- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
November 30, 1999
Dear Shareholder:
After easing monetary policy three times during the fourth quarter of 1998,
the Federal Reserve reversed its trend by raising the Fed funds target rate 75
basis points (to 5.50%) over the course of 1999 in response to robust GDP, low
unemployment and rising equity prices. U.S. Treasury yields rose significantly
during the past twelve months, with the yield of the 30-year Treasury rising
above 6.00% for the first time since May 1998.
Despite the rise in Treasury yields, continued strong economic growth may
spur the Federal Reserve to proactively fight perceived inflation through
continued monetary policy tightening in 2000. Until the inflation picture
becomes clearer, we expect interest rates to remain largely range-bound.
Accordingly, we will continue to seek the most attractive relative value
opportunities and utilize our proprietary risk management systems to help the
Trust to achieve its investment objectives.
This report contains a summary of market conditions during the annual
period and a review of 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. Continued thanks for your confidence in BlackRock. We
appreciate the opportunity to help you achieve your long-term investment goals.
Sincerely,
/s/ Laurence D. Fink /s/ Ralph L. Schlosstein
- -------------------- ------------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
November 30, 1999
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, 1999. 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 typically 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 and privately issued mortgage-backed
securities. All of the Trust's assets must be rated "BBB" by Standard & Poor's,
"Baa" by Moody's, or determined by the advisors to be of similar quality 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 past twelve months:
<TABLE>
<CAPTION>
10/31/99 10/31/98 CHANGE HIGH LOW
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK PRICE $ 9.6875 $ 9.875 (1.90)% $10.125 $ 9.625
NET ASSET VALUE (NAV) $11.45 $11.88 (3.62)% $12.18 $11.22
CURRENCY EXCHANGE RATE $ 0.6794 $ 0.6481 4.83% $ 0.6889 $ 0.6429
10-YEAR U.S. TREASURY NOTE 6.02% 4.61% 30.59% 6.24% 4.52%
</TABLE>
THE U.S. AND CANADIAN FIXED INCOME MARKETS
The U.S. economy sustained its growth during the past twelve months, as
U.S. exports and manufacturing continued to rebound. Additionally, consumer
strength remains an important contributor to economic growth as low unemployment
and rising incomes fuel domestic demand. After lowering interest rates three
times in the second half of 1998, and despite inflation concerns as measured by
CPI and PPI remaining relatively benign, the Federal Reserve adopted a
tightening bias and raised its target for the Federal funds rate from 4.75% to
5.50% between June and November 1999. In a statement accompanying the latest
tightening on November 16, it was indicated that the Fed believes that growth
"continues in excess of the economy's growth potential"; nevertheless, the Fed
reversed their tightening stance by adopting a neutral bias.
After a brief rally in late 1998, Treasury yields rose dramatically during
1999. Over the period, the yield of the 30-year Treasury increased by 100 basis
points, closing at 6.16% on October 31. Bond prices, which move inversely to
their yields, were punished by the constant threat of inflation in response to
the strong economic data and the market's uncertainty over the Fed's policy
throughout the year. Recently, a weaker dollar, higher commodity prices and
strong gains in the U.S. and European equity markets have depressed overall
demand for fixed income securities.
Although yields of Canadian government securities rose during the period,
they outperformed their U.S. Treasury counterparts, with the yield of the
Canadian 10-year rising 97 basis points from 5.08% to 6.05% while the U.S.
10-year rose 141 basis points from 4.61% to 6.02%. Over the period, the yield
spread of the Canadian 10-year narrowed from 25 basis points above the U.S.
10-year to approximately even yield on October 31, 1999. The Canadian dollar
strengthened over the period, rising from $0.6481 to $0.6794. The Canadian
dollar's rise reflected its historically cheap valuation, rising commodity
prices and a rebounding Canadian economy. Lastly, after raising interest rates
100 basis points to 6.00% in August 1998, the Bank
2
<PAGE>
of Canada (BOC) cut rates five times totaling 125 basis points between September
1998 and April 1999. After remaining idle the first two times the Fed raised
U.S. rates, the BOC tightened in November and is expected to follow the Fed's
monetary policy going forward.
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 dollar and asset 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, 1998 asset composition:
SECTOR BREAKDOWN
COMPOSITION OCTOBER 31, 1999 OCTOBER 31, 1998
CANADIAN PORTFOLIO ALLOCATION 59% 49%
Canadian Government Securities 27% 18%
Canadian Corporate Bonds 17% 11%
Ontario 5% 6%
New Brunswick 4% 4%
Nova Scotia 3% 2%
Prince Edward Island 2% 2%
Newfoundland 1% 1%
Canadian Mortgages - 2%
Saskatchewan - 2%
Quebec - 1%
U.S. PORTFOLIO ALLOCATION 41% 51%
Interest Only Mortgage-Backed Securities 7% 9%
FHA Project Loans 7% 6%
Agency Mortgage Pass-Throughs 7% 2%
Agency Multiple Class Mortgage Pass-Throughs 5% 4%
Principal Only Mortgage-Backed Securities 5% 3%
Adjustable Rate Mortgages 5% 2%
U.S. Government Securities 3% 19%
Commercial Mortgage-Backed Securities 1% 3%
Non-Agency Multiple Class Mortgage Pass-Throughs 1% 3%
The Trust continued to increase its exposure to both Canadian bonds and the
Canadian dollar over the year, primarily adding to the Trust's government and
corporate sectors. Canadian government bond yields rose throughout the period;
however, the Trust emphasized purchases in the second half of the period when
Canadian bonds underperformed U.S. bonds. Within the Canadian corporate sector,
the Trust captured the strong performance of upper-tier credits, whose yield
spreads tightened throughout the period. Additionally, the Trust's allocation to
Canadian inflation linked bonds (Real Return Bonds) continued to post strong
performance. Within the U.S. portion of the portfolio, the Trust reduced
Treasury exposure and redeployed assets into the mortgage market due to
attractive yield spreads and strong supply and demand technicals.
