ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
SEMI-ANNUAL REPORT
MAY 31, 1996
ALLIANCE NORTH AMERICAN
LETTER TO SHAREHOLDERS GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
June 3, 1996
Dear Shareholder:
After experiencing a sustained, broad-based rally during 1995, returns in the
U.S. bond market have been generally negative in 1996. The market has been
reacting to stronger-than-expected data on the U.S. economy and the belief that
the Federal Reserve may raise interest rates to reduce inflationary pressures.
Debt prices in both Mexico and Argentina continued to rise as their economies
showed signs of gradual improvement. In Canada, bond prices also moved higher
following an intermediate resolution of the Quebec separatist movement.
ECONOMIC REVIEW
The U.S. economy survived an inventory-related slowdown during the second half
of 1995 and entered 1996 in a relatively balanced and healthy condition.
First-quarter gross domestic product (GDP) rose 2.3%, indicating that the
desired "soft landing" was underway. May's payroll gain of 348,000 new jobs,
combined with February's startling 705,000 increase, troubled the fixed-income
markets. Twelve-month comparisons through May 31, 1996larger payrolls, higher
employment, longer hours workedall point to second-quarter growth of more than
4%. In addition, consumer confidence remains elevated, with retail sales in May
1996 5.5% higher than in May 1995, despite their third monthly decline in a
row. While a decline in the National Association of Purchasing Managers survey
in May suggested a slowdown in manufacturing, the drop was largely attributable
to a fall in its inventories component.
For the moment, inflation at both the consumer and producer levels remains
generally well-behaved, and the U.S. economy continues to operate in the
inflation "safe zone." However, recent increases in hourly wages and commodity
prices require close monitoring. Federal Reserve policy has been in a holding
pattern during most of 1996, but the possibility that the central bank will
raise rates to ease inflationary pressure has become more likely amid
stronger-than-expected economic news. Additionally, the chances for a
meaningful deficit reduction plan have also receded as politicians focus on the
1996 election campaign.
BOND MARKET REVIEW
Since our last report, the U.S. bond market has experienced a bumpy ride. The
rapid restrengthening of the U.S. economy during the first half of 1996
depressed the bond market while raising concerns about inflation and the
outlook for intervention by the Federal Reserve. Across all major sectors of
the U.S. fixed-income market, shorter-duration securities outperformed
longer-duration securities as interest rates for all maturities increased.
Outside the U.S., emerging-market debt prices continued to rise. The Mexican
economy continued it's recovery, although more slowly than anticipated.
Mexico's plan to prepay $4.7 billion to the U.S. Treasury (nearly half of what
is owed from the 1995 bailout) emphasized the Mexican government's commitment
to improved debt management and helped to shore up investor confidence.
The Argentine economy continued to enjoy an environment of low inflation and
stability that helped to promote economic growth. Confidence in the stability
of the economy attracted new investment to Argentina and provided the liquidity
needed for continued growth.
INVESTMENT OUTLOOK
It is our view that economic growth in the U.S. will slow down during the
second half of 1996 following fairly robust growth during the second quarter.
Our forecast calls for a fixed-base-year gross domestic product growth rate of
2.0% to 2.5% for the second half of the year. If the economy does not soon
begin to show signs of slowing down as expected, the Federal Reserve is likely
to tighten monetary policy. Until a clearer picture of the U.S. economy
emerges, we expect the domestic bond market to continue to be choppy.
In Canada, we expect economic growth to proceed moderately as policy makers
continue to focus on fiscal improvement.
1
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
We remain optimistic on emerging-market debt securities. Moderate economic
growth in the U.S., stable inflation, and relatively steady bond prices provide
a strong, positive environment for this fixed-income market segment. Argentina
has held steady to the economic policies designed to reduce inflation below
2.0%. Bank deposits and international reserves have returned to levels existing
prior to the Mexican peso devaluation in December 1994. We believe that
Argentine economic growth in the second half of 1996 will continue to support
higher bond prices.
In Mexico, we believe many of the components necessary for long-term economic
growth are in place. The Banco de Mexico's tightened monetary policies have
stabilized the peso at a sustainable level, and the government's commitment to
debt repayment will help to attract new investment. Political concerns may
continue to affect market volatility, and we will monitor these developments
closely.
