- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
SEMI-ANNUAL REPORT TO SHAREHOLDERS
REPORT OF INVESTMENT ADVISER
- --------------------------------------------------------------------------------
May 31, 1999
Dear Shareholder:
Since the Trust's last report, interest rates rose sharply as U.S.
economic growth remained strong, labor markets tightened and international
markets began to recover. In light of these factors, on May 18 members of the
Federal Reserve's Federal Open Market Committee announced that they had adopted
a bias towards higher interest rates, citing a concern that inflation might
start to accelerate.
BlackRock has adopted a cautious view of the bond market, as we believe
that there is a real possibility that the Federal Reserve will raise interest
rates in the near future. Additionally, because the Treasury yield curve has
already priced in Federal Reserve action, we believe that interest rates will
trade in a relatively narrow range until the economy shows signs of slowing.
This report contains comments from your Trust's managers regarding the
markets and portfolio in addition to the Trust's financial statements and a
detailed portfolio listing. We thank you for your continued investment in the
Trust.
Sincerely,
/s/Laurence D. Fink /s/Ralph L. Schlosstein
- ------------------- -----------------------
Laurence D. Fink Ralph L. Schlosstein
Chairman President
1
<PAGE>
May 31, 1999
Dear Shareholder:
We are pleased to present the semi-annual report for The BlackRock North
American Government Income Trust Inc. (the "Trust") for the six months ended
April 30, 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, asset-backed
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 period:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
4/30/99 10/31/98 CHANGE HIGH LOW
<S> <C> <C> <C> <C> <C>
STOCK PRICE $ 10.125 $ 9.875 2.53% $ 10.125 $ 9.8125
- ---------------------------------------------------------------------------------------------------
NET ASSET VALUE (NAV) $ 12.20 $ 11.88 2.69% $ 12.25 $ 11.60
- ---------------------------------------------------------------------------------------------------
CURRENCY EXCHANGE RATE $ 0.6858 $ 0.6481 5.82% $ 0.6858 $ 0.6429
- ---------------------------------------------------------------------------------------------------
10-YEAR U.S. TREASURY NOTE 5.35% 4.61% 16.05% 5.42% 4.52%
- ---------------------------------------------------------------------------------------------------
</TABLE>
THE U.S. AND CANADIAN FIXED INCOME MARKETS
The past six months have witnessed continued rapid expansion of the U.S.
economy. GDP growth for the first quarter of 1999 is estimated at an annual
rate above 4%, far exceeding the historical non-inflationary level of 2%. While
BlackRock believes that growth may slow down in the second half of 1999, we
anticipate GDP to remain above 3% for the year. Despite the strong economic
growth, inflation has stayed surprisingly subdued. A significant factor in
maintaining low inflation in the U.S. economy stems from the increase in
industrial productivity. Higher productivity has allowed manufacturers to avoid
price increases despite tight labor markets.
The Treasury market briefly rallied early in the fourth quarter of 1998
before dramatically reversing in 1999. For the semi-annual period, the yield of
the 10-year Treasury security rose from 4.61% on October 31, 1998 to 5.35% on
April 30, 1999. The weak performance of the Treasury market can be attributed
to investors leaving the safe haven of Treasuries to purchase credit sensitive
or higher yielding securities in reaction to inflationary concerns voiced by
the Federal Reserve.
Canadian bonds modestly outperformed Treasuries during the period. With
CPI inflation under 1%, combined with the stability of the Canadian dollar in
foreign exchange markets, the Bank of Canada was encouraged to cut short- term
interest rates by 25 basis points at the end of the first quarter of 1999. This
interest rate cut completed the reversal of the 100 basis point tightening made
in August of 1998. Economic growth in Canada has benefited from strong US
demand and strength in manufacturing has helped unemployment drop to 7.8%, the
lowest level since June of 1990.
2
<PAGE>
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.
Historically, the Trust's Canadian exposure has generally remained between 65%
and 75% of the portfolio's assets; however, this allocation may be adjusted in
relation to BlackRock's views and expectations regarding interest rates and
changes in the currency exchange rates between the U.S. and Canadian dollar.
The following chart compares the Trust's current and October 31, 1998
asset composition.
SECTOR BREAKDOWN
- --------------------------------------------------------------------------------
COMPOSITION APRIL 30, 1999 OCTOBER 31, 1998
- --------------------------------------------------------------------------------
CANADIAN PORTFOLIO ALLOCATION 51% 48%
- --------------------------------------------------------------------------------
Canadian Government Securities 21% 17%
- --------------------------------------------------------------------------------
Canadian Corporate Bonds 14% 11%
- --------------------------------------------------------------------------------
Ontario 4% 6%
- --------------------------------------------------------------------------------
New Brunswick 4% 4%
- --------------------------------------------------------------------------------
Canadian Mortgages 2% 2%
- --------------------------------------------------------------------------------
Saskatchewan - 2%
- --------------------------------------------------------------------------------
Nova Scotia 2% 2%
- --------------------------------------------------------------------------------
Prince Edward Island 2% 2%
- --------------------------------------------------------------------------------
Newfoundland 2% 1%
- --------------------------------------------------------------------------------
Quebec -- 1%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. PORTFOLIO ALLOCATION 49% 52%
- --------------------------------------------------------------------------------
U.S. Government Securities 17% 20%
- --------------------------------------------------------------------------------
Interest Only Mortgage-Backed
Securities 7% 9%
- --------------------------------------------------------------------------------
Agency Mortgage Pass-Throughs 7% 2%
- --------------------------------------------------------------------------------
Agency Multiple Class Mortgage
Pass-Throughs 7% 3%
- --------------------------------------------------------------------------------
FHA Project Loans 5% 7%
- --------------------------------------------------------------------------------
Principal Only Mortgage-Backed
Securities 3% 3%
- --------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities 2% 3%
- --------------------------------------------------------------------------------
Non-Agency Multiple Class Mortgage
Pass-Throughs 1% 2%
- --------------------------------------------------------------------------------
Adjustable Rate Mortgages -- 3%
- --------------------------------------------------------------------------------
The Trust moderately increased its exposure to both Canadian bonds and the
Canadian dollar during the semi-annual period. Although Canadian bonds remained
relatively unchanged throughout the period they moderately outperformed their
U.S. counterparts, which experienced a sharp reversal. One sector of the
Canadian market that we felt was extremely undervalued was real return bonds,
which are inflation-linked bonds. The Trust's allocation to this sector helped
to enhance overall returns for the portfolio during the period. On the U.S.
side the Trust has continued to emphasize mortgage product with relatively
strong prepayment characteristics, including bonds backed by lower coupon
mortgages and structured bonds with payment lockout.
