ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
November 27, 1998
Dear Shareholder:
This semi-annual report discusses our strategy, performance and outlook for
Alliance World Dollar Government Fund II, for the six-month period that ended
September 30, 1998. The Fund is designed for investors who seek high current
income and capital appreciation. To achieve this objective, it invests
primarily in high yielding, high risk sovereign debt and U.S. corporate fixed
income obligations that we expect to benefit from improving economic and credit
fundamentals.
MARKET OVERVIEW
During the six-month period, 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 Japanese 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 (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, emerging market debt prices
rebounded sharply, when the U.S. Federal reserve cut interest rates. Investor
concern then shifted to Brazil which, like Russia, has a fixed currency regime
and deficits in both its fiscal and current accounts.
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 therefore expect debt prices
there to continue rising over the long-term. Specifically, we increased our
holdings of Venezuelan debt, which we found attractively priced as a result of
the political uncertainty caused by upcoming elections. Also, we increased our
holdings of Argentinean debt. Argentina's government has acted to maintain
credible fiscal policies and ensure their current account deficits (exports
minus imports) do not rise to unsustainable levels. In Eastern Europe, we
decreased our holdings in Russia as the country's financial and economic
situation deteriorated.
INVESTMENT RESULTS
The following table shows how the Fund performed over the past six- and
12-month periods. For comparison we have included the J.P. Morgan Emerging
Market Bond Index, 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 the benchmark, as a result of our overweight
positions in Russia and Venezuela. Both countries' debt markets were among the
worst performing over the six- and 12-month periods.
INVESTMENT RESULTS*
Periods Ended September 30, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
---------- ----------
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II -38.73% -38.92%
J.P. MORGAN EMERGING MARKETS BOND INDEX -22.58% -20.90%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE AS OF SEPTEMBER 30, 1998. ALL FEES AND
EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR
THE FUND INCLUDE THE REINVESTMENT OF ANY DISTRIBUTIONS PAID DURING THE PERIOD.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE J.P. 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 THE INDEX.
1
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
ECONOMIC 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 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
U.S. Congress has approved additional funding to the IMF, clearing the way for
financial aid to Brazil. Third, 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 assistance from the G7, has been hastily
addressing its fiscal problems, helping to restore investor confidence in the
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 II. We look forward to reporting to you again on market
activity and the Fund's investment results in the coming periods.
Sincerely,
John D. Carifa
Chairman
Wayne D. Lyski
President
2
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS-87.1%
OTHER SOVEREIGN DEBT OBLIGATIONS-42.7%
ARGENTINA-5.0%
Republic of Argentina
9.75%, 9/19/27 $ 36,250 $29,634,375
BRAZIL-7.2%
Republic of Brazil
9.375%, 4/07/08 15,000 9,300,000
10.125%, 5/15/27 55,000 33,275,000
------------
42,575,000
COLOMBIA-6.0%
Republic of Colombia
8.625%, 4/01/08 48,000 34,800,000
