ALLIANCE
----------------------------
NORTH AMERICAN
----------------------------
GOVERNMENT
----------------------------
INCOME TRUST
----------------------------
Annual Report
November 30, 1998
Alliance Capital[LOGO](R)
<PAGE>
Alliance North American
LETTER TO SHAREHOLDERS Government Income Trust
================================================================================
January 29, 1999
Dear Shareholder:
We are pleased to report to you on our investment strategy, performance and
outlook for Alliance North American Government Income Trust (the "Fund"), for
the six- and 12-month periods ended November 30, 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 six- and 12-month
periods ended November 30, 1998. For comparison, we have included performance
for 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 1-10
year maturity range.
The Fund's Class A shares underperformed both the LB Aggregate Bond Index and
the LB Intermediate-Term Government Bond Index on both a six- and 12- month
basis. Your Fund's allocation to both Argentina and Mexico dampened performance
as emerging markets suffered from the crisis in Russia and uncertainty in global
capital markets during the period. However, the Fund's allocation to U.S.
Treasuries helped the Fund's performance as U.S. Treasuries benefited from the
flight to quality. Overall underperformance of the Fund is attributable to both
Lehman indexes reflecting only U.S.-based government securities, which
outperformed most global government bond markets during the period.
- --------------------------------------------------------------------------------
INVESTMENT RESULTS*
Periods Ended November 30, 1998
Total Returns
6 Months 12 Months
------------ ------------
Alliance North American
Government Income Trust
Class A 2.80% 7.14%
Class B 2.46% 6.46%
Class C 2.46% 6.46%
Lehman Brothers
Aggregate Bond Index 5.15% 9.45%
Lehman Brothers
Intermediate-Term
Government Bond Index 5.23% 8.95%
* 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 LB
Mortgage-Backed Securities Index, the LB Asset-Backed Securities Index and
the LB 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
During the six-month period ended November 30, 1998, global markets experienced
volatility as financial and economic turmoil, spreading from Asia to Russia,
then to Latin America, elevated concerns about recession and a global economic
slowdown.
Despite global turmoil, the United States continued on a path of robust growth
driven by domestic consumer demand. Manufacturing, however, remained weak as
world export markets declined. Inflation continued to be benign and employment
strong throughout the period. The Federal Reserve, as a hedge against a slowing
global
1
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Alliance North American
Government Income Trust
================================================================================
economy, lowered interest rates three times by a quarter of a percentage point,
from 5.50% to 4.75%.
The U.S. bond market, which posted solid gains, provided a safe haven for
investors seeking liquidity during periods of global volatility. As investors
became more risk averse, U.S. Treasuries outperformed other U.S. fixed-income
sectors. Treasury yields reached record lows prior to rebounding at the end of
the period.
In the emerging markets, debt prices fell over the six-month period ended
November 30, 1998, when renewed volatility in Asia and fiscal problems in Russia
heightened investor concerns about all higher-yielding asset classes. Investor
confidence was briefly restored in July, when the International Monetary Fund
("IMF") approved an emergency loan package for the Russian government. However,
the downward fall of emerging market debt prices resumed and accelerated in
August, after the Rus sian government devalued the ruble and defaulted on its
domestic debt. This surprise move by the Russian government led to a general
sell-off of emerging market assets as investors moved to lower their portfolios'
risk exposure. In September, investor concern shifted to Brazil, which, like
Russia, has a semi-fixed currency regime and deficits in both its fiscal and
current accounts. After reaching a low in September, emerging market debt prices
rebounded as the U.S. and other industrial countries began easing monetary
policy.
The reporting period has seen positive developments for both Mexico and
Argentina. Mexico recently approved further steps in banking reforms, enabling
them to attract additional capital amidst policies of fiscal discipline in 1998.
Although Mexico is an oil exporter, a decline in oil prices is not expected to
significantly impact Mexico's financial outlook, as oil revenues constitute a
relatively small percentage of total revenues. Furthermore, the Mexican economy
has continued to show resilience against the backdrop of other Latin economies.
Consumer spending has buoyed the Mexican economy despite difficult global
conditions. Mexico's outperformance in these areas has been benefited by its
NAFTA preferences and the long-term convergence of its manufacturing sector with
that of the United States.
