- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
November 30, 1998
Dear Shareholders:
Over the past twelve months, U.S. Treasury securities have experienced a
strong rally, as investors sought a safe haven from global market turmoil and
the Federal Reserve continued to cut interest rates. Other segments of the
fixed income market have lagged behind Treasuries, but still produced positive
returns since our last report. We anticipate that the Federal Reserve will
remain prepared to combat any signs of a credit crunch through interest rate
cuts, and given the unstable economic situation in Brazil, the Fed likely will
retain a loosening bias.
Despite previous worries of a second half slowdown in 1998, the U.S.
economy continues to expand rapidly. Third quarter GDP registered a 3.3%
annualized growth rate, supported by strong consumer spending. This momentum,
however, may not continue as briskly into the new year, based on weaker
corporate profits and a loosening of the labor markets. Already, major
corporations have warned of slower profit growth and announced major layoffs.
This report contains detailed market and portfolio strategy by your
Trust's managers in addition to the Trust's audited financial statements and a
detailed portfolio list of the portfolio's holdings. We thank you for your
continued investment in the Trust and look forward to serving your investment
needs in the future.
Sincerely,
/s/ LAURENCE D. FINK /s/ RALPH L. SCHLOSSTEIN
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
November 30, 1998
Dear Shareholder:
We are pleased to present the annual report for The BlackRock North American
Government Income Trust Inc. ("the Trust") for the fiscal year ended October
31, 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 this 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 "BBB" by Standard & Poor's or "Baa" 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>
10/31/98 10/31/97 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
STOCK PRICE $ 9.875 $ 10.5625 (6.51)% $ 10.8125 $ 9.3125
NET ASSET VALUE (NAV) $ 11.88 $ 12.47 (4.73)% $ 12.62 $ 11.44
CURRENCY EXCHANGE RATE $ 0.6481 $ 0.7095 (8.65)% $ 0.7152 $ 0.6321
10-YEAR U.S. TREASURY NOTE 4.61% 5.83 % (20.93)% 5.95% 4.16%
</TABLE>
THE CANADIAN AND U.S. FIXED INCOME MARKETS
The first half of the Trust's fiscal year was characterized by the positive
momentum and bull market trend that brought Treasury yields towards historic
lows. The low Treasury yields were due to budget surplus projections as well as
the Fed's decision to move from a tightening to a neutral policy. The positive
economic momentum throughout the first half of the fiscal year was strengthened
by unseasonably warm weather that led to increased consumer spending and job
gains, and a less than expected impact on trade from the Asian financial
crisis.
GDP growth measured at a very strong 5% for the first quarter of 1998; however,
signs of a slowdown became evident when economic data for April and May began
to lag.
The second half of the trust's fiscal year witnessed virtually unparalleled
market turbulence. During the second quarter of 1998, GDP growth faltered to a
1.8% rate due to slower output and an increasing trade deficit created by a
strong U.S. dollar. Although consumers continued their spending domestically,
demand for U.S. goods abroad faltered, as the strong dollar and weakness
overseas, especially Asia, drove prices for U.S. goods higher relative to
foreign goods.
In the Trust's final quarter, U.S. GDP growth rebounded to a 3.3% pace;
however, the instability in global financial markets began to rattle investor
confidence. The devaluation of the Russian ruble and the fear of a possible
devaluation of the Brazilian currency caused a flight-to-quality to U.S.
Treasuries. Spread sectors widened dramatically as a result of the sell-off. In
addition, the global financial markets witnessed a credit crunch where even
higher-grade securities were affected. This dramatic shift of investor
sentiment culminated in the near collapse of a prominent hedge fund.
2
<PAGE>
The Treasury market rally pushed Treasury yields to historic levels below the
5% barrier. In response to the financial fragility in the third quarter 1998,
the Fed eased interest rates on September 29, 1998 by 25 basis points ("bps")
and again on October 15, in an unusual between-meetings move. On November 17,
the Fed eased interest rates again by 25bps.
After underperforming the U.S. Treasuries in the fourth quarter of 1997,
Canadian bonds rebounded in the first quarter of 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 hopes of bringing Canadian dollar weakness to a halt. During the second and
third quarter of 1998 economic weakness and lower commodity prices caused the
Canadian dollar to continue to depreciate to historically low levels. In an
attempt to shore up the plummeting Canadian dollar, the Bank of Canada raised
its benchmark bank rate by 100bps or 1% to 6% in late August. Half of the rate
increase has evaporated since August, as the Bank of Canada matched the first
two rate cuts by the Federal Reserve.
Despite the weakness in the Canadian dollar, the Bank of Canada still has the
flexibility to continue to cut interest rates in response to slowing economic
growth because inflation still remains in the central bank's 1-3% target range.
The Trust belives that better relative value can be found in the United States
market. As a result, the Trust's allocation at fiscal year end was 52% United
States and 48% Canada. Economists expect Canadian interest rates to move in
lock step with U.S. rates for the remainder of the year, as the Bank of Canada
tries to avert an economic slowdown.
