET VALUE, END OF PERIOD* ........ $10 9/16 $10 9/16 $ 10 1/8 $ 10 1/8 $ 9 1/8 $ 12 7/8
======== ======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ...................... 4.03% 13.23% 9.48% 22.88% (21.62%) 4.68%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses (a) ........................ 0.90%+++ 0.93% 0.97% 0.96% 1.01% 0.98%
Net investment income ......................... 6.51%+++ 7.30% 8.24% 8.58% 9.92% 9.72%
SUPPLEMENTAL DATA:
Average net assets (in thousands) ............. $449,493 $440,465 $409,644 $374,975 $397,651 $452,740
Portfolio turnover ............................ 85% 146% 151% 78% 70% 155%
Net assets, end of period (in thousands) ...... $450,888 $451,419 $446,394 $411,295 $364,749 $446,614
Reverse repurchase agreements outstanding,
end of period (in thousands) ............... $171,324 $206,126 $217,135 $202,703 $142,450 $201,122
Asset coverage++ .............................. $ 3,632 $ 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 3.04%+++, 2.74%, 4.63%, 4.34%, 3.36%, and 2.55% for the
periods indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions. Total
returns for periods of less than a full year are not annualized.
++ Per $1,000 of reverse repurchase agreement outstanding.
+++ Annualized.
The information above represents the unaudited operating performance for a share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided in the
financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING The BlackRock North American Government
Income Trust 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.
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.
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.
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.
12
<PAGE>
The Trust may invest in financial futures contracts primarily for the purpose
of hedging its existing portfolio securities or securities the Trust intends to
purchase against fluctuations in value caused by changes in prevailing market
interest rates. Should interest rates move unexpectedly, the Trust may not
achieve the anticipated benefits of the financial futures contracts and may
realize a loss. The use of futures transactions involves the risk of imperfect
correlation in movements in the price of futures contracts, interest rates and
the underlying hedged assets. The Trust is also at risk of not being able to
enter into a closing transaction for the futures contract because of an illiquid
secondary market. In addition, since futures are used to shorten or lengthen a
portfolio's duration, there is a risk that the portfolio may have temporarily
performed better without the hedge or that the Trust may lose the opportunity to
realize appreciation in the market price of the underlying positions.
FORWARD CURRENCY CONTRACTS: The Trust enters into forward currency contracts
primarily to facilitate settlement of purchases and sales of foreign securities.
A forward contract is a commitment to purchase or sell a foreign currency at a
future date (usually the security transaction settlement date) at a negotiated
forward rate. In the event that a security fails to settle within the normal
settlement period, the forward currency contract is renegotiated at a new rate.
The gain or loss arising from the difference between the settlement value of the
original and renegotiated forward contracts is isolated and is included in net
realized losses from foreign currency transactions. Risks may arise as a result
of the potential inability of the counterparties to meet the terms of their
contract.
Forward currency contracts, when used by the Trust, help to manage the
overall exposure to the foreign currency backing many of the investments held by
the Trust (the Canadian dollar). Forward currency contracts are not meant to be
used to eliminate all of the exposure to the Canadian dollar, rather they allow
the Trust to limit its exposure to foreign currency within a narrow band to the
objectives of the Trust.
FOREIGN CURRENCY TRANSLATION: Canadian dollar ("C$") amounts are translated into
United States dollars on the following basis:
(i) market value of investment securities, other assets and liabilities--at
the New York City noon rates of exchange.
(ii) purchases and sales of investment securities, income and expenses--at
the rates of exchange prevailing on the respective dates of such
transactions.
The Trust isolates that portion of the results of operations arising as a
result of changes in the foreign exchange rates from the fluctuations arising
from changes in the market prices of securities held at year end. Similarly, the
Trust isolates the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of portfolio securities
sold during the year.
Net realized and unrealized foreign exchange losses of $16,916,448 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, maturities of reverse repurchase agreements, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of interest and discount recorded on the Trust's books and the US dollar
equivalent amounts actually received or paid and changes in unrealized foreign
exchange gains and losses in the value of portfolio securities and other assets
and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of domestic origin, including
unanticipated movements in the value of the Canadian dollar relative to the U.S.
dollar.
The exchange rate for the Canadian dollar at April 30, 1998 was US$ 0.6993 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.
13
<PAGE>
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. Selling
interest rate floors reduces the portfolio's duration, making it less sensitive
to changes in interest rates from a market value perspective. The Trust's
leverage provides extra income in a period of falling rates. Selling floors
reduces some of that advantage by partially monetizing it as an up front payment
which the Trust receives.
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.
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 Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. For the six months
ended April 30, 1998 the Trust decreased undistributed net investment income by
$78,946, decreased accumulated net realized losses on investments by $44,401,
and decreased accumulated net realized and unrealized foreign currency gain
(loss) by $34,545 for realized foreign currency losses incurred during the six
months ended April 30, 1998. Net investment income, net realized gains and net
assets were not affected by this change.