3
<PAGE>
PROXY RESULTS
At the annual stockholders meeting held on May 19, 1999 three proposals
were brought before the shareholders. The first two proposals were routine
(electing three directors and appointing the independent auditors), and the
third was a proposal submitted by a shareholder requesting that the Trust shall
promptly conduct a self-tender offer for a significant percentage of its
outstanding shares at net asset value. The first two proposals were approved by
an overwhelming majority of the shares voted (81% for, 0% against on the first
proposal and 97% for, 2% against on the second proposal). The third proposal
was approved by approximately 31% of shareholders (51% of those who voted). At
an upcoming meeting, the Board of Directors will review the results of the vote
on the third proposal and consider the shareholder's request. The Board of
Directors may also consider alternative courses of action to attempt to reduce
the discount to net asset value at which the Trust's shares are currently
trading. If a decision is made to pursue any one or more of such courses of
action an announcement will be made to shareholders.
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,
/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 4/30/99: $ 10.125
- --------------------------------------------------------------------------------
Net Asset Value as of 4/30/99: $ 12.20
- --------------------------------------------------------------------------------
Yield on Closing Stock Price as of 4/30/99 ($10.125)1: 8.30%
- --------------------------------------------------------------------------------
Current Monthly Distribution per Share2: $ 0.07
- --------------------------------------------------------------------------------
Current Annualized Distribution per Share2: $ 0.84
- --------------------------------------------------------------------------------
1 Yield on Closing Stock Price is calculated by dividing the current annualized
distribution per share by the closing stock price per share.
2 The distribution is not constant and is subject to change.
4
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
PORTFOLIO OF INVESTMENTS
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM INVESTMENTS-141.6%
UNITED STATES SECURITIES-69.0%
MORTGAGE PASS-THROUGHS-16.3%
$ 8,918# Federal Home Loan Mortgage Corp.,
6.50%, 02/01/28 - 05/01/29 ............. $ 8,873,113
Federal Housing Administration,
GMAC,
2,142 Series 37, 7.43%, 10/01/22 ............. 2,150,461
1,240 Series 44, 7.43%, 08/01/22 ............. 1,214,254
1,632 Series 59, 7.43%, 07/01/21 ............. 1,652,545
711 Series 65, 7.43%, 12/01/21 ............. 720,760
Merrill,
2,896 Series 29, 7.43%, 06/01/22 ............. 2,966,059
23,456 Series 42, 7.43%, 09/01/22 ............. 23,543,373
Reilly,
2,211 Series B-11, 7.40%, 04/01/21 ........... 2,218,074
2,272 Westmore Project 8240,
7.25%, 04/01/21 ........................ 2,274,626
Federal National Mortgage
Association,
19,950+ 5.50%, 12/01/13 - 02/01/14 ............. 19,351,016
5,425+ 7.00%, 02/01/24 - 01/01/29 ............. 5,496,666
Government National Mortgage
Association,
1,347 8.00%, 04/15/24 - 11/15/25 ............. 1,404,012
-----------
71,864,959
-----------
MULTIPLE CLASS MORTGAGE
PASS-THROUGHS-9.9%
Countrywide Funding Corp.,
Aaa 3,108 Series 1993-7, Class 7-AS3,
11/25/23 (ARM) ......................... 3,092,748
AAA 1,696 Series 1993-10, Class 10-A8,
01/25/24 (ARM) ......................... 1,655,972
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
6,614++ Series 1104, Class 1104-L,
06/15/21 ............................... 6,876,476
717 Series 1590, Class 1590-OA,
10/15/23 (ARM) ......................... 746,751
1,225 Series 1590, Class 1590-T,
10/15/23 (ARM) ......................... 1,012,187
530 Series 1609, Class 1609-LN,
11/15/23 (ARM) ......................... 478,431
1,000 Series 1611, Class 1611-JC,
8/15/23 ................................ 1,030,000
2,967 Series 1673, Class 1673-SD,
02/15/24 (ARM) ......................... 2,797,189
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
$ 3,092 Series 1699, Class 1699-ST,
03/15/24 ................................ $ 2,519,936
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
3,690++ Trust 1989-90, Class 90-E,
12/25/19 ................................. 3,880,764
905@ Trust 1991-87, Class 87-S,
08/25/21 (ARM) ........................... 1,030,666
825 Trust 1991-145, Class 145-S,
10/25/06 (ARM) ........................... 948,966
1,140 Trust 1993-139, Class 139-SY,
08/25/23 (ARM) ........................... 1,160,145
1,612 Trust 1993-170, Class 170-SC,
09/25/08 (ARM) ........................... 1,584,366
187 Trust 1993-183, Class 183-SM,
10/25/23 (ARM) ........................... 186,410
1,700 Trust 1993-196, Class 196-SC,
10/25/08 ................................. 1,703,179
1,531 Trust 1993-210, Class 210-A,
01/25/23 ................................. 1,487,905
2,187 Trust 1993-214, Class 214-S,
12/25/08 ................................. 2,160,043
1,178 Trust 1993-256, Class 256-F,
11/25/23 (ARM) ........................... 1,074,612
1,808 Trust 1994-23, Class 23-PS,
04/25/23 ................................. 1,794,870
4,673++ Trust 1995-10, Class 10-Z,
03/25/24 ................................. 4,661,875
2,100 Trust 1996-14, Class 14-M,
10/25/21 ................................. 1,859,151
------------
43,742,642
------------
INTEREST ONLY MORTGAGE-BACKED
SECURITIES-12.0%
BA Mortgage Securities Inc.,
Aaa 1,367 Series 1997-1, Class X, 7/25/26 .......... 177,749
AAA 2,349 Series 1998-1, Class 2X, 5/25/13 ......... 317,172
AAA 165,925 Countrywide Funding Corp.,
Series 1998-6, Class 6-X,
6/25/13 ................................ 1,840,736
AAA 8,808** Credit Suisse First Boston Mortgage
Corp.,
Trust 1997-C1, Class C1-AX,
4/20/22 ................................ 823,446
Federal Home Loan Mortgage Corp.,
8,212 Series 183, Class 183-IO,
4/01/27 ................................ 2,070,875
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
Federal Home Loan Mortgage Corp.,
$ 12,379 Series 192, Class 192-IO,
2/01/28 ................................ $ 3,411,890
3,884 Series 1254, Class 1254-Z,
4/15/22 ................................ 538,951
7,172 Series 1353, Class 1353-S,
08/15/07 ............................... 478,063
2,280 Series 1379, Class 1379-P,
8/15/18 ................................ 62,283
7,500 Series 1434, Class 1434-M,
12/15/22 ............................... 3,623,205
4,573 Series 1506, Class 1506-L,
5/15/08 ................................ 639,028
20,000 Series 1809, Class 1809-SC,
12/15/23 ............................... 1,758,200
4,492 Series 1900, Class 1900-SV,
08/15/08 ............................... 641,086
1,725 Series 1910, Class 1910-IC,
5/15/25 ................................ 284,768
23,646++ Series 1998-27, Class 27-M,
05/25/28 ............................... 8,080,281
7,000 Series 2002, Class 2002-HJ,
10/15/08 ............................... 748,585