3
<PAGE>
SHARE REPURCHASE ACTIVITY
On August 23rd the Trust's Board of Directors authorized the repurchase of
up to an aggregate of 10% of the Trust's outstanding common stock with the
intent to enhance shareholder value. The Board believes that a share repurchase
program may provide additional secondary market support for the Trust's stock,
liquidity to shareholders electing to sell their shares and will be accretive to
the net asset value of shares held by shareholders who maintain their
investment. As of October 31, 1999, 724,200 of the Trust's outstanding shares
(or 2.0%) were purchased by the Trust, and additional purchasing activity may be
undertaken during the Trust's next fiscal period.
We will continue to manage the Trust to seek 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 yours,
/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 10/31/99: $ 9.6875
Net Asset Value as of 10/31/99: $11.45
Yield on Closing Stock Price as of 10/31/99 ($9.6875)1: 8.67%
Current Monthly Distribution per Share2: $ 0.07
Current Annualized Distribution per Share2: $ 0.84
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
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THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ============= ===================================== ============
LONG-TERM INVESTMENTS-122.4%
UNITED STATES SECURITIES-50.0%
MORTGAGE PASS-THROUGHS-17.2%
$8,778++ Federal Home Loan Mortgage Corp.,
6.50%, 02/01/28 - 6/01/29 ........... $8,425,434
Federal Housing Administration,
GMAC,
2,121 Series 37, 7.43%, 10/01/22 ........ 2,128,622
936 Series 44, 7.43%, 08/01/22 ........ 938,463
1,618 Series 59, 7.43%, 07/01/21 ........ 1,624,023
704 Series 65, 7.43%, 12/01/21 ........ 704,563
Merrill,
2,867 Series 29, 7.43%, 6/01/22 ......... 2,879,553
23,226 Series 42, 7.43%, 09/01/22 ........ 23,279,340
Reilly, Series B-11, 7.40%,
2,190 04/01/21 .......................... 2,198,806
Sunfield Lakes, 7.925%,
1,426 07/01/37 .......................... 1,420,950
2,248 Westmore Project 8240,
7.25%, 04/01/21 ................... 2,252,790
Federal National Mortgage
Association,
19,049+ 5.50%, 12/01/13 - 02/01/14,
15 year ........................... 17,945,256
4,908+ 7.00%, 02/01/24 - 01/01/29 ........ 4,829,267
Government National Mortgage
Association,
1,181@ 8.00%, 04/15/24 - 11/15/25 ........ 1,207,011
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69,834,078
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MULTIPLE CLASS MORTGAGE
PASS-THROUGHS-13.7%
Countrywide Funding Corp.,
Aaa 2,921 Series 1993-7, Class 7-AS3,
11/25/23 (ARM) ..................... 2,545,590
AAA 1,696 Series 1993-10, Class 10-A8,
01/25/24 (ARM) ..................... 1,509,670
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
5,166++ Series 1104, Class 1104-L,
06/15/21 ........................... 5,356,271
6,115 Series 1353, Class 1353-S,
08/15/07 (ARM) ..................... 578,857
2,000 Series 1523, Class 1523-SA,
06/15/23 (ARM) ..................... 1,632,500
2,500 Series 1526, Class 1526-SA,
06/15/23 (ARM) ..................... 1,850,475
668 Series 1590, Class 1590-OA,
10/15/23 (ARM) ..................... 703,794
1,225 Series 1590, Class 1590-T,
10/15/23 (ARM) ..................... 816,913
2,000++ Series 1601, Class 1601-SE,
10/15/08 .......................... 1,660,000
195 Series 1609, Class 1609-LN,
11/15/23 (ARM) ..................... 168,236
4,785++ Series 1625, Class 1625-SC,
12/15/08 (ARM) ....................... 3,973,149
4,122 Series 1649, Class 1649-S,
12/15/08 (ARM) ..................... 3,995,662
1,682 Series 1666, Class 1666-S,
01/15/24 (ARM) ..................... 1,628,169
2,250 Series 1688, Class 1688-S,
12/15/13 (ARM) ..................... 2,055,217
3,092 Series 1699, Class 1699-ST,
03/15/24 ........................... 2,186,321
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
2,845+ Trust 1989-90, Class 90-E,
12/25/19 ........................... 2,945,604
717@ Trust 1991-87, Class 87-S,
08/25/21 (ARM) ..................... 769,374
667 Trust 1991-145, Class 145-S,
10/25/06 (ARM) ..................... 743,397
1,127 Trust 1993-97, Class 97-SB,
05/25/23 (ARM) ..................... 638,609
809 Trust 1993-113, Class 113-SB,
07/25/23 (ARM) ..................... 816,466
1,140 Trust 1993-139, Class 139-SY,
08/25/23 (ARM) ..................... 1,047,819
1,612 Trust 1993-170, Class 170-SC,
09/25/08 (ARM) ..................... 1,603,836
1,581 Trust 1993-179, Class 179-SB,
10/25/23 (ARM) ..................... 1,319,871
102 Trust 1993-183, Class 183-SM,
10/25/23 (ARM) ..................... 101,352
738 Trust 1993-208, Class 208-SE,
11/25/23 (ARM) ..................... 567,105
744 Trust 1993-210, Class 210-A,
01/25/23 ........................... 723,833
2,097++ Trust 1993-214, Class 214-S,
12/25/08 ........................... 2,001,053
424 Trust 1993-224, Class 224-SD,
11/25/23 ........................... 402,877
1,124 Trust 1993-256, Class 256-F,
11/25/23 (ARM) ..................... 924,717
See Notes to Financial Statements.
