Alliance
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World Dollar
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Government
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Fund
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Annual Report
October 31, 1998
Alliance Capital [LOGO](R)
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LETTER TO SHAREHOLDERS Alliance World Dollar Government Fund
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December 24, 1998
Dear Shareholder:
We are pleased to report to you on our strategy, investment performance and
outlook for the Alliance World Dollar Government Fund, for the six-month period
ended October 31, 1998. The Fund is designed for investors who seek high current
income and capital appreciation. To achieve this objective, the Fund invests
primarily in high yielding, high risk debt obligations of developing countries
that we expect to benefit from improving economic and credit fundamentals.
INVESTMENT RESULTS
The following table shows how the Fund performed over the past six- and 12-month
periods ended October 31, 1998. For comparison, we have included the performance
for the JP Morgan Emerging Markets Bond Index, which is a standard measure of
the performance of a basket of unmanaged emerging market debt securities.
Over the past six- and 12-month periods, your Fund underperformed its benchmark
as a result of our overweight positions in Russia. The Russian market posted the
worst returns among the emerging markets over the six- and 12-month periods as a
result of the country's financial and economic collapse, which culminated in the
Russian ruble devaluation and the Russian government's default on its domestic
debt.
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INVESTMENT RESULTS*
Periods Ended October 31, 1998
Total Returns
6 Months 12 Months
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Alliance World Dollar
Government Fund -28.45% -18.32%
JP Morgan Emerging
Markets Bond Index -18.12% -6.20%
* The Fund's investment results are total returns for the periods and are
based on the Fund's net asset value. All fees and expenses related to the
operation of the Fund have been deducted. Past performance is no guarantee
of future results.
The JP Morgan Emerging Markets Bond Index is composed of
dollar-denominated restructured sovereign bonds; a large percentage of the
index is made up of Brady Bonds. The index is unmanaged and reflects no
fees or expenses. An investor cannot invest directly in an index.
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MARKET OVERVIEW
During the six-month period ended October 31, 1998, global markets suffered from
heightened concerns about recession as the financial and economic turmoil in
Asia spread to Russia and Latin America.
In the emerging markets, debt prices fell over the six-month period when renewed
volatility in Asia, weakness in the yen 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 (the "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 Russian 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 fixed currency regime and deficits in both its fiscal and current
accounts. After reaching a low in September, emerging market debt prices
rebounded sharply in October, as the U.S. and other industrial countries began
easing monetary policy and the IMF put together an aid package for Brazil.
As a result of financial and economic collapse, Russia was the worst performing
debt market over the six- month period. In Latin America, Ecuador followed by
Venezuela were the worst performing debt markets. Both countries' economies have
suffered from low oil prices and political uncertainty. In addition, Ecuador
recently devalued its currency.
INVESTMENT STRATEGY
Over the six-month period, we increased holdings in Latin America, as part of
our long-term strategy of investing in the emerging markets with strong
long-term fundamentals. We believe the underlying fundamentals in Latin America
do not justify the current low valuations and we therefore expect debt prices
there to continue rising over the long term. Specifically, we increased our
holdings of Argentinean debt. Argentina's government has acted to maintain
credible fiscal policies and ensure their current account (exports minus
imports) deficits do not rise to unsustainable levels. In Eastern Europe, we
1
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Alliance World Dollar Government Fund
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decreased our holdings in Russia as the country's financial and economic
situation deteriorated.
OUTLOOK
Our outlook for emerging market debt has improved during the past month as a
concerted effort by the Group of Seven ("G7") industrial countries has been made
to avert a further spread of economic and financial malaise. First, 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. Second, the Japanese
yen has strengthened sharply against the U.S. dollar, relieving pressure on
exchange rates and interest rates elsewhere in Asia. Finally, after a favorable
outcome in recent presidential elections, Brazil, with US$40 billion of
assistance from the IMF, has been hastily addressing its fiscal problems,
helping to restore investor confidence in global markets.
