ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
SEMI-ANNUAL REPORT
MAY 31, 1999
ALLIANCE CAPITAL
ALLIANCE NORTH AMERICAN
LETTER TO SHAREHOLDERS GOVERNMENT INCOME TRUST
_______________________________________________________________________________
July 27, 1999
Dear Shareholder:
We are pleased to report to you on the strategy, performance and outlook for
the Alliance North American Government Income Trust (the "Fund") during the
six-month period ended May 31, 1999. 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 six- and
twelve-month periods ended May 31, 1999. For comparison, we have included the
Lehman Brothers ("LB") Aggregate Bond Index, a standard measure of the
performance of the overall U.S. bond market, and the LB Intermediate-Term
Government Bond Index, which measures the performance of U.S. bonds in the one-
to ten-year maturity range.
We are pleased to report to you that the Fund's Class A shares outperformed
both the LB Aggregate Bond Index and the LB Intermediate-Term Government Bond
Index for the six- and twelve-month periods ended May 31, 1999. Your Fund's
allocation to the emerging markets and Canada helped the Fund outperform the
indexes over the six- and twelve-month periods. Additionally, both indexes hold
significant weightings of U.S. Treasuries, which underperformed during the
period under review.
INVESTMENT RESULTS*
Periods Ended May 31, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
----------- -----------
ALLIANCE NORTH AMERICAN GOVERNMENT
INCOME TRUST
Class A 3.67% 6.57%
Class B 3.32% 5.87%
Class C 3.32% 5.87%
LEHMAN BROTHERS AGGREGATE BOND
INDEX -0.76% 4.35%
LEHMAN BROTHERS INTERMEDIATE-TERM
GOVERNMENT BOND INDEX -0.23% 4.98%
* 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 UNMANAGED LEHMAN BROTHERS ("LB") AGGREGATE BOND INDEX IS COMPOSED OF
THE LB MORTGAGE-BACKED SECURITIES INDEX, THE LB ASSET-BACKED SECURITIES INDEX
AND THE
LB GOVERNMENT/CORPORATE BOND INDEX. THE UNMANAGED
LB INTERMEDIATE-TERM GOVERNMENT BOND INDEX MEASURES PERFORMANCE OF BONDS IN THE
ONE- TO TEN-YEAR MATURITY RANGE. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 4.
MARKET OVERVIEW
During the six-month period ended May 31, 1999, financial markets stabilized
and recovered from the turmoil experienced in the third quarter of 1998. The
combination of the strong U.S. economy and interest rate cuts around the world
helped to restore prospects for the global economy. Among the sectors of the
U.S. bond market, the high yield sector performed strongly while performance of
the U.S. Treasury market lagged. As credit markets stabilized and equity
valuations rebounded, investors moved out of the traditional safe-haven of U.S.
Treasuries and back into higher yielding asset classes.
During the period, the emerging market debt sector outperformed all sectors of
the global bond market. However, despite this strong performance, emerging
markets have not fully recovered to the levels prior to the Russian crisis in
August of 1998. During the early part of 1999, market focus was on Brazil, and
the devaluation of
1
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
the Brazilian real in January once again raised the risk premium demanded from
this asset class. It was only after needed fiscal policy measures were
implemented, and a standby financing package was negotiated with the
International Monetary Fund ("IMF"), that the situation stabilized enough to
boost investors' confidence that the global economic environment was improving.
Throughout the period, evidence grew that economic activity in Asia had
bottomed and growth in certain areas had returned. Korea has led the rebound
and has regained its investment-grade rating. Commodity prices, viewed as a
leading indicator of economic activity, stabilized, and in the case of oil,
rebounded sharply, thus providing further emphasis that the global economic
outlook has improved. However, stronger-than-expected economic data in the U.S.
and easing concerns regarding the global economy prompted the U.S. Federal
Reserve to adopt a tightening bias, which subsequently dampened emerging market
performance in May.
