ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
SEMI-ANNUAL REPORT
MAY 31, 1998
ALLIANCE CAPITAL
ALLIANCE NORTH AMERICAN
LETTER TO SHAREHOLDERS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
July 27, 1998
Dear Shareholder:
We are pleased to report to you on our strategy, performance and outlook for
the Alliance North American Government Income Trust, for the semi-annual
reporting period ended May 31, 1998. The Fund is designed for investors who
seek high 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, Mexico and Argentina.
INVESTMENT RESULTS
The following table shows how your Fund performed over the past six and
12-month periods ended May 31, 1998. For comparison, we have included the
Lehman Brothers Aggregate Bond Index, a standard measure of the performance of
the overall bond market, and the Lehman Brothers Intermediate-Term Government
Bond Index, which measures the performance of bonds in the 1-10 year maturity
range.
The Fund's Class A shares outperformed both the Lehman Brothers Aggregate Bond
Index and the Lehman Brothers Intermediate-Term Government Bond Index on both a
six and 12- month basis. Your Fund's holdings in Argentina and Mexico posted
positive returns for the period, however, they underperformed the respective
indices for the Fund. Your Fund's holdings in U.S. and Canadian Treasuries
outperformed the index due to the longer duration strategy we employed.
Longer-term Treasuries outperformed shorter-term Treasuries as yields declined,
particularly at the longer end of the maturity spectrum. As a net result, we
are pleased to report that the Fund's Class A shares modestly outperformed the
respective indices since our last report to you (November 30, 1997).
INVESTMENT RESULTS*
Periods Ended May 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- ---------
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
Class A 4.20% 11.03%
Class B 3.88% 10.23%
Class C 3.88% 10.23%
LEHMAN BROTHERS AGGREGATE BOND
INDEX 4.09% 10.91%
LEHMAN BROTHERS INTERMEDIATE-TERM
GOVERNMENT BOND
INDEX 3.53% 8.58%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS
BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR
REDEEMED. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE LEHMAN BROTHERS (LB) AGGREGATE BOND INDEX IS COMPOSED OF THE
MORTGAGE-BACKED SECURITIES INDEX, THE ASSET-BACKED SECURITIES INDEX AND THE
GOVERNMENT/CORPORATE BOND INDEX. THE LEHMAN BROTHERS INTERMEDIATE-TERM
GOVERNMENT BOND INDEX MEASURES PERFORMANCE OF BONDS IN THE 1-10 YEAR MATURITY
RANGE. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 4.
MARKET OVERVIEW
Over the six-month period ended May 31, 1998, the U.S. economy continued its
healthy expansion coupled with low inflation, in spite of economic turmoil in
East Asia. Fueled by strong domestic demand, first quarter Gross Domestic
Product (GDP), a standard measure of economic growth, expanded 5.4%, a
significant increase from the fourth quarter of 1997. In addition, the Consumer
Price Index (CPI), a measure of inflation, recorded a 1.7% increase
year-over-year for the period ended May 31, 1998, despite the tightest labor
market in 28 years. In May, the unemployment rate rose slightly to 4.5%, after
attaining record lows during the period. Helped by strong economic fundamentals
and uncertainty overseas, the U.S. dollar continued to strengthen against the
major currencies.
1
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
Through the six-month period ended May 31, 1998, the U.S. bond market continued
to climb as investors, concerned about events in the emerging markets, sought
the safety of U.S. Treasuries. The U.S. Treasury market posted respectable
returns with longer-term Treasuries outperforming shorter-term Treasuries. When
overseas markets stabilized at the beginning of the calendar year, following
volatility in the fourth quarter of 1997, investors' focus shifted to
short-term expectations regarding U.S. monetary policy. The U.S. Treasury
market became range-bound, trading within a 30 basis point band. In May,
renewed volatility overseas once again caused a rally in the Treasury market
and pushed bond yields lower. Over the period, the yield curve flattened as
Treasury yields fell across the maturity spectrum with longer-term maturities
falling most. The 10-year Treasury yield dropped 30 basis points to 5.55%,
while the 30-year Treasury yield declined 24 basis points to 5.80%. Citing low
inflation and slowing demand from Asia, the Federal Reserve left interest rates
unchanged.