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:
SECTOR BREAKDOWN
COMPOSITION OCTOBER 31, 1998 OCTOBER 31, 1997
- -------------------------------------------------------------------------
CANADIAN PORTFOLIO ALLOCATION 48% 65%
- -------------------------------------------------------------------------
Canadian Government Securities 17% 17%
Canadian Corporate Bonds 11% 15%
Ontario 6% 8%
New Brunswick 4% 4%
Canadian Mortgages 2% 5%
Saskatchewan 2% 3%
Nova Scotia 2% 2%
Prince Edward Island 2% 2%
Newfoundland 1% 3%
Quebec 1% 4%
British Columbia -- 1%
Manitoba -- 1%
3
<PAGE>
U.S. PORTFOLIO ALLOCATION 52% 35%
- -------------------------------------------------------------------
U.S. Government Securities 20% 9%
Interest Only Mortgage-Backed Securities 9% 4%
FHA Project Loans 7% 5%
Adjustable Rate Mortgages 3% 5%
Agency Multiple Class Mortgage Pass-Throughs 3% 4%
Commercial Mortgage-Backed Securities 3% --
Principal Only Mortgage-Backed Securities 3% 3%
Agency Mortgage Pass-Throughs 2% 2%
Non-Agency Multiple Class Mortgage Pass-Throu 2% 3%
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 October 31, 1998: $ 9.875
Net Asset Value as of October 31, 1998: $ 11.88
Yield on Closing Stock Price as of October 31, 1998 ($9.875)1: 8.51%
Current Monthly Distribution per Share2: $ 0.0700
Current Annualized Distribution per Share2: $ 0.8400
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ==================== ======================================= =============
<S> <C> <C> <C>
LONG-TERM INVESTMENTS-138.2%
UNITED STATES SECURITIES-71.4%
MORTGAGE PASS-THROUGHS-11.6%
Federal Home Loan Mortgage Corp.,
$ 9,148 6.50%, 01/01/28-02/01/28 ............. $ 9,219,244
Federal Housing Administration,
GMAC,
2,162 Series 37, 7.43%, 5/01/22 ............ 2,292,015
1,250 Series 44, 7.43%, 8/01/22 ............ 1,328,011
1,646 Series 59, 7.43%, 7/01/21 ............ 1,711,661
719 Series 65, 7.43%, 2/01/23 ............ 748,781
Merrill,
2,924 Series 29, 7.43%, 10/01/20 ........... 3,037,895
24,139 Series 42, 7.43%, 9/01/22 ............ 25,139,170
Reilly,
2,232 Series B-11, 7.40%, 4/01/21 .......... 2,352,985
Westmore Project 8240,
2,295 7.25%, 4/01/21 ...................... 2,408,490
Government National Mortgage
Association,
1,780 8.00%, 4/15/24-11/15/25 .............. 1,845,670
-----------
50,083,922
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS-16.8%
Countrywide Funding Corporation,
Aaa 3,240 Series 1993-7, Class 7-AS3,
11/25/23 (ARM) ....................... 3,467,114
AAA 1,696 Series 1993-10, Class 10-A8,
1/25/24 (ARM) ........................ 1,663,393
AA 12,614++ DLJ Mortgage Acceptance Corp.,
Series 1998-2, Class A1, 6/19/28...... 12,631,926
Federal Home Loan Mortage Corp.,
Multiclass Mortgage Participation
Certificates,
7,500@ Series 1104, Class 1104-L,
6/15/21 .............................. 7,906,875
8,736 Series 1353, Class 1353-S,
8/15/07 (I) .......................... 938,718
3,739 Series 1379, Class 1379-P,
8/15/18 (I) .......................... 309,737
717 Series 1590, Class 1590-OA,
10/15/23 (ARM) ....................... 818,047
1,225 Series 1590, Class 1590-T,
10/15/23 (ARM) ....................... 961,874
1,272 Series 1609, Class 1609-LN,
11/15/23 (ARM) ....................... 1,231,674
1,000 Series 1611, Class 1611-JC,
10/15/22 (I) ......................... 1,040,000
2,967 Series 1673, Class 1673-SD,
2/15/24 (ARM) ........................ 3,070,278
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ==================== ======================================= =============
<S> <C> <C> <C>
$ 20,000 Series 1809, Class 1809-SC,
12/15/23 (I) ......................... $ 1,779,400
1,854 Series 1910, Class 1910-IC,
5/15/25 (I) .......................... 371,747
Federal Home Loan Mortage Corp.,
Multiclass Mortgage Participation
Certificates,
10,559 Series 1998-16, Class 16-PK,
12/18/21 (I) ......................... 1,418,624
23,646 Series 1998-27, Class 27-M,
5/25/28 (I) .......................... 7,673,866
5,225 Series 2044, Class 2044-PF,
6/15/20 (I) .......................... 988,142
3,763 Series 2062, Class 2062-QL,
3/15/28 (I) .......................... 1,109,775
2,430 Series 2066, Class 2066-PJ,
12/15/26 (I) ......................... 479,037
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
4,637++ Trust 1989-90, Class 90-E,
12/25/19 ............................. 4,898,838
1,345 Trust G1992-5, Class 5-H,
1/25/22 (I) .......................... 358,833
3,338 Trust 1993-46, Class 46-S
5/25/22 (I) .......................... 264,420
1,140 Trust 1993-139, Class 139-SY,
8/25/23 (ARM) ........................ 1,284,207
1,612 Trust 1993-170, Class 170-SC,
9/25/08 (ARM) ........................ 1,736,516
5,321 Trust 1993-202, Class 202-QA,