Though these positive developments have caused a significant rebound in emerging
market debt prices recently, emerging market economies continue to be very
sensitive to global economic growth and financial market liquidity. The emerging
markets face challenging problems which require time and economic growth for
resolution. Growth in Japan, the world's second largest economy, is ultimately
crucial if the emerging countries are to resume their process of global
integration.
Thank you for your continued interest and investment in Alliance World Dollar
Government Fund. 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
President
2
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PORTFOLIO OF INVESTMENTS
October 31, 1998 Alliance World Dollar Government Fund
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Principal
Amount
(000) U.S. $ Value
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SOVEREIGN DEBT
OBLIGATIONS-95.2%
COLLATERALIZED
BRADY BONDS (a)-39.3%
ARGENTINA-18.0%
Republic of Argentina
Discount Bonds FRN
Series L-GL
6.625%, 3/31/23 ..................... $ 22,000 $14,905,000
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BULGARIA-1.7%
Republic of Bulgaria
Discount Bonds FRN
6.688%, 7/28/24 ..................... 2,000 1,400,000
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ECUADOR-1.9%
Republic of Ecuador
Euro Par Bonds
3.50%, 2/28/25 (b) .................. 3,500 1,583,750
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MEXICO-16.9%
United Mexican States
Discount Bonds FRN
Series B
6.477%, 12/31/19 (c) ................ 9,740 7,597,200
Euro Par Bonds
Series A
6.25%, 12/31/19 (c) ................. 8,600 6,418,180
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14,015,380
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VENEZUELA-0.8%
Republic of Venezuela
Par Bonds
Series W-B
6.75%, 3/31/20 (d) .................. 1,000 671,250
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Total Collateralized
Brady Bonds
(cost $38,217,524) .................. 32,575,380
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OTHER SOVEREIGN
DEBT OBLIGATIONS-26.4%
ARGENTINA-9.4%
Republic of Argentina
11.375%, 1/30/17 .................... 8,000 7,760,000
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BRAZIL-5.8%
Republic of Brazil
Global Bond
10.125%, 5/15/27 .................... 7,000 4,812,500
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COLOMBIA-2.8%
Republic of Colombia
8.625%, 4/01/08 ..................... 3,000 2,355,000
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KOREA-0.5%
Republic of Korea
8.875%, 4/15/08 ..................... 500 459,400
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RUSSIA-4.5%
Russian Ministry of Finance
12.75%, 6/24/28 (e) ................. 3,500 778,750
Russian IAN FRN
6.625%, 12/15/15 .................... 28,462 2,775,045
Russian Principal Loans FRN
6.625%, 12/15/20 (f) ................ 2,000 152,600
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3,706,395
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VENEZUELA-3.4%
Republic of Venezuela
9.25%, 9/15/27 ...................... 4,700 2,796,500
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Total Other Sovereign Debt
Obligations
(cost $43,457,846) .................. 21,889,795
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NON-COLLATERALIZED
BRADY BONDS-25.0%
BRAZIL-15.8%
Republic of Brazil C-Bonds
8.00%, 4/15/14 (g) .................. 4,075 2,521,341
Republic of Brazil FRN
Series L
6.188%, 4/15/12 ..................... 20,000 10,612,500
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13,133,841
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BULGARIA-3.6%
Republic of Bulgaria
IAB FRN
6.688%, 7/28/11 ..................... 4,500 2,981,250
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3
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PORTFOLIO OF INVESTMENTS (continued) Alliance World Dollar Government Fund
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Principal
Amount
(000) U.S. $ Value
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ECUADOR-4.3 %
Republic of Ecuador PDI
6.625%, 2/27/15 (h) ................. $ 8,374 $ 3,538,135
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PERU-1.3%
Republic of Peru PDI
4.00%, 3/07/17 (b) .................. 2,000 1,130,000
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Total Non-Collateralized
Brady Bonds
(cost $28,056,184) .................. 20,783,226
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LOAN PARTICIPATION-4.5%
MOROCCO-4.5%
Kingdom of Morocco
Loan Participation FRN
Series A
6.563%, 1/01/09
(cost $2,638,779) ................... 5,000 3,750,000
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Total Sovereign Debt
Obligations
(cost $112,370,333) ................. 78,998,401
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U.S. GOVERNMENT
OBLIGATION-40.1%
U.S. Treasury Strip
Zero coupon, 2/15/03
(cost $32,424,577) .................. $ 40,100 $33,235,161
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TIME DEPOSIT-0.1%
Bank of New York
4.75%, 11/02/98
(cost $77,000) ...................... 77 77,000
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TOTAL INVESTMENTS-135.4%
(cost $144,871,910) ................. 112,310,562
Other assets less liabilities-(35.4%) .. (29,360,431)
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NET ASSETS-100% ........................ $82,950,131
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(a) Sovereign debt obligations issued as part of debt restructurings that are
collateralized in full as to principal due at maturity by U.S. Treasury
zero coupon obligations which have the same maturity as the Brady Bond.