5
<PAGE>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ============= ===================================== ============
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS (CONT'D)
Federal National Mortgage Association,
REMIC Pass-Through Certificates, (cont'd)
$ 1,808 Trust 1994-23, Class 23-PS,
04/25/23 (ARM) .................... $1,636,067
1,778++ Trust 1995-10, Class 10-Z,
03/25/24 ........................... 1,769,863
2,100 Trust 1996-14, Class 14-M,
10/25/21 ........................... 1,830,276
1,433 Trust 1999-1, Class 1-S,
07/25/23 (ARM) ..................... 1,459,131
3,531 Trust 1999-40, Class 40-SB,
08/25/14 (ARM) ..................... 3,041,347
Aaa 895 Prudential Home Mortgage
Securities Co., Mortgage
Pass-Through Certificates,
Series 1993-54, Class 54-A28,
01/25/24 (ARM) ..................... 740,395
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55,743,816
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INTEREST ONLY MORTGAGE-BACKED
SECURITIES-8.2%
BA Mortgage Securities Inc.,
AAA 968 Series 1997-1, Class X, 7/25/26 ...... 150,398
AAA 1,996 Series 1998-1, Class 2X, 5/28/13 ...... 301,250
Countrywide Funding Corp.,
AAA 25,087 Series 1997-8, Class A-5, 1/25/28 .... 243,030
AAA 148,442 Series 1998-6, Class 6-X, 6/25/13 .... 1,925,109
AAA 8,748 Credit Suisse First Boston Mortgage
Corp.,
Series 1997-C1, Class C1-AX,
4/20/22** .......................... 766,870
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
3,099 Series 1254, Class 1254-Z,
4/15/22 ............................ 555,753
1,093 Series 1379, Class 1379-P,
8/15/18 ............................ 16,088
190 Series 1506, Class 1506-L,
5/15/08 ............................ 21,789
1,000 Series 1611, Class 1611-JC,
8/15/23 ............................ 957,500
19,019 Series 1809, Class 1809-SC,
12/15/23 ........................... 1,544,316
4,053 Series 1900, Class 1900-SV,
8/15/08 ............................ 531,248
1,600 Series 1910, Class 1910-IC,
5/15/25 ............................ 276,785
7,000 Series 2002, Class 2002-HJ,
10/15/08 ........................... 736,920
5,225 Series 2044, Class 2044-PF,
6/15/20 ............................ 703,195
3,763 Series 2062, Class 2062-QL,
3/15/28 ............................ 1,176,162
2,430 Series 2066, Class 2066-PJ,
12/15/26 ........................... 637,068
6,482 Series 2080, Class 2080-PL,
1/15/27 ............................ 1,787,001
10,173 Series 2130, Class 2130-SC,
3/15/29 ............................ 851,955
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
915@ Trust G1992-5, Class 5-H,
1/25/22 ............................ 242,597
2,532 Trust 1993-46, Class 46-S,
5/25/22 ............................ 120,162
1,700 Trust 1993-196, Class 196-SC,
10/25/08 ........................... 1,554,990
7,789 Trust 1993-199, Class 199-SB,
10/25/23 ........................... 313,980
3,456 Trust 1993-202, Class 202-QA,
6/25/19 ............................ 223,794
6,698 Trust 1995-26, Class 26-SW,
2/25/24 ............................ 1,032,856
5,501 Trust 1997-50, Class 50-SI,
4/25/23 ............................ 187,377
10,224 Trust 1997-65, Class 65-SG,
6/25/23 ............................ 1,258,824
138 Trust 1998-16, Series 16-PK,
12/18/21 ........................... 20,151
4,500 Trust 1998-25, Class 25-PG,
3/18/22 ............................ 777,105
3,529 Trust 1998-45, Class 45-PL,
3/18/24 ............................ 836,158
Aaa 2,922 G. E. Capital Mortgage Services,
Trust 1993-13, Class 13-A2,
10/25/08 ........................... 72,923
GMAC Commercial Mortgage
Securities Inc., Mortgage Certificates,
AAA 18,161 Trust 1997-C1, Class C1-X,
7/15/27 ............................. 1,395,337
AAA 68,193 Trust 1998-C2, Class C2-X,
8/15/23 ............................ 2,675,682
AAA 30,927 Goldman Sachs Mortgage
Securities Corp., Mortgage Participation
Certifcates, Series 1998-5,
Class 5-IO, 6/19/27** .............. 773,171
Government National Mortgage
Association,
3,283 Trust 1998-14, Class 14-PK,
11/20/26 ........................... 585,356
4,822 Trust 1999-3, Class 3-S, 2/16/29 ...... 382,720
40,163 Trust 1999-5, Class 5-S, 2/16/29 ......1,493,570
22,613 Trust 1999-8, Class 8-S, 3/16/29 ...... 791,469
AAA 20,075 Hanover Grantor Trust, Series
1999-A-1, Class A1-IO,
8/28/27** .......................... 668,117
See Notes to Financial Statements.
6
<PAGE>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ============= ===================================== ============
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
AAA $53,840 Merrill Lynch Mortgage Investors, Inc.,
Series 1997-C2, Class C2-IO,
12/10/29 ...........................$3,569,707
Aaa 5,867 Morgan Stanley Capital 1 Inc.,
Series 1997-HF1, Class HF1-X,
6/15/17** .......................... 426,149
AAA 65,153 Prudential Home Mortgage
Securities Co., Mortgage
Pass-Through Certificates,
Class A-9, 2/25/24 .................. 682,072
-----------
33,266,704
-----------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES-5.6%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
1,106 Series G-50, Class G50-AM,
4/25/24 ............................ 710,205
9,319 Series 1570, Class 1570-C,
8/15/23 ............................ 7,222,733
5,658++ Series 1686, Class 1686-B,
2/15/24 ............................ 3,320,428
1,427 Series 1739, Class 1739-B,
2/15/24 ............................ 1,096,022
406 Series 1857, Class 1857-PB,
12/15/08 ........................... 332,691
6,297 Series 2009, Class 2009-HJ,
10/15/22 ........................... 3,858,841
2,655 Series 2073, Class 2073-PO,
7/15/28 ............................ 1,321,920
408 Series 2087, Class 2087-PO,