Argentina, which has been aided with funds by the IMF, continued with its
internal policies of fiscal discipline. Policy improvements have bolstered their
economy's ability to weather external storms within the global economy and Latin
America. Moreover, Argentina is less exposed to the global slowdown as just 10%
of their gross domestic product is dependent on exports. In addition,
Argentina's "convertibility law" which pegs the peso 1 to 1 with the dollar, has
achieved significant credibility amidst global turmoil.
In the developed markets outside of the U.S., government bond returns were
augmented by investors' aversion to risk. Traditional safe haven markets
benefited from both the flight to quality and the increased probability of
monetary easing, while non-safe haven countries suffered from low liquidity. In
Canada, growth slowed and inflation remained low as a result of falling
commodity prices and falling demand from Asia. A weak currency and low liquidity
dampened bond market returns in Canada, on both a local and hedged basis.
INVESTMENT STRATEGY
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. Longer-duration
securities were held in anticipation of longer-term interest rates trending
downward, thus minimizing interest rate risk.
OUTLOOK
While the likelihood of global recession has diminished, we continue to project
a slower growth trajectory to the global economy in 1999.
In the U.S., economic activity is expected to moderate with growth estimates
centered around 3.0% for 1999. Further interest rate reductions to sustain
growth by the Federal Reserve are likely in 1999, but are not expected to be
imminent. U.S. interest rates, as well as inflation, should remain low, and the
U.S. Treasury market should continue to provide a safe haven during times of
volatility.
In Europe, growth is expected to slow to 2% in 1999, from 2.6% in 1998.
Inflation should remain benign. Recent interest rate reductions in Europe may be
followed by additional rate cuts in 1999 to offset the effects of the global
slowdown.
2
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Alliance North American
Government Income Trust
================================================================================
Our outlook for emerging market debt has improved as a concerted effort by the
Group of Seven ("G7") industrial countries has been made to avert further spread
of economic and financial malaise. The U.S. Federal Reserve, along with other G7
countries, has begun easing monetary policy in an effort to lower the risk of
slower economic growth, and the Japanese yen has strengthened sharply against
the U.S. dollar, relieving pressure on exchange rates and interest rates
elsewhere in Asia.
Increased uncertainty, however, has been generated by the change in Brazil's
exchange-rate policy. Furthermore, we remain concerned about the effects that
slower global growth and low commodity prices will have on emerging markets. In
this environment, we expect emerging market debt prices to remain volatile with
periods of improved sentiment, triggered by stimulative policies in developed
countries, interspersed with episodes of weakness, as investors lose confidence
in the pace of reforms in emerging countries and Japan.
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. Although the turmoil in Brazil may
negatively affect Mexico's asset prices, we do not expect the impact to be
either great or long term. We currently see no relative value in the Canadian
market as spreads have tightened considerably.
Thank you for your continued interest and investment in 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,
/s/ John D. Carifa
John D. Carifa
Chairman
/s/ Wayne D. Lyski
Wayne D. Lyski
Senior Vice President
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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.
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3
<PAGE>
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 November 30, 1998
------------------
CLASS A SHARES
------------------
Without With
Sales Charge Sales Charge
----------------------------
One Year 7.14% 2.54%
Five Years 6.92% 6.00%
Since Inception* 8.52% 7.82%
SEC Yield** 12.01%
------------------
CLASS B SHARES
------------------
Without With
Sales Charge Sales Charge
----------------------------
One Year 6.46% 3.62%
Five Years 6.01% 6.01%
Since Inception* (a) 7.72% 7.72%
SEC Yield** 11.80%
------------------
CLASS C SHARES
------------------
Without With
Sales Charge Sales Charge
----------------------------
One Year 6.46% 5.51%
Five Years 6.03% 6.03%
Since Inception* 7.02% 7.02%
SEC Yield** 11.81%
SEC Average Annual Total Returns as of the most recent quarter-end (September
30, 1998)
Class A Class B Class C
--------- --------- ---------
1 Year -4.85% -3.88% -2.12%
5 Years 5.49% 5.51% 5.53%
Since Inception* 7.10% 6.99%(a) 6.17%
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 November 30, 1998.
(a) Assumes conversion of Class B shares into Class A shares after six years.