(b) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at October 31, 1998.
(c) Security trades with value recovery rights expiring June 30, 2003.
(d) Security trades with oil warrants expiring April 15, 2020.
(e) 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 October 31,
1998, these securities amounted to $778,750 representing 0.9% of net
assets.
(f) Coupon consists of 3.3125% cash payment and 3.3125% paid-in-kind.
(g) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
(h) Coupon consists of 3.25% cash payment and 3.375% paid-in-kind.
Glossary of Terms:
FRN - Floating Rate Note.
IAB - Interest Arrears Bond.
IAN - Interest Arrears Note.
PDI - Past Due Interest.
See notes to financial statements.
4
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STATEMENT OF ASSETS AND LIABILITIES
October 31, 1998 Alliance World Dollar Government Fund
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ASSETS
Investments in securities, at value (cost $144,871,910) .... $ 112,310,562
Cash ....................................................... 527
Interest receivable ........................................ 2,975,653
Unrealized appreciation on interest rate swap contract ..... 459,600
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Total assets ............................................... 115,746,342
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LIABILITIES
Payable for investment securities purchased ................ 32,398,394
Advisory fee payable ....................................... 69,278
Administrative fee payable ................................. 10,391
Accrued expenses ........................................... 318,148
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Total liabilities .......................................... 32,796,211
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NET ASSETS .................................................... $ 82,950,131
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COMPOSITION OF NET ASSETS
Capital stock, at par ...................................... $ 81,165
Additional paid-in capital ................................. 110,823,880
Undistributed net investment income ........................ 1,187,064
Accumulated net realized gain on investment transactions ... 2,959,770
Net unrealized depreciation on investments and other assets (32,101,748)
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$ 82,950,131
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NET ASSET VALUE PER SHARE
(based on 8,116,504 shares outstanding) .................... $ 10.22
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See notes to financial statements.
5
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STATEMENT OF OPERATIONS
Year Ended October 31, 1998 Alliance World Dollar Government Fund
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INVESTMENT INCOME
Interest ..................................... $ 13,696,345
EXPENSES
Advisory fee ................................. $ 1,136,248
Administrative fee ........................... 170,437
Custodian .................................... 125,354
Audit and legal .............................. 106,220
Transfer agency .............................. 57,350
Printing ..................................... 48,246
Directors' fees .............................. 37,368
Taxes ........................................ 10,950
Amortization of organization expenses ........ 1,109
Miscellaneous ................................ 29,748
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Total expenses ............................... 1,723,030
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Net investment income ........................ 11,973,315
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REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net realized gain on investment transactions . 4,177,541
Net change in unrealized appreciation of
investments and other assets ............... (32,120,307)
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Net loss on investment transactions .......... (27,942,766)
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NET DECREASE IN NET ASSETS FROM OPERATIONS ...... $(15,969,451)
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See notes to financial statements.