9/15/25 ............................ 300,574
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,036 Trust 279, Class 279-1, 7/01/26 ...... 814,389
1,050 Trust 1996-38, Class 38-E, 8/25/23 ......328,185
204 Trust 1997-85, Class 85-LE, 10/25/23.... 168,490
3,301 Trust 1998-26, Class 26-L, 3/25/23.... 2,203,419
648 Trust 1998-48, Class 48-P, 8/18/28...... 393,583
6,055 Fund America Investment Corp.,
Series 1993-C, Class B, 4/29/30 ...... 837,067
-----------
2,908,547
-----------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-1.2%
AAA 5,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A1B,
6.506%, 7/15/08 ................... 4,736,150
-----------
U.S GOVERNMENT AND AGENCY SECURITIES-4.1%
Overseas Private Investment Corp.,
290 5.46%, 5/29/12 ....................... 263,805
264 5.79%, 5/29/12 ....................... 243,966
341 5.88%, 5/29/12 ....................... 320,915
220 6.27%, 5/29/12 ....................... 210,262
386 6.81%, 5/29/12 ....................... 386,402
440 6.84%, 5/29/12 ....................... 432,830
1,012 6.91%, 5/29/12 ....................... 964,563
3,258 Small Business Administration, 6.95%,
Series 1996-20K, 11/01/16 ............ 3,178,556
10,164++ U.S. Treasury Bond,
3.875%, 4/15/29 (TIPS) ............... 9,731,934
U.S. Treasury Notes,
225 6.125%, 8/15/07 ...................... 224,120
150 6.50%, 5/31/01 ....................... 151,593
610 7.25%, 8/15/04 ....................... 640,402
-----------
16,749,348
-----------
Total United States Securities
(cost $208,236,111) ................ 203,238,643
-----------
CANADIAN SECURITIES-72.4%
CANADIAN CORPORATE BONDS-20.4%
A2 C$3,500 Bell Canada, 11.45%, 4/15/10 ........... 3,181,602
AA- 4,500 Canadian Imperial Bank of
Commerce, 8.50%, 2/05/07 ............. 3,182,254
Aa3 10,000 Canadian Imperial Bank of
Commerce, Toronto, 8.15%,
4/25/11 .............................. 7,290,781
A 10,000 Credit Foncier de France, 8.50%,
3/12/03 .............................. 7,140,220
A+ 12,000 Daimler Benz AG, 9.50%, 10/30/01 ....... 8,600,573
European Investment Bank,
AAA 22,800 8.50%, 8/30/05 .......................16,981,268
AAA 6,500 9.125%, 9/20/04 ...................... 4,896,970
A1 10,000 Ford Credit Canada Ltd., 5.66%,
11/19/01 ............................. 6,709,015
A 10,000 General Motors Acceptance Corp.,
5.90%, 6/24/02 ....................... 6,703,033
A2 5,000 Greater Toronto Airports Authority,
6.45%, 12/03/27 ...................... 3,137,102
A 14,000 Highway 407, 6.47%, 7/27/29 ............ 8,712,548
BBB- 10,500 Lindsey Morden Group Inc.,
7.00%, 6/16/08 ....................... 6,351,790
-----------
82,887,156
-----------
See Notes to Financial Statements.
7
<PAGE>
PRINCIPAL
RATING* AMOUNT VALUE
(UNAUDITED) (000) DESCRIPTION (NOTE 1)
=============== ============= ===================================== ============
CANADIAN GOVERNMENT SECURITIES-32.7%
Canadian Government Bonds,
C$20,431 4.00%, 12/01/31 (RRB) ............. $13,743,548
3,561 4.25%, 12/01/26 (RRB) ............. 2,499,537
62,500++ 5.25%, 9/01/03 .................... 41,383,586
7,000++ 5.50%, 6/01/09 .................... 4,566,003
9,250 6.00%, 6/01/08 .................... 6,258,000
20,000++ 7.00%, 9/01/01 .................... 13,850,126
30,000 7.25%, 6/01/07 .................... 21,828,929
20,200 8.00%, 6/01/27 .................... 17,036,674
15,100 9.00%, 12/01/04 ................... 11,561,928
------------
132,728,331
------------
CANADIAN PROVINCIAL SECURITIES-19.3%
NEW BRUNSWICK-5.4%
New Brunswick Province,
AA- 13,000 7.625%, 7/14/00 ................... 8,974,513
A1 14,600 10.125%, 10/31/11 ................. 12,887,260
------------
21,861,773
------------
NEWFOUNDLAND-2.0%
Baa1 10,000 Newfoundland Province,
8.45%, 2/05/26 .................... 8,075,888
------------
NOVA SCOTIA-3.3%
NR 15,000 Nova Scotia Province,
9.60%, 1/30/22 .................... 13,358,143
------------
ONTARIO-5.8%
Aa3 10,000 Hamilton Wentworth Regional
Municipality,
7.00%, 6/06/01 .................... 6,910,796
Ontario Province,
Aa3 8,500 5.70%, 12/01/08 ................... 5,527,685
Aa3 11,500 6.15%, 4/01/09 .................... 7,467,695
AA+ 5,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 ................... 3,630,274
------------
23,536,450
------------
PRINCE EDWARD ISLAND-2.5%
NR 13,000 Prince Edward Island Province,
8.50%, 10/27/15 ................... 10,310,089
------------
QUEBEC-0.3%
A+ 2,000 Quebec Province, 7.50%, 12/01/03 1,416,808
------------
Total Canadian Provincial Securities. 78,559,151
------------
Total Canadian Securities
(cost $303,023,222) ............. 294,174,638
------------
Total Long-Term Investments
cost $511,259,333) .............. 497,413,281
------------
SHORT-TERM INVESTMENTS-1.3%
DISCOUNT NOTE
$ 5,083 Federal Home Loan Mortgage Corp.,
5.16%, 11/01/99
(cost $5,083,000) .................$ 5,083,000
------------
Total investments before
investments sold
short-123.7%
(cost $516,340,147) .............. 502,496,281
------------
INVESTMENT SOLD SHORT-(3.5%)
(14,755) U.S. Treasury Notes,
5.50%, 05/15/09
(proceeds $14,275,463)............ (14,153,291)
------------
Total investments, net of
investments sold
short-120.2% ..................... 488,342,990
Liabilities in excess of
other assets-(20.2%) ............. (82,164,764)
------------
NET ASSETS-100% .................... $406,178,226
============
- ---------------------
* Using the higher of Standard & Poor's, Moody's or Fitch'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.
REMIC - Real Estate Mortgage Investment Conduit.
RRB - Real Return Bond.
TIPS - Treasury Inflation Protection Securities.
See Notes to Financial Statements.