6/25/19 (I) .......................... 437,352
2,900 Trust 1993-210, Class 210-A,
1/25/23 .............................. 2,892,955
1,328 Trust 1993-256, Class 256-F,
11/25/23 (ARM) ....................... 1,297,803
5,083+ Trust 1995, Class 1995 10-Z,
3/25/24 .............................. 5,115,389
2,100 Trust 1996-14, Class 14-M,
10/25/21 ............................. 1,906,401
751 Trust 1997-183, Class 183-SM,
10/25/23 (ARM) ....................... 754,141
4,500 Trust 1998-25, Class 25-PG,
3/18/22 (I) .......................... 554,062
3,529 Trust 1998-45, Class 45-PL,
3/18/24 (I) .......................... 782,895
AAA 2,598 PNC Mortgage Securities Corp.,
Mortgage Pass-Through,
Series 1997-6, Class A2,
7/25/27 (ARM) ........................ 2,601,881
-----------
72,745,920
-----------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ==================== ========================================== ================
<S> <C> <C> <C>
COMMERCIAL MORTGAGE-BACKED
SECURITIES-6.6%
AAA $ 8,864 Credit Suisse First Boston
Mortgage Corp.,
Trust 1997-C1, Class C1-AX,
6/20/29** (I/O) ......................... $ 896,137
GMAC Commercial Mortgage
Securities Inc., Mortgage
Certificate,
Aaa 18,839 Trust 1997-C1, Class C1-X,
7/15/27 (I/O) ........................... 1,694,504
AAA 5,000++ Trust 1998-C2, Class C2-A2,
8/15/08 ................................. 5,041,372
AAA 68,890 Trust 1998-C2, Class C2-X,
8/15/23 (I/O) ........................... 2,994,543
Merrill Lynch Mortgage Investors
Inc., Mortgage Pass-Through
Certificate,
Aaa 38,447 Trust 1996-C2, Class C2-IO,
11/21/28 (I/O) .......................... 2,943,607
Aaa 54,493 Trust 1998-C2, Class C2-IO,
12/10/29 (I/O) .......................... 3,988,192
AAA 6,028 Morgan Stanley Capital 1 Inc.,
Trust 1997-HF1, Class HF1-X** (I/O)...... 546,053
AAA 10,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A1B,
6.506%, 7/15/08 ......................... 10,169,266
-----------
28,273,674
-----------
STRIPPED MORTGAGE-BACKED
SECURITIES-9.3%
AAA 208,674 Countrywide Funding Corp.,
Series 1998-6, Class X,
6/25/13 (I/O) ........................... 1,825,897
Federal Home Loan Mortgage Corp.,
10,226 Series 183, Class 183-IO,
4/01/27 (I/O) ........................... 1,655,260
13,521 Series 192, Class 192-IO,
2/01/28 (I/O) ........................... 2,647,202
5,169 Series 1254, Class 1254-Z,
4/15/22 (I/O) ........................... 1,279,967
7,500 Series 1434, Class 1434-M,
2/15/22 (I/O) ........................... 3,886,680
4,573 Series 1506, Class 1506-L,
5/15/08 (I/O) ...................... .... 757,331
8,517 Series 1570, Class 1570-C,
8/15/23 (P/O) ........................... 6,437,135
6,682 Series 1850, Class 1850-SA,
2/15/24 (I/O) ........................... 694,777
960 Series 1857, Class 1857-PB,
12/15/08 (P/O) .......................... 895,032
5,000 Series 1900, Class 1900-SV,
8/15/08 (I/O) ........................... 1,030,100
7,000 Series 2002, Class 2002-HJ,
10/15/08 (I/O) .......................... 692,700
6,297 Series 2009, Class 2009-HJ,
10/15/22 (P/O) .......................... 4,390,494
6,482 Series 2080, Class 2080-PL,
1/15/27 (I/O) ........................... 1,563,764
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ==================== ========================================== ================
<S> <C> <C> <C>
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
$ 1,774 Trust 279, Class 279-1,
7/1/26 (P/O) ............................ $ 1,561,182
1,906 Trust 1992-5, Class 5-E,
1/15/22 (I/O) ........................... 555,440
1,700 Trust 1993-196 Class 196-SC,
10/25/08 ................................ 1,852,881
7,500 Trust 1995-26, Class 26-SW,
2/25/24 (I/O) ........................... 1,578,225
3,110 Trust 1996-38, Class 38-E,
8/15/23 (P/O) ........................... 2,856,222
116 Trust 1996-44, Class 44-B,
6/15/23 (P/O) ........................... 110,615
10,224 Trust 1997-65, Class 65-SG,
6/15/23 (I/O) ........................... 1,202,911
1,502 Trust 1997-85, Class 85-LE,
10/15/23 (P/O) .......................... 1,442,741
9,415 Trust 1998-48, Class 48-J,
11/25/27 (I/O) .......................... 720,833
Aaa 4,864 G.E. Capital Mortgage Services,
Trust 1993-13, Class A2,
10/25/08 (I/O) .......................... 196,213
-----------
39,833,602
-----------
U.S. GOVERNMENT AND
AGENCY SECURITIES-27.1%
Overseas Private Investment Corp.,
290 5.46%, 5/29/12 .......................... 285,505
341 5.88%, 5/29/12 .......................... 342,932
220 6.27%, 5/29/12 .......................... 224,514
440 6.84%, 5/29/12 .......................... 459,816
3,481 Small Business Administration,
Series 1996-20 K,
6.95%, 11/01/16 ......................... 3,689,765
51,570++ U.S. Treasury Bond,