4
<PAGE>
Alliance North American
Government Income Trust
================================================================================
ALLIANCE NORTHAMERICAN GOVERNMENT INCOME TRUST
GROWTH OF A $10,000 INVESTMENT
3/31/92* TO 11/30/98
[GRAPHIC OMITTED]
[The following information was depicted as a chart in the printed material.]
Lehman Brothers Aggregate Bond Index:
$16,911
North American Government Income Trust
Class A:
$16,515
Lehman Brothers Intermediate-Term Gov't Bond Index:
$15,918
This chart illustrates the total value of an assumed $10,000 investment in
Alliance NorthAmerican Government Income Trust Class A shares (from 3/31/92 to
11/30/98) as compared to the performance of appropriate broad-based indices. The
chart reflects the deduction of the maximum 4.25% sales charge from the initial
$10,000 investment in the Fund and assumes the reinvestment of dividends and
capital gains. Performance for Class B and Class C shares will vary from the
results shown above due to differences in expenses charged to those classes.
Past performance is not indicative of future results, and is not representative
of future gain or loss in capital value or dividend income.
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 Lehman Brothers Intermediate-Term Government Bond Index
measures the performance of bonds with maturities of one to ten years.
When comparing Alliance North American Government Income Trust to the
indices shown above, you should note that no charges or expenses are reflected
in the performance of the indices.
- --------------------------------------------------------------------------------
* Month-end nearest to Fund's inception date of 3/27/92.
5
<PAGE>
PORTFOLIO OF INVESTMENTS Alliance North American
November 30, 1998 Government Income Trust
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
ARGENTINA-26.8%
GOVERNMENT OBLIGATIONS-26.8%
Republic of Argentina
Pensioner-Bocon
Pre III FRN
2.91%, 9/01/02 (a)................. ARS 242,124 $ 200,027,118
Supplier-Bocon
Pro 1 FRN
2.91%, 4/01/07..................... 634,411 419,626,837
--------------
Total Argentinian Securities
(cost $632,552,777)................ 619,653,955
--------------
CANADA-18.7%
GOVERNMENT/AGENCY OBLIGATIONS-18.7%
Government of Canada
8.00%, 6/01/27..................... CA$ 195,000 176,997,047
Province of British Columbia
7.88%, 11/30/23 (b)................ 36,000 29,468,504
8.00%, 9/08/23 (b)................. 24,600 20,871,260
9.00%, 8/23/24 (b)................. 25,000 23,482,612
Province of Manitoba
7.75%, 12/22/25 (b)................ 60,200 50,601,181
Province of Ontario
7.75%, 12/08/03 (b)................ 20,000 14,619,423
Province of Quebec
9.375%, 1/16/23 (b)................ 53,600 50,118,110
Province of Saskatchewan
9.60%, 2/04/22 (b)................. 24,600 24,148,032
Quebec Hydro Zero coupon, 8/15/20 (c).. 250,000 43,928,806
--------------
Total Canadian Securities
(cost $394,752,068)................ 434,234,975
--------------
MEXICO-27.9%
GOVERNMENT/AGENCY OBLIGATIONS-27.9%
Bankers Acceptances
Nacional Financiera
S.N.C. (d)
16.50%, 12/26/03................... MXP 414,125 10,969,711
16.95%, 12/24/03................... 81,401 2,157,936
17.50%, 12/11/03................... 55,253 1,472,364
Mexican Treasury Bills (d)
19.75%, 12/17/98................... 187,490 18,472,248
20.10%, 4/08/99.................... 150,000 13,360,020
20.68%, 3/11/99.................... 1,283,235 116,669,402
20.77%, 1/14/99.................... 314,635 30,227,619
20.80%, 2/11/99.................... 1,178,760 109,942,916
27.08%, 6/03/99.................... 1,323,836 112,544,249
29.47%, 5/06/99.................... 1,064,297 92,556,808
31.12%, 7/08/99.................... 820,116 67,792,426
34.51%, 8/05/99.................... 850,131 68,912,289
--------------
Total Mexican Securities
(cost $826,468,831)................ 645,077,988
--------------
UNITED STATES-42.5%
GOVERNMENT OBLIGATIONS-42.1%
U.S. Treasury Bonds
5.25%, 11/15/28.................... US$ 105,000 107,920,365
5.50%, 8/15/28..................... 25,000 26,429,700
6.75%, 8/15/26..................... 55,000 66,378,125
11.75%, 11/15/14................... 64,000 99,660,032
12.375%, 5/15/04................... 41,200 56,057,750
12.50%, 8/15/14.................... 69,000 111,046,875
13.75%, 8/15/04.................... 60,000 86,531,280
14.00%, 11/15/11................... 11,900 18,902,412
U.S. Treasury Notes
5.625%, 5/15/08.................... 21,000 22,351,875
6.125%, 11/15/27................... 80,000 90,325,040
6.25%, 2/15/07..................... 46,800 51,363,000
6.50%, 10/15/06.................... 15,000 16,631,250
7.00%, 7/15/06..................... 67,900 77,257,503
U.S. Treasury Strips
Zero coupon, 2/15/12............... 100,000 50,051,300
Zero coupon, 8/15/12............... 52,000 25,218,752
Zero coupon, 5/15/13............... 137,000 63,594,304
Zero coupon, 5/15/14............... 13,400 5,854,406
--------------
975,573,969
--------------
6
<PAGE>
Alliance North American
Government Income Trust
================================================================================
Principal
Amount
(000) U.S. $ Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT-0.4%
Brown Brothers Harriman & Co.