INVESTMENT RESULTS
Provided on the right are your Fund's total returns through its fiscal
semi-annual reporting period ended May 31, 1996. Also shown are the returns for
the overall U.S. bond market, represented by the Lehman Brothers (LB) Aggregate
Index, and for a narrower universe, the Lehman Brothers Intermediate-Term
(LBIT) Government Bond Index, which measures performance of bonds in the one-
to ten-year maturity range. For the fiscal six months, Alliance North American
Government Income Trust significantly outperformed both. In addition, over the
past 12 months through May 31, 1996, Class A shares rose 20.17%, while Class B
and Class C shares each increased 18.98%. By contrast, the LB Aggregate Index
rose 4.38% and the LBIT Government Index climbed 3.97%. Additional returns
appear on page 4.
INVESTMENT RESULTS*
SIX MONTHS ENDED MAY 31, 1996
CUMULATIVE SEC
TOTAL RETURN 30-DAY YIELD
------------ ------------
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
Class A 15.73% 11.45%
Class B 15.17% 11.23%
Class C 15.17% 11.24%
LB AGGREGATE INDEX -1.16%
LBIT GOVERNMENT INDEX -1.67%
* THE TRUST'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES AS OF 5/31/96. ALL
FEES AND EXPENSES RELATED TO THE OPERATION OF THE TRUST HAVE BEEN DEDUCTED, BUT
NO ADJUSTMENT HAS BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE
PURCHASED OR REDEEMED. RETURNS FOR THE TRUST AND ITS COMPARATIVE INDICES
INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
THE COMPARATIVE INDICES ARE UNMANAGED AND DO NOT REFLECT FEES AND EXPENSES.
THE LB AGGREGATE INDEX TRACKS THE PERFORMANCE OF BONDS ACROSS MOST SECTORS OF
THE U.S. GOVERNMENT AND CORPORATE FIXED-INCOME MARKETS. THE LBIT GOVERNMENT
INDEX MEASURES RETURNS ON BONDS WITH DOLLAR-WEIGHTED AVERAGE MATURITIES OF 1 TO
10 YEARS. THE SEC YIELD IS CALCULATED ON THE 30 DAYS ENDED 5/31/96.
ADDITIONAL PERFORMANCE INFORMATION APPEARS ON PAGE 4.
We attribute the Trust's solid performance during the last six months to the
resurgence of emerging-market bond prices. Specifically, the Trust's portfolio
was positioned to capitalize on the improving investment climate in
2
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
Argentina and Mexico. As we discussed in our report to you last November, we
found evidence that recent political and fiscal initiatives in those countries
were having the desired effect on their economies and that their bond markets
offered opportunities for substantial appreciation. The Trust's positive
returns for the rolling 12 months (see page 4) were fueled as well by the
portfolio's participation in the impressive gains posted by the U.S. bond
markets in 1995.
Thank you for your continued interest and investment in Alliance North American
Government Income Trust. We look forward to reporting its progress to you in
the coming months.
Sincerely,
John D. Carifa
Chairman and President
Wayne D. Lyski
Senior Vice President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
3
ALLIANCE NORTH AMERICAN
INVESTMENT OBJECTIVE AND POLICIES GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
Alliance North American Government Income Trust is an open-end, non-diversified
investment company with an investment objective of seeking the highest level of
current income, consistent with what we believe to be prudent investment risk,
from a portfolio of debt securities issued or guaranteed by the governments of
the United States, Canada, and Mexico. The Trust's investment policies provide
that the Trust expects to maintain at least 25% of its assets in
U.S.-dollar-denominated securities and may invest up to 25% of its total assets
in debt securities issued by governmental entities in Argentina.