6
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STATEMENT OF CHANGES
IN NET ASSETS Alliance World Dollar Government Fund
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<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, October 31,
1998 1997
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<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income ............................................... $ 11,973,315 $ 13,896,423
Net realized gain on investment transactions ........................ 4,177,541 23,952,946
Net change in unrealized appreciation of investments and other assets (32,120,307) (19,652,839)
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Net increase (decrease) in net assets from operations ............... (15,969,451) 18,196,530
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income ............................................... (13,546,094) (13,628,017)
Net realized gain on investments .................................... (17,841,882) -0-
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in issuance of Common Stock ..... 7,109,405 -0-
Tender offer resulting in the redemption of 1,034,042 shares of
Common Stock ...................................................... (15,510,829) -0-
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Total increase (decrease) ........................................... (55,758,851) 4,568,513
NET ASSETS
Beginning of year ................................................... 138,708,982 134,140,469
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End of year (including undistributed net investment income of
$1,187,064 and $2,761,040, respectively) .......................... $ 82,950,131 $ 138,708,982
============= =============
</TABLE>
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See notes to financial statements.
7
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NOTES TO FINANCIAL STATEMENTS
October 31, 1998 Alliance World Dollar Government Fund
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NOTE A: Significant Accounting Policies
Alliance World Dollar Government Fund, Inc. (the "Fund") was incorporated under
the laws of the State of Maryland on August 20, 1992 and is registered under the
Investment Company Act of 1940, as a non-diversified, closed-end management
investment company. 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, 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. Organization Expenses
Organization expenses of approximately $90,000 have been deferred and were
amortized on a straight-line basis through November, 1997.
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.
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. 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 the capital accounts based on
their federal tax basis treatment; temporary differences, do not require such
reclassification.
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NOTE B: Advisory, Administrative Fees and Other Affiliated Transactions
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") an advisory fee equal to the annualized
rate of 1% of the Fund's average weekly net assets.
Under the terms of an Administration Agreement, the Fund pays Alliance Capital
Management L.P. (the "Administrator") a monthly fee equal to the annualized rate
of .15 of 1% of the Fund's average weekly net assets. The Administrator provides
administrative functions as well as other clerical services to the Fund and
prepares financial and regulatory reports.
The Fund entered into a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Adviser, whereby the Fund reimburses
8
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Alliance World Dollar Government Fund
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AFS for costs relating to servicing phone inquiries for the Fund. During the
year ended October 31, 1998, the Fund reimbursed AFS $3,480, relating to
shareholder servicing costs.
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NOTE C: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $157,030,872 and $196,975,805,
respectively, for the year ended October 31, 1998. There were purchases of
$263,969,519 and sales of $281,110,642 of U.S. government obligations for the
year ended October 31, 1998.
At October 31, 1998, the cost of investments for federal income tax purposes was
$147,916,228. Accordingly, gross unrealized appreciation of investments was
$2,800,106 and gross unrealized depreciation of investments was $38,405,772
resulting in net unrealized depreciation of $35,605,666 (excluding swap
contract).
1. Interest Rate Swap Agreement
The Fund enters into interest rate swaps on sovereign debt obligations to
protect itself from interest rate fluctuations on the underlying floating rate
debt instruments and for investment purposes. A swap is an agreement that
obligates two parties to exchange a series of cash flows at specified intervals
based upon or calculated by reference to changes in specified prices or rates
for a specified amount of an underlying asset. The payment flows are usually
netted against each other, with the difference being paid by one party to the
other.
Risks may arise as a result of the failure of the counterparty to the swap
contract to comply with the terms of the swap contract. The loss incurred by the
failure of a counterparty is generally limited to the net interest payment to be
received by the Fund, and/or the termination value at the end of the contract.
Therefore, the Fund considers the creditworthiness of each counterparty to a
swap contract in evaluating potential credit risk. Additionally, risks may arise
from unanticipated movements in interest rates or in the value of the underlying
securities.
The Fund records a net receivable or payable on a daily basis for the net
interest income or expense expected to be received or paid in the interest
period. Net interest received or paid on these contracts is recorded as interest
income (or as an offset to interest income). Fluctuations in the value of swap
contracts are recorded for financial statement purposes as unrealized
appreciation or depreciation of investments.
At October 31, 1998, the Fund had an outstanding interest rate swap contract
with the following terms:
<TABLE>
<CAPTION>
Rate Type
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Swap Notional Termination Payments made Payments received Unrealized
Counterparty Amount Date by the Fund by the Fund Appreciation
- --------------- ---------------------- ------------- ------------------ ------------------- --------------
<S> <C> <C> <C> <C> <C>
Morgan US$ 11,892,064 1/01/09 LIBOR+ 6.8526% $459,600
Guaranty
</TABLE>
+ LIBOR (London Interbank Offered Rate).