5.15%, dated 11/30/98,
$9,901,416 due 12/01/98,
(collateralized by $9,846,000
U.S. Treasury Note
5.375%, 1/31/00)................... US$ 9,900 $ 9,900,000
--------------
Total United States Securities
(cost $942,183,016)................ 985,473,969
--------------
TOTAL INVESTMENTS-115.9%
(cost $2,795,956,692).............. $2,684,440,887
Other assets less
liabilities-(15.9%)................ (367,781,915)
--------------
NET ASSETS-100%........................ $2,316,658,972
==============
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(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) Securities, or portion thereof, with an aggregate market value of
$213,309,122 have been segregated to collateralize forward exchange
currency contracts.
(c) Private Placement, valued at fair value (see Note A.)
(d) Interest rate represents annualized yield to maturity at purchase date.
Glossary:
FRN - Floating Rate Note.
See notes to financial statements.
7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Alliance North American
November 30, 1998 Government Income Trust
================================================================================
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $2,795,956,692) .......................... $2,684,440,887
Cash ............................................................................... 88,926
Interest receivable ................................................................ 23,791,511
Receivable for investment securities sold .......................................... 11,778,487
Receivable for capital stock sold .................................................. 9,508,409
Other assets ....................................................................... 342,603
--------------
Total assets ....................................................................... 2,729,950,823
--------------
LIABILITIES
Loan payable ....................................................................... 250,000,000
Payable for investment securities purchased ........................................ 136,672,922
Payable for capital stock redeemed ................................................. 8,225,073
Dividend payable ................................................................... 7,800,881
Loan interest payable .............................................................. 3,596,072
Unrealized depreciation of forward exchange currency contracts...................... 2,928,987
Advisory fee payable ............................................................... 1,351,056
Distribution fee payable ........................................................... 394,244
Accrued expenses and other liabilities ............................................. 2,322,616
--------------
Total liabilities .................................................................. 413,291,851
--------------
NET ASSETS............................................................................. $2,316,658,972
==============
COMPOSITION OF NET ASSETS
Capital stock, at par .............................................................. $ 304,719
Additional paid-in capital ......................................................... 2,594,655,880
Distributions in excess of net investment income ................................... (32,865,565)
Accumulated net realized loss on investments and foreign currency transactions ..... (131,476,846)
Net unrealized depreciation of investments and foreign currency denominated
assets and liabilities ........................................................... (113,959,216)
--------------
$2,316,658,972
==============
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share
($740,066,296 / 97,500,301 shares of capital stock issued and outstanding) ....... $7.59
Sales charge--4.25% of public offering price ....................................... 0.34
-----
Maximum offering price ............................................................. $7.93
=====
Class B Shares
Net asset value and offering price per share
($1,300,519,285 / 170,935,732 shares of capital stock issued and outstanding) .... $7.61
=====
Class C Shares
Net asset value and offering price per share
($276,073,391 / 36,282,649 shares of capital stock issued and outstanding) ....... $7.61
=====
</TABLE>
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See notes to financial statements.