8
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $516,340,147) (Note 1) ......... $502,496,281
Canadian dollars, at value (cost $2,135,463)................ 2,135,463
Cash ....................................................... 82,691
Receivable for investments sold ............................ 52,948,024
Deposits with brokers as collateral for investments
sold short (Note 1) ...................................... 14,459,900
Interest receivable ........................................ 8,207,864
Forward currency contracts-amount receivable
from counterparties ...................................... 351,981
Interest rate caps, at value
(amortized cost $371,219) (Notes 1 & 3)................... 295,075
-------------
580,977,279
-------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 149,346,308
Investments sold short, at value
(proceeds received $14,275,463)........................... 14,153,291
Payable for investments purchased .......................... 9,514,024
Interest payable ........................................... 634,167
Due to broker-variation margin (Notes 1 & 3) ............... 556,125
Investment advisory fee payable (Note 2) ................... 207,062
Administration fee payable (Note 2) ........................ 34,510
Other accrued expenses ..................................... 353,566
-------------
174,799,053
-------------
NET ASSETS ................................................. $406,178,226
=============
Net assets were comprised of:
Common stock, at par (Note 5) ............................ $ 354,828
Paid-in capital in excess of par .......................... 442,707,958
Cost of 724,200 shares held in treasury ................... (7,216,300)
-------------
435,846,486
Undistributed net investment income ....................... 355,321
Accumulated net realized gain on investments .............. 722,025
Net unrealized depreciation on investments ................ (5,709,323)
Accumulated net realized and unrealized
foreign currency loss ................................... (25,036,283)
-------------
Net assets, October 31, 1999 ............................... $406,178,226
=============
Net asset value per share:
($406,178,226 / 35,482,893 shares of
common stock issued and outstanding) ..................... $ 11.45
=============
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$5,669,511 and interest expense of $9,891,157)..... $34,096,409
-----------
Expenses
Investment advisory ............................... 2,566,126
Administration .................................... 427,688
Custodian ......................................... 266,000
Directors ......................................... 84,000
Audit ............................................. 67,000
Reports to shareholders ........................... 67,000
Transfer agent .................................... 44,000
Legal ............................................. 12,000
Miscellaneous ..................................... 110,441
-----------
Total operating expenses .......................... 3,644,255
-----------
Net investment income ............................... 30,452,154
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ....................................... (726,737)
Futures ........................................... (917,611)
Short sales ....................................... 1,789,342
Foreign currency .................................. (1,938,550)
Swaps ............................................. 277,200
Written Options ................................... 569,756
-----------
(946,600)
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ....................................... (33,993,580)
Futures ........................................... 716,073
Written options ................................... (98,713)
Interest rate caps ................................ 332,812
Short sales ....................................... 122,171
Foreign currency .................................. 17,069,618
-----------
(15,851,619)
-----------
Net loss on investments and foreign currency
transactions ...................................... (16,798,219)
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................... $13,653,935
===========
See Notes to Financial Statements.
9
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ..... $13,653,935
-----------
Decrease in investments .................................. 74,694,405
Net realized loss ........................................ 946,600
Decrease in unrealized appreciation ...................... 15,851,619
Increase in interest rate cap ............................ (171,700)
Increase in receivable for investments sold .............. (51,547,331)
Increase in receivable for forward currency
contracts .............................................. (327,380)
Decrease in interest receivable .......................... 2,460,315
Increase in due to broker-variation margin ............... 532,525
Decrease in payable for investments purchased ............ (1,288,705)
Decrease in written options .............................. (281,918)
Increase in interest payable ............................. 353,419
Decrease in accrued expenses and other liabilities ....... (111,732)
Increase in deposits with brokers ........................ (14,459,900)
Increase in payable for investments sold short ........... 14,153,291
-----------
Total adjustments ....................................... 40,803,508
-----------
Net cash flows provided by operating activities .......... $54,457,443
===========
INCREASE (DECREASE) IN CASH
Net cash flows provided by operating activities .......... $54,457,443
-----------
Cash flows used for financing activities:
Decrease in reverse repurchase agreements ............... (24,173,194)
Cash dividends paid ..................................... (30,366,425)
Cost of Trust shares reacquired ......................... (7,216,300)
-----------
Net cash flows used for financing activities ............. (61,755,919)
-----------
Net realized and unrealized foreign currency gain........ 738,913
Net decrease in cash and foreign currency ............... (6,559,563)
Cash and foreign currency at beginning of year .......... 8,777,717
-----------
Cash and foreign currency at end of year ................ $ 2,218,154
===========
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31
-----------------------------------
1999 1998
INCREASE (DECREASE)
IN NET ASSETS
Operations:
Net investment income ................... $ 30,452,154 $ 28,386,758
Net realized loss ....................... (946,600) (2,182,478)
Net change in unrealized
depreciation ........................... (15,851,619) (17,103,031)
------------ ------------
Net increase in net
assets resulting from
operations ............................. 13,653,935 9,101,249
Dividends and distributions (Note 1):
Dividends from net investment
income ................................. (30,366,425) (29,405,797)
Distributions in excess
of net investment income ............... - (1,007,535)
------------ ------------
Cost of Trust shares reacquired ......... (7,216,300) -
------------ ------------
Total decrease .......................... (23,928,790) (21,312,083)
NET ASSETS
Beginning of year ....................... 430,107,016 451,419,099
------------ ------------
End of year ............................. $406,178,226 $430,107,016
============ ============
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year ......................... $ 11.88 $ 12.47 $ 12.33 $ 11.36 $ 10.07
------- ------- -------- -------- --------
Net investment income (net of interest expense of
$0.28, $0.26, $0.22, $0.41, and $0.35, respectively)....... .84 .78 .89 .93 .89
Net realized and unrealized gain (loss) ................... ( .46) ( .53) .09 .92 1.37
-------- -------- -------- -------- --------
Net increase from investment operations .................... .38 .25 .98 1.85 2.26
-------- -------- -------- -------- --------
Dividends and distributions:
Dividends from net investment income ...................... ( .84) ( .81) ( .84) ( .29) -
Distributions in excess of net investment income .......... - ( .03) - - -
Return of capital distributions ........................... - - - ( .59) ( .97)
-------- -------- -------- -------- --------
Total dividends and distributions .......................... ( .84) ( .84) ( .84) ( .88) ( .97)
-------- -------- -------- -------- --------
Increase resulting from Trust shares repurchased ........... .03 - - - -
--------
Net asset value, end of year* .............................. $ 11.45 $ 11.88 $ 12.47 $ 12.33 $ 11.36
======== ======== ======== ======== ========
Per share market value, end of year* ....................... $ 9.69 $ 9.88 $ 10.56 $ 10.13 $ 10.13
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ .................................. 6.70% 1.34% 13.23% 9.48% 22.88%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ........................................ 0.85% 0.88% 0.93% 0.97% 0.96%
Net investment income ...................................... 7.14% 6.39% 7.30% 8.24% 8.58%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .......................... $426,283 $444,051 $440,465 $409,644 $374,975
Portfolio turnover ......................................... 186% 153% 146% 151% 78%
Net assets, end of year (in thousands) ..................... $406,178 $430,107 $451,419 $446,394 $411,295
Reverse repurchase agreements outstanding,
end of year (in thousands) ................................ $149,346 $173,520 $206,126 $217,135 $202,703
Asset coverage++ ......................................... $ 3,720 $ 3,479 $ 3,190 $ 3,056 $ 3,028
</TABLE>
- ----------
* NAV and market value published in BARRON'S on Saturday and THE WALL STREET
JOURNAL each Monday.