Over the six-month period ended May 31, 1999, Mexico continued to benefit from
its NAFTA affiliation and the long-term convergence of its economy with that of
the United States. Mexico's increasing integration with the U.S. continues to
provide a stable platform for economic growth. In addition, conservative fiscal
policies and a free-floating exchange rate have allowed the economy to recover
relatively quickly from external shocks, which have distinguished Mexico from
its regional peers.
Argentina's government has acted to maintain credible fiscal policies and
ensure that their current account (exports minus imports) deficits do not rise
to unsustainable levels. However, the local economy continues to be sluggish
and increased competitiveness from Brazil's currency devaluation and upcoming
elections have dampened investor sentiment. Argentina, however, continues to
comply with IMF targets and continues to support the convertibility regime.
(Argentina's "convertibility law" pegs the peso one-to-one with the U.S.
dollar.)
In developed government bond markets, all countries posted positive returns
during the period, with the exception of the U.S. and Australia. Strong U.S.
economic growth and increasing economic stability around the world reduced the
safe-haven premium on U.S. government bonds and increased the likelihood that
the Federal Reserve would raise interest rates, which subsequently hurt bond
performance. Australia suffered as investors moved away from smaller, less
liquid markets. Canada posted a modest return as their economy continues to
grow supported by consumer spending. Late in the period, a higher-than-expected
inflation report as well as further depreciation of the Canadian dollar reduced
the chances for a further rate cut.
INVESTMENT MIX
Over the period, we maintained the portfolio's country weighting consistent
with the investment objectives of the Fund while securing a high level of
current income. The portfolio continued to be invested in Mexican, Argentinean
and Canadian debt, as well as U.S. Government obligations.
OUTLOOK
Globally, growth prospects are improving and inflation pressures remain
subdued. While the U.S. economy appears to be moderating somewhat from the
robust level of the first quarter of 1999, we still estimate that calendar year
1999 growth will be near the 3.9% pace of 1998. We believe the risks remain
toward somewhat tighter monetary policy and higher interest rates.
In Europe, although there are signs that a mild recovery is underway, we
continue to expect growth to be 1.9% in 1999, down from the 2.6% growth rate of
1998. Increasing global demand, low interest rates and a weak Euro should help
improve growth prospects going forward. We believe the European Central Bank
will maintain a neutral monetary policy. Japan is also showing signs of
stronger economic activity and we expect the 1999 Japanese gross domestic
product growth to be 0.3%, an improvement over the 2.9% decline of 1998. The
extent to which the Japanese economy rebounds remains a key issue going forward
in terms of global growth and interest rate patterns.
Improving global growth and subdued inflation will provide the environment
necessary for emerging countries to gradually improve their credit profile.
However, in the period ahead, we see divergences developing between countries
with constructive reform-oriented policies and countries with less commitment
to the reform process. We continue to expect short-term market volatility as
investor sentiment shifts with events.
2
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
Mexico continues to impress us with sound growth. Integration with the U.S.
economy and proactive fiscal policies will continue to provide opportunities in
Mexico. For Mexico, we continue to expect 3% gross domestic product growth this
year and a one-step credit rating upgrade should current trends remain in
place. Lower inflation, sound budgetary position and strong export growth leads
us to our positive view on Mexico.
Doubts about Argentina's commitment to its convertibility policy of pegging the
Argentine dollar to the U.S. dollar should continue to recede. However,
Argentina is mired in a deep recession and has large external funding needs.
Although firmly on the cheap side, Argentine bonds will remain under pressure
as the market digests additional Argentine issuance against a backdrop of
deteriorating economic fundamentals. We believe outperformance will be very
difficult for Argentina in the coming period.