INVESTMENT RESULTS
_______________________________________________________________________________
AVERAGE ANNUAL TOTAL RETURNS AS OF MAY 31, 1996
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
. One Year 20.17% 15.05%
. Since Inception* 4.91% 3.84%
SEC Yield 11.45%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
. One Year 18.98% 15.98%
. Since Inception* 4.03% 4.03%
SEC Yield 11.23%
CLASS C SHARES
. One Year 18.98%
. Since Inception* 1.73%
SEC Yield 11.24%
Average annual total returns reflect investment of dividends and/or capital
gain distributions in additional shares, with and without the effect of the
4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (4%Year 1; 3%Year 2; 2%Year 3; 1%Year 4);
Class C shares purchased prior to July 1, 1996, are not subject to front-end or
contingent deferred sales charges. Class C shares purchased on or after July 1,
1996, are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. SEC Yields are for the 30 days ended
May 31, 1996.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
* Inception: 3/27/92, Class A and Class B; 5/3/93, Class C.
4
PORTFOLIO OF INVESTMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1996 (UNAUDITED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $VALUE
- --------------------------------------------------------------------
ARGENTINA-30.7%
GOVERNMENT OBLIGATIONS-30.7%
Republic of Argentina
Pensioner-Bocon Series I
3.50%, 4/01/01 (FRN) ARS 18,787 $ 14,601,059
Pensioner-Bocon Series II
3.50%, 9/01/02 (FRN) 83,636 53,677,276
Supplier-Bocon
3.50%, 4/01/07 (FRN) 795,197 469,812,247
Total Argentinian Securities
(cost $549,784,541) 538,090,582
CANADA-31.5%
GOVERNMENT/AGENCY-31.5%
Government of Canada
8.00%, 6/01/23 (a) CA$ 113,070 81,698,573
8.00%, 6/01/27 (a) 159,500 115,071,890
Ontario Hydro
10.00%, 3/19/01 (a) 50,000 40,623,289
11.00%, 10/01/97 1,500 1,165,931
Province of British Columbia
7.875%, 11/30/23 36,000 24,330,183
8.00%, 9/08/23 24,600 17,288,136
9.00%, 8/23/24 25,000 19,663,905
Province of Manitoba
7.75%, 12/22/25 60,200 41,041,360
Province of Ontario
8.00%, 6/02/26 (a) 91,250 63,521,695
Province of Quebec
9.375%, 1/16/23 88,600 68,815,911
Province of Saskatchewan
9.50%, 8/16/04 48,000 38,549,940
9.60%, 2/04/22 24,600 20,133,165
Quebec Hydro
9.125%, 8/15/20 (c) 250,000 21,348,028
Total Canadian Securities
(cost $556,134,916) 553,252,006
MEXICO-8.7%
GOVERNMENT/AGENCY-8.7%
Bankers Acceptances
Nacional Financiera
S.N.C. (c)
15.00%, 8/13/98 MXP 80,180 5,049,372
16.50%, 12/26/03 414,125 10,837,493
16.95%, 12/24/03 81,401 2,131,434
17.50%, 12/11/03 55,253 1,452,280
Mexican Ajustabonos
6.83%, 11/28/96 (d) 31,500 7,804,888
Mexican Treasury Bills (c)
35.75%, 8/29/96 MXP 50,000 6,272,749
35.80%, 9/05/96 46,539 5,793,038
35.80%, 9/12/96 35,616 4,409,235
36.00%, 8/15/96 46,098 5,845,642
36.20%, 9/19/96 60,000 7,387,690
36.25%, 9/26/96 123,770 15,157,377
39.00%, 10/03/96 129,411 15,763,248
40.00%, 8/08/96 198,610 25,322,460
41.46%, 6/20/96 175,864 23,340,110
44.70%, 7/11/96 34,968 4,569,855
44.70%, 7/25/96 50,000 6,468,539
45.25%, 7/18/96 35,500 4,615,937
Total Mexican Securities
(cost $239,867,021) 152,221,347
UNITED STATES-51.2%
U.S. TREASURY SECURITIES-35.1%
U.S. Treasury Bonds
12.375%, 5/15/04 US 47,200 62,997,250
12.50%, 8/15/14 19,000 27,659,844
14.00%, 11/15/11 82,900 125,360,344
U.S. Treasury Notes
6.75%, 4/30/00 124,300 125,018,609
7.875% 11/15/04 101,200 107,698,938
U.S. Treasury Strips
Zero Coupon, 5/15/09 52,430 21,059,148
Zero Coupon, 5/15/10 384,970 142,758,040
Zero Coupon, 5/15/14 13,400 3,693,733
-------------
616,245,906
DEBT OBLIGATIONS-12.6%
United Mexican States
21.00%, 11/27/96 (b) (e) 225,500 220,863,495
FEDERAL AGENCY SECURITIES-2.5%
Federal National Mortgage
Association
Zero Coupon, 10/09/19 85,025 15,012,227
Student Loan Marketing
Association
15.00%, 9/17/96 27,450 28,224,090
-------------
43,236,317
MORTGAGE BACKED SECURITIES-1.0%
Government National