# The ratios of operating expenses, including interest expense, to average net
assets were 3.18%, 3.01%, 2.74%, 4.63%, and 4.34% 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.
11
<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 or
disposition.
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, or collections of 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
12
<PAGE>
gives the purchaser of the option the right (but not obligation) to buy, and
obligates the seller to sell (when the option is exercised), the underlying
position at the exercise price at any time or at a specified time during the
option period. A put option gives the holder the right to sell and obligates the
writer to buy the underlying position at the exercise price at any time or at a
specified time during the option period. Put options can be purchased to
effectively hedge a position or a portfolio against price declines if a
portfolio is long. In the same sense, call options can be purchased to hedge a
portfolio that is shorter than its benchmark against price changes. The Trust
can also sell (or write) covered call options and put options to hedge portfolio
positions.
The main risk that is associated with purchasing options is that the option
expires without being exercised. In this case, the option expires worthless and
the premium paid for the option is considered the loss. The risk associated with
writing call options is that the Trust may forego the opportunity for a profit
if the market value of the underlying position increases and the option is
exercised. The risk in writing put options is that the Trust may incur a loss if
the market value of the underlying position decreases and the option is
exercised. In addition, as with futures contracts, the Trust risks not being
able to enter into a closing transaction for the written option as the result of
an illiquid market.
INTEREST RATE SWAPS: In an interest rate swap, one investor pays a floating rate
of interest on a notional principal amount and receives a fixed rate of interest
on the same notional principal amount for a specified period of time.
Alternatively, an investor may pay a fixed rate and receive a floating rate.
Rate swaps are efficient 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 swap. However, the Trust closely monitors swaps and 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 in a manner similar to more generic options described above.
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
13
<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 period end. Similarly,
the Trust isolates the effect of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of portfolio securities
sold during the period.
Net realized and unrealized foreign exchange gains of $15,131,068 include
realized foreign exchange gains and losses from sales and maturities of foreign
portfolio securities, maturities of foreign reverse repurchase agreements, sales
of foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of interest and discount recorded on the Trust's books and the US dollar
equivalent amounts actually received or paid and changes in unrealized foreign
exchange gains and losses in the value of portfolio securities and other assets
and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic origin,
including unanticipated movements in the value of the Canadian dollar relative
to the U.S. dollar.
The exchange rate for the Canadian dollar at October 31, 1999 was US$
0.6794 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 collateral at 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
14
<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 U.S. 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, 1999 the Trust increased undistributed net investment income by
$269,592, increased accumulated net realized gains on investments by $597,813,
and increased accumulated net realized and unrealized foreign currency loss by
$867,405 for realized foreign currency gains incurred during the year ended
October 31, 1999. 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 subsidiary of BlackRock
Advisors, Inc., which is an indirect majority-owned subsidiary of PNC Bank,
Corp. The Trust has an Administration Agreement with Prudential Investments Fund
Management LLC ("PIFM"), a wholly-owned subsidiary of The Prudential Insurance
Co. of America.
15
<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 INVESTMENTS
Purchases and sales of investment securities, other than short-term OTHER
investments and dollar rolls, for the year ended October 31, 1999 aggregated
$1,096,230,166 and $1,131,061,469, 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, 1999, the Trust held 0.5% 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, 1999 was $509,040,694, and accordingly, net unrealized depreciation
for federal income tax purposes was $6,544,413 (gross unrealized appreciation
$10,888,514; gross unrealized depreciation $17,432,927).
For federal income tax purposes, the Trust utilized its capital loss
carryforward of approximately $645,300 to offset net taxable gains realized and
recognized during the fiscal year ended October 31, 1999.
Details of open financial futures contracts at October 31, 1999 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE OCTOBER 31, APPRECIATION/
CONTRACTS TYPE DATE DATE 1999 (DEPRECIATION)
- ----------- -------------------- ------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Short Position:
31 Eurodollar Mar. '00 $7,323,611 $7,277,644 $ 45,967
31 Eurodollar Mar. '00 7,333,686 7,291,200 42,486
450 30 Yr. U.S. T-Bond Dec. '99 51,474,538 51,117,188 357,350
Long Position:
100 5 Yr. U.S.T-Note Dec. '99 10,839,513 10,795,313 (44,200)
---------
$ 401,603
=========
</TABLE>
Details of open forward currency contract at October 31, 1999 are as
follows:
VALUE AT VALUE AT UNREALIZED
SETTLEMENT CONTRACT SETTLEMENT OCTOBER 31, APPRECIATION/
DATE TO RECEIVE DATE 1999 (DEPRECIATION)
- ------------ --------------- -------------- ------------- ---------------
Purchase:
11/4/99 C$83,000,000 $56,497,175 $56,396,214 $ (100,961)
11/4/99 12,000,000 8,061,374 8,153,670 92,296
11/4/99 40,000,000 26,827,093 27,178,898 351,805
Sold:
11/4/99 20,250,000 13,768,158 13,759,317 8,841
----------
$ 351,981
==========
The Trust entered into one interest rate cap. Under the agreement 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, 1999 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED TERMINATION AMORTIZED OCTOBER 31, UNREALIZED
(000) RATE FLOATING RATE DATE COST 1999 DEPRECIATION
- ---------- ---------- --------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 6.00% 3 mth. LIBOR 2/19/02 $371,219 $295,075 $ (76,144)
==========
</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.