6.25%, 8/15/23 .......................... 57,709,924
U.S. Treasury Notes,
2,420++ 5.625%, 5/15/08 ......................... 2,608,687
8,500+ 6.125%, 8/15/07 ......................... 9,384,510
28,350++ 6.25%, 6/30/02 .......................... 30,104,014
10,600+ 6.375%, 5/15/00 ......................... 10,916,304
150 6.50%, 5/31/01 .......................... 157,829
610++ 7.25%, 8/15/04 .......................... 695,876
-----------
116,579,676
-----------
Total United States Securities
(cost $296,117,764)...................... 307,516,794
-----------
CANADIAN SECURITIES-65.9%
CORPORATE BONDS-14.6%
A2 C$15,000 Bell Canada, 7.00%, 9/24/27** ............ 10,302,851
Aa3 4,500 Canadian Imperial Bank Commerce,
8.50%, 2/05/07 .......................... 3,174,964
Aa3 10,000 Canadian Imperial Bank, Toronto,
8.15%, 4/25/11 .......................... 7,368,827
A 10,000 Credit Foncier De France,
8.50%, 3/12/03 .......................... 7,183,688
A1 12,000 Daimler Benz AG,
9.50%, 10/30/01 ......................... 8,650,429
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
============= ============= ==================================== ==============
<S> <C> <C> <C>
CORPORATE BONDS-(CONT'D)
A1 C$10,000 Ford Credit Canada Limited,
5.66%, 11/19/01 ................... $ 6,497,732
A2 5,000 Greater Toronto Airport Authority,
6.45%, 12/03/27 ................... 3,256,967
BB 10,500 Lindsey Morden Group Inc.,
7.00%, 6/16/08 .................... 6,554,504
A2 15,000 Transport Canada Pipe Lines Limited,
6.89%, 8/07/28 .................... 9,786,358
-----------
62,776,320
-----------
CANADIAN MORTGAGES-2.6%
17,144 NHA Mortgage Backed Securities
Corp., Household Trust,
7.75%, 6/1/99 ..................... 11,248,520
-----------
CANADIAN GOVERNMENT SECURITIES-23.0%
Canada Government Bonds,
20,820 4.25%, 12/01/26 ................... 13,832,815
7,250 5.75%, 6/01/29 .................... 4,928,872
25,000++ 6.00%, 6/01/08 .................... 17,341,218
35,000+ 7.25%, 6/01/07 .................... 26,062,865
28,000 8.00%, 6/01/27 .................... 24,689,903
15,100 9.00%, 12/01/04 ................... 11,851,396
-----------
98,707,069
-----------
CANADIAN PROVINCIAL SECURITIES-25.7%
NEW BRUNSWICK-5.1%
New Brunswick Province,
13,000 7.625%, 7/14/00 ................... 8,842,671
$ 14,600 10.125%, 10/31/11 ................. 13,225,726
-----------
22,068,397
-----------
NEWFOUNDLAND-1.9%
C$10,000 Newfoundland Province,
8.45%, 2/05/26 ................... 8,259,365
-----------
NOVA SCOTIA-3.2%
15,000 Nova Scotia Province,
9.60%, 1/30/22 .................... 13,894,783
-----------
ONTARIO-7.9%
10,000 Hamilton Wentworth Regional
Municipality,
7.00%, 6/06/01 .................... 6,790,667
25,000 Ontario Province,
7.60%, 6/02/27 .................... 19,823,396
10,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 ................... 7,356,060
-----------
33,970,123
-----------
PRINCE EDWARD ISLAND-2.5%
13,000 Prince Edward Island Province,
8.50%, 10/27/15 ................... 10,665,645
-----------
QUEBEC-1.7%
10,000 Quebec Province,
7.50%, 12/01/03 ................... 7,102,398
-----------
SASKATCHEWAN-3.4%
20,000 Saskatchewan Province,
7.50%, 12/19/05 ................... 14,632,145
-----------
Total Canadian Provincial Securities
(cost $112,470,159)................ 110,592,856
-----------
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL
AMOUNT VALUE
(000) DESCRIPTION (NOTE 1)
============== ========================================= =================
<S> <C> <C>
Total Canadian Securities
(cost $292,053,374)..................... $283,324,765
------------
CALL OPTIONS PURCHASED-0.9%
$ 52,000 Interest Rate Swap, 5.85% over
3-month LIBOR, expires 8/07/00 .......... 1,948,263
100,000 Interest Rate Swap,
5.25% over 3-month LIBOR,
expires 9/24/01 1,938,000
------------
Total Call Options Purchased
(cost $2,980,200)....................... 3,886,263
------------
Total Investments before
outstanding call and Put options
written-138.2%
(cost $591,151,338)..................... 594,727,822
------------
WRITTEN OPTIONS-(0.0%)
CALL OPTION
C$(50,000) Canadian Dollar @ 1.53
expires 11/09/1998 ...................... (113,415)
PUT OPTION
(50,000) Canadian Dollar @ 1.55 expires
11/09/1998 .............................. (168,503)
------------
Total Options Written (premium
received $380,632)....................... (281,918)
------------
Total investments net of outstanding
options written-138.2% .................. 594,445,904
Liabilities in excess of other
assets-(38.2%) ......................... (164,338,888)
------------
NET ASSETS-100% ......................... $430,107,016
============
</TABLE>
- ---------------------
* 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.