8
<PAGE>
STATEMENT OF OPERATIONS Alliance North American
Year Ended November 30, 1998 Government Income Trust
================================================================================
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest (net of foreign taxes withheld of $232,087) ..... $ 304,387,869
EXPENSES
Advisory fee ............................................. $16,629,250
Distribution fee - Class A ............................... 1,976,686
Distribution fee - Class B ............................... 13,643,777
Distribution fee - Class C ............................... 2,850,733
Custodian ................................................ 3,376,048
Transfer agency .......................................... 3,037,804
Printing ................................................. 374,548
Audit and legal .......................................... 134,415
Administrative ........................................... 129,953
Registration ............................................. 96,875
Directors' fees .......................................... 34,060
Miscellaneous ............................................ 584,019
-----------
Total expenses before interest ........................... 42,868,168
Interest expense ......................................... 15,656,952
-----------
Total expenses ........................................... 58,525,120
-------------
Net investment income .................................... 245,862,749
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ............. 103,109,587
Net realized loss on foreign currency transactions ....... (82,930,864)
Net change in unrealized appreciation of:
Investments ............................................ (127,857,382)
Foreign currency denominated assets and liabilities .... (2,506,950)
-------------
Net loss on investments .................................. (110,185,609)
-------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 135,677,140
=============
</TABLE>
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See notes to financial statements.
9
<PAGE>
Alliance North American
STATEMENT OF CHANGES IN NET ASSETS Government Income Trust
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
November 30, November 30,
1998 1997
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ............................................... $ 245,862,749 $ 253,796,693
Net realized gain on investments and foreign currency transactions .. 20,178,723 46,788,566
Net change in unrealized appreciation (depreciation) of investments .
and foreign currency denominated assets and liabilities ........... (130,364,332) (64,771,290)
-------------- --------------
Net increase in net assets from operations .......................... 135,677,140 235,813,969
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ........................................................... (74,201,378) (53,153,774)
Class B ........................................................... (141,961,151) (151,811,556)
Class C ........................................................... (29,700,220) (29,704,053)
Distributions in excess of net investment income
Class A ........................................................... (5,401,762) -0-
Class B ........................................................... (10,316,188) -0-
Class C ........................................................... (2,143,419) -0-
Tax return of capital
Class A ........................................................... (2,554,780) -0-
Class B ........................................................... (4,887,773) -0-
Class C ........................................................... (1,022,589) -0-
CAPITAL STOCK TRANSACTIONS
Net increase ........................................................ 279,531,511 206,316,343
-------------- --------------
Total increase ...................................................... 143,019,391 207,460,929
NET ASSETS
Beginning of year ................................................... 2,173,639,581 1,966,178,652
-------------- --------------
End of year ......................................................... $2,316,658,972 $2,173,639,581
============== ==============
</TABLE>
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See notes to financial statements.
10
<PAGE>
STATEMENT OF CASH FLOWS Alliance North American
Year Ended November 30, 1998 Government Income Trust
================================================================================
<TABLE>
<S> <C> <C>
INCREASE (DECREASE) IN CASH FROM:
OPERATING ACTIVITIES:
Interest received ............................................. $ 110,920,723
Interest paid ................................................. (15,076,009)
Operating expenses paid ....................................... (42,613,610)
--------------
Net increase in cash from operating activities ................ $ 53,231,104
INVESTING ACTIVITIES:
Purchases of short-term portfolio investments, net ............ (107,523,154)
Purchases of long-term portfolio investments .................. (3,830,009,769)
Proceeds from disposition of long-term portfolio investments .. 3,875,921,511
--------------
Net decrease in cash from investing activities ................ (61,611,412)
FINANCING ACTIVITIES*:
Subscriptions of capital stock, net ........................... 281,589,081
Cash dividends paid ........................................... (273,106,331)
--------------
Net increase in cash from financing activities ................ 8,482,750
Effect of exchange rate on cash ............................... (57,328)
------------
Net increase in cash .......................................... 45,114
Cash at beginning of year ..................................... 43,812
------------
Cash at end of year ........................................... $ 88,926
============
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCREASE IN NET ASSETS
FROM OPERATIONS TO NET INCREASE IN CASH FROM
OPERATING ACTIVITIES:
Net increase in net assets from operations .................... $135,677,140
ADJUSTMENTS:
Decrease in interest receivable ............................... $ 645,236
Net realized gain on investment transactions .................. (103,109,587)
Net change in unrealized depreciation ......................... 130,364,332
Accretion of bond discount .................................... (194,112,382)
Increase in accrued expenses and other liabilities ............ 835,501
Net realized loss on foreign currency transactions ............ 82,930,864
--------------
(82,446,036)
------------
Net increase in cash from operating activities ................ $ 53,231,104
============
</TABLE>
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* Non-cash financing activities not included herein consist of reinvestment
of dividends.
See notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS Alliance North American
November 30, 1998 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.
12
<PAGE>
Alliance North American
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. During the current fiscal year, permanent differences,
primarily due to foreign currency losses and a tax return of capital, resulted
in a net decrease in distributions in excess of net investment income, a
decrease in accumulated net realized loss on investments and foreign currency
transactions, and a decrease in additional paid-in capital. This
reclassification had no effect on net assets.
- --------------------------------------------------------------------------------
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 $129,953
representing the cost of certain legal and accounting services provided to the
Fund by the Adviser for the year ended November 30, 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 $2,156,101 for the year ended November 30, 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 $234,927 from the sale of Class A shares and $28,978,
$1,574,130 and $164,308 in contingent deferred sales charges imposed upon
redemptions by shareholders of Class A, Class B and Class C shares,
respectively, for the year ended November 30, 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 $36,411,699 and $4,590,722 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.
13
<PAGE>
Alliance North American
NOTES TO FINANCIAL STATEMENTS (continued) Government Income Trust
================================================================================
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $315,555,135 and $188,823,314,
respectively, for the year ended November 30, 1998. There were purchases of
$3,403,171,041 and sales of $3,693,242,876 of U.S. government and government
agency obligations for the year ended November 30, 1998.
At November 30, 1998, the cost of investments for federal income tax purposes
was $2,816,932,886. Accordingly, gross unrealized appreciation of investments
was $86,769,935 and gross unrealized depreciation of investments was
$219,261,934 resulting in net unrealized depreciation of $132,491,999 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 November 30, 1998, the Fund had outstanding forward exchange currency
contracts, as follows:
<TABLE>
<CAPTION>
U.S. $
Contract Value on U.S. $ Unrealized
Amount Origination Current Appreciation
(000) Date Value (Depreciation)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Forward Exchange Currency
Buy Contracts
Canadian Dollars,
settling 12/07/98.............. 48,583 $ 31,425,182 $ 31,879,454 $ 454,272
Forward Exchange Currency
Sale Contracts
Canadian Dollars,
settling 12/07/98.............. 314,674 203,099,997 206,483,256 (3,383,259)
------------
$ (2,928,987)
============
</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 year ended November 30, 1998 was
$250,000,000 with a related weighted average interest rate at year end of 6.15%
and a weighted average annualized interest rate of 6.26%. The $250,000,000
balance will mature on
14
<PAGE>
Alliance North American
Government Income Trust
================================================================================
December 9, 1998, (the loan was subsequently renewed). 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.
- --------------------------------------------------------------------------------
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
----------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended
November 30, November 30, November 30, November 30,
1998 1997 1998 1997
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Class A
Shares sold....................... 40,930,531 17,871,465 $ 325,348,092 $ 144,058,872
Shares issued in reinvestment of
dividends...................... 3,181,255 2,269,271 24,821,621 18,311,581
Shares converted from Class B..... 7,799,684 8,014,844 59,480,464 64,154,628
Shares redeemed................... (18,195,141) (12,556,597) (139,838,724) (100,703,640)
-------------- -------------- -------------- --------------
Net increase...................... 33,716,329 15,598,983 $ 269,811,453 $ 125,821,441
============== ============== ============== ==============
Class B
Shares sold....................... 40,837,786 43,619,890 $ 320,851,480 $ 351,851,243
Shares issued in reinvestment of
dividends...................... 5,700,319 5,419,148 44,452,518 43,709,426
Shares converted to Class A....... (7,799,684) (8,014,844) (59,480,464) (64,154,628)
Shares redeemed................... (39,600,299) (35,310,274) (305,507,405) (283,575,964)
-------------- -------------- -------------- --------------
Net increase (decrease)........... (861,878) 5,713,920 $ 316,129 $ 47,830,077
============== ============== ============== ==============
Class C
Shares sold....................... 11,845,488 11,671,925 $ 93,169,906 $ 94,074,275
Shares issued in reinvestment of
dividends...................... 1,368,044 1,158,939 10,660,900 9,352,065
Shares redeemed................... (12,263,001) (8,808,490) (94,426,877) (70,761,515)
-------------- -------------- -------------- --------------
Net increase...................... 950,531 4,022,374 $ 9,403,929 $ 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 ("District Court") against the Fund, the Adviser, Alliance
Capital Management Corporation ("ACMC"), Alliance Fund Distributors, Inc.