Thank you for your continued interest and investment in the Alliance North
American Government Income Trust. We look forward to reporting to you again on
market activity and the 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, 1999
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 6.57% 2.04%
Three Years 13.56% 11.95%
Five Years 9.05% 8.12%
Since Inception* 8.44% 7.80%
SEC Yield** 9.18%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 5.87% 3.05%
Three Years 12.70% 12.44%
Five Years 8.10% 8.10%
Since Inception* (a) 7.70% 7.70%
SEC Yield** 8.81%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 5.87% 4.93%
Three Years 12.70% 12.70%
Five Years 8.12% 8.12%
Since Inception* 7.01% 7.01%
SEC Yield** 8.82%
SEC AVERAGE ANNUAL TOTAL RETURNS AS OF THE MOST RECENT QUARTER-END (MARCH 31,
1999)
CLASS A CLASS B CLASS C
------------ ------------ ------------
1 Year 3.68% 4.59% 6.50%
3 Years 14.69% 15.10% 15.35%
5 Years 8.63% 8.63% 8.65%
Since Inception* 8.28% 8.18% (a) 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.
* Inception: 3/27/92 Class A and Class B; 5/3/93 Class C.
** SEC yields are for the 30 days ended May 31, 1999.
(a) Assumes conversion of Class B shares into Class A shares after six years.
4
PORTFOLIO OF INVESTMENTS ALLIANCE NORTH AMERICAN
MAY 31, 1999 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
ARGENTINA-26.9%
GOVERNMENT OBLIGATIONS-26.9%
Republic of Argentina
Supplier-Bocon
Pre III FRN
2.88%, 9/01/02 ARS 153,455 $ 125,899,932
Pro 1 FRN
2.87%, 4/01/07 655,622 432,742,756
Total Argentinian Securities
(cost $587,791,334) 558,642,688
CANADA-15.7%
GOVERNMENT/AGENCY OBLIGATIONS-15.7%
Government of Canada
8.00%, 6/01/27 CA$ 70,000 63,867,989
Province of British
Columbia
7.88%, 11/30/23 (a) 36,000 29,727,013
8.00%, 9/08/23 24,600 20,841,843
9.00%, 8/23/24 25,000 23,436,948
Province of Manitoba
7.75%, 12/22/25 60,200 50,483,624
Province of Ontario
7.75%, 12/08/03 20,000 14,721,988
Province of Quebec
9.38%, 1/16/23 53,600 50,911,628
Province of Saskatchewan
9.60%, 2/04/22 24,600 24,236,663
Quebec Hydro
Zero coupon, 8/15/20 (b) 250,000 46,377,156
Total Canadian Securities
(cost $291,336,818) 324,604,852
MEXICO-25.2%
GOVERNMENT/AGENCY OBLIGATIONS-25.2%
Bankers Acceptances
Nacional Financiera
S.N.C. (c)
16.50%, 12/26/03 MXP 414,125 12,053,247
16.95%, 12/24/03 81,401 2,371,227
17.50%, 12/11/03 55,253 1,618,535
22.00%, 5/20/02 (d) 580,000 56,978,039
Mexican Treasury Bills (c)
20.33%, 2/10/00 1,190,608 104,284,588
24.60%, 4/13/00 545,463 46,161,006
25.73%, 3/09/00 437,633 37,773,187
28.73%, 1/13/00 607,350 54,283,069
30.75%, 8/12/99 136,035 13,304,759
30.75%, 5/11/00 250,000 20,850,358
31.12%, 7/08/99 945,583 94,461,717
34.51%, 8/05/99 791,007 77,646,327
Total Mexican Securities
(cost $609,626,274) 521,786,059
UNITED STATES-46.1%
GOVERNMENT OBLIGATIONS-46.1%
U.S. Treasury Bonds
5.25%, 11/15/28 US$ 35,000 31,653,125
5.25%, 2/15/29 210,700 193,185,563
6.75%, 8/15/26 55,000 59,846,875
8.13%, 8/15/19 73,000 89,539,099
11.75%, 11/15/14 64,000 92,120,000
12.38%, 5/15/04 71,200 91,180,500
12.50%, 8/15/14 69,000 102,723,750
13.75%, 8/15/04 60,000 81,150,000
14.00%, 11/15/11 11,900 17,638,037
U.S. Treasury Notes
4.75%, 11/15/08 21,000 19,530,000
5.50%, 5/15/09 110,000 108,900,000
5.63%, 5/15/08 3,000 2,967,189
U.S. Treasury Strips
Zero coupon, 8/15/12 52,000 23,215,972
Zero coupon, 5/15/13 87,000 36,960,558
Zero coupon, 5/15/14 13,400 5,346,305
------------
955,956,973
5
ALLIANCE NORTH AMERICAN
PORTFOLIO OF INVESTMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT-0.0%
Brown Brothers
Harriman & Co.