Emerging market debt prices improved substantially during the first quarter of
1998 from the low levels reached late in 1997 due to Asian turmoil. As Korea's
situation became better defined and their short-term debt was successfully
rolled over, investors moved back into the sector, reducing the risk premium
back to Spring 1997 levels. However, renewed volatility in May caused by
investor concern over Asia, fiscal problems in Russia, and a weakening yen
resulted in a retreat in the emerging markets.
Over the six-month period ended May 31, 1998, local currency assets in Mexico
and Argentina were affected by the general selloff in the emerging markets.
Argentina weathered the ill effects of Asia better than other developing
countries. Argentina is less exposed to a slowdown in global growth as exports
account for just 10% of its gross domestic product. Furthermore, Argentina
proved its resolve to maintain its "convertibility law" which pegs the peso
1-to-1 with the dollar in the aftermath of the 1994 Mexican crisis. The strong
policy responses and discipline Argentina has demonstrated during past
externally induced economic turmoil are impressive, and gives Argentina added
credibility in the current environment of volatility. The Argentine peso has
not devalued, and we do not expect any change in current economic policies.
The Mexican peso, however, has depreciated approximately 12.3% since September
1997, but the policy response from Mexico toward the Asian crisis has also been
impressive. Monetary policy has maintained a high degree of credibility, and
fiscal policy has been continually adjusted to counteract the impact of Asia
and declining oil prices. The strong monetary and tight fiscal policies enacted
by Mexico were difficult to undertake, but Mexico appears committed to avoiding
the mistakes it made in the past.
INVESTMENT STRATEGY
Over the period, we maintained the portfolio's country weightings essentially
stable. Longer-duration securities were held in anticipation of longer-term
interest rates trending downward, thus seeking to minimize investment-rate
risk. We project that the geographic and duration characteristics of the Fund's
portfolio are likely to change relatively little during the next several months.
OUTLOOK
The markets in which the Fund invests will remain influenced by events
overseas. Most critical will be Japan's response to their financial and
economic problems which are jeapordizing the prospects for stability and
recovery in the rest of Asia. Any further deterioration will place added
pressure on world growth and impact global markets.
We anticipate global growth will be slower, and inflation pressures will
continue to be benign as Asia exports cheaper goods to the world and imports
less from abroad. With inflation subdued, we expect monetary policy in the U.S.
to remain substantially unchanged for most of 1998. Growth is expected to
continue to slow from its torrid pace during the first quarter 1998, to a more
moderate pace with continued strong domestic demand but weakening industrial
production. U.S. interest rates will remain low as the U.S. fixed-income
markets continue to provide a safe haven for investors.
2
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
European growth is expected to increase over 1997 levels in most countries,
reaching 2.5% to 3.0%, despite the drag on growth resulting from Asian
weakness. In Japan, policy inaction and the economic consequences of Asia's
slowdown are damaging investor confidence and further weakening Japan's growth
prospects. Japan's GDP is expected to be negative in 1998. There are concerns
that a deflationary cycle could take hold in Japan as investors continue to
focus on the effect of the latest stimulus package on consumers and the need
for structural reforms to encourage efficient capital flows.
Emerging market debt price volatility remains quite high, as renewed turmoil in
Asia, fiscal and structural problems in Russia and an overall weakness in Japan
have heightened investor concern about all higher yielding asset classes. We
remain positive in our view on Mexico and Argentina as economic policy in each
country remains quite strong and their long-term trend toward improving credit
fundamentals remains intact. We currently see no relative value in the Canadian
market as spreads have tightened considerably.
Thank you for your continued interest in the Alliance North American Government
Income Trust. We look forward to reporting to you on market activity and your
Fund's investment results in the coming periods.
Sincerely,
John D. Carifa
Chairman
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
_______________________________________________________________________________
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
_______________________________________________________________________________
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF MAY 31, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 11.03% 6.36%
Five Years 8.17% 7.24%
Since Inception* 8.74% 7.99%
SEC Yield** 9.15%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 10.23% 7.26%
Five Years 7.24% 7.24%
Since Inception* 7.88%(a) 7.88%(a)
SEC Yield** 8.82%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 10.23% 9.24%
Five Years 7.24% 7.24%
Since Inception* 7.21% 7.21%
SEC yield** 8.83%
SEC AVERAGE ANNUAL TOTAL RETURNS
AS OF THE MOST RECENT QUARTER-END (MARCH 31, 1998)
CLASS A CLASS B CLASS C
------- ------- -------
1 Year 11.76% 12.80% 14.80%
5 Years 7.55% 7.57% n/a
Since Inception* 8.27% 8.14% 7.56%
The Fund's investment results represent Average Annual Total Returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) the effect of
the 4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3, 0% year 4);
and for Class C shares (1% year 1). Returns for Class A shares do not reflect
the imposition of the 1 year 1% contingent deferred sales charge for accounts
over $1,000,000.