Mortgage Association
9.75%, 6/15/24 16,467 17,692,100
5
ALLIANCE NORTH AMERICAN
PORTFOLIO OF INVESTMENTS (CONTINUED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
CONTRACTS U.S. $VALUE
- --------------------------------------------------------------------
PUT OPTION PURCHASED-0.0%
Brazil Real
Expiring November 1996
@ 0.91 US$ 223,750 $ 290,875
Total United States Securities
(cost $931,844,539) 898,328,693
TOTAL INVESTMENTS-122.1%
(cost $2,277,631,017) $2,141,892,628
Other assets less liabilities-(22.1%) (387,104,991)
NET ASSETS-100% $1,754,787,637
(a) Security, or portion thereof, has been segregated to collateralize forward
exchange currency contracts. This collateral has a total market value of
$300,915,447 at May 31, 1996.
(b) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At May 31, 1996 this security
amounted to $220,863,495 or 12.6% of net assets.
(c) Interest rate represents annualized yield to maturity at purchase date.
(d) Interest payment adjusted quarterly based on Mexico's inflation rate on
the date of interest payment.
Glossary:
FRN - Floating Rate Note; stated interest rate in effect at May 31, 1996.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE NORTH AMERICAN
MAY 31, 1996 (UNAUDITED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $2,277,631,017) $2,141,892,628
Interest receivable 62,034,283
Receivable for capital stock sold 5,659,589
Receivable for investment securities sold 1,012,171
Unrealized appreciation of forward exchange currency contracts 639,534
Deferred organization expenses 54,505
Other assets 38,662
Total assets 2,211,331,372
LIABILITIES
Due to custodian 541,228
Loan Payable 250,000,000
Payable for investment securities purchased 187,725,751
Dividend payable 7,640,686
Payable for capital stock redeemed 3,893,363
Loan interest payable 3,007,813
Advisory fee payable 1,175,818
Distribution fee payable 256,251
Accrued expenses 2,302,825
Total liabilities 456,543,735
NET ASSETS $1,754,787,637
COMPOSITION OF NET ASSETS
Capital stock, at par $ 240,041
Additional paid-in capital 2,203,723,399
Undistributed net investment income 10,748,109
Accumulated net realized loss on investments and foreign
currency transactions (325,012,851)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (134,911,061)
---------------
$1,754,787,637
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($303,683,755/
41,541,512 shares of capital stock issued and outstanding) $7.31
Sales Charge-4.25% of public offering price .32
Maximum offering price $7.63
CLASS B SHARES
Net asset value and offering price per share($1,216,641,535/
166,426,847 shares of capital stock issued and outstanding) $7.31
CLASS C SHARES
Net asset value, redemption and offering price per share($234,462,347
/32,072,577 shares of capital stock issued and outstanding) $7.31
See notes to financial statements.
7
STATEMENT OF OPERATIONS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
INVESTMENT INCOME
Interest(net of foreign taxes withheld of $147,035) $160,765,180
EXPENSES
Advisory fee $ 6,490,762
Distribution fee - Class A 429,179
Distribution fee - Class B 6,114,829
Distribution fee - Class C 1,176,703
Transfer agency 1,546,403
Custodian 1,499,206
Printing 140,123
Audit and legal 122,441
Administrative 80,793
Registration 42,767
Amortization of organization expenses 34,055
Taxes 18,685
Directors' fees 11,248
Miscellaneous 22,851
Total expenses before interest 17,730,045
Interest expense 8,446,378
Total expenses 26,176,423
Net investment income 134,588,757
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions (26,206,789)
Net realized loss on foreign currency transactions (86,865,056)
Net change in unrealized depreciation of investments 222,880,104
Net change in unrealized appreciation of foreign
currency denominated assets and liabilities (3,293,460)
Net gain on investments 106,514,799
NET INCREASE IN NET ASSETS FROM OPERATIONS $241,103,556
See notes to financial statements.