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NOTE D: Capital Stock
There are 100,000,000 shares of $0.01 par value Common Stock authorized. Of the
8,116,504 shares outstanding at October 31, 1998, the Adviser owned 7,200
shares. During the year ended October 31, 1998, the Fund purchased 1,034,042
shares of its outstanding Common Stock for $14.80 per share pursuant to a tender
offer. The Fund incurred tender offer costs of $207,000 which were charged to
additional paid-in capital. During the year ended October 31, 1998, the Fund
issued 497,839 shares in connection with the Fund's dividend reinvestment plan.
During the year ended October 31, 1997, the Fund did not issue shares in
connection with the dividend reinvestment plan.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance World Dollar Government Fund
================================================================================
NOTE E: Concentration of Risk
Investing in securities of foreign governments involves special risks which
include 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 invests 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.
10
<PAGE>
FINANCIAL HIGHLIGHTS Alliance World Dollar Government Fund
================================================================================
Selected Data For A Share Of Common Stock Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended October 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $16.03 $15.50 $11.88 $11.08 $22.09
------- -------- -------- -------- -------
Income From Investment Operations
Net investment income .............................. 1.47(a) 1.61 1.46 1.51(a) 1.32
Net realized and unrealized gain (loss)
on investment transactions ...................... (3.57) .50 3.50 .71 (5.66)
------- -------- -------- -------- -------
Net increase (decrease) in net asset value from
operations ...................................... (2.10) 2.11 4.96 2.22 (4.34)
------- -------- -------- -------- -------
Less: Dividends and Distributions
Dividends from net investment income ............... (1.65) (1.58) (1.34) (1.42) (1.39)
Distributions from net realized gains .............. (2.06) -0- -0- -0- (4.96)
Distributions in excess of net realized gains ...... -0- -0- -0- -0- (.09)
Tax return of capital distribution ................. -0- -0- -0- -0- (.23)
------- -------- -------- -------- -------
Total dividends and distributions .................. (3.71) (1.58) (1.34) (1.42) (6.67)
------- -------- -------- -------- -------
Net asset value, end of year ....................... $10.22 $16.03 $15.50 $11.88 $11.08
======= ======== ======== ======== =======
Market value, end of year .......................... $12.625 $15.875 $13.625 $11.75 $13.00
======= ======== ======== ======== =======
Total Return
Total investment return based on: (b)
Market value .................................... 1.91% 28.74% 28.49% 2.78% (7.52)%
Net asset value ................................. (18.32)% 14.24% 44.57% 21.92% (27.29)%
Ratios/Supplemental Data
Net assets, end of year (000's omitted) ............ $82,950 $138,709 $134,140 $102,757 $93,528
Ratio of expenses to average net assets ............ 1.52% 1.43% 1.70% 1.55% 1.43%
Ratio of net investment income to average net assets 10.54% 9.50% 10.84% 14.12% 9.08%
Portfolio turnover rate ............................ 264% 281% 352% 441% 395%
</TABLE>
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(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock
on the opening of the first day and a sale on the closing of the last day
of the period reported. Dividends and distributions, if any, are assumed,
for purposes of this calculation, to be reinvested at prices obtained
under the Fund's Dividend Reinvestment Plan. Generally, total investment
return based on net asset value will be higher than total investment
return based on market value in periods where there is an increase in the
discount or a decrease in the premium of the market value to the net asset
value from the beginning to the end of such periods. Conversely, total
investment return based on net asset value will be lower than total
investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value
to the net asset value from the beginning to the end of such periods.
11
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REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS Alliance World Dollar Government Fund
================================================================================
To the Shareholders and Board of Directors
Alliance World Dollar Government Fund, Inc.