5,225 Series 2044, Class 2044-PF,
6/15/20 ................................ 897,218
3,763 Series 2062, Class 2062-QL,
3/15/28 ................................ 1,107,780
2,430 Series 2066, Class 2066-PJ,
12/15/26 ............................... 663,225
6,482 Series 2080, Class 2080-PL,
1/15/27 ............................... 1,887,860
10,173 Series 2130, Class 2130-SC,
3/15/29 ............................... 1,080,838
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,510 Trust G1992-5, Class 5-E,
1/25/22 ................................ 422,470
1,076@ Trust G1992-5, Class 5-H,
1/25/22 ................................ 235,688
2,930 Trust 1993-46, Class 46-S,
5/25/22 ................................ 177,086
8,502 Trust 1993-199, Class 199-SB,
10/25/23 ............................... 503,469
4,539 Trust 1993-202, Class 202-QA,
6/25/19 ................................ 348,244
7,142 Trust 1995-26, Class 26-SW,
2/25/24 ................................ 972,315
6,437 Trust 1997-50, Class 50-SI,
4/25/23 ................................ 177,025
10,224 Trust 1997-65, Class 65-SG,
2/25/15 ................................ 1,402,598
9,989 Trust 1998-16, Series 16-PK,
12/18/21 ............................... 1,436,938
4,500 Trust 1998-25, Class 25-PG,
3/18/22 ................................ 776,250
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 3,529 Trust 1998-45, Class 45-PL,
3/18/24 ................................ $ 899,777
Aaa 3,791 G. E. Capital Mortgage Services,
Trust 1993-13, Class A2,
10/25/08 ............................... 120,675
GMAC Commercial Mortgage
Securities Inc., Mortgage Certificate,
AAA 18,545 Trust 1997-C1, Class C1-X, 7/15/27.......... 1,608,274
AAA 68,547 Trust 1998-C2, Class C2-X, 8/15/23.......... 2,829,542
NR 33,609** Goldman Sachs Mortgage
Securities Corp., Mortgage
Participation Certifcates,
Series 1998-5, Class 5-IO,
6/19/27 ................................ 834,978
Government National Mortgage
Association,
4,822 Trust 1999-3, Class 3-S, 2/16/29 ........... 512,302
43,827 Trust 1999-5, Class 5-S, 2/16/29 ........... 2,013,316
24,646 Trust 1999-8, Class 8-S, 3/16/29 ........... 1,109,079
NR 21,936** Hanover Grantor Trust,
Series 1999-A, Class 1-IO,
4/28/10 ................................ 749,832
Aaa 54,172 Merrill Lynch Mortgage Investors Inc.,
Trust 1997-C2, Class C2-IO,
12/10/29 ................................. 3,780,927
AAA 5,926** Morgan Stanley Capital 1 Inc.,
Trust 1997-HF1, Class HF1-X,
6/15/17 ................................ 515,243
Aaa 73,912 Prudential Home Mortgage
Securities Co., Mortgage
Pass-Through Certificates,
Series 1994-5, Class A-9,
2/25/24 ................................ 531,241
------------
53,090,508
------------
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES-4.1%
Federal Home Loan Mortgage Corp.,
Multiclass Mortgage Participation
Certificates,
8,517 Series 1570, Class 1570-C,
8/15/23 ................................ 6,518,729
487 Series 1857, Class 1857-PB,
12/15/08 ............................... 422,282
6,297 Series 2009, Class 2009-HJ,
10/15/22 ............................... 4,474,747
408 Series 2087, Class 2087- PO,
9/15/25 ................................ 293,165
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
1,342 Trust 279, Class 279-1,
7/01/26 ................................ 1,130,552
1,563 Trust 1996-38, Class 38-E,
8/25/23 ................................ 1,315,982
374 Trust 1997-85, Class 85-LE,
10/25/23 ............................... 324,643
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRINCIPAL ONLY MORTGAGE-BACKED
SECURITIES (CONT'D)
Federal National Mortgage Association,
REMIC Pass-Through Certificates,
$ 3,301 Trust 1998-26, Class 26-L,
3/25/23 ................................ $ 2,421,482
679 Trust 1998-48, Class 48-P,
8/18/28 ................................ 479,058
6,055 Fund America Investment Corp.,
Series 1993-C, Class B, 4/29/30........... 931,077
------------
18,311,717
------------
COMMERCIAL MORTGAGE-BACKED
SECURITIES-2.9%
AAA 2,900++ GMAC Commercial Mortgage
Securities Inc.,
Trust 1998-C2, Class C2-A2,
6.42% 08/15/08 ......................... 2,908,559
AAA 10,000 Prudential Securities Secured
Financing Corp.,
Series 1998-C1, Class A1B,
6.506%, 07/15/08 ....................... 9,979,507
------------
12,888,066
------------
U.S GOVERNMENT SECURITIES-23.8%
Overseas Private Investment Corp.,
290 5.46%, 5/29/12 ......................... 281,052
264 5.79%, 5/29/12 ......................... 256,599
341 5.88%, 5/29/12 ......................... 333,940
220 6.27%, 5/29/12 ......................... 219,580
440 6.84%, 5/29/12 ......................... 447,034
3,369 Small Business Administration,
Series 1996-20K,
6.95%, 11/01/16 ........................ 3,442,608
U.S. Treasury Bonds,
10,006 3.875%, 4/15/29 (TIPS) ................... 10,034,217
26,200+ 6.375%, 8/15/27 .......................... 27,980,814
24,400++ 8.50%, 2/15/20 ........................... 31,842,000
U.S. Treasury Notes,
225 6.125%, 8/15/07 .......................... 235,337
28,350++ 6.25%, 6/30/02 ........................... 29,182,639
150 6.50%, 5/31/01 ........................... 154,055
610 7.25%, 8/15/04 ........................... 664,137
------------
105,074,012
------------
Total United States Securities
(cost $304,124,410)....................... 304,971,904
------------
CANADIAN SECURITIES-72.6%
CANADIAN CORPORATE BONDS-20.5%
A2 C$15,000 Bell Canada,7.00%, 9/24/27 ................. 11,346,032
AA- 4,500 Canadian Imperial Bank of Commerce,
8.50%, 2/05/07 ........................... 3,319,803
Aa3 10,000 Canadian Imperial Bank, Toronto,
8.15%, 4/25/06 ........................... 7,814,005
A 10,000 Credit Foncier De France,
8.50%, 3/12/03 ........................... 7,496,989
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
A+ C$12,000 Daimler Benz AG,
9.50%, 10/30/01 .......................... $ 8,976,026
European Investment Bank,
AAA 22,800 8.50%, 8/30/05 ........................... 18,049,544
AAA 6,500 9.125%, 9/20/04 .......................... 5,197,860
A1 10,000 Ford Credit Canada Limited.,
5.66%, 11/19/01 .......................... 6,902,133
A2 5,000 Greater Toronto Airports Authority,
6.45%, 12/03/27 .......................... 3,579,110
BBB- 10,500 Lindsey Morden Group Inc.,
7.00%, 6/16/08 ........................... 7,022,564
A2 15,000 Transport Canada Pipe Lines Limited,
6.89%, 8/07/28 ........................... 10,699,678
------------
90,403,744
------------
CANADIAN MORTGAGES-2.4%
15,630 NHA Mortgage Backed Securities
Corp., Household Trust,
7.75%, 6/01/99 ........................... 10,722,488
------------
CANADIAN GOVERNMENT
SECURITIES-29.8%
Canada Government Bonds,
39,896 4.25%, 12/01/26 .......................... 28,204,441
62,500++ 5.25%, 9/01/03 ........................... 43,298,213
60,000+ 6.00%, 6/01/08 ........................... 43,624,580
4,700 8.00%, 6/01/27 ........................... 4,403,579