8
ALLIANCE NORTH AMERICAN
STATEMENT OF CHANGES IN NET ASSETS GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
MAY 31,1996 NOVEMBER 30,
(UNAUDITED) 1995
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 134,588,757 $ 272,121,257
Net realized loss on investments and
foreign currency transactions (113,071,845) (507,701,318)
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities 219,586,644 43,988,763
Net increase (decrease) in net assets from
operations 241,103,556 (191,591,298)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (19,146,716) -0-
Class B (75,877,028) -0-
Class C (14,611,716) -0-
Tax return of capital
Class A -0- (33,426,216)
Class B -0- (152,169,130)
Class C -0- (30,951,612)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) 28,628,170 (310,024,369)
Total increase (decrease) 160,096,266 (718,162,625)
NET ASSETS
Beginning of year 1,594,691,371 2,312,853,996
End of period (including undistributed
net investment income of $10,748,109
at May 31, 1996) $1,754,787,637 $1,594,691,371
See notes to financial statements.
9
STATEMENT OF CASH FLOWS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 54,545,040
Interest expense paid (8,429,016)
Operating expenses paid (16,982,623)
Net increase in cash from operating activities $ 29,133,401
INVESTING ACTIVITIES:
Proceeds from disposition of short-term
portfolio investments, net 245,152,997
Purchases of long-term portfolio investments (1,805,628,372)
Proceeds from disposition of long-term
portfolio investments 1,605,780,814
Net increase in cash from investing activities 45,305,439
FINANCING ACTIVITIES*:
Subscriptions of capital stock, net 27,864,181
Cash dividends paid (107,880,573)
Net decrease in cash from financing activities (80,016,392)
Effect of exchange rate on cash 4,935,837
Net decrease in cash (641,715)
Cash at beginning of period 100,487
Cash at end of period $ (541,228)
_______________________________________________________________________________
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from operations $241,103,556
ADJUSTMENTS:
Increase in interest receivable $(36,918,319)
Net realized loss on securities 26,206,789
Net change in unrealized appreciation (219,586,644)
Accretion of bond discount (69,301,823)
Increase in accrued expenses and other
liabilities 764,786
Net realized loss on foreign currency
transactions 86,865,056
(211,970,155)
Net increase in cash from operating activities $ 29,133,401
* Non-cash financing activities not included herein consist of reinvestment of
dividends.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1996 (UNAUDITED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance North American Government Income Trust, Inc. (the "Fund"), was
incorporated in the State of Maryland on February 3, 1992 as a non-diversified,
open-end investment company. The Fund currently offers three classes of shares,
Class A, Class B and Class C shares. Class A shares are sold with a front-end
sales charge of up to 4.25%. Class B shares are sold with a contingent deferred
sales charge which declines from 3% to zero depending on the period of time the
shares are held. Class B shares will automatically convert to Class A shares
six years after the end of the calendar month of purchase. Class C shares are
currently sold without an initial or contingent deferred sales charge. Class C
shares purchased on or after July 1, 1996, are subject to a contingent deferred
sales charge of 1% on redemptions made within the first year after purchase.
All three classes of shares have identical voting, dividend, liquidation and
other rights with respect to its distribution plan. The following is a summary
of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Investments are stated at value. Portfolio securities traded on a national
securities exchange are valued at the last sale price on such exchange on the
day of valuation or, if there was no sale on such day, the last bid price
quoted on such day. Securities traded on the over-the-counter market are valued
at the mean of the closing bid and asked price provided by the principal market
makers. Securities for which market quotations are not readily available are
valued in good faith at fair value using methods determined by the Board of
Directors. Securities which mature in 60 days or less are valued at amortized
cost, which approximates market value, unless this method does not represent
fair value.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
Net realized losses on foreign currency transactions represents foreign
exchange gains and losses from sales and maturities, holding of foreign
currencies, exchange gains or losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
interest recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized currency gains and losses
from valuing foreign currency denominated assets and liabilities at period end
exchange rates are reflected as a component of net unrealized depreciation of
investments and foreign currency denominated assets and liabilities.