4.75%, dated 5/28/99,
$1,000,528 due 6/01/99,
(collateralized by $1,071,000
U.S. Treasury Bill
5.25%, 5/25/00) US$ 1,000 $ 1,000,000
Total United States
Securities
(cost $998,177,046) 956,956,973
TOTAL INVESTMENTS-113.9%
(cost $2,486,931,472) 2,361,990,572
Other assets less
liabilities-(13.9)% (287,766,372)
NET ASSETS-100% $ 2,074,224,200
(a) Securities, or portion thereof, with an aggregate market value of
$29,727,013 have been segregated to collateralize forward exchange currency
contracts.
(b) Private Placement, valued at fair value (see Note A.)
(c) Interest rate represents annualized yield to maturity at purchase date.
(d) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 1999,
these securities amounted to $56,978,039 or 2.7% of net assets.
Glossary:
FRN - Floating Rate Note.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES ALLIANCE NORTH AMERICAN
MAY 31, 1999 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $2,486,931,472) $ 2,361,990,572
Cash 394,467
Interest receivable 21,990,799
Receivable for investment securities sold 18,239,265
Receivable for capital stock sold 6,306,378
Unrealized appreciation of forward exchange currency
contracts 1,004,784
Other assets 389,775
Total assets 2,410,316,040
LIABILITIES
Loan payable 250,000,000
Payable for investment securities purchased 67,310,402
Dividend payable 7,634,015
Payable for capital stock redeemed 3,970,055
Loan interest payable 3,288,647
Advisory fee payable 1,319,930
Distribution fee payable 366,048
Accrued expenses and other liabilities 2,202,743
Total liabilities 336,091,840
NET ASSETS $ 2,074,224,200
COMPOSITION OF NET ASSETS
Capital stock, at par $ 280,368
Additional paid-in capital 2,412,512,856
Distributions in excess of net investment income (42,412,763)
Accumulated net realized loss on investments and foreign
currency transactions (172,799,316)
Net unrealized depreciation of investments and foreign
currency denominated assets and liabilities (123,356,945)
$ 2,074,224,200
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($593,217,932/80,383,604 shares of capital stock
issued and outstanding) $7.38
Sales Charge--4.25% of public offering price 0.33
Maximum offering price $7.71
CLASS B SHARES
Net asset value and offering price per share
($1,213,895,150/163,918,486 shares of capital stock
issued and outstanding) $7.41
CLASS C SHARES
Net asset value and offering price per share
($267,111,118/36,065,962 shares of capital stock
issued and outstanding) $7.41
See notes to financial statements.
7
STATEMENT OF OPERATIONS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INVESTMENT INCOME
Interest (net of foreign taxes withheld
of $90,143) $ 150,125,015
EXPENSES
Advisory fee $ 7,837,346
Distribution fee - Class A 938,148
Distribution fee - Class B 6,328,558
Distribution fee - Class C 1,355,162
Custodian 1,698,976
Transfer agency 1,672,350
Printing 187,350
Registration 121,468
Administrative 73,036
Audit and legal 64,654
Directors' fees 18,068
Miscellaneous 32,881
Total expenses before interest 20,327,997
Interest expense 7,292,849
Total expenses 27,620,846
Net investment income 122,504,169
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment
transactions 19,640,137
Net realized loss on foreign currency
transactions (60,962,607)
Net change in unrealized appreciation
(depreciation) of:
Investments (13,425,095)
Foreign currency denominated assets
and liabilities 4,027,366
Net loss on investments (50,720,199)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 71,783,970
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, 1999 NOVEMBER 30,
(UNAUDITED) 1998
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 122,504,169 $ 245,862,749
Net realized gain (loss) on investments
and foreign currency transactions (41,322,470) 20,178,723
Net change in unrealized depreciation
of investments and foreign currency
denominated assets and liabilities (9,397,729) (130,364,332)
Net increase in net assets from
operations 71,783,970 135,677,140
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (40,350,980) (74,201,378)
Class B (75,515,347) (141,961,151)
Class C (16,185,040) (29,700,220)
Distributions in excess of net
investment income
Class A -0- (5,401,762)
Class B -0- (10,316,188)
Class C -0- (2,143,419)
Tax return of captial
Class A -0- (2,554,780)
Class B -0- (4,887,773)
Class C -0- (1,022,589)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (182,167,375) 279,531,511
Total increase (decrease) (242,434,772) 143,019,391
NET ASSETS
Beginning of year 2,316,658,972 2,173,639,581
End of period $2,074,224,200 $2,316,658,972
See notes to financial statements.