15,100 9.00%, 12/01/04 .......................... 12,293,747
------------
131,824,560
------------
CANADIAN PROVINCIAL SECURITIES-19.9%
NEW BRUNSWICK-5.3%
New Brunswick Province,
13,000 7.625%, 7/14/00 ......................... 9,241,769
14,600 10.125%, 10/31/11 ....................... 14,068,108
-----------
23,309,877
------------
NEWFOUNDLAND-2.1%
10,000 Newfoundland Province,
8.45%, 2/05/26 ........................... 9,075,578
------------
NOVA SCOTIA-3.4%
15,000 Nova Scotia Province,
9.60%, 1/30/22 ........................... 14,965,434
------------
ONTARIO-6.2%
10,000 Hamilton Wentworth Regional
Municipality,
7.00%, 6/06/01 ........................... 7,115,424
23,500 Ontario Province,
5.70%, 12/01/08 .......................... 16,492,387
5,000 Toronto Metropolitan Municipality,
7.75%, 12/01/05 .......................... 3,885,502
------------
27,493,313
------------
PRINCE EDWARD ISLAND-2.6%
13,000 Prince Edward Island Province,
8.50%, 10/27/15 .......................... 11,421,919
------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
PRINCIPAL
AMOUNT VALUE
RATING* (000) DESCRIPTION (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
QUEBEC-0.3%
C$ 2,000 Quebec Province,
7.50%, 12/01/03 .......................... $ 1,494,959
------------
Total Canadian Provincial Securities........ 87,761,080
------------
Total Canadian Securities
(cost $312,688,841)....................... 320,711,872
------------
NOTIONAL
AMOUNT
(000)
--------
CALL OPTION PURCHASED-0.2%
$ 52,000 Interest Rate Swap, 5.85% over
3-month LIBOR, expires 8/07/00............ 863,996
------------
Total investments before
outstanding call options
written-141.8%
(cost $617,897,451) ...................... 626,547,772
------------
CALL OPTIONS WRITTEN-(0.0%)
C$ 40,000 Canadian Dollars @ 1.46 expires
5/27/99
(premium received $148,633) .............. (149,510)
------------
Total investments net of outstanding
options written-141.8% ................... 626,398,262
------------
Liabilities in excess of other
assets-(41.8%) ........................... (184,695,017)
------------
NET ASSETS-100% ............................ $441,703,245
============
</TABLE>
- ---------------------
* 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.
# Partial principal amount represents a mortgage dollar roll.
- --------------------------------------------------------------------------------
KEY TO ABBREVIATIONS
ARM -- Adjustable Rate Mortgage.
LIBOR -- London InterBank Offer Rate.
REMIC -- Real Estate Mortgage Investment Conduit.
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
APRIL 30, 1999 (UNAUDITED)
================================================================================
ASSETS
Investments, at value (cost $617,897,451) (Note 1) ......... $626,547,772
Canadian dollars, at value (cost $1,013,094)................ 1,023,873
Cash ....................................................... 47,688
Receivable for investments sold ............................ 13,546,709
Interest receivable ........................................ 10,471,714
Forward currency contracts-amount receivable
from counterparties ...................................... 192,439
Interest rate caps, at value
(amortized cost $452,437) (Notes 1 & 3)................... 160,146
------------
651,990,341
------------
LIABILITIES
Reverse repurchase agreements (Note 4) ..................... 187,655,014
Payable for investments purchased .......................... 21,551,234
Investment advisory fee payable (Note 2) ................... 215,859
Interest payable ........................................... 203,971
Options written, at value
(premium received $148,633)............................... 149,510
Administration fee payable (Note 2) ........................ 35,976
Due to broker-variation margin (Notes 1 & 3) ............... 34,907
Other accrued expenses ..................................... 440,625
------------
210,287,096
------------
NET ASSETS ................................................. $441,703,245
============
Net assets were comprised of:
Common stock, at par (Note 5) ............................. $ 362,071
Paid-in capital in excess of par .......................... 442,700,715
------------
443,062,786
Undistributed net investment income ....................... 671,795
Accumulated net realized gain on investments .............. 5,859,662
Net unrealized appreciation on investments ................ 14,223,186
Accumulated net realized and unrealized
foreign currency loss ................................... (22,114,184)
------------
Net assets, April 30, 1999 ................................. $441,703,245
=== ==== ============
Net asset value per share:
($441,703,245 \d 36,207,093 shares of
common stock issued and outstanding) ...................... $12.20
======
================================================================================
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
HERE IT ISSIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
================================================================================
NET INVESTMENT INCOME
Income
Interest (net of premium amortization of
$2,858,019 and interest expense of $5,490,077)..... $17,533,978
-----------
Expenses
Investment advisory ............................... 1,293,061
Administration .................................... 215,510
Custodian ......................................... 137,000
Reports to shareholders ........................... 67,000
Directors ......................................... 42,000
Audit ............................................. 36,000
Transfer agent .................................... 22,000
Legal ............................................. 7,000
Miscellaneous ..................................... 16,047
-----------
Total operating expenses .......................... 1,835,618
-----------
Net investment income ............................... 15,698,360
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY
TRANSACTIONS (NOTE 3)
Net realized gain (loss) on:
Investments ....................................... 5,908,138
Futures ........................................... (159,444)
Short sales ....................................... 478,736
Written options ................................... 383,187
Foreign currency .................................. (1,254,589)
-----------
5,356,028
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments ....................................... (13,394,939)
Futures ........................................... 389,136
Written options ................................... (99,590)
Interest rate caps ................................ 116,665
Foreign currency .................................. 18,737,206
-----------
5,748,478
-----------
Net gain on investments and foreign currency
transactions ...................................... 11,104,506
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ........................... $26,802,866
===========
See Notes to Financial Statements.