KOREA-0.7 %
Republic of Korea
8.875%, 4/15/08 5,000 4,218,750
MEXICO-6.0%
United Mexican States
11.50%, 5/15/26 36,000 34,920,000
PHILIPPINES-1.9%
Bangko Sentral Pilipinas
8.60%, 6/15/27 17,000 11,305,000
RUSSIA-5.3%
Russian Ministry of Finance
12.75%, 6/24/28 (a) 71,700 14,967,375
Russian IAN FRN
6.625%, 12/15/15 21,544 1,669,692
Russian Principal Loans FRN
6.625%, 12/15/20 (b) 249,800 14,831,875
------------
31,468,942
VENEZUELA-10.6%
Republic of Venezuela
13.625%, 8/15/18 16,000 10,524,000
9.25%, 9/15/27 93,967 52,151,685
62,675,685
Total Other Sovereign Debt Obligations
(cost $503,391,874) 251,597,752
COLLATERALIZED BRADY BONDS(C)-10.1%
BULGARIA-5.4%
Republic of Bulgaria Discount Bonds FRN
6.688%, 7/28/24 50,000 31,875,000
ECUADOR-3.7%
Republic of Ecuador Discount Bonds
6.625%, 2/28/25 (d) 25,000 11,750,000
Republic of Ecuador Par Bonds
3.50% 2/28/25 (d) 24,000 9,960,000
------------
21,710,000
NIGERIA-1.0%
Central Bank of Nigeria Par Bonds
6.25%, 11/15/20(e) 10,500 5,985,000
Total Collateralized Brady Bonds
(cost $73,357,674) 59,570,000
LOAN PARTICIPATIONS & ASSIGNMENTS-8.1%
ALGERIA-1.6%
Algeria Refinancing Trust FRN
Loan Assignment Tranche A
6.375%, 3/04/00 17,273 7,600,000
7.188%, 3/04/00 2,386 1,742,045
------------
9,342,045
MOROCCO-6.5%
Kingdom of Morocco Loan
Participation FRN Series A
6.563%, 1/01/09 53,000 38,425,000
Total Loan Participations & Assignments
(cost $64,884,035) 47,767,045
3
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------
NON-COLLATERALIZED BRADY BONDS-26.2%
ARGENTINA-12.1%
Republic of Argentina FRN
6.19%, 3/31/05 $ 90,250 $71,410,313
ECUADOR-1.5 %
Republic of Ecuador PDI
6.625%, 2/27/15 (f) 28,292 9,194,737
PANAMA-6.7%
Republic of Panama PDI FRN
6.688%, 7/17/16 (g) 28,476 19,790,695
Republic of Panama IRB
4.00%, 7/17/14 (d) 27,500 19,662,500
------------
39,453,195
PERU-5.9%
Republic of Peru FLIRB
3.25%, 3/07/17(a)(d) 78,250 34,625,625
Total Non-Collateralized Brady Bonds
(cost $173,109,725) 154,683,870
Total Sovereign Debt Obligations
(cost $814,743,308) 513,618,667
U.S. GOVERNMENT OBLIGATIONS-15.8%
U.S. Treasury Note
5.625%, 5/15/08 15,000 16,410,945
U.S. Treasury Strip Zero coupon, 2/15/12 150,000 76,692,900
(cost $89,440,229) 93,103,845
CORPORATE DEBT OBLIGATIONS-7.0%
Grupo Mexicano de Desarrollo, SA
8.25%, 2/17/01(h) 17,000 3,400,000
Mc-Cuernavaca Trust
9.25%, 7/25/01 6,318 3,790,921
Mexico City Toluca Toll Road
11.00%, 5/19/02 24,064 14,438,663
Trikem, SA
10.625%, 7/24/07(a) 35,000 19,250,000
Total Corporate Debt Obligations
(cost $76,804,613) 40,879,584
COMMON STOCK-0.0%
Pegasus Media & Communications, Inc. (i)
(cost $35,817) 11,282 179,807
TOTAL INVESTMENTS-109.9%
(cost $981,023,967) 647,781,903
Other assets less liabilities-(9.9%) (58,306,848)
NET ASSETS-100% $589,475,055
4
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
(a) 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 September 30,
1998, these securities amounted to $68,843,000 or 11.7% of net assets.
(b) Coupon consists of 3.3125% cash payment and 3.3125% paid-in-kind.
(c) Sovereign debt obligations issued as part of debt restructuring 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.
(d) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at September 30, 1998.
(e) Security trades with oil warrants expiring November 15, 2020.
(f) Coupon consists of 3.25% cash payment and 3.375% paid-in-kind.
(g) Coupon consists of 4.00% cash payment and 2.6875% paid-in-kind.
(h) Security is in default and is non-income producing.
(i) Non-income producing security.
Glossary of Terms:
FLIRB - Front Loaded Interest Reduction Bond.
FRN - Floating Rate Note.
IAN - Interest Arrears Note.
IRB - Interest Reduction Bond.
PDI - Past Due Interest.