We have audited the accompanying statement of assets and liabilities of Alliance
World Dollar Government Fund, Inc. (the "Fund"), including the portfolio of
investments, as of October 31, 1998, and the related statement of operations 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
October 31, 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 World Dollar Government Fund, Inc. at October 31, 1998, the results of
its operations 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
December 18, 1998
12
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ADDITIONAL INFORMATION Alliance World Dollar Government Fund
================================================================================
Shareholders whose shares are registered in their own names will automatically
be participants in the Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), pursuant to which dividends and capital gain distributions to
shareholders will be paid in or reinvested in additional shares of the Fund.
First Data Investor Services Group, Inc. (the "Agent") will act as agent for
participants under the Plan. Shareholders whose shares are held in the name of a
broker or nominee should contact such broker or nominee to determine whether or
how they may participate in the Plan.
If the Board declares an income distribution or determines to make a capital
gain distribution payable either in shares or in cash, as holders of the Common
Stock may have elected, non-participants in the Plan will receive cash and
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund valued as follows:
(i) If the shares of Common Stock are trading at net asset value or at a
premium above net asset value at the time of valuation, the Fund will
issue new shares at the greater of net asset value or 95% of the then
current market price.
(ii) If the shares of Common Stock are trading at a discount from net
asset value at the time of valuation, the Agent will receive the dividend
or distribution in cash and apply it to the purchase of the Fund's shares
of Common Stock in the open market on the New York Stock Exchange or
elsewhere, for the participants' accounts. Such purchases will be made on
or shortly after the payment date for such dividend or distribution and in
no event more than 30 days after such date except where temporary
curtailment or suspension of purchase is necessary to comply with Federal
securities laws. If, before the Agent has completed its purchases, the
market price exceeds the net asset value of a share of Common Stock, the
average purchase price per share paid by the Agent may exceed the net
asset value of the Fund's shares of Common Stock, resulting in the
acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund.
The Agent will maintain all shareholders' accounts in the Plan and furnish
written confirmation of all transactions in the account, including information
needed by shareholders for tax records. Shares in the account of each Plan
participant will be held by the Agent in non-certificate form in the name of the
participant, and each shareholder's proxy will include those shares purchased or
received pursuant to the Plan.
There will be no charges with respect to shares issued directly by the Fund to
satisfy the dividend reinvestment requirements. However, each participant will
pay a pro rata share of brokerage commissions incurred with respect to the
Agent's open market purchases of shares. In each case, the cost per share of
shares purchased for each shareholder's account will be the average cost,
including brokerage commissions, of any shares purchased in the open market plus
the cost of any shares issued by the Fund.
The automatic reinvestment of dividends and distributions will not relieve
participants of any income taxes that may be payable (or required to be
withheld) on dividends and distributions.
Experience under the Plan may indicate that changes are desirable. Accordingly,
the Fund reserves the right to amend or terminate the Plan as applied to any
voluntary cash payments made and any dividend or distribution paid subsequent to
written notice of the change sent to participants in the Plan at least 90 days
before the record date for such dividend or distribution. The Plan may also be
amended or terminated by the Agent on at least 90 days' written notice to
participants in the Plan. All correspondence concerning the Plan should be
directed to the Agent at First Data Investor Services Group, Inc. P.O. Box 1376,
Boston, Massachusetts 02104.
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change of
control of the Fund, (iii) no material changes in the principal risk factors
associated with investment in the Fund, and (iv) no change in the person
primarily responsible for the day-to-day management of the Fund's portfolio, who
is Wayne D. Lyski, the President of the Fund.
13
<PAGE>
ADDITIONAL INFORMATION Alliance World Dollar Government Fund
================================================================================
Year 2000 and Euro (Unaudited)
Many computer systems and applications in use today process transactions using
two digit date fields for the year of the transaction, rather than the full four
digits. If these systems are not modified or replaced, transactions occurring
after 1999 could be processed as year "1900" which could result in processing
inaccuracies and computer system failures. This is commonly known as the Year
2000 problem. In addition to the Year 2000 problem, the European Economic and
Monetary Union has established a single currency, the Euro Currency ("Euro")
that will replace the national currency of certain European countries effective
January 1, 1999. Computer systems and applications must be adapted in order to
be able to process Euro sensitive information accurately beginning in 1999.