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.
(a) Reflects conversion to Class A shares after six years.
* Inception: 3/27/92 Class A and Class B; 5/3/93 Class C.
** SEC yields are for the 30 days ended May 31, 1998.
n/a: not applicable.
4
PORTFOLIO OF INVESTMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
ARGENTINA-26.9%
GOVERNMENT OBLIGATIONS-26.9%
Republic of Argentinan Pensioner-Bocon
Pre III FRN
3.58%, 9/01/02 (a) ARS 212,093 $174,921,120
Supplier-Bocon
Pro 1 FRN
3.11%, 4/01/07 672,843 475,519,535
Total Argentinian Securities
(cost $616,648,804) 650,440,655
CANADA-13.4%
GOVERNMENT/AGENCY OBLIGATIONS-13.4%
Government of Canada
8.00%, 6/01/27 CA$ 64,500 59,522,458
Province of British Columbia
7.88%, 11/30/23 36,000 30,610,438
8.00%, 9/08/23 24,600 21,524,894
9.00%, 8/23/24 25,000 24,225,371
Province of Manitoba
7.75%, 12/22/25 60,200 51,827,815
Province of Ontario
7.75%, 12/08/03 20,000 15,248,945
Province of Quebec
9.375%, 1/16/23 53,600 52,251,862
Province of Saskatchewan
9.60%, 2/04/22 24,600 24,876,025
Quebec Hydro Zero Coupon,
8/15/20 (b) 250,000 44,077,480
Total Canadian Securities
(cost $268,568,475) 324,165,288
MEXICO-28.5%
GOVERNMENT/AGENCY OBLIGATIONS-28.5%
Bankers Acceptances Nacional
Financiera S.N.C. (c)
15.00%, 8/13/98 MXP 80,180 $8,702,732
16.50%, 12/26/03 414,125 11,581,607
16.95%, 12/24/03 81,401 2,278,154
17.50%, 12/11/03 55,253 1,553,820
Mexican Treasury Bills (c)
16.561%, 12/17/98 187,490 19,031,823
16.763%, 5/06/99 437,575 41,067,648
16.925%, 4/08/99 150,000 14,273,562
17.312%, 3/11/99 1,283,235 124,364,785
17.525%, 2/11/99 1,178,760 115,910,760
17.913%, 1/14/99 314,635 31,492,036
19.99%, 7/02/98 623,236 69,448,708
20.05%, 9/24/98 665,954 70,696,763
20.19%, 7/30/98 337,714 37,057,718
21.38%, 8/27/98 358,446 38,743,210
21.38%, 10/22/98 195,075 20,399,131
22.85%, 6/04/98 717,412 81,122,854
Total Mexican Securities
(cost $830,559,491) 687,725,311
UNITED STATES-46.6%
GOVERNMENT OBLIGATIONS-46.6%
U.S. Treasury Bonds
6.75%, 8/15/26 US$ 55,000 61,445,285
11.75%, 11/15/14 64,000 95,619,968
12.375%, 5/15/04 41,200 55,079,250
12.50%, 8/15/14 69,000 106,777,500
13.75%, 8/15/04 60,000 85,218,720
14.00%, 11/15/11 31,900 49,355,265
U.S. Treasury Notes
5.625%, 5/15/08 20,000 20,106,240
6.125%, 8/31/98 18,500 18,540,460
6.125%, 11/15/27 178,000 186,010,000
6.25%, 10/31/01 60,000 61,237,500
6.25%, 2/15/07 86,800 90,272,000
6.75%, 4/30/00 21,100 21,554,958
7.00%, 7/15/06 122,900 133,384,845
5
ALLIANCE NORTH AMERICAN
PORTFOLIO OF INVESTMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
U.S. Treasury Strips
Zero Coupon, 5/15/14 US$ 13,400 $ 5,266,696
Zero Coupon, 2/15/19 250,000 73,647,750
Zero Coupon, 5/15/20 224,000 61,178,880
Total United States Securities
(cost $1,110,149,362) 1,124,695,317
TOTAL INVESTMENTS-115.4%
(cost $2,825,926,132) $2,787,026,571
Other assets less liabilities-(15.4)% (372,287,147)
NET ASSETS-100% $2,414,739,424
(a) Interest is compounded monthly and capitalized until October 1, 1998,
after which the security holder will receive monthly paydowns of principal and
interest until maturity.