14
<PAGE>
NOTE 2. AGREEMENTS The Trust has an Investment Advisory
Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly-owned corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of
PNCBank, N.A., 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 AND securities, other than short-term invest-
OTHER INVESTMENTS ments, for the six months ended April 30,
1998 aggregated $518,677,313 and
$532,762,734, 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 April 30,
1998, the Trust held 1.27% 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, including Midland Loan
Services, Inc. It is possible under certain circumstances, PNC Mortgage
Securities Corp. or its affiliates, including Midland Loan Services, Inc. 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, including Midland Loan Services, Inc.
The United States federal income tax basis of the Trust's investments at
April 30, 1998 was $577,164,809, and accordingly, net unrealized appreciation
for federal income tax purposes was $26,239,486 (gross unrealized
appreciation-$30,034,562; gross unrealized depreciation-$(3,795,076)).
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. 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 April 30, 1998 are as follows:
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE APRIL 30, APPRECIATION
CONTRACTS TYPE DATE DATE 1998 (DEPRECIATION)
- -------- ---- -------- --------- -------- -----------
Short positions:
792 30 Yr. U.S. T-Bond Jun '98 $95,578,170 $95,213,250 $364,920
125 10 Yr. U.S. T-Note Jun.'98 14,038,500 14,039,063 (563)
56 Eurodollar Jun.'98 13,128,306 13,200,600 (72,294)
51 Eurodollar Sep.'98 11,944,636 12,017,413 (72,777)
51 Eurodollar Dec.'98 11,929,320 12,005,400 (76,080)
--------
$143,206
========
Details of open forward currency contracts at April 30, 1998 are as follows:
VALUE AT VALUE AT
SETTLEMENT CONTRACT SETTLEMENT APRIL 30, UNREALIZED
DATE TO RECEIVE DATE 1998 APPRECIATION
--------- --------- --------- --------- ----------
Purchase:
1/27/98 $25,000,000 $17,434,725 $17,514,583 $79,858
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 at April
30, 1998 are as follows:
NOTIONAL VALUE AT
AMOUNT FIXED TERMINATION COST/ APRIL 30, UNREALIZED
(000) RATE FLOATING RATE DATE PREMIUM 1998 DEPRECIATION
----- ---- ------------- ---- ------- ---- ------------
$25,000 6.00% 3 month LIBOR 2/19/02 $ 613,549 $308,200 $ (305,349)
$50,000 7.00% 3 month LIBOR 4/18/03 1,422,229 369,000 (1,053,229)
-----------
$(1,358,578)
===========
15
<PAGE>
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 daily balance of United States reverse repurchase agreements
outstanding during the six months ended April 30, 1998 was approximately
$40,707,486 at a weighted average interest rate of approximately 5.49%. Also,
the average daily balance of Canadian reverse repurchase agreements outstanding
during the six months ended April 30, 1998 was approximately C$72,764,925 at a
weighted average interest rate of 4.26%.
The maximum amount of total reverse repurchase agreements outstanding at any
month-end during the period was $171,342,086 as of April 30, 1998, which was 27%
of total assets.
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date
The average daily balance of dollar rolls outstanding during the six months
ended April 30, 1998 was approximately $250,804. The maximum amount of dollar
rolls oustanding at any month-end during the period was $9,329,016 as of
February 28, 1998, which was 1.48% 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 April 30, 1998, the Adviser owned 7,093 shares.
NOTE 6. DISTRIBUTIONS Subsequent to April 30, 1998, the Board of
Directors of the Trust declared dividends
from undistributed earnings of $0.07 per share payable May 29, 1998 to
shareholders of record on May 15, 1998.
16
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the "Plan Agent")
in Trust shares pursuant to the Plan. Shareholders who do not participate in the
Plan will receive all distributions in cash paid by check in United States
dollars mailed directly to the shareholders of record (or if the shares are held
in street or other nominee name, then to the nominee) by the custodian, as
dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal income 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 at (800) 227-7BFM. The
addresses are on the front of this report.
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
There have been no material changes in the Trust's investment objectives
or policies that have not been approved by the shareholders or to its charter or
by-laws or in the principal risk factors associated with investment in the
Trust. There have been no changes in the persons who are primarily responsible
for the day-to-day management of the Trust's portfolio.
The Annual Meeting of Trust Shareholders was held May 6, 1998 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
------- ----- ----- -------
Andrew F. Brimmer ....... III 3 years 2000
Kent Dixon .............. III 3 years 2000
Laurence D. Fink ........ III 3 years 2000
Directors whose term of office continues beyond this meeting are Frank
J. Fabozzi, Ralph L. Schlosstein, Walter F. Mondale, Richard E.
Cavanagh, James Grosfeld, and James Clayburn La Force, Jr.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending October 31, 1998.