3. ORGANIZATION EXPENSES
Organization expenses of approximately $331,965 have been deferred and are
being amortized on a straight-line basis through March, 1997.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
7. CONCENTRATION OF RISK
The investments in Emerging Markets may involve greater risks than investments
in more developed markets and the prices of such investments may be volatile.
The consequences of political, social or economic changes in these markets may
have disruptive effects on the market prices of the Fund's investments and the
income they generate, as well as the Fund's ability to repatriate such amounts.
11
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.65 of 1% of the average adjusted daily net assets of the Fund. Such fee is
accrued daily and paid monthly.
The Adviser has agreed under the terms of the advisory agreement, to reimburse
the Fund to the extent that its aggregate expenses (exclusive of interest,
taxes, brokerage, distribution fee, and extraordinary expenses) exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. The Fund believes that the most restrictive expense ratio limitation
currently imposed by any state is 2 1/2% of the first $30 million of its
average daily net assets, 2% of the next $70 million of its average daily net
assets and 1 1/2% of its average daily net assets in excess of $100 million. No
such reimbursement was required for the six months ended May 31, 1996. Pursuant
to the advisory agreement, the Fund paid the Adviser $80,793 representing the
cost of certain legal and accounting services provided to the Fund by the
Adviser.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) for providing personnel and facilities to perform transfer agency
services for the Fund. Such compensation amounted to $981,449 for the six
months ended May 31, 1996.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $115,763 from the sale of Class A shares and
$1,100,462 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B for the six months ended May 31, 1996.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940 for Class A,
Class B and Class C shares. Under the Agreement, the Fund pays a distribution
fee to the Distributor at an annual rate of up to .30% of the Fund's average
daily net assets attributable to Class A shares and 1% of the average daily net
assets attributable to the Class B and Class C shares. Such fee is accrued
daily and paid monthly. The Agreement provides that the Distributor will use
such payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Fund in the amount of $35,394,907 and $2,935,028 for
Class B and Class C shares respectively; such costs may be recovered from the
Fund in future periods so long as the Agreement is in effect. In accordance
with the Agreement, there is no provision for recovery of unreimbursed
distribution costs, incurred by the Distributor, beyond the current year for
Class A shares. The Agreement also provides that the Adviser may use its own
resources to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. Government obligations) aggregated $440,796,610 and $624,467,550,
respectively, for the six months ended May 31, 1996.
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contract and the closing of such contract is included in realized gains or
losses from foreign currency transactions.
12
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
The Fund's custodian will place and maintain cash not available for investment
or other liquid high quality debt securities in a separate account of the Fund
having a value equal to the aggregate amount of the Fund's commitments under
forward exchange currency contracts entered into with respect to position
hedges.
Risks may arise from the potential inability of a counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects total exposure of the
Fund in that particular currency contract. At May 31, 1996, the Fund had
outstanding forward exchange currency contracts as follows:
CONTRACT VALUE ON U.S. $
AMOUNT ORIGINATION CURRENT UNREALIZED
(000) DATE VALUE APPRECIATION
------- ------------ ------------ ------------
FOREIGN CURRENCY SALE CONTRACT
Canadian Dollars,
expiring 6/28/96-7/11/96 396,718 $290,352,238 $289,712,704 $639,534
At May 31, 1996, the cost of investments for federal income tax purposes was
$2,310,224,916. Accordingly, gross unrealized appreciation of investments was
$12,815,293 and gross unrealized depreciation of investments was $181,147,581
resulting in net unrealized depreciation of $168,332,288. At November 30, 1995,
the Fund had a capital loss carry-forward totaling $205,000,395, of which
$70,618,925, which expires in the year 2002 and $134,381,470 expires in the
year 2003.