(b) Private Placement, valued at fair value. (see Note A.)
(c) Interest rate represents annualized yield to maturity at purchase date.
Glossary:
FRN - Floating Rate Note.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE NORTH AMERICAN
MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value
(cost $2,825,926,132) $2,787,026,571
Interest receivable 22,560,561
Receivable for capital stock sold 8,089,775
Receivable for investment securities sold 6,408,457
Other assets 113,942
Total assets 2,824,199,306
LIABILITIES
Due to custodian 2,481,306
Loan payable 250,000,000
Payable for investment securities purchased 139,392,205
Dividend payable 8,417,187
Payable for capital stock redeemed 4,941,061
Advisory fee payable 1,483,784
Distribution fee payable 314,432
Loan interest payable 253,333
Accrued expenses 2,176,574
Total liabilities 409,459,882
NET ASSETS $2,414,739,424
COMPOSITION OF NET ASSETS
Capital stock, at par $ 306,525
Additional paid-in capital 2,688,098,405
Distributions in excess of net investment income (20,852,309)
Accumulated net realized loss on investments and
foreign currency transactions (214,137,305)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (38,675,892)
$2,414,739,424
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($719,953,748/
91,470,084 shares of capital stock issued and outstanding) $7.87
Sales charge--4.25% of public offering price 0.35
Maximum offering price $8.22
CLASS B SHARES
Net asset value and offering price per share ($1,401,892,175/
177,889,194 shares of capital stock issued and outstanding) $7.88
CLASS C SHARES
Net asset value and offering price per share ($292,893,501/
37,165,356 shares of capital stock issued and outstanding) $7.88
See notes to financial statements.
7
STATEMENT OF OPERATIONS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes withheld of $130,061) $149,067,218
EXPENSES
Advisory fee $ 8,288,120
Distribution fee - Class A 912,951
Distribution fee - Class B 7,011,149
Distribution fee - Class C 1,450,059
Custodian 1,677,497
Transfer agency 1,306,534
Printing 153,525
Taxes 77,920
Administrative 76,230
Audit and legal 52,162
Registration 44,186
Directors' fees 11,407
Miscellaneous 18,079
Total expenses before interest 21,079,819
Interest expense 7,912,723
Total expenses 28,992,542
Net investment income 120,074,676
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions 36,709,095
Net realized loss on foreign currency transactions (16,259,967)
Net change in unrealized appreciation of:
Investments (55,241,137)
Foreign currency denominated assets and liabilities 160,129
Net loss on investments (34,631,880)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 85,442,796
See notes to financial statements.
8
ALLIANCE NORTH AMERICAN
STATEMENT OF CHANGES IN NET ASSETS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
--------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income $ 120,074,676 $ 253,796,693
Net realized gain on investments and
foreign currency transactions 20,449,128 46,788,566
Net change in unrealized appreciation
(depreciation) of investments and foreign
currency denominated assets and liabilities (55,081,008) (64,771,290)
Net increase in net assets from operations 85,442,796 235,813,969
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A (36,795,420) (53,153,774)
Class B (78,768,243) (151,811,556)
Class C (16,297,674) (29,704,053)
CAPITAL STOCK TRANSACTIONS
Net increase 287,518,384 206,316,343
Total increase 241,099,843 207,460,929
NET ASSETS
Beginning of year 2,173,639,581 1,966,178,652
End of period $2,414,739,424 $2,173,639,581
See notes to financial statements.