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
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $591,151,338) (Note 1) ......... $594,727,822
Canadian dollars, at value (cost $8,719,037)................ 8,716,776
Cash ....................................................... 60,941
Interest receivable ........................................ 10,668,179
Receivable for investments sold ............................ 1,400,693
Interest rate caps, at value
(amortized cost $532,331) (Notes 1 & 3)................... 123,375
Forward currency contracts-amount receivable
from counterparties ...................................... 24,601
-------------
615,722,387
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 173,519,502
Payable for investments purchased .......................... 10,802,729
Interest payable ........................................... 280,748
Investment advisory fee payable (Note 2) ................... 221,407
Options written, at value
(premium received $380,632)............................... 281,918
Administration fee payable (Note 2) ........................ 36,901
Due to broker-variation margin ............................. 23,600
Other accrued expenses ..................................... 448,566
-------------
185,615,371
-------------
NET ASSETS ................................................. $430,107,016
=============
Net assets were comprised of:
Common stock, at par (Note 5) ............................ $ 362,071
Paid-in capital in excess of par .......................... 442,700,715
-------------
443,062,786
Accumulated net realized loss on investments .............. (867,738)
Net unrealized appreciation on investments ................ 27,211,914
Accumulated net realized and unrealized
foreign currency loss ................................... (39,299,946)
-------------
Net assets, October 31, 1998 ............................... $430,107,016
=============
Net asset value per share:
($430,107,016 [div] 36,207,093 shares of
common stock issued and outstanding) ..................... $ 11.88
=============
</TABLE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$4,192,199 and net of interest expense of
$9,462,311)................................. $32,299,547
Expenses
Investment advisory ........................ 2,672,684
Administration ............................. 445,447
Custodian .................................. 276,000
Reports to shareholders .................... 200,000
Directors .................................. 85,000
Audit ...................................... 72,000
Transfer agent ............................. 45,000
Miscellaneous .............................. 116,658
-----------
Total operating expenses ................... 3,912,789
-----------
Net investment income ........................ 28,386,758
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ................................ 19,892,202
Futures .................................... (3,624,665)
Short sales ................................ (679,541)
Written options ............................ (628,692)
Interest rate caps ......................... (1,056,957)
Foreign currency ........................... (16,084,825)
-----------
(2,182,478)
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ................................ (9,815,646)
Futures .................................... 1,671,681
Short sales ................................ 529,265
Written options ............................ 1,608,313
Interest rate caps ......................... 601,954
Foreign currency ........................... (11,698,598)
-----------
(17,103,031)
-----------
Net loss on investments and foreign currency
transactions ............................... (19,285,509)
-----------
NET INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS ............. $ 9,101,249
===========
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
(INCLUDING FOREIGN CURRENCY)
Cash flows provided by operating activities:
Interest received .......................................... $ 45,457,624
Operating expenses paid .................................... (3,859,995)
Interest expense paid on reverse repurchase
agreements ................................................ (9,976,719)
Purchases of short-term portfolio
investments including options, net ........................ (1,194,000)
Purchases of long-term portfolio investments ............... (869,149,447)
Proceeds from disposition of long-term
portfolio investments ..................................... 912,224,685
Variation margin on futures ................................ (2,018,747)
------------
Net cash flows provided by operating activities ............ 71,483,401
------------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ................... (32,606,567)
Cash dividends paid ......................................... (30,587,826)
------------
Net cash flows used for financing activities ................ (63,194,393)
------------
Net realized and unrealized foreign currency loss ............ (1,852,047)
------------
Net increase in cash and foreign currency .................... 6,436,961
Cash and foreign currency, at beginning of year .............. 2,340,756
------------
Cash and foreign currency, at end of year .................... $ 8,777,717
============
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 ......... $ 9,101,249
------------
Decrease in investments ...................................... 31,145,061
Net realized loss ............................................ 2,182,478
Decrease in unrealized appreciation .......................... 17,103,031
Decrease in deposits with brokers as
collateral for investments sold short ....................... 39,769,217
Increase in interest receivable .............................. (496,433)
Decrease in receivable for investments sold .................. 48,224,106
Increase in receivable for forward
currency contracts .......................................... (736,193)
Decrease in interest rate caps ............................... 1,123,375
Decrease in variation margin payable ......................... (65,763)
Decrease in payable for investments purchased ................ (63,785,045)
Increase in dollar roll payable .............................. 9,009,438
Decrease in payable for securities sold short ................ (18,830,624)
Decrease in interest payable ................................. (514,408)
Decrease in payable for options written ...................... (1,798,882)
Increase in accrued expenses and other liabilities ........... 52,794
------------
Total adjustments .......................................... 62,382,152