9
STATEMENT OF CASH FLOWS ALLIANCE NORTH AMERICAN
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received $ 53,360,323
Interest paid (7,600,274)
Operating expenses paid (20,507,192)
Net increase in cash from operating
activities $ 25,252,857
INVESTING ACTIVITIES:
Proceeds from sale of short-term
portfolio investments, net 360,006,745
Purchases of long-term portfolio
investments (1,588,187,236)
Proceeds from disposition of long-term
portfolio investments 1,525,673,988
Net increase in cash from investing
activities 297,493,497
FINANCING ACTIVITIES*:
Redemptions of capital stock, net (183,220,363)
Cash dividends paid (132,218,233)
Net decrease in cash from financing
activities (315,438,596)
Effect of exchange rate on cash (7,002,217)
Net increase in cash 305,541
Cash at beginning of year 88,926
Cash at end of period $ 394,467
_______________________________________________________________________________
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from
operations $ 71,783,970
ADJUSTMENTS:
Decrease in interest receivable $ 1,800,712
Net realized gain on investment
transactions (19,640,137)
Net change in unrealized depreciation 9,397,729
Accretion of bond discount (98,565,404)
Increase in accrued expenses and other
liabilities (486,620)
Net realized loss on foreign currency
transactions 60,962,607
(46,531,113)
Net increase in cash from operating
activities $ 25,252,857
* 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, 1999 (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 may 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 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. Based on the operations of the fund
as of the semi-annual date, and its distribution policy, the fund may have a
tax return of capital at year end. At this time, the amount of this tax return
of capital is not estimable.
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 $73,036
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the six months ended May 31, 1999.
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 $1,102,382 for the six months ended May 31, 1999.
For the six months ended May 31, 1999, the Fund's expenses were reduced by
$83,690 under an expense offset arrangement with Alliance Fund Services.
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 $132,000 from the sale of Class A shares and
$759,052 and $57,409 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class B and Class C shares, respectively, for
the six months ended May 31, 1999.
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 $35,383,245 and $4,944,131 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 $169,001,175 and $241,875,870,
respectively, for the six months ended May 31, 1999. There were purchases of
$1,349,823,541 and sales of $1,290,258,896 of U.S. government and government
agency obligations for the six months ended May 31, 1999.
At May 31, 1999, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $41,848,336 and
gross unrealized depreciation of investments was $166,789,236 resulting in net
unrealized depreciation of $124,940,900 excluding foreign currency
transactions. At November 30, 1998 the Fund had a capital loss carryforward
totaling $110,500,652, of which $71,003,543 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, 1999, the Fund had outstanding forward exchange currency contracts,
as follows:
<TABLE>
<CAPTION>
U.S. $
CONTRACT VALUE ON U.S. $
AMOUNT ORIGINATION CURRENT UNREALIZED
(000) DATE VALUE APPRECIATION
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
FORWARD EXCHANGE CURRENCY
SALE CONTRACTS
Argentine Peso,
settling 11/22/99 20,490 $ 20,000,000 $ 19,860,906 $ 139,094
Canadian Dollars,
settling 6/10/99 90,125 62,069,562 61,203,872 865,690
-----------
$ 1,004,784
</TABLE>
NOTE E: BANK BORROWING
The Fund entered into a Revolving Credit Agreement with Deutsche Bank AG, New
York Branch on June 4, 1998. 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, 1999
was $250,000,000 with a related weighted average interest rate at period end of
5.50% and a weighted average annualized interest rate of 5.57%. The
$250,000,000 balance will mature on September 9, 1999. Interest payments on
current borrowings are based on the European Euro margin plus the applica-
13
ALLIANCE NORTH AMERICAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED) GOVERNMENT INCOME TRUST
_______________________________________________________________________________
ble European Euro 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.