9
<PAGE>
================================================================================
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
================================================================================
RECONCILIATION OF NET INCREASE IN
NET ASSETS RESULTING FROM OPERATIONS
TO NET CASH FLOWS USED FOR
OPERATING ACTIVITIES
Net increase in net assets resulting from operations ..... $26,802,866
-----------
Increase in investments .................................. (20,894,442)
Net realized gain ........................................ (5,356,028)
Increase in unrealized appreciation ...................... (5,748,478)
Increase in interest rate cap ............................ (36,771)
Increase in receivable for investments sold .............. (12,146,016)
Increase in receivable for forward currency
contracts .............................................. (167,838)
Decrease in interest receivable .......................... 196,465
Increase in due to broker-variation margin ............... 11,307
Increase in payable for investments purchased ............ 10,748,505
Decrease in written options .............................. (132,408)
Decrease in interest payable ............................. (76,777)
Decrease in accrued expenses and other liabilities ....... (14,414)
-----------
Total adjustments ....................................... (33,616,895)
-----------
Net cash flows used for operating activities ............. $(6,814,029)
===========
INCREASE (DECREASE) IN CASH
Net cash flows used for operating activities ............. $(6,814,029)
-----------
Cash flows used for financing activities:
Increase in reverse repurchase agreements .............. 14,135,512
Cash dividends paid ..................................... (15,206,637)
-----------
Net cash flows used for financing activities ............. (1,071,125)
-----------
Net realized and unrealized foreign currency gain........ 178,998
Net decrease in cash and foreign currency ............... (7,706,156)
Cash and foreign currency at beginning of
period ................................................ 8,777,717
-----------
Cash and foreign currency at end of period .............. $ 1,071,561
===========
================================================================================
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
STATEMENTS OF CHANGES
IN NET ASSETS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, OCTOBER 31,
1999 1998
------------------ ----------------
INCREASE (DECREASE)
IN NET ASSETS
<S> <C> <C>
Operations:
Net investment income ................ $ 15,698,360 $ 28,386,758
Net realized gain (loss) ............. 5,356,028 (2,182,478)
Net change in unrealized
appreciation (depreciation) ......... 5,748,478 (17,103,031)
------------- ------------
Net increase in net
assets resulting from
operations .......................... 26,802,866 9,101,249
Dividends and distributions
(Note 1):
Dividends from net investment
income .............................. (15,206,637) (29,405,797)
Distributions in excess
of net investment income ............ -- (1,007,535)
------------- ------------
Total increase (decrease) ............ 11,596,229 (21,312,083)
NET ASSETS
Beginning of period .................. 430,107,016 451,419,099
------------- ------------
End of period ........................ $ 441,703,245 $430,107,016
============= ============
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
================================================================================
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
================================================================================
SIX MONTHS ENDED
APRIL 30,
1999
----------------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 11.88
-----------
Net investment income (net of interest expense of $0.15,
$0.26, $0.22, $0.41, $0.35, and $0.26, respectively)....... .43
Net realized and unrealized gain (loss) .................... .31
-----------
Net increase (decrease) from investment operations ......... .74
-----------
Less dividends and distributions:
Dividends from net investment income ...................... (.42)
Distributions in excess of net investment income .......... --
Return of capital distributions ........................... --
-----------
Total dividends and distributions .......................... (.42)
-----------
Net asset value, end of period* ............................ $ 12.20
===========
Per share market value, end of period* ..................... $ 10.13
===========
TOTAL INVESTMENT RETURN+ .................................. 6.91%
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ........................................ 0.85%+++
Net investment income ...................................... 7.30%+++
SUPPLEMENTAL DATA:
Average net assets (in thousands) .......................... $ 433,660
Portfolio turnover ......................................... 81%
Net assets, end of period (in thousands) ................... $ 441,703
Reverse repurchase agreements outstanding,
end of period (in thousands) .............................. $ 187,655
Asset coverage++ ........................................... $ 3,354
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period ....................... $ 12.47 $ 12.33 $ 11.36 $ 10.07 $ 12.34
-------- -------- -------- -------- --------
Net investment income (net of interest expense of $0.15,
$0.26, $0.22, $0.41, $0.35, and $0.26, respectively)....... .78 .89 .93 .89 1.09
Net realized and unrealized gain (loss) .................... (.53) .09 .92 1.37 (2.28)
-------- -------- -------- -------- --------
Net increase (decrease) from investment operations ......... .25 .98 1.85 2.26 (1.19)
-------- -------- -------- -------- --------
Less dividends and distributions:
Dividends from net investment income ...................... (.81) (.84) (.29) - (1.03)
Distributions in excess of net investment income .......... (.03) - - - -
Return of capital distributions ........................... - - (.59) (.97) (.05)
-------- -------- -------- -------- --------
Total dividends and distributions .......................... (.84) (.84) (.88) (.97) (1.08)
-------- -------- -------- -------- --------
Net asset value, end of period* ............................ $ 11.88 $ 12.47 $ 12.33 $ 11.36 $ 10.07
======== ======== ======== ======== ========
Per share market value, end of period* ..................... $ 9.88 $ 10.56 $ 10.13 $ 10.13 $ 9.13
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN+ .................................. 1.34% 13.23% 9.48% 22.88% (21.62%)
RATIOS TO AVERAGE NET ASSETS:
Operating expenses# ........................................ 0.88% 0.93% 0.97% 0.96% 1.01%
Net investment income ...................................... 6.39% 7.30% 8.24% 8.58% 9.92%
SUPPLEMENTAL DATA:
Average net assets (in thousands) .......................... $444,051 $440,465 $409,644 $374,975 $397,651
Portfolio turnover ......................................... 153% 146% 151% 78% 70%
Net assets, end of period (in thousands) ................... $430,107 $451,419 $446,394 $411,295 $364,749
Reverse repurchase agreements outstanding,
end of period (in thousands) .............................. $173,520 $206,126 $217,135 $202,703 $142,450
Asset coverage++ ........................................... $ 3,479 $ 3,190 $ 3,056 $ 3,028 $ 3,561
</TABLE>
- ----------
* NAV and market value published in THE WALL STREET JOURNAL each Monday.
# The ratios of operating expenses, including interest expense, to average net
assets were 3.41%+++, 3.01%, 2.74%, 4.63%, 4.34%, and 3.36% for the years
indicated above, respectively.
+ Total investment return is calculated assuming a purchase of common stock at
the current market price on the first day and a sale at the current market
price on the last day of each period reported. Dividends and distributions
are assumed, for purposes of this calculation, to be reinvested at prices
obtained under the Trust's dividend reinvestment plan. Total investment
return does not reflect brokerage commissions. Total investment returns for
periods of less than one year are not annualized.
++ Per $1,000 of reverse repurchase agreement outstanding.
+++ Annualized
The information above represents the unaudited operating performance for a
share of common stock outstanding, total investment return, ratios to average
net assets and other supplemental data, for each of the periods indicated. This
information has been determined based upon financial information provided in
the financial statements and market value data for the Trust's shares.
See Notes to Financial Statements.