Should any of the computer systems employed by the Fund's major service
providers fail to process Year 2000 or Euro related information properly, that
could have a significant negative impact on the Fund's operations and the
services that are provided to the Fund's shareholders. In addition, to the
extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem or the Euro, or prices of securities held by
the Fund decline as a result of real or perceived problems relating to the Year
2000 or the Euro, the value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that the Adviser
("Alliance") began to address the Year 2000 issue several years ago in
connection with the replacement or upgrading of certain computer systems and
applications. During 1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the Year 2000
issue. Alliance reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and applications.
Currently, management of Alliance expects that the required modifications for
the majority of its significant systems and applications that will be in use on
January 1, 2000, will be completed and tested by the end of 1998. Full
integration testing of these systems and testing of interfaces with third-party
suppliers will continue through 1999. At this time, management of Alliance
believes that the costs associated with resolving this issue will not have a
material adverse effect on its operations or on its ability to provide the level
of services it currently provides to the Fund.
With respect to the Euro, the Fund has been advised that Alliance has
established a project team to assess changes that will be required in connection
with the introduction of the Euro. Alliance reports that its project team has
assessed all systems, including those developed or managed internally, as well
as those provided by vendors, in order to determine the modifications that will
be required to process accurately transactions denominated in Euro after 1998.
At this time, management of Alliance expects that the required modifications for
the introduction of the Euro will be completed and tested before the end of
1998. Management of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's Transfer Agent and
Custodian that they are also in the process of reviewing their systems with the
same goals. As of the date of this report, the Fund and Alliance have no reason
to believe that the Transfer Agent and Custodian will be unable to achieve these
goals.
14
<PAGE>
Alliance World Dollar Government Fund
================================================================================
BOARD OF DIRECTORS
John D. Carifa, Chairman
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)
Robert C. White(1)
OFFICERS
Wayne D. Lyski, President
Kathleen A. Corbet, Senior Vice President
Paul J. DeNoon, Vice President
Vicki L. Fuller, Vice President
Edmund P. Bergan, Jr., Secretary
Mark D. Gersten, Treasurer & Chief Financial Officer
Juan J. Rodriguez, Controller
ADMINISTRATOR
Alliance Capital Management, L.P.
1345 Avenue of the Americas
New York, NY 10105
CUSTODIAN
The Bank of New York
One Wall Street
New York, NY 10286
DIVIDEND PAYING AGENT,
TRANSFER AGENT AND REGISTRAR
First Data Investor Services Group, Inc.
(formerly The Shareholder Services Group, Inc.)
53 State Street
Boston, MA 02109
INDEPENDENT AUDITORS
Ernst & Young LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
Seward & Kissel
One Battery Park Plaza
New York, NY 10004
- --------------------------------------------------------------------------------
(1) Member of the Audit Committee.
15
<PAGE>
Alliance World Dollar Government Fund
Summary of General Information
The Fund
Alliance World Dollar Government Fund is a closed-end management investment
company which seeks high current income from investment in debt obligations of
countries with emerging economies whose recent interest rates are higher than
those of the United States.
Shareholder Information
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions Section of newspapers each day, under the
designation "Alliance Wrld". The Fund's NYSE trading symbol is "AWG". Weekly
comparative net asset value (NAV) and market price information about the Fund is
published each Monday in The Wall Street Journal, each Sunday in the New York
Times and each Saturday in Barron's and other newspapers in a table called
"Closed-End Funds."
Dividend Reinvestment Plan
A Dividend Reinvestment Plan provides automatic reinvestment of dividends and
capital gains distributions in additional Fund shares.
For questions concerning shareholder account information, or if you would like a
brochure describing the Dividend Reinvestment Plan, please call First Data
Investor Services Group at 1-800-331-1710.
Alliance World Dollar Government Fund
1345 Avenue of the Americas
New York, New York 10105
AllianceCapital [LOGO](R)
(R) These registered service marks used under license from the owner, Alliance
Capital Management L.P.
WDGAR