Shareholders elected the three Directors and ratified the selection of
Deloitte & Touche LLP. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
-------- ----------- ----------
<S> <C> <C> <C>
Andrew F. Brimmer .............. 26,955,874 0 833,524
Kent Dixon ..................... 26,989,452 0 799,946
Laurence D. Fink ............... 26,992,455 0 796,943
Ratification of Deloitte
& Touche LLP .................. 26,979,528 483,177 326,693
</TABLE>
17
<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 an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $118
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
stock exchanges, and a $23 billion family of open-end equity and bond funds.
Current institutional clients number 334, domiciled in the United States and
overseas.
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.
18
<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 33 1/3% 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.
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-BACKED
SECURITIES (ARMS): Mortgage instruments with interest rates
that adjust at periodic intervals at a fixed
amount over the market levels of interest
rates as reflected in specified indexes.
ARMS are backed by mortgage loans secured by
real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
CANADIAN MORTGAGE SECURITIES: Canadian Mortgage instruments which are
guaranteed by the Canadian Mortgage Housing
Corporation (CMHC), a federal agency backed
by the full faith and credit of the Canadian
Government.
CLOSED-END FUND: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
COLLATERALIZED
MORTGAGE OBLIGATIONS (CMOS): Mortgage-backed securities which separate
mortgage pools into short, medium, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
DISCOUNT: When a fund's net asset value is greater
than its stock price the fund is said to be
trading at a discount.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares and pays dividends on a monthly
basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however; they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however; they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
20
<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.
INVERSE-FLOATING RATE MORTGAGES: Mortgage instruments with coupons that
adjust at periodic intervals according to a
formula which sets inversely with a market
level interest rate index.
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.
21
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TAXABLE TRUSTS
- -------------------------------------------------------------------------------------------------------
MATURITY
PERPETUAL TRUSTS STOCK SYMBOL DATE
--------- -----
<S> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT TRUSTS
- -------------------------------------------------------------------------------------------------------
MATURITY
PERPETUAL TRUSTS STOCK SYMBOL DATE
--------- -----
<S> <C> <C>
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
</TABLE>
If you would like further information please do not hesitate to call
BlackRock at (800) 227-7BFM or consult with your financial advisor.
22
<PAGE>
- --------------------------------------------------------------------------------
BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $118
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. BlackRock manages twenty-one closed-end funds that are
traded on either the New York or American stock exchanges, and a $23 billion
family of open-end equity and bond funds. Current institutional clients number
334, domiciled in the United States and overseas.
BlackRock's fixed income product was introduced in 1988 by a team of
highly seasoned fixed income professionals. These professionals had extensive
experience creating, analyzing and trading a variety of fixed income
instruments, including the most complex structured securities. In fact, several
individuals at BlackRock were responsible for developing many of the major
innovations in the mortgage-backed and asset-backed securities markets,
including the creation of the first CMO, the floating rate CMO, the
senior/subordinated pass-through and the multi-class asset-backed security.
BlackRock is unique among asset management and advisory firms in the
emphasis it places on the development of proprietary analytical capabilities.
Over one quarter of the firm's professionals is dedicated to the design,
maintenance and use of these systems, which are not otherwise available to
investors. BlackRock's proprietary analytical tools are used for evaluating, and
designing fixed income investment strategies for client portfolios. Securities
purchased include mortgages, corporate bonds, municipal bonds and a variety of
hedging instruments.
BlackRock has developed investment products that respond to investors'
needs and has been responsible for several major innovations in closed-end
funds. In fact, BlackRock introduced the first closed-end mortgage fund, the
first taxable and tax-exempt closed-end funds to offer a finite term, the first
closed-end fund to achieve a AAA rating by Standard & Poor's, and the first
closed-end fund to invest primarily in North American Government securities.
Currently, BlackRock's closed-end funds have dividend reinvestment plans, which
are designed to provide ongoing demand for the stock in the secondary market.
BlackRock manages a wide range of investment vehicles, each having specific
investment objectives and policies.
In view of our continued desire to provide a high level of service to all
our shareholders, BlackRock maintains a toll-free number for your questions. The
number is (800) 227-7BFM (7236). We encourage you to call us with any questions
that you may have about your BlackRock funds and we thank you for the continued
trust that you place in our abilities.
IF YOU WOULD LIKE FURTHER INFORMATION
PLEASE DO NOT HESITATE TO CALL BLACKROCK AT (800) 227-7BFM
23
<PAGE>
BLACKROCK
DIRECTORS
Laurence D. Fink, CHAIRMAN
Andrew F. Brimmer
Richard E. Cavanagh
Kent Dixon
Frank J. Fabozzi
James Grosfeld
James Clayburn La Force, Jr.
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
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
Two World Financial Center
New York, NY 10281-1434
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
The accompanying financial statements as of April 30, 1998 were not audited
and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus intended
for use in the purchase or sale of any securities.
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, N.J. 07102-4077
(800) 227-7BFM
[LOGO]Printed on recycled paper 092475-10-2
THE BLACKROCK
NORTH AMERICAN
GOVERNMENT
INCOME TRUST INC.
=================
SEMI-ANNUAL REPORT
APRIL 30, 1998
[GRAPHIC]