11
<PAGE>
================================================================================
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
NOTE 1. ORGANIZATION & The BlackRock North American Government
ACCOUNTING Income Trust Inc., (the "Trust"), a
POLICIES Maryland corporation, is a non-diver-
sified, closed-end management investment company. The investment objective of
the Trust is to achieve high monthly income consistent with preservation of
capital. The ability of issuers of debt securities held by the Trust to meet
their obligations may be affected by economic developments in a specific
country, industry or region. No assurance can be given that the Trust's
investment objective will be achieved.
The following is a summary of significant accounting policies followed by
the Trust.
BASIS OF PRESENTATION: The financial statements of the Trust are prepared in
accordance with United States generally accepted accounting principles using
the United States dollar as both the functional and reporting currency.
SECURITIES VALUATION: In valuing the Trust's assets, quotations of foreign
securities in a foreign currency are converted to U.S. dollar equivalents at
the then current currency value. The Trust values mortgage-backed, asset-backed
and other debt securities, interest rate swaps, caps, floors, and non-exchange
traded options on the basis of current market quotations provided by dealers or
pricing services approved by the Trust's Board of Directors. In determining the
value of a particular security, pricing services may use certain information
with respect to transactions in such securities, quotations from dealers,
market transactions in comparable securities, various relationships observed in
the market between securities, and calculated yield measures based on valuation
technology commonly employed in the market for such securities. Exchange-traded
options are valued at their last sales price as of the close of options trading
on the applicable exchanges. In the absence of a last sale, options are valued
at the average of the quoted bid and asked prices as of the close of business.
Futures contracts are valued at the last sale price as of the close of the
commodities exchange on which it trades unless the Trust's Board of Directors
determines that such price does not reflect its fair value, in which case it
will be valued at its fair value as determined by the Trust's Board of
Directors. Any securities or other assets for which such current market
quotations are not readily available are valued at fair value as determined in
good faith under procedures established by and under the general supervision
and responsibility of the Trust's Board of Directors.
Short-term securities which mature in 60 days or less are valued at
amortized cost, if their term to maturity from date of purchase is 60 days or
less. Short-term securities with a term to maturity greater than 60 days from
the date of purchase are valued at current market quotations until maturity.
In connection with transactions in repurchase agreements, the Trust's
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market on a
daily basis to ensure the adequacy of the collateral. If the seller defaults
and the value of the collateral declines or if bankruptcy proceedings are
commenced with respect to the seller of the security, realization of the
collateral by the Trust may be delayed or limited.
OPTION SELLING/PURCHASING: When the Trust sells or purchases an option, an
amount equal to the premium received or paid by the Trust is recorded as a
liability or an asset and is subsequently adjusted to the current market value
of the option written or purchased. Premiums received or paid from writing or
purchasing options which expire unexercised are treated by the Trust on the
expiration date as realized gains or losses. The difference between the premium
and the amount paid or received on effecting a closing purchase or sale
transaction, including brokerage commissions, is also treated as a realized
gain or loss. If an option is exercised, the premium paid or received is added
to the proceeds from the sale or cost of the purchase in determining whether
the Trust has realized a gain or a loss on investment transactions. The Trust,
as writer of an option, may have no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears the
market risk of an unfavorable change in the price of the security underlying
the written option.
Options, when used by the Trust, help in maintaining a targeted duration.
Duration is a measure of the price sensitivity of a security or a portfolio to
relative changes in interest rates. For instance, a duration of "one" means
that a portfolio's or a security's price would be expected to change by
approximately one percent with a one percent change in interest rates, while a
duration of five would imply that the price would move approximately five
percent in relation to a one percent change in interest rates.
Option selling and purchasing is used by the Trust to effectively "hedge"
positions, 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 $17,482,617 include
realized foreign exchange gains and losses from sales and maturities of
portfolio securities, maturities of reverse repurchase agreements, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, the difference between the amounts
of interest and discount recorded on the Trust's books and the US dollar
equivalent amounts actually received or paid and changes in unrealized foreign
exchange gains and losses in the value of portfolio securities and other assets
and liabilities arising as a result of changes in the exchange rate.
Foreign security and currency transactions may involve certain
considerations and risks not typically associated with those of domestic
origin, including unanticipated movements in the value of the Canadian dollar
relative to the U.S. dollar.
The exchange rate for the Canadian dollar at April 30, 1999 was
US$ 0.6858 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 United States income or excise taxes
because it is the Trust's policy to continue to meet the requirements of the
United States Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income to shareholders.
DIVIDENDS AND DISTRIBUTIONS: The Trust declares and pays dividends and
distributions monthly from net investment income, realized short-term capital
gains and other sources, if necessary. Net long-term capital gains, if any, in
excess of loss carryforwards may be distributed annually. Dividends and
distributions are recorded on the ex-dividend date.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION OF CAPITAL ACCOUNTS: The Trust accounts for and reports
distributions to shareholders in accordance with the American Institute of
Certified Public Accountants' Statement of Position 93-2: Determination,
Disclosure, and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies. For the six months
ended April 30, 1999 the Trust increased undistributed net investment income by
$180,072, increased accumulated net realized gains on investments by $116,783,
and increased accumulated net realized and unrealized foreign currency loss by
$296,855 for realized foreign currency gains incurred during the six months
ended April 30, 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 corporate subsidiary of
BlackRock Advisors, Inc., which is an indirect majority-owned subsidiary of
PNCBank, N.A., and an Administration Agreement with Prudential Investments Fund
Management LLC ("PIFM"), an indirect, wholly-owned subsidiary of The Prudential
Insurance Co. of America.
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 Purchases and sale of investment securities,
SECURITIES AND other than short-term investments, for the
OTHER INVESTMENTS six months ended April 30, 1999 aggregated
$584,136,226 and $523,633,964, respectively.
The Trust may invest without limit in securities which are not readily
marketable, including those which are restricted as to disposition under
securities law ("restricted securities") although the Trust does not expect
that such investments will generally exceed 5% of its portfolio assets. At
April 30, 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
April 30, 1999 was $612,382,302, and accordingly, net unrealized appreciation
for federal income tax purposes was $14,165,470 (gross unrealized appreciation
$25,720,410; gross unrealized depreciation $11,554,940).
For federal income tax purposes, the Trust had a capital loss
carryforward at October 31, 1998 of approximately $645,300 which will expire in
2004. Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of such amount.