9
STATEMENT OF CASH FLOWS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 57,408,048
Interest paid (10,674,519)
Operating expenses paid (21,017,917)
Net increase in cash from operating
activities $ 25,715,612
INVESTING ACTIVITIES:
Purchases of short-term portfolio
investments, net (98,441,979)
Purchases of long-term portfolio investments (1,491,144,761)
Proceeds from disposition of long-term
portfolio investments 1,403,760,371
Net decrease in cash from investing
activities (185,826,369)
FINANCING ACTIVITIES*:
Subscriptions of capital stock, net 246,940,981
Cash dividends paid (89,558,366)
Net increase in cash from financing activities 157,382,615
Effect of exchange rate on cash 203,024
Net decrease in cash (2,525,118)
Cash at beginning of year 43,812
Cash at end of period $ (2,481,306)
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from operations $ 85,442,796
ADJUSTMENTS:
Decrease in interest receivable $ 1,876,186
Net realized gain on investment transactions (36,709,095)
Net change in unrealized appreciation 55,081,008
Accretion of bond discount (93,535,356)
Decrease in accrued expenses and other
liabilities (2,699,894)
Net realized loss on foreign currency
transactions 16,259,967
(59,727,184)
Net increase in cash from operating activities $ 25,715,612
* 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, 1998 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
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 management investment company. The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.25% for purchases not exceeding $1,000,000. With respect to purchases of
$1,000,000 or more, Class A shares redeemed within one year of purchase will be
subject to a contingent deferred sales charge of 1%. 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 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 financial statements have
been prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price or, if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the United
States over-the-counter market and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked price provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
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 earned or accrued.
Net realized gains or losses on foreign currency transactions represent foreign
exchange gains and losses from sales and maturities of foreign securities and
forward exchange currency contracts, holding of foreign currencies, exchange
gains or losses realized between the trade and settlement dates on investment
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 change in unrealized appreciation (depreciation) of
foreign currency denominated assets and liabilities represents net currency
gains and losses from valuing foreign currency denominated assets and
liabilities at period end exchange rates.
3. 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 any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
11
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
4. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. Investment gains and losses are
determined on the identified cost basis. The Fund accretes discount as an
adjustment to interest income.
5. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified within capital accounts based on their
federal tax basis treatment; temporary differences do not require such
reclassification.
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.
Pursuant to the advisory agreement, the Fund paid the Adviser $76,230
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended May 31, 1998.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $807,276 for the six months ended May 31, 1998.
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 $136,047 from the sale of Class A shares and
$18,773, $745,026 and $99,558 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the six months ended May 31, 1998.
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. 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 both 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 $36,928,665 and $4,379,114 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.
12
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $80,590,538 and $36,410,296,
respectively, for the six months ended May 31, 1998. There were purchases of
$1,301,989,913 and sales of $1,368,124,724 of U.S. government and government
agency obligations for the six months ended May 31, 1998.
At May 31, 1998, the cost of investments for federal income tax purposes was
$2,837,995,583. Accordingly, gross unrealized appreciation of investments was
$108,991,755 and gross unrealized depreciation of investments was $159,960,767
resulting in net unrealized depreciation of $50,969,012 excluding foreign
currency transactions. At November 30, 1997, the Fund had a capital loss
carryforward totaling $187,492,968, of which $13,614,389 expires in the year
2002, $134,381,470 expires in the year 2003, and $39,497,109 expires in the
year 2004.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts to hedge its exposure
to changes in foreign currency exchange rates on its foreign portfolio
holdings, to hedge certain firm purchase and sales commitments denominated in
foreign currencies and for investment purposes. 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 contracts and the closing of such contracts is included in
realized gains or losses from foreign currency transactions.
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 assets 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 the 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, reflects the total exposure of the Fund in that particular currency
contract.
At May 31, 1998, the Fund had no outstanding forward exchange currency
contracts.
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Deutsche Bank AG, New
York Branch on June 25, 1996. The maximum credit available under the credit
facility is $250,000,000 and requires no collateralization. The loan
outstanding, under the Credit Agreement for the six months ended May 31, 1998
was $250,000,000 with a related weighted average interest rate at period end of
6.08% and a weighted average annualized interest rate of 6.13%. The
$250,000,000 balance will mature on June 9, 1998. Interest payments on current
borrowings are based on the Eurodollar margin plus the applicable Eurodollar
rate. The Fund is also obligated to pay Deutsche Bank AG, New York Branch a
facility fee computed at the rate of .10% per annum on the daily amount of the
total commitment as in effect.
13
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
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 shares.