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Credit Lyonnais of New
York on June 27, 1995. The maximum credit available under the renewed credit
facility is $250,000,000 and requires no collateralization. The loan
outstanding, under the renewed Credit Agreement at May 31, 1996 was
$250,000,000 with a related weighted average interest rate of 6.188%. The
$250,000,000 balance will mature on June 25, 1996. Interest payments on current
borrowings are based on the London Interbank Offered Rate. The Fund is also
obligated to pay Credit Lyonnaise of New York a commitment fee, computed at the
rate 1/4 of 1% per annum on the daily average unused portion of the revolving
credit. The maximum amount of such loan outstanding at any time during the year
was $250,000,000 with a weighted average annualized interest rate of 6.487%.
13
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
NOTE F: CAPITAL STOCK
There are 9,000,000,000 shares of $0.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C. Each class
consists of 3,000,000,000 authorized shares. Transactions in capital stock were
as follows:
SHARES AMOUNT
-------------------------- -----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
MAY 31,1996 NOVEMBER 30, MAY 31,1996 NOVEMBER 30,
------------ ------------ ------------- --------------
CLASS A
Shares sold 6,614,476 14,452,683 $ 61,348,174 $ 94,352,169
Shares issued in
reinvestment of
dividends 1,009,793 2,314,466 7,354,345 14,875,359
Shares converted from
Class B to Class A 1,743,758 12,647,418
Shares redeemed (5,250,133) (16,694,036) (38,620,867) (107,647,756)
Net increase 4,117,894 73,113 $ 42,729,070 $ 1,579,772
CLASS B
Shares sold 17,082,099 29,670,771 $124,685,994 $ 194,645,827
Shares issued in
reinvestment of
dividends 3,085,897 9,031,497 22,472,269 58,268,585
Shares converted from
Class B to Class A (1,743,758) (12,647,418)
Shares redeemed (18,373,711) (73,890,695) (146,135,439) (477,796,460)
Net increase(decrease) 50,527 (35,188,427) $(11,624,594) $(224,882,048)
CLASS C
Shares sold 3,820,359 6,692,492 $ 27,872,473 $ 43,465,432
Shares issued in
reinvestment of
dividends 622,725 2,381,481 4,637,687 15,394,839
Shares redeemed (4,814,136) (22,112,533) (34,986,466) (145,582,364)
Net decrease (371,052) (13,038,560) $ (2,476,306) $ (86,722,093)
14
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
NOTE G: LITIGATION
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In RE ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the United States District Court for
the Southern District of New York against the Fund, the Adviser, Alliance
Capital Management Corporation ("ACMC"), Alliance Fund Distributors, Inc., The
Equitable Companies Incorporated, a parent of the Adviser, certain officers of
the Fund, certain current and former directors of the Fund, certain current and
former officers of ACMC and certain directors of ACMC, alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Complaint seeks
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994. The
Complaint alleges that as of the date of the Complaint, the Fund's losses
exceeded $750,000,000. The Complaint seeks as relief unspecified damages, costs
and attorneys' fees.
The principal allegations of the Complaint are that upon the advice of the
Adviser the Fund purchased debt securities issued by the Mexican and Argentine
governments in amounts that were not permitted by the Fund's Investment
objective, and that there was no shareholder vote to change the investment
objective to permit purchases in such amounts. The Complaint further alleges
that the decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1995, defendants jointly filed a motion to dismiss the
Complaint in its entirety. The Fund and the Adviser believe that the
allegations in the Complaint are without merit and intend to vigorously defend
against these claims.