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:
SHARES AMOUNT
--------------------------- ------------------------------
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, MAY 31, 1999 NOVEMBER 30,
(UNAUDITED) 1998 (UNAUDITED) 1998
------------ ------------ -------------- --------------
CLASS A
Shares sold 14,029,507 40,930,531 $ 118,106,235 $ 325,348,092
Shares issued in
reinvestment of
dividends 1,629,805 3,181,255 12,335,751 24,821,621
Shares converted
from Class B 1,995,926 7,799,684 3,745,318 59,480,464
Shares redeemed (34,771,935) (18,195,141) (261,611,097) (139,838,724)
Net increase
(decrease) (17,116,697) 33,716,329 $(127,423,793) $ 269,811,453
CLASS B
Shares sold 14,743,689 40,837,786 $ 111,979,414 $ 320,851,480
Shares issued in
reinvestment of
dividends 2,800,505 5,700,319 21,257,362 44,452,518
Shares converted
to Class A (1,987,845) (7,799,684) (3,745,318) (59,480,464)
Shares redeemed (22,573,595) (39,600,299) (182,645,819) (305,507,405)
Net increase
(decrease) (7,017,246) (861,878) $ (53,154,361) $ 316,129
CLASS C
Shares sold 6,837,744 11,845,488 $ 51,612,088 $ 93,169,906
Shares issued in
reinvestment of
dividends 691,203 1,368,044 5,248,126 10,660,900
Shares redeemed (7,745,634) (12,263,001) (58,449,435) (94,426,877)
Net increase
(decrease) (216,687) 950,531 $ (1,589,221) $ 9,403,929
NOTE G: LITIGATION
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Original Complaint") was filed against the Fund, Alliance and certain other
defendants affiliated with Alliance alleging violations of federal securities
laws, fraud and breach of fiduciary duty in connection with the Fund's
investments in Mexican and Argentine securities. 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 Original Complaint. On October
29, 1997, the United States Court of Appeals for the Second Circuit affirmed
that decision.
On October 29, 1996 plaintiffs filed a motion for leave to file an amended
complaint. The principal allegations of the amended complaint are that (i) the
Fund failed to hedge against currency risk despite representations that it
would do so, (ii) the Fund did not properly disclose that it planned to invest
in mortgage-backed derivative securities, and (iii) two advertisements used by
the Fund misrepresented the risks of investing in the Fund. On October 15,
1998, the United States Court of Appeals for the Second Circuit issued an order
granting plaintiffs' motion to file an amended complaint alleging that the Fund
misrepresented its ability to hedge against currency risk and denying
plaintiffs' motion to file an amended
14
ALLIANCE NORTH AMERICAN
GOVERNMENT INCOME TRUST
_______________________________________________________________________________
complaint alleging that the Fund did not properly disclose that it planned to
invest in mortgage-backed derivative securities and that certain advertisements
used by the Fund misrepresented the risks of investing in the Fund.
The Fund and Alliance believe that the allegations in the amended complaint are
without merit and intend to defend vigorously against this action.