The average daily balance of United States reverse repurchase agreements
outstanding during the year ended October 31, 1999 was approximately
$175,922,690 at a weighted average interest rate of approximately 4.77%. Also,
the average daily balance of Canadian reverse repurchase agreements outstanding
during the year ended October 31, 1999 was approximately C$13,000,052 at a
weighted average interest rate of 4.89%.
16
<PAGE>
The maximum amount of total reverse repurchase agreements outstanding at
any month-end during the period was $258,871,300 as of February 28, 1999, which
was 31% 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, 1999 was approximately $8,989,041. The maximum amount of dollar
rolls outstanding at any month-end during the period was $63,240,000 as of
January 31, 1999 which was 8.44% of total assets.
NOTE 5. CAPITAL
There are 200 million shares of $.01 par value common stock authorized. Of
the 35,482,893 shares outstanding at October 31, 1999, the Adviser owned 7,093
shares.
During the year ended October 31, 1999, the Trust repurchased a total of
724,200 shares of its outstanding common stock at a cost of $7,216,300, an
average discount of approximately 13.7% from its net asset value. These shares
are being held in treasury.
NOTE 6. DIVIDENDS
Subsequent to October 31, 1999, the Board of Directors of the Trust
declared dividends from undistributed earnings of $0.07 per share payable
November 30, 1999 to shareholders of record on November 15, 1999.
17
<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, 1999 and the
related statements of operations and of cash flows for the year then ended, and
of changes in net assets for the two years then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and each of 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, 1999 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, 1999 and the results of its
operations, its cash flows, the changes in its net assets and the financial
highlights for the respective stated periods in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
New York, New York
December 13, 1999
18
<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, 1999.
During the fiscal year ended October 31, 1999, 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 1999 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 1999 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 2000.
- --------------------------------------------------------------------------------
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
reinvested by State Street Bank and 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 transfer agent, 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 any new shares in connection with the Plan.
Participants in the Plan may withdraw from the Plan upon written notice to
the Plan Agent and will receive certificates for whole Trust shares and a cash
payment will be made for any fraction of a Trust share.
The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open market purchases in connection with the reinvestment of dividends
and distributions. The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income taxes that
may be payable on such dividends or distributions.
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. The addresses are on the front of this report.
19
<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 has evaluated 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 has evaluated whether such systems are year 2000 compliant and
that it expects to incur costs of up to approximately one million dollars to
complete such evaluation and to make any modifications to its systems as may be
necessary to achieve Year 2000 compliance. The Adviser advised the Trust that it
has fully tested its systems for Year 2000 compliance. 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 continuing to evaluate the
Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser advised the Trust that it has communicated 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, the Adviser received responses from substantially all such suppliers with
respect to their Year 2000 compliance. However, 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 advised the Trust that it
has prepared 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
Readiness Statement for purposes of that Act.
20
<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 investment 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. As of September 30, 1999, BlackRock and its affiliates
managed over $148 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-three closed-end funds that are traded on either the New York or
American stock exchanges, and a $24 billion family of open-end equity and bond
funds. BlackRock manages over 487 accounts, 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 "Baa" by Moody's, or securities which BlackRock deems as of comparable
quality. 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, Canadian
Corporate bonds, U.S. government securities, securities backed by U.S.
government agencies (such as residential mortgage-backed securities), privately
issued mortgage-backed securities and commercial mortgage- backed securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
asset of the Trust so as to provide high monthly income consistent with the
preservation of capital. The Trust will seek to provide monthly income that is
greater than that which could be obtained by investing in U.S. Treasury
securities with an average life similar to that of the Trust's assets. In
seeking the investment objective, BlackRock actively manages the Trust's assets
in relation to market conditions and changes in general economic conditions in
Canada and the U.S., including its expectations regarding interest rate changes
and changes in currency exchange rates between the U.S. dollar and the Canadian
dollar, to attempt to take advantage of favorable investment opportunities in
each country. As such, the allocation between Canadian and U.S. securities will
change from time to time. Under current market conditions, the average life of
the Trust's assets is expected to be in the range of seven to ten years. Under
other market conditions, the Trust's average life may vary and may not be
predictable using any formula.
While the Adviser has the opportunity to hedge against currency risks associated
with Canadian securities, the Trust is intended to provide exposure to the
Canadian marketplace. As a result, historically, currency hedging has not been
widely practiced by the Trust. However, BlackRock will attempt to limit interest
rate risk by constantly monitoring the duration (or price sensitivity with
respect to changes in interest rates) of the Trust's assets so that it is within
the range of U.S. Treasury securities with average lives of seven to ten years.
In doing so, the Adviser will attempt to locate securities with better
predictability of cash flows such as U.S. commercial mortgage-backed securities.
In addition, the Canadian mortgage-backed securities in which the Trust invests
are not prepayable, contributing to the predictability of the Trust's cash
flows. Traditional residential U.S. mortgage pass-through securities make
interest and principal payments on a monthly basis and can be a source of
attractive levels of income to the Trust. While the U.S. mortgage-backed
securities in the Trust are of high credit quality, they typically offer a yield
spread over Treasuries due to the uncertainty of the timing of their cash flows
as they are subject to prepayment exposure when interest rates change and
mortgage holders refinance their mortgages or move. While U.S. mortgage-backed
securities do offer the opportunity for attractive yields, they subject a
portfolio to interest rate risk and prepayment exposure which result in
reinvestment risk when prepaid principal must be reinvested.
21
<PAGE>
HOW ARE THE TRUST'S SHARES PURCHASED AND SOLD? DOES THE TRUST PAY DIVIDENDS
REGULARLY?
The Trust's shares are traded on the New York Stock Exchange which provides
investors with liquidity on a daily basis. Orders to buy or sell shares of the
Trust must be placed through a registered broker or financial advisor. The Trust
pays monthly dividends which are typically paid on the last business day of the
month. For shares held in the shareholder's name, dividends may be reinvested in
additional shares of the Trust through the Trust's transfer agent, State Street
Bank & Trust Company. Investors who wish to hold shares in a brokerage account
should check with their financial advisor to determine whether their brokerage
firm offers dividend reinvestment services.