("AFD"), The Equitable Companies Incorporated ("ECI"), 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. Plaintiffs alleged that during 1995 the
Fund's losses exceeded $750,000,000 and sought as relief unspecified damages,
costs and attorney's fees.
15
<PAGE>
Alliance North American
NOTES TO FINANCIAL STATEMENTS (continued) Government Income Trust
================================================================================
On September 26, 1996, the District Court granted defendants' motion to dismiss
all courts 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 ("Court of Appeals") issued an order granting defendants' motion to
strike and dismiss plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, the Adviser, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second Decision
to the Court of Appeals. On October 15, 1998, the Court of Appeals affirmed in
part and reversed in part the Second Decision. The Court of Appeals affirmed the
District Court's denial of plaintiffs' motion for leave to file the Amended
Complaint insofar as the Amended Complaint alleged that defendants had made
misrepresentations and omissions relating to the Fund's investments in certain
mortgage-backed securities and in the Fund's marketing materials. The Court of
Appeals reversed the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as the Amended Complaint alleged
that defendants had made actionable misrepresentation and omissions relating to
the Fund's hedging practices.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
- --------------------------------------------------------------------------------
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 adverse
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.
16
<PAGE>
Alliance North American
FINANCIAL HIGHLIGHTS Government Income Trust
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS A
------------------------------------------------------------------
Year Ended November 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 8.02 $ 8.01 $ 6.75 $ 8.13 $ 10.35
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income ............................. .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 ................................... (.33) (.05) 1.14 (1.59) (2.12)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value from operations .......................... .54 .98 2.23 (.41) (1.10)
-------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment income .............. (.87) (.97) (.75) -0- (.91)
Distributions in excess of net investment income .. (.07) -0- -0- -0- -0-
Tax return of capital ............................. (.03) -0- (.22) (.97) (.21)
-------- -------- -------- -------- --------
Total dividends and distributions ................. (.97) (.97) (.97) (.97) (1.12)
-------- -------- -------- -------- --------
Net asset value, end of year ...................... $ 7.59 $ 8.02 $ 8.01 $ 6.75 $ 8.13
======== ======== ======== ======== ========
Total Return
Total investment return based on net
asset value (b) ................................ 7.14% 12.85% 35.22% (3.59)% (11.32)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ........... $740,066 $511,749 $385,784 $252,608 $303,538
Ratio of expenses to average net assets ........... 2.04% 2.15% 2.34% 2.62% 1.70%
Ratio of expenses to average net assets
excluding interest expense (c) ................. 1.36% 1.38% 1.41% 1.51% 1.37%
Ratio of net investment income to
average net assets ............................. 11.17% 12.78% 14.82% 18.09% 11.22%
Portfolio turnover rate ........................... 175% 118% 166% 180% 131%
</TABLE>
- --------------------------------------------------------------------------------
See footnote summary on page 19.