Each class consists of 3,000,000,000 authorized shares. Transactions in capital
stock were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------------- -------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997 (UNAUDITED) 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold 31,074,548 17,871,465 $ 251,047,737 $ 144,058,872
Shares issued in
reinvestment of dividends 1,645,987 2,269,271 13,238,800 18,311,581
Shares converted from Class B 2,090,485 8,014,844 16,801,640 64,154,628
Shares redeemed (7,124,908) (12,556,597) (57,363,710) (100,703,640)
Net increase 27,686,112 15,598,983 $ 223,724,467 $ 125,821,441
CLASS B
Shares sold 22,497,242 43,619,890 $ 181,365,910 $ 351,851,243
Shares issued in
reinvestment of dividends 2,770,707 5,419,148 22,309,326 43,709,426
Shares converted to Class A (2,090,485) (8,014,844) (16,801,640) (64,154,628)
Shares redeemed (17,085,880) (35,310,274) (137,864,125) (283,575,964)
Net increase 6,091,584 5,713,920 $ 49,009,471 $ 47,830,077
CLASS C
Shares sold 6,052,155 11,671,925 $ 48,763,917 $ 94,074,275
Shares issued in
reinvestment of dividends 648,481 1,158,939 5,221,469 9,352,065
Shares redeemed (4,867,398) (8,808,490) (39,200,940) (70,761,515)
Net increase 1,833,238 4,022,374 $ 14,784,446 $ 32,664,825
</TABLE>
NOTE G: LITIGATION
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint"), styled IN RE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC.
SECURITIES LITIGATION, was filed in the U.S. District Court for the Southern
District of New York against the Fund, the Adviser, Alliance Capital Management
Corporation ("ACMC"), Alliance Fund Distributors, Inc. ("AFD"), The Equitable
Companies Incorporated ("The Equitable"), a parent of the Adviser, and certain
current and former officers and directors of the Fund and ACMC, alleging
violations of the federal securities laws, fraud and breach of fiduciary duty
in connection with the Fund's investments in Mexican and Argentine securities.
The Complaint sought 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.
On September 26, 1996, the United States District Court for the Southern
District of New York granted the defendants' motion to dismiss all counts of
the Complaint ("First Decision"). On October 11, 1996, plaintiffs filed a
motion for reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit issued an order granting defendants' motion to strike and
dismissing plaintiffs' appeal of the First Decision.
14
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the proposed amended complaint are that
the Fund did not properly disclose that it planned to invest in mortgage-backed
derivative securities and that two advertisements used by the Fund
misrepresented the risks of investing in the Fund. Plaintiffs also alleged that
the Fund failed to hedge against the risks of investing in foreign securities
despite representations that it would do so. On July 15, 1997, the District
Court denied plaintiffs' motion for leave to file an amended complaint and
ordered that the case be dismissed ("Second Decision"). On October 29, 1997,
the United States Court of Appeals for the Second Circuit dismissed plaintiffs'
appeal of the Second Decision as premature on the grounds that the District
Court failed to enter the final judgment in respect of the Second Decision. The
Court of Appeals remanded the case back to the District Court with instructions
to enter a final judgment in respect of the Second Decision. On November 10,
1997, the District Court entered such a judgment, and on November 17, 1997,
plaintiffs filed a notice of appeal from that judgment. The parties have filed
submissions with the Court of Appeals, the appeal has been argued, and the
parties are now awaiting a decision.
The Fund and the Adviser believe that the allegations in the complaint and the
amended complaint are without merit and intend to defend vigorously against
these claims.
NOTE H: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include revaluation of currencies and the possibility of future adverse
political and economic developments. Moreover, securities of many foreign
governments and their markets may be less liquid and their prices more volatile
than those of the United States government. The Fund may invest in the
sovereign debt obligations of countries that are considered emerging market
countries at the time of purchase. Therefore, the Fund is susceptible to
governmental factors and economic and debt restructuring developments adversely
affecting the economies of these emerging market countries. In addition, these
debt obligations may be less liquid and subject to greater volatility than debt
obligations of more developed countries.