LEVERAGE CONSIDERATIONS IN THE TRUST
Under current market conditions, leverage increases the income earned by the
Trust. The Trust employs leverage primarily through the use of reverse
repurchase agreements and dollar rolls. Leverage permits the Trust to borrow
money at short-term rates and reinvest that money in longer-term assets which
typically offer higher interest rates. The difference between the cost of the
borrowed funds and the income earned on the proceeds that are invested in longer
term assets is the benefit to the Trust from leverage. In general, the portfolio
is typically leveraged at approximately 331|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.
INTEREST-ONLY SECURITIES (IO). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying Mortgage Assets, and a rapid rate of principal payments may
have a material adverse effect on such security's yield to maturity. If the
underlying Mortgage Assets experience greater than anticipated prepayments of
principal, the Trust may fail to recoup fully its initial investment in these
securities even if the securities are rated AAA by S&P or Aaa by Moody's.
LEVERAGE. The Trust utilizes leverage through reverse repurchase agreements and
dollar rolls, which involves special risks. The Trust's net asset value and
market value may be more volatile due to its use of leverage.
MARKET PRICE OF SHARES. The shares of closed-end investment companies such as
the Trust trade on the New York Stock Exchange (NYSE symbol: BNA) and as such
are subject to supply and demand influences. As a result, shares may trade at a
discount or a premium to their net asset value.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The cash flow and yield
characteristics of these securities differ from traditional debt securities. The
major differences typically include more frequent payments and the possibility
of prepayments on certain U.S. mortgage-backed securities which will change the
yield to maturity of the security.
CORPORTE DEBT SECURITIES. The value of corporate debt securities generally
varies inversely with changes in prevailing market interest rates. The Trust may
be subject to certain reinvestment risks in environments of declining interest
rates.
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.
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
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates that
SECURITIES (ARMS): 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 Mortgage-backed securities which separate
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.
COMMERCIAL MORTGAGE Mortgage-backed securities secured or backed
BACKED SECURITIES (CMBS): by mortgage loans on commercial properties.
DISCOUNT: When a fund's net asset value is greater than
its stock price the fund is said to betrading
at a discount.
DIVIDEND: 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.
23
<PAGE>
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA, FNMA and
FHLMC.
INTEREST-ONLY SECURITIES: Mortgage securities including CMBS 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 FNMA,
FHLMC, FHA or GNMA.
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 on Monday.
PRINCIPAL-ONLY SECURITIES: Mortgage securities that receive only the
principal cash flows from an underlying pool
of mortgage loans or underlying pass-through
securities. Also known as a STRIP.
PROJECT LOANS: Mortgages for multi-family, low- to
middle-income housing.
PREMIUM: When a fund's stock price is greater than its
net asset value, the fund is said to be
trading at a premium.
RESIDUALS: Securities issued in connection with
collateralized mortgage obligations that
generally represent the excess cash flow from
the mortgage assets underlying the CMO after
payment of principal and interest on the other
CMO securities and related administrative
expenses.
REVERSE REPURCHASE AGREEMENTS: In a reverse repurchase agreement, the Trust
sells securities and agrees to repurchase them
at a mutually agreed date and price. During
this time, the Trust continues to receive the
principal and interest payments from that
security. At the end of the term, the Trust
receives the same securities that were sold
for the same initial dollar amount plus
interest on the cash proceeds of the initial
sale.
STRIPPED MORTGAGE BACKED
SECURITIES Arrangements in which a pool of assets is
separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's are
examples of STRIPs.
24
<PAGE>
<TABLE>
<CAPTION>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
SUMMARY OF CLOSED-END FUNDS
- ------------------------------------------------------------------------------------------
TAXABLE TRUSTS
- ------------------------------------------------------------------------------------------
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
The BlackRock High Yield Trust BHY N/A
TERM TRUSTS
The BlackRock Target Term Trust Inc. BTT 12/00
The BlackRock 2001 Term Trust Inc. BTM 06/01
The BlackRock Strategic Term Trust Inc. BGT 12/02
The BlackRock Investment Quality Term Trust Inc. BQT 12/04
The BlackRock Advantage Term Trust Inc. BAT 12/05
The BlackRock Broad Investment Grade 2009 Term Trust Inc. BCT 12/09
</TABLE>
<TABLE>
<CAPTION>
TAX-EXEMPT TRUSTS
- --------------------------------------------------------------------------------
STOCK MATURITY
SYMBOL DATE
PERPETUAL TRUSTS --------- ---------
<S> <C> <C>
The BlackRock Investment Quality Municipal Trust Inc. BKN N/A
The BlackRock California Investment Quality Municipal Trust Inc. RAA N/A
The BlackRock Florida Investment Quality Municipal Trust RFA N/A
The BlackRock New Jersey Investment Quality Municipal Trust Inc. RNJ N/A
The BlackRock New York Investment Quality Municipal Trust Inc. RNY N/A
The BlackRock Pennsylvania Strategic Municipal Trust BPS N/A
The BlackRock Strategic Municipal Trust BSD N/A
TERM TRUSTS
The BlackRock Municipal Target Term Trust Inc. BMN 12/06
The BlackRock Insured Municipal 2008 Term Trust Inc. BRM 12/08
The BlackRock California Insured Municipal 2008 Term Trust Inc. BFC 12/08
The BlackRock Florida Insured Municipal 2008 Term Trust BRF 12/08
The BlackRock New York Insured Municipal 2008 Term Trust Inc. BLN 12/08
The BlackRock Insured Municipal Term Trust Inc. BMT 12/10
</TABLE>
IF YOU WOULD LIKE FURTHER INFORMATION PLEASE DO NOT HESITATE TO CALL BLACKROCK
AT (800) 227-7BFM (7236) OR CONSULT WITH YOUR FINANCIAL ADVISOR.
25
<PAGE>
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BLACKROCK FINANCIAL MANAGEMENT, INC.
AN OVERVIEW
- --------------------------------------------------------------------------------
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. As of September 30, 1999, BlackRock and its affiliates
managed over $148 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-three closed-end
funds that are traded on either the New York or American stock exchanges, and a
$24 billion family of open-end equity and bond funds. BlackRock manages over 487
accounts, 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.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the fund may purchase, from time to time, shares of its
common stock at market prices.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
Printed on recycled paper 092475-10-2
THE BLACKROCK
NORTH AMERICAN
GOVERNMENT
INCOME TRUST INC.
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ANNUAL REPORT
OCTOBER 31, 1999