Details of open financial futures contracts at April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT UNREALIZED
NUMBER OF EXPIRATION TRADE APRIL 30, APPRECIATION/
CONTRACTS TYPE DATE DATE 1999 (DEPRECIATION)
- -------- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
Short position:
31 Eurodollar Mar. '99 $7,323,611 $7,322,200 $1,411
31 Eurodollar Jun. '99 7,333,686 7,331,888 1,798
22 10 Yr. U.S. T-Note Jun. '99 2,520,276 2,523,125 (2,849)
Long position:
200 5 Yr. U.S. T-Note Jun. '99 22,153,817 22,228,125 74,308
9 30 Yr. U.S. T-Bond Jun. '99 1,085,947 1,085,947 -
-------
$74,668
=======
</TABLE>
Details of open forward currency contract at April 30, 1999 are as
follows:
<TABLE>
<CAPTION>
VALUE AT VALUE AT
SETTLEMENT CONTRACT SETTLEMENT APRIL 30, UNREALIZED
DATE TO RECEIVE DATE 1999 APPRECIATION
- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Purchase:
05/05/99 C$9,000,000 $5,980,066 $6,172,505 $192,439
</TABLE>
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 April 30,
1999 are as follows:
<TABLE>
<CAPTION>
NOTIONAL VALUE AT
AMOUNT FIXED TERMINATION AMORTIZED APRIL 30, 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 $452,437 $160,146 $(292,291)
</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 six months ended April 30, 1999 was approximately
$208,501,914 at a weighted average interest rate of approximately 4.93%. Also,
the average daily balance of Canadian reverse repurchase agreements outstanding
during the six months ended April 30, 1999 was approximately C$15,195,204 at a
weighted average interest rate of 5.08%.
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.
16
<PAGE>
DOLLAR ROLLS: The Trust may enter into dollar rolls in which the Trust sells
securities for delivery in the current month and simultaneously contracts to
repurchase substantially similar (same type, coupon and maturity) securities on
a specified future date. During the roll period the Trust forgoes principal and
interest paid on the securities. The Trust is compensated by the interest earned
on the cash proceeds of the initial sale and by the lower repurchase price at
the future date
The average daily balance of dollar rolls outstanding during the six
months ended April 30, 1999 was approximately $9,564,384. 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
36,207,093 shares outstanding at April 30, 1999, the Adviser owned 7,093 shares.
NOTE 6. DIVIDENDS Subsequent to April 30, 1999, the Board
of Directors of the Trust declared
dividends from undistributed earnings of $0.07 per share payable May 28, 1999 to
shareholders of record on May 14, 1999.
17
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT TRUST INC.
DIVIDEND REINVESTMENT PLAN
- --------------------------------------------------------------------------------
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"),
shareholders may elect to have all distributions of dividends and capital gains
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.
18
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
YEAR 2000 READINESS DISCLOSURE. The Trust is currently in the process of
evaluating its information technology infrastructure for Year 2000 compliance.
Substantially all of the Trust's information systems are supplied by the
Adviser. The Adviser has advised the Trust that it is currently evaluating
whether such systems are year 2000 compliant and that it expects to incur costs
of up to approximately five hundred thousand dollars to complete such
evaluation and to make any modifications to its systems as may be necessary to
achieve Year 2000 compliance. The Adviser has advised the Trust that it 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 in the process of evaluating
the Year 2000 compliance of various suppliers of the Adviser and the Trust. The
Adviser has advised the Trust that it 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 has received responses from all such suppliers with
respect to their Year 2000 compliance, and there can be no assurance that the
systems of such suppliers, who are beyond the Trust's control, will be Year
2000 compliant. In the event that any of the Trust's significant suppliers do
not successfully and timely achieve Year 2000 compliance, the Trust's business
or operations could be adversely affected. The Adviser has advised the Trust
that it is in the process of preparing a contingency plan for Year 2000
compliance by its suppliers. There can be no assurance that such contingency
plan will be successful in preventing a disruption of the Trust's operations.
The Trust is designating this disclosure as its Year 2000 readiness
disclosure for all purposes under the Year 2000 Information and Readiness
Disclosure Act and the foregoing information shall constitute a Year 2000
statement for purposes of that Act.
ANNUAL MEETING OF TRUST SHAREHOLDERS. There have been no material changes
in the Trust's investment objectives or policies that have not been approved by
the shareholders or to its charter or by-laws or in the principal risk factors
associated with investment in the Trust. There have been no changes in the
persons who are primarily responsible for the day-to-day management of the
Trust's portfolio.
The Annual Meeting of Trust Shareholders was held May 19, 1999 to vote on
the following matters:
(1) To elect three Directors as follows:
DIRECTOR CLASS TERM EXPIRING
-------- ----- ---- --------
Richard E. Cavanagh ................... I 3 years 2002
James Grosfeld ........................ I 3 years 2002
James Clayburn La Force, Jr. .......... I 3 years 2002
Directors whose term of office continues beyond this meeting are Frank
J. Fabozzi, Walter F. Mondale, Laurence D. Fink, Andrew F. Brimmer,
Ralph L. Schlosstein and Kent Dixon.
(2) To ratify the selection of Deloitte & Touche LLP as independent public
accountants of the Trust for the fiscal year ending October 31, 1999.
(3) To approve or reject the shareholder proposal requesting that the Trust
shall promptly conduct a self-tender offer for a significant percentage
of its outstanding shares at net asset value.
Shareholders elected the three Directors, ratified the selection of
Deloitte & Touche LLP and approved the Shareholder proposal to conduct
a self-tender offer. The results of the voting was as follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
Richard E. Cavanagh ............................ 25,565,678 - 6,157,090
James Grosfeld ................................. 25,538,626 - 6,184,142
James Clayburn La Force, Jr. ................... 25,523,643 - 6,199,125
Ratification of Deloitte & Touche LLP .......... 30,763,507 527,045 432,216
Conduct a self-tender offer .................... 9,713,563 8,083,735 1,108,772
</TABLE>
19
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
INVESTMENT SUMMARY
- --------------------------------------------------------------------------------
THE TRUST'S INVESTMENT OBJECTIVE
The BlackRock North American Government Income Trust's investment objective is
to manage a portfolio of high grade securities to achieve high monthly income
consistent with preservation of capital. The Trust will seek to achieve its
objective by investing in Canadian and U.S. dollar-denominated securities.
WHO MANAGES THE TRUST?
BlackRock Financial Management, Inc. ("BlackRock") is an SEC-registered
investment adviser. BlackRock and its affiliates currently manage over $141
billion on behalf of taxable and tax-exempt clients worldwide. Strategies
include fixed income, equity and cash and may incorporate both domestic and
international securities. Domestic fixed income strategies utilize the
government, mortgage, corporate and municipal bond sectors. BlackRock manages
twenty-one closed-end funds that are traded on either the New York or American
stock exchanges, and a $25 billion family of open-end equity and bond funds.
Current accounts number over 450, domiciled in the United States and overseas.
WHAT CAN THE TRUST INVEST IN?