15
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31,1998 -------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .44(a) 1.03(a) 1.09(a) 1.18(a) 1.02 1.09
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.11) (.05) 1.14 (1.59) (2.12) .66
Net increase (decrease) in net asset
value from operations .33 .98 2.23 (.41) (1.10) 1.75
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.97) (.75) -0- (.91) (1.09)
Tax return of capital -0- -0- (.22) (.97) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.01)
Total dividends and distributions (.48) (.97) (.97) (.97) (1.12) (1.10)
Net asset value, end of period $ 7.87 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on net
asset value (b) 4.20% 12.85% 35.22% (3.59)% (11.32)% 18.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $719,954 $511,749 $385,784 $252,608 $303,538 $268,233
Ratio of expenses to average net assets 1.99%(c) 2.15% 2.34% 2.62% 1.70% 1.61%
Ratio of expenses to average net assets
excluding interest expense (d) 1.31%(c) 1.38% 1.41% 1.51% 1.37% 1.33%
Ratio of net investment income to
average net assets 10.93%(c) 12.78% 14.82% 18.09% 11.22% 10.77%
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
-------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31,1998 -----------------------------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35 $ 9.70
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41(a) .98(a) 1.04(a) 1.13(a) .96 1.01
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.10) (.07) 1.12 (1.61) (2.13) .67
Net increase (decrease) in net asset
value from operations .31 .91 2.16 (.48) (1.17) 1.68
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.90) (.69) -0- (.84) (1.02)
Tax return of capital -0- -0- (.21) (.90) (.21) -0-
Distributions from net realized gains -0- -0- -0- -0- -0- (.01)
Total dividends and distributions (.45) (.90) (.90) (.90) (1.05) (1.03)
Net asset value, end of period $ 7.88 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
TOTAL RETURN
Total investment return based on net
asset value (b) 3.88% 11.88% 33.96% (4.63)% (11.89)% 18.15%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $1,401,892 $1,378,407 $1,329,719 $1,123,074 $1,639,602 $1,313,591
Ratio of expenses to average net assets 2.71%(c) 2.86% 3.05% 3.33% 2.41% 2.31%
Ratio of expenses to average net assets
excluding interest expense (d) 2.02%(c) 2.09% 2.12% 2.22% 2.07% 2.04%
Ratio of net investment income to
average net assets 10.26%(c) 12.15% 14.20% 17.31% 10.53% 10.01%
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
See footnote summary on page 18.
17
ALLIANCE NORTH AMERICAN
FINANCIAL HIGHLIGHTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
SIX MONTHS MAY 3,1993(E)
ENDED YEAR ENDED NOVEMBER 30, TO
MAY 31, 1998 -------------------------------------------------- NOVEMBER 30,
(UNAUDITED) 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34 $10.04
INCOME FROM INVESTMENT OPERATIONS
Net investment income .41(a) .98(a) 1.05(a) 1.13(a) .96 .58
Net realized and unrealized gain (loss)
on investments and foreign currency
transaction (.10) (.07) 1.11 (1.61) (2.12) .30
Net increase (decrease) in net asset
value from operations .31 .91 2.16 (.48) (1.16) .88
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.90) (.69) -0- (.84) (.58)
Tax return of capital -0- -0- (.21) (.90) (.21) -0-
Total dividends and distributions (.45) (.90) (.90) (.90) (1.05) (.58)
Net asset value, end of period $ 7.88 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34
TOTAL RETURN
Total investment return based on net
asset value (b) 3.88% 11.88% 33.96% (4.63)% (11.89)% 9.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $292,894 $283,483 $250,676 $219,009 $369,714 $310,230
Ratio of expenses to average net assets 2.70%(c) 2.85% 3.04% 3.33% 2.39% 2.21%(e)
Ratio of expenses to average net assets
excluding interest expense (d) 2.01%(c) 2.08% 2.12% 2.21% 2.06% 2.04%(e)
Ratio of net investment income to
average net assets 10.27%(c) 12.14% 14.22% 17.32% 10.46% 9.74%(e)
Portfolio turnover rate 128% 118% 166% 180% 131% 254%
</TABLE>
(a) Based on average shares outstanding.
(b) 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.
(c) Annualized.
(d) Net of interest expense of .68%, .77%, .93%, 1.11%, .33% and .28%
respectively, since inception on loan agreement (see Note E).
(e) Commencement of distribution.
18
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
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)
DONALD J. ROBINSON (1)
OFFICERS
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JUAN J. RODRIGUEZ, CONTROLLER
CUSTODIAN
BROWN BROTHERS HARRIMAN & 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
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
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