17
<PAGE>
Alliance North American
FINANCIAL HIGHLIGHTS (continued) Government Income Trust
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
CLASS B
----------------------------------------------------------------------------
Year Ended November 30,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................. $ 8.02 $ 8.01 $ 6.75 $ 8.13 $ 10.35
---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net investment income ............................... .81(a) .98(a) 1.04(a) 1.13(a) .96
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ..................................... (.32) (.07) 1.12 (1.61) (2.13)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset
value from operations ............................ .49 .91 2.16 (.48) (1.17)
---------- ---------- ---------- ---------- ----------
Less: Dividends and Distributions
Dividends from net investment income ................ (.81) (.90) (.69) -0- (.84)
Distributions in excess of net investment income .... (.06) -0- -0- -0- -0-
Tax return of capital ............................... (.03) -0- (.21) (.90) (.21)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ................... (.90) (.90) (.90) (.90) (1.05)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ........................ $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13
========== ========== ========== ========== ==========
Total Return
Total investment return based on net
asset value (b) .................................. 6.46% 11.88% 33.96% (4.63)% (11.89)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ............. $1,300,519 $1,378,407 $1,329,719 $1,123,074 $1,639,602
Ratio of expenses to average net assets ............. 2.75% 2.86% 3.05% 3.33% 2.41%
Ratio of expenses to average net assets
excluding interest expense (c) ................... 2.07% 2.09% 2.12% 2.22% 2.07%
Ratio of net investment income to
average net assets ............................... 10.44% 12.15% 14.20% 17.31% 10.53%
Portfolio turnover rate ............................. 175% 118% 166% 180% 131%
</TABLE>
- --------------------------------------------------------------------------------
See footnote summary on page 19.
18
<PAGE>
Alliance North American
Government Income Trust
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
------------------------------------------------------------------
CLASS C
------------------------------------------------------------------
Year Ended November 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 8.02 $ 8.01 $ 6.75 $ 8.13 $ 10.34
-------- -------- -------- -------- --------
Income From Investment Operations
Net investment income ............................. .82(a) .98(a) 1.05(a) 1.13(a) .96
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................... (.33) (.07) 1.11 (1.61) (2.12)
-------- -------- -------- -------- --------
Net increase (decrease) in net asset
value from operations .......................... .49 .91 2.16 (.48) (1.16)
-------- -------- -------- -------- --------
Less: Dividends and Distributions
Dividends from net investment income .............. (.82) (.90) (.69) -0- (.84)
Distributions in excess of net investment income .. (.05) -0- -0- -0- -0-
Tax return of capital ............................. (.03) -0- (.21) (.90) (.21)
-------- -------- -------- -------- --------
Total dividends and distributions ................. (.90) (.90) (.90) (.90) (1.05)
-------- -------- -------- -------- --------
Net asset value, end of year ...................... $ 7.61 $ 8.02 $ 8.01 $ 6.75 $ 8.13
======== ======== ======== ======== ========
Total Return
Total investment return based on net
asset value (b) ................................ 6.46% 11.88% 33.96% (4.63)% (11.89)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ........... $276,073 $283,483 $250,676 $219,009 $369,714
Ratio of expenses to average net assets ........... 2.74% 2.85% 3.04% 3.33% 2.39%
Ratio of expenses to average net assets
excluding interest expense (c) ................. 2.06% 2.08% 2.12% 2.21% 2.06%
Ratio of net investment income to
average net assets ............................. 10.45% 12.14% 14.22% 17.32% 10.46%
Portfolio turnover rate ........................... 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.
(c) Net of interest expense of .68%, .77%, .93%, 1.11%, and .33% respectively,
on loan agreement (see Note E).
19
<PAGE>
REPORT OF ERNST & YOUNG LLP Alliance North American
INDEPENDENT AUDITORS Government Income Trust
================================================================================
To the Shareholders and Board of Directors
Alliance North American Government Income Trust, Inc.
We have audited the accompanying statement of assets and liabilities of Alliance
North American Government Income Trust, Inc. (the "Fund"), including the
portfolio of investments, as of November 30, 1998, and the related statements of
operations and cash flows for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance North American Government Income Trust, Inc. at November 30, 1998, the
results of its operations and its cash flows for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
January 8, 1999
20
<PAGE>
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.
21
<PAGE>
THE ALLIANCE FAMILY OF MUTUAL FUNDS
================================================================================
Fixed Income
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term U.S. Government Fund
Tax-Free Income
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
Money Market
AFD Exchange Reserves
Growth
The Alliance Fund
Alliance Global Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
Select Investors Series - Premier Portfolio
Growth & Income
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
Aggressive Growth
Alliance Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
International
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
Institutional
Premier Growth
Quasar
Real Estate Investment
Closed-End Funds
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
Cash Management Services
Alliance Capital Reserves
Alliance Government Reserves
Alliance Institutional Reserves
Prime Portfolio
Government Portfolio
Tax-Free Portfolio
Trust Portfolio
Treasury Portfolio
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
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ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
Alliance Capital[LOGO](R)
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.
NAGAR