NOTE H: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks which
include changes in foreign exchange rates and the possibility of future
political and economic developments which could adversely affect the value of
such securities. 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, 1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.59 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income .45(a) .87(a) 1.03(a) 1.09(a) 1.18(a) 1.02
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.18) (.33) (.05) 1.14 (1.59) (2.12)
Net increase (decrease) in net asset
value from operations .27 .54 .98 2.23 (.41) (1.10)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.87) (.97) (.75) -0- (.91)
Distributions in excess of net
investment income -0- (.07) -0- -0- -0- -0-
Tax return of capital -0- (.03) -0- (.22) (.97) (.21)
Total dividends and distributions (.48) (.97) (.97) (.97) (.97) (1.12)
Net asset value, end of period $ 7.38 $ 7.59 $ 8.02 $ 8.01 $ 6.75 $ 8.13
TOTAL RETURN
Total investment return based on net
asset value (b) 3.67% 7.14% 12.85% 35.22% (3.59)% (11.32)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $593,218 $740,066 $511,749 $385,784 $252,608 $303,538
Ratio of expenses to average net assets 2.06%(c) 2.04% 2.15% 2.34% 2.62% 1.70%
Ratio of expenses to average net assets
excluding interest expense (d) 1.38%(c) 1.36% 1.38% 1.41% 1.51% 1.37%
Ratio of net investment income to
average net assets 11.85%(c) 11.17% 12.78% 14.82% 18.09% 11.22%
Portfolio turnover rate 157% 175% 118% 166% 180% 131%
</TABLE>
16
SEE FOOTNOTE SUMMARY ON PAGE 18.
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, 1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income .42(a) .81(a) .98(a) 1.04(a) 1.13(a) .96
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.17) (.32) (.07) 1.12 (1.61) (2.13)
Net increase (decrease) in net asset
value from operations .25 .49 .91 2.16 (.48) (1.17)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.81) (.90) (.69) -0- (.84)
Distributions in excess of net
investment income -0- (.06) -0- -0- -0- -0-
Tax return of capital -0- (.03) -0- (.21) (.90) (.21)
Total dividends and distributions (.45) (.90) (.90) (.90) (.90) (1.05)
Net asset value, end of period $ 7.41 $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13
TOTAL RETURN
Total investment return based on net
asset value (b) 3.32% 6.46% 11.88% 33.96% (4.63)% (11.89)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $1,213,895 $1,300,519 $1,378,407 $1,329,719 $1,123,074 $1,639,602
Ratio of expenses to average net assets 2.76%(c) 2.75% 2.86% 3.05% 3.33% 2.41%
Ratio of expenses to average net assets
excluding interest expense (d) 2.09%(c) 2.07% 2.09% 2.12% 2.22% 2.07%
Ratio of net investment income to
average net assets 11.12%(c) 10.44% 12.15% 14.20% 17.31% 10.53%
Portfolio turnover rate 157% 175% 118% 166% 180% 131%
</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
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, 1999 ---------------------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income .42(a) .82(a) .98(a) 1.05(a) 1.13(a) .96
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (.17) (.33) (.07) 1.11 (1.61) (2.12)
Net increase (decrease) in net asset
value from operations .25 .49 .91 2.16 (.48) (1.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.82) (.90) (.69) -0- (.84)
Distributions in excess of net
investment income -0- (.05) -0- -0- -0- -0-
Tax return of capital -0- (.03) -0- (.21) (.90) (.21)
Total dividends and distributions (.45) (.90) (.90) (.90) (.90) (1.05)
Net asset value, end of period $ 7.41 $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13
TOTAL RETURN
Total investment return based on net
asset value (b) 3.32% 6.46% 11.88% 33.96% (4.63)% (11.89)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $267,111 $276,073 $283,483 $250,676 $219,009 $369,714
Ratio of expenses to average net assets 2.75%(c) 2.74% 2.85% 3.04% 3.33% 2.39%
Ratio of expenses to average net assets
excluding interest expense (d) 2.08%(c) 2.06% 2.08% 2.12% 2.21% 2.06%
Ratio of net investment income to
average net assets 11.14%(c) 10.45% 12.14% 14.22% 17.32% 10.46%
Portfolio turnover rate 157% 175% 118% 166% 180% 131%
</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 .67%, .68%, .77%, .93%, 1.11% and .33%,
respectively, on loan agreement. (See Note E).
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 LLP
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 599