The Trust will invest primarily in securities issued or guaranteed by the
federal governments of Canada and the United States, their political
subdivisions (which include the Canadian provinces) and their agencies and
instrumentalities. The Trust's investments will be either government securities
or securities rated "BBB" or higher at the time of investment by Standard &
Poor's or "A2" by Moody's, or securities which BlackRock deems as of comparable
quality. Under current market conditions, it is expected that the percentage of
the Trust's assets invested in Canadian dollar-denominated securities will be
approximately 65% and 75%. Examples of types of securities in which the Trust
may invest include Canadian and U.S. government or government agency
residential mortgage-backed securities, privately issued mortgage-backed
securities, Canadian provincial debt securities, U.S. Government securities,
commercial mortgage-backed securities, asset-backed securities and other debt
securities issued by Canadian and U.S. corporations and other entities. Under
current market conditions, BlackRock expects that the primary investments of
the Trust to be Canadian mortgage-backed securities, Canadian provincial debt
securities, U.S. government securities, securities backed by U.S. government
agencies (such as residential mortgage-backed securities), privately issued
mortgage-backed securities and commercial mortgage- backed securities.
WHAT IS THE ADVISER'S INVESTMENT STRATEGY?
The Adviser will seek to meet the Trust's investment objective by managing the
asset of the Trust so as to provide high monthly income consistent with the
preservation of capital. The Trust will seek to provide monthly income that is
greater than that which could be obtained by investing in U.S. Treasury
securities with an average life similar to that of the Trust's assets. In
seeking the investment objective, BlackRock actively manages the Trust's assets
in relation to market conditions and changes in general economic conditions in
Canada and the U.S., including its expectations regarding interest rate changes
and changes in currency exchange rates between the U.S. dollar and the Canadian
dollar, to attempt to take advantage of favorable investment opportunities in
each country. As such, the allocation between Canadian and U.S. securities will
change from time to time. Under current market conditions, the average life of
the Trust's assets is expected to be in the range of seven to ten years. Under
other market conditions, the Trust's average life may vary and may not be
predictable using any formula.
While the Adviser has the opportunity to hedge against currency risks
associated with Canadian securities, the Trust is intended to provide exposure
to the Canadian marketplace. As a result, historically, currency hedging has
not been widely practiced by the Trust. However, BlackRock will attempt to
limit interest rate risk by constantly monitoring the duration (or price
sensitivity with respect to changes in interest rates) of the Trust's assets so
that it is within the range of U.S. Treasury securities with 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.
20
<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.
NON-U.S. SECURITIES. The Trust may invest a portion of its assets in non-U.S.
dollar-denominated securities which involve special risks such as currency,
political and economic risks, although under current market conditions does not
do so.
ANTITAKEOVER PROVISIONS. Certain antitakeover provisions will make a change in
the Trust's business or management more difficult without the approval of the
Trust's Board of Directors and may have the effect of depriving shareholders of
an opportunity to sell their shares at a premium above the prevailing market
price.
21
<PAGE>
- --------------------------------------------------------------------------------
THE BLACKROCK NORTH AMERICAN GOVERNMENT INCOME TRUST INC.
GLOSSARY
- --------------------------------------------------------------------------------
ADJUSTABLE RATE MORTGAGE-BACKED Mortgage instruments with interest rates
SECURITIES (ARMS): that adjust at periodic intervals at a fixed
amount over the market levels of interest
rates as reflected in specified indexes.
ARMS are backed by mortgage loans secured by
real property.
ASSET-BACKED SECURITIES: Securities backed by various types of
receivables such as automobile and credit
card receivables.
CANADIAN MORTGAGE SECURITIES: Canadian Mortgage instruments which are
guaranteed by the Canadian Mortgage Housing
Corporation (CMHC), a federal agency backed
by the full faith and credit of the Canadian
Government.
CLOSED-END FUND: Investment vehicle which initially offers a
fixed number of shares and trades on a stock
exchange. The fund invests in a portfolio of
securities in accordance with its stated
investment objectives and policies.
COLLATERALIZED Mortgage-backed securities which separate
MORTGAGE OBLIGATIONS (CMOS): mortgage pools into short, medium, and
long-term securities with different
priorities for receipt of principal and
interest. Each class is paid a fixed or
floating rate of interest at regular
intervals. Also known as multiple-class
mortgage pass-throughs.
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 be
trading at a discount.
DIVIDEND: This is income generated by securities in a
portfolio and distributed to shareholders
after the deduction of expenses. This Trust
declares and pays dividends on a monthly
basis.
DIVIDEND REINVESTMENT: Shareholders may elect to have all
distributions of dividends and capital gains
automatically reinvested into additional
shares of the Trust.
FHA: Federal Housing Administration, a government
agency that facilitates a secondary mortgage
market by providing an agency that
guarantees timely payment of interest and
principal on mortgages.
FHLMC: Federal Home Loan Mortgage Corporation, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FHLMC are not guaranteed by the U.S.
government, however, they are backed by
FHLMC's authority to borrow from the U.S.
government. Also known as Freddie Mac.
FNMA: Federal National Mortgage Association, a
publicly owned, federally chartered
corporation that facilitates a secondary
mortgage market by purchasing mortgages from
lenders such as savings institutions and
reselling them to investors by means of
mortgage-backed securities. Obligations of
FNMA are not guaranteed by the U.S.
government, however, they are backed by
FNMA's authority to borrow from the U.S.
government. Also known as Fannie Mae.
GNMA: Government National Mortgage Association, a
government agency that facilitates a
secondary mortgage market by providing an
agency that guarantees timely payment of
interest and principal on mortgages. GNMA's
obligations are supported by the full faith
and credit of the U.S. Treasury. Also known
as Ginnie Mae.
22
<PAGE>
<TABLE>
<S> <C>
GOVERNMENT SECURITIES: Securities issued or guaranteed by the U.S.
government, or one of its agencies or
instrumentalities, such as GNMA (Government
National Mortgage Association), FNMA
(Federal National Mortgage Association) and
FHLMC (Federal Home Loan Mortgage
Corporation).
INTEREST-ONLY SECURITIES: 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 Fannie
MULTIPLE-CLASS PASS-THROUGHS: Mae, Freddie Mac or Ginnie Mae.
NET ASSET VALUE (NAV): Collateralized Mortgage Obligations. 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, THE NEW
YORK TIMES 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
PREMIUM: middle-income housing. 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 Arrangements in which a pool of assets is
SECURITIES separated into two classes that receive
different proportions of the interest and
principal distribution from underlying
mortgage-backed securities. IO's and PO's
are examples of STRIPs.
</TABLE>
23
<PAGE>
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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
The accompanying financial statements as of April 30, 1999 were not
audited and accordingly, no opinion is expressed on them.
This report is for shareholder information. This is not a prospectus
intended for use in the purchase or sale of any securities.
THE BLACKROCK NORTH AMERICAN
GOVERNMENT INCOME TRUST INC.
c/o Prudential Investments Fund Management LLC
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
(800) 227-7BFM
[GRAPHIC OMITTED] Printed on recycled paper 092475-10-2
----------------
BlackRock
THE ----------------
NORTH AMERICAN
GOVERNMENT
INCOME TRUST INC.
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SEMI-ANNUAL REPORT
APRIL 30, 1999
[GRAPHIC OMITTED]