------------
Net cash flows provided by operating activities .............. $ 71,483,401
============
</TABLE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
INCREASE (DECREASE) ----------------------------------
1998 1997
IN NET ASSETS ---------------- ---------------
<S> <C> <C>
Operations:
Net investment income ................ $ 28,386,758 $ 32,136,760
Net realized gain (loss) ............. (2,182,478) 46,282,519
Net change in unrealized
appreciation (depreciation) ......... (17,103,031) (42,981,198)
------------ ------------
Net increase in net
assets resulting from
operations .......................... 9,101,249 35,438,081
Dividends and distributions
(Note 1):
Dividends from net investment
income .............................. (29,405,797) (30,413,427)
Distributions in excess
of net investment income ............ (1,007,535) --
------------ ------------
Total increase (decrease) ............ (21,312,083) 5,024,654
NET ASSETS
Beginning of year .................... 451,419,099 446,394,445
------------ ------------
End of year .......................... $430,107,016 $451,419,099
============ ============
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ......................... $ 12.47 $ 12.33 $ 11.36 $ 10.07 $ 12.34
-------- -------- -------- -------- --------
Net investment income (net of interest expense of
$0.26, $0.22, $0.41, $0.35, and $0.26, respectively)....... 0.78 0.89 0.93 0.89 1.09
Net realized and unrealized gain (loss) .................... (0.53) 0.09 0.92 1.37 (2.28)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ......... 0.25 0.98 1.85 2.26 (1.19)
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ...................... (0.81) (0.84) (0.29) -- (1.03)
Distributions in excess of net investment income .......... (0.03) -- -- -- --
Return of capital distributions ........................... -- -- (0.59) (0.97) (0.05)
-------- -------- -------- -------- --------
Total dividends and distributions .......................... (0.84) (0.84) (0.88) (0.97) (1.08)
-------- -------- -------- -------- --------
Net asset value, end of year* .............................. $ 11.88 $ 12.47 $ 12.33 $ 11.36 $ 10.07
======== ======== ======== ======== ========
Per share market value, end of year* ....................... $ 9.88 $ 10.56 $ 10.13 $ 10.13 $ 9.13
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ ................................... 1.34% 13.23% 9.48% 22.88% (21.62%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses (a) ..................................... 0.88% 0.93% 0.97% 0.96% 1.01%
Net investment income ...................................... 6.39% 7.30% 8.24% 8.58% 9.92%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .......................... $444,051 $440,465 $409,644 $374,975 $397,651
Portfolio turnover ......................................... 153% 146% 151% 78% 70%
Net assets, end of year (in thousands) ..................... $430,107 $451,419 $446,394 $411,295 $364,749
Reverse repurchase agreements outstanding,
end of year (in thousands) ................................ $173,520 $206,126 $217,135 $202,703 $142,450
Asset coverage++ ........................................... $ 3,479 $ 3,190 $ 3,056 $ 3,028 $ 3,561
</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 3.01%, 2.74%, 4.63%, 4.34%, and 3.36% for the years
indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock
at the current market price on the first day and a sale at the current
market price on the last day of each year reported. Dividends and
distributions are assumed, for purposes of this calculation, to be
reinvested at prices obtained under the Trust's dividend reinvestment plan.
Total investment return does not reflect brokerage commissions.
++ Per $1,000 of reverse repurchase agreement outstanding.
The information above represents the audited operating performance for a share
of common stock outstanding, total investment return, ratios to average net
assets and other supplemental data, for each of the years indicated. This
information has been determined based upon financial information provided in
the financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION & ACCOUNTING POLICIES
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, interest rate swaps, caps, floors, and non-exchange
traded options 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 than the
benchmark security. A call option gives the purchaser of the
11
<PAGE>
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.
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
12
<PAGE>
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 $27,783,423
include realized foreign exchange gains and losses from sales and maturities of
portfolio securities, maturities of reverse repurchase agreements, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of interest and discount recorded on the Trust's books and the US dollar
equivalent amounts actually received or paid and changes in unrealized foreign
exchange gains and losses in the value of portfolio securities and other assets
and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
origin, including unanticipated movements in the value of the Canadian dollar
relative to the U.S. dollar.
The exchange rate for the Canadian dollar at October 31, 1998 was
US$ 0.6481 to C$1.00.
SHORT SALES: The Trust may make short sales of securities as a method of
hedging potential price declines in similar securities owned. When the Trust
makes a short sale, it may borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Trust may
have to pay a fee to borrow the particular securities and may be obligated to
pay over any payments received on such borrowed securities. A gain, limited to
the price at which the Trust sold the security short, or a loss, unlimited as
to dollar amount, will be recognized upon the termination of a short sale if
the market price is greater or less than the proceeds originally received.
SECURITY LENDING: The Trust may lend its portfolio securities to qualified
institutions. The loans are secured by least equal, at all times, to the market
value of the securities loaned. The Trust may bear the risk of delay in
recovery of, or even loss of rights in, the securities loaned should the
borrower of the securities fail financially. The Trust receives compensation
for lending its securities in the form of interest on the loan. The Trust also
continues to receive interest on the securities loaned, and any gain or loss in
the market price of the securities loaned that may occur during the term of the
loan will be for the account of the Trust.