15
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
SIX MONTHS MARCH 27,
ENDED 1992(F)
MAY 31, YEAR ENDED NOVEMBER 30, TO
1996 ------------------------------------- NOVEMBER 30,
(UNAUDITED) 1995 1994 1993 1992
------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.75 $ 8.13 $10.35 $ 9.70 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .58(e) 1.18(e) 1.02 1.09 .69(a)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .46 (1.59) (2.12) .66 (.31)
Net increase (decrease) in net asset
value from operations 1.04 (.41) (1.10) 1.75 .38
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income. (.48) -0- (.91) (1.09) (.68)
Tax return of capital -0- (.97) (.21) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.48) (.97) (1.12) (1.10) (.68)
Net asset value, end of period $ 7.31 $ 6.75 $ 8.13 $10.35 $ 9.70
TOTAL RETURN
Total investment return based on net
asset value(d) 15.73% (3.59)% (11.32)% 18.99% 3.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $303,684 $252,608 $303,538 $268,233 $61,702
Ratio of expenses to average net assets 2.44%(b) 2.62% 1.70% 1.61% 2.45%(b)(c)
Ratio of expenses to average net assets
excluding interest expense(see Note E) 1.46%(b) 1.51% 1.37% 1.33% 1.66%(b)
Ratio of net investment income to
average net assets 16.19%(b) 18.09% 11.22% 10.77% 10.93%(b)
Portfolio turnover rate 162% 180% 131% 254% 86%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------------
SIX MONTHS MARCH 27,
ENDED 1992(F)
MAY 31, YEAR ENDED NOVEMBER 30, TO
1996 ------------------------------------- NOVEMBER 30,
(UNAUDITED) 1995 1994 1993 1992
------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.75 $ 8.13 $10.35 $ 9.70 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .56(e) 1.13(e) .96 1.01 .64(a)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .45 (1.61) (2.13) .67 (.31)
Net increase (decrease) in net asset
value from operations 1.01 (.48) (1.17) 1.68 .33
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) -0- (.84) (1.02) (.63)
Tax return of capital -0- (.90) (.21) -0- -0-
Distributions from net realized gains -0- -0- -0- (.01) -0-
Total dividends and distributions (.45) (.90) (1.05) (1.03) (.63)
Net asset value, end of period $ 7.31 $ 6.75 $ 8.13 $10.35 $ 9.70
TOTAL RETURN
Total investment return based on net
asset value(d) 15.17% (4.63)% (11.89)% 18.15% 3.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $1,216,642 $1,123,074 $1,639,602 $1,313,591 $216,317
Ratio of expenses to average net assets 3.15%(b) 3.33% 2.41% 2.31% 3.13%(b)(c)
Ratio of expenses to average net assets
excluding interest expense(see Note E) 2.17%(b) 2.22% 2.07% 2.04% 2.35%(b)
Ratio of net investment income to
average net assets 15.49%(b) 17.31% 10.53% 10.01% 10.16%(b)
Portfolio turnover rate 162% 180% 131% 254% 86%
</TABLE>
See footnote summary on page 18.
17
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS (CONTINUED) GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
-----------------------------------------------------
SIX MONTHS
ENDED MAY 3,1993(G)
MAY 31, YEAR ENDED NOVEMBER 30, TO
1996 ------------------------ NOVEMBER 30,
(UNAUDITED) 1995 1994 1993
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.75 $ 8.13 $10.34 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income .56(e) 1.13(e) .96 .58
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions .45 (1.61) (2.12) .30
Net increase (decrease) in net asset
value from operations 1.01 (.48) (1.16) .88
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) -0- (.84) (.58)
Tax return of capital -0- (.90) (.21) -0-
Total dividends and distributions (.45) (.90) (1.05) (.58)
Net asset value, end of period $ 7.31 $ 6.75 $ 8.13 $10.34
TOTAL RETURN
Total investment return based on net
asset value(d) 15.17% (4.63)% (11.89)% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $234,462 $219,009 $369,714 $310,230
Ratio of expenses to average net assets 3.14%(b) 3.33% 2.39% 2.21%(b)
Ratio of expenses to average net assets
excluding interest expense(see Note E) 2.16%(b) 2.21% 2.06% 2.04%(b)
Ratio of net investment income to
average net assets 15.50%(b) 17.32% 10.46% 9.74%(b)
Portfolio turnover rate 162% 180% 131% 254%
</TABLE>
(a) Net of expenses waived by the Adviser.
(b) Annualized.
(c) If the Fund had borne all expenses, the ratios of expenses to average net
assets would have been 2.49% and 3.16% for Class A and Class B shares,
respectively.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(e) Based on average shares outstanding.
(f) Commencement of operations.
(g) Commencement of distribution.
18
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST, INC.
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
ROBERT C. WHITE (1)
OFFICERS
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JUAN J. RODRIGUEZ, CONTROLLER
CUSTODIAN
BROWN BROTHERS HARRIMAN AND CO.
40 Water Street
Boston, MA 02109
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
(1) Member of the Audit Committee.
19
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC.
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
INVESTING WITHOUT THE MYSTERY.
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
NAGSR