INTEREST RATE 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
13
<PAGE>
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 year ended
October 31, 1998 the Trust decreased paid-in capital in excess of par by
$1,007,535, increased undistributed net investment income by $556,902,
increased accumulated net realized losses on investments by $162,996, and
decreased accumulated net realized and unrealized foreign currency gain (loss)
by $613,629 for realized foreign currency losses incurred during the year ended
October 31, 1998. Net investment income, net realized gains and net assets were
not affected by this change.
NOTE 2. AGREEMENTS
The Trust has an Investment Advisory Agreement with BlackRock Financial
Management, Inc. (the "Adviser"), a wholly-owned corporate subsidiary of
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.
14
<PAGE>
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 SECURITIES AND OTHER INVESTMENTS
Purchases and sales of investment securities, other than short-term
investments, for the year ended October 31, 1998 aggregated $932,934,492 and
$915,586,110, respectively.
The Trust may invest without limit in securities which are not readily
marketable, including those which are restricted as to disposition under
securities law ("restricted securities") although the Trust does not expect
that such investments will generally exceed 5% of its portfolio assets. At
October 31, 1998, the Trust held 1.91% 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
October 31, 1998 was $567,429,526, and accordingly, net unrealized appreciation
for federal income tax purposes was $27,298,296 (gross unrealized appreciation
$33,092,501; gross unrealized depreciation $5,794,205).
For federal income tax purposes, the Trust had a capital loss
carryforward at October 31, 1998 of approximately $645,300 which will expire in
2004 . Such carryforward is after utilization of approximately $15,947,700 to
offset the Trust's net taxable gains recognized in the year ended October 31,
1998. Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amounts.
Details of open financial futures contracts at October 31, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT
NUMBER OF EXPIRATION TRADE OCTOBER 31, UNREALIZED
CONTRACTS TYPE DATE DATE 1998 DEPRECIATION
- ----------- -------------------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Short position:
51 Eurodollar Dec. '98 $11,929,320 $12,110,588 $(181,268)
Long position:
38 30 Yr. U.S. T-Note Dec. '98 5,031,638 4,898,438 (133,200)
---------
$(314,468)
=========
</TABLE>
Details of open forward currency contracts at October 31, 1998 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT
SETTLEMENT CONTRACT SETTLEMENT OCTOBER 31, UNREALIZED
DATE TO RECEIVE DATE 1998 APPRECIATION
- ------------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Purchase:
11/30/98 $30,000,000 $19,417,476 $19,442,077 $24,601
</TABLE>
The Trust entered into one interest rate cap. Under the agreements the
Trust receives the excess, if any, of a floating rate over a fixed rate. The
Trust paid a transaction fee for the agreement. Details of the cap at October
31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE FLOATING RATE DATE COST 1998 DEPRECIATION
- ------------ ---------- --------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 6.00% 3 month LIBOR 2/19/02 $532,331 $123,375 $ (408,956)
</TABLE>
Details of open swaptions at October 31, 1998 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED FLOATING TERMINATION OCTOBER 31,
(000) TYPE RATE RATE DATE COST 1998
- ---------- ------ ---------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$52,000 Call 5.85% 3 month LIBOR 08/09/10 $1,084,200 $1,948,263
100,000 Call 5.25% 3 month LIBOR 09/26/11 1,896,000 1,938,000
</TABLE>
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.
15
<PAGE>
The average daily balance of United States reverse repurchase agreements
outstanding during the year ended October 31, 1998 was approximately
$114,302,427 at a weighted average interest rate of approximately 5.44%. Also,
the average daily balance of Canadian reverse repurchase agreements outstanding
during the year ended October 31, 1998 was approximately C$84,277,224 at a
weighted average interest rate of 4.36%.
The maximum amount of total reverse repurchase agreements outstanding at
any month-end during the period was $185,016,789 as of June 30, 1998, which was
30% 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 year
ended October 31, 1998 was approximately $249,354. 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 1.52% of total assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of
the 36,207,093 shares outstanding at October 31, 1998, the Adviser owned 7,093
shares.
NOTE 6. DIVIDENDS
Subsequent to October 31, 1998, the Board of Directors of the Trust
declared dividends from undistributed earnings of $0.07 per share payable
November 30, 1998 to shareholders of record on November 16, 1998.
16
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
REPORT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
The Shareholders and Board of Directors of
The BlackRock North American Government Income Trust Inc.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of The BlackRock North American
Government Income Trust Inc. (the "Trust") as of October 31, 1998 and the
related statements of operations and of cash flows for the year then ended, the
statement of changes in net assets for the two years then ended, and financial
highlights for each of the five years then ended. These financial statements
and the financial highlights are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at October
31, 1998 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of The BlackRock North
American Government Income Trust Inc. at October 31, 1998 and the results of
its operations, its cash flows, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
[GRAPHIC OMITTED]
DELOITTE & TOUCHE LLP
New York, New York
December 11, 1998
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT TRUST INC.
TAX INFORMATION
- --------------------------------------------------------------------------------
We wish to advise you as to the federal tax status of dividends and
distributions paid by the Trust during its fiscal year ended October 31, 1998.
During the fiscal year ended October 31, 1998, the Trust paid dividends
and distributions of $.84 per share from ordinary income. For federal income
tax purposes, the aggregate of any dividends and short-term capital gains
distributions you received are reportable in your 1998 federal income tax
return as ordinary income. Further, we wish to advise you that your income
dividends do not qualify for the dividends received deduction.
For the purpose of preparing your 1998 annual federal income tax return,
however, you should report the amounts as reflected on the appropriate Form
1099 DIV which will be mailed to you in January 1998.
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
automatically reinvested by State Street Bank & Trust Company (the "Plan
Agent") in Trust shares pursuant to the Plan. Shareholders who do not
participate in the Plan will receive all distributions in cash paid by check in
United States dollars mailed directly to the shareholders of record (or if the
shares are held in street or other nominee name, then to the nominee) by the
custodian, as dividend disbursing agent.
The Plan Agent serves as agent for the shareholders in administering the
Plan. After the Trust declares a dividend or determines to make a capital gain
distribution, the Plan Agent will, as agent for the participants, receive the
cash payment and use it to buy Trust shares in the open market, on the New York
Stock Exchange or elsewhere, for the participants' accounts. The Trust will not
issue shares under the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends
and distributions will be paid by the Trust. However, each participant will pay
a pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal income taxes that may be payable
on such dividends or distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Trust reserves the right to amend or terminate the Plan as
applied to any dividend or distribution paid subsequent to written notice of
the change sent to all shareholders of the Trust at least 90 days before the
record date for the dividend or distribution. The Plan also may be amended or
terminated by the Plan Agent upon at least 90 days' written notice to all
shareholders of the Trust. All correspondence concerning the Plan should be
directed to the Plan Agent at (800) 699-1BFM or BlackRock Financial Management
at (800) 227-7BFM. The addresses are on the front of this report.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
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.
YEAR 2000 READINESS DISCLOSURE. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incure
costs of up to approximately five hundred thousand dollars to complete such
evaluation and to make any modifications to its systems as may be necessary to
achieve Year 2000 compliance. The Adviser has advised the Trust that it expects
to have fully tested its systems for Year 2000 compliance by December 31, 1998.
The Trust may be required to bear a portion of such cost incurred by the
Adviser in this regard. The Adviser has advised the Trust that it does not
anticipate any material disruption in the operations of the Trust as a result
of any failure by the Adviser to achieve Year 2000 compliance. There can be no
assurance that the costs will not exceed the amount referred to above or that
the Trust will not experience a disruption in operations.
The Adviser has advised the Trust that it is in the process of evaluating
the Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it intends to communicate with such
suppliers to determine their Year 2000 compliance status and the extent to
which the Adviser or the Trust could be affected by any supplier's Year 2000
compliance issues. To date, however, the Adviser has not received responses
from all such suppliers with respect to their Year 2000 compliance, and there
can be no assurance that the systems of such suppliers, who are beyond the
Trust's control, will be Year 2000 compliant. In the event that any of the
Trust's significant suppliers do not successfully and timely achieve Year 2000
compliance, the Trust's business or operations could be adversely affected. The
Adviser has advised the Trust that it is in the process of preparing a
contingency plan for Year 2000 compliance by its suppliers. There can be no
assurance that such contingency plan will be successful in preventing a
disruption of the Trust's operations.
The Trust is designating this disclosure as its Year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock North American Government Income 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 $122
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 410, 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
approximately 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
20
<PAGE>
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.
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD?
Does the Trust Pay Dividends Regularly? The Trust's shares are traded on the
New York Stock Exchange which provides investors with liquidity on a daily
basis. Orders to buy or sell shares of the Trust must be placed through a
registered broker or financial advisor. The Trust pays monthly dividends which
are typically paid on the last business day of the month. For shares held in
the shareholder's name, dividends may be reinvested in additional shares of the
Trust through the Trust's transfer agent, State Street Bank & Trust Company.
Investors who wish to hold shares in a brokerage account should check with
their financial advisor to determine whether their brokerage firm offers
dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in
longer term assets is the benefit to the Trust from leverage. In general, the
portfolio is typically leveraged at approximately 331|M/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 Trust 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.
21
<PAGE>
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.
22
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates
SECURITIES (ARMS): 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-backed securities which separate
MORTGAGE OBLIGATIONS (CMOS): 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.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
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 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 Arrangements in which a pool of assets is
BACKED SECURITIES: 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.
</TABLE>
24
<PAGE>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
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TAXABLE TRUSTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STOCK MATURITY
SYMBOL DATE
PERPETUAL TRUSTS ---------- ---------
<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>
TAX-EXEMPT TRUSTS
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<TABLE>
<CAPTION>
STOCK MATURITY
SYMBOL DATE
PERPETUAL TRUSTS --------- ---------
<S> <C> <C>
Tax-Exempt Trusts
The BlackRock Investment Quality Municipal Trust Inc. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE CALL BLACKROCK AT (800) 227-7BFM (7236)
OR CONSULT WITH YOUR FINANCIAL ADVISOR.
</TABLE>
25
<PAGE>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
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BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $122
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 410, 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
26
<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, NJ 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
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
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[logo] Printed on recycled paper 092475-10-2
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THE BLACKROCK
NORTH AMERICAN
GOVERNMENT
INCOME TRUST INC.
- --------------------------------------------------------------------------------
ANNUAL REPORT
OCTOBER 31, 1998