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $981,023,967) $ 647,781,903
Interest receivable 24,034,637
Receivable for investment securities sold 17,511,687
Other assets 72,310
Total assets 689,400,537
LIABILITIES
Due to custodian 4,453,550
Payable for investment securities purchased 85,495,722
Dividend payable 8,250,831
Advisory fee payable 511,695
Unrealized depreciation on swap contract 450,259
Administration fee payable 76,755
Accrued expenses 686,670
Total liabilities 99,925,482
NET ASSETS $ 589,475,055
COMPOSITION OF NET ASSETS
Capital stock, at par $ 750,075
Additional paid-in capital 1,026,546,421
Distributions in excess of net investment income (12,880,269)
Accumulated net realized loss on investments
and swap contracts (91,248,849)
Net unrealized depreciation on investments and other assets (333,692,323)
$ 589,475,055
NET ASSET VALUE PER SHARE
(based on 75,007,555 shares outstanding) $7.86
See notes to financial statements.
6
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 49,775,277
EXPENSES
Advisory fee $4,354,356
Administrative fee 653,154
Custodian 313,894
Transfer agency 107,440
Audit and legal 54,334
Printing 40,171
Registration 39,643
Taxes 31,431
Directors' fees 18,213
Amortization of organization expenses 1,938
Miscellaneous 966
Total expenses 5,615,540
Net investment income 44,159,737
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
SWAP CONTRACTS
Net realized loss on investment transactions (69,021,840)
Net realized loss on swap contracts (27,015,856)
Net change in unrealized appreciation of investments (334,708,961)
Net loss on investment transactions (430,746,657)
NET DECREASE IN NET ASSETS FROM OPERATIONS $(386,586,920)
See notes to financial statements.
7
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SIX MONTHS ENDED YEAR ENDED
SEP. 30, 1998 MARCH 31,
(UNAUDITED) 1998
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 44,159,737 $ 94,197,587
Net realized gain (loss) on investments
and swap contracts (96,037,696) 130,312,843
Net change in unrealized appreciation
of investments (334,708,961) (6,975,590)
Net increase (decrease) in net assets
from operations (386,586,920) 217,534,840
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Dividends from net investment income (58,082,545) (103,011,328)
Distribution from net realized gain
on investments -0- (109,913,895)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in
issuance of common stock 4,353,234 33,678,191
Total increase (decrease) (440,316,231) 38,287,808
NET ASSETS
Beginning of year 1,029,791,286 991,503,478
End of period (including undistributed
net investment income of $1,042,539
at March 31, 1998) $ 589,475,055 $1,029,791,286
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance World Dollar Government Fund II (the "Fund") was incorporated under
the laws of the State of Maryland on May 20, 1993 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 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 prices 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 $30,000 have been deferred and were
being amortized on a straight-line basis through July 1998.
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 provision for federal income or excise taxes is
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.
NOTE B: ADVISORY, ADMINISTRATIVE FEES AND OTHER AFFILIATED TRANSACTIONS
Under the terms of the Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") a monthly fee equal to the annualized
rate of 1% of the Fund's average weekly net assets.
Under the terms of the 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.
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
The Fund entered into a Shareholder Inquiry Agency Agreement with Alliance Fund
Services, Inc. ("AFS"), an affiliate of the Adviser, whereby the Fund
reimburses AFS for costs relating to servicing phone inquiries for the Fund.
During the six months ended September 30, 1998, there was no reimbursement paid
to AFS.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments,
U.S. government securities and U.S. government agencies) aggregated
$781,665,335 and $786,511,280, respectively, for the six months ended September
30, 1998. There were purchases of $510,051,436 and sales of $471,461,140 of
U.S. government and government agency obligations for the six months ended
September 30, 1998.
At September 30, 1998, the cost of investments for federal income tax purposes
was $1,000,212,576. Accordingly, gross unrealized appreciation of investments
was $10,166,127 and gross unrealized depreciation of investments was
$362,596,800, resulting in net unrealized depreciation of $352,430,673
(excluding swap contracts).
Capital losses incurred after October 31 ("post-October" losses) within the
taxable year are deemed to arise on the first business day of the fund's next
taxable year. The fund incurred and will elect to defer net capital losses of
$2,410,531 during fiscal year 1998. To the extent that the carryover losses are
used to offset future capital gains, it is probable that the gain so offset
will not be distributed to shareholders.
SWAP AGREEMENTS
The Fund enters into 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 a component
of net change in unrealized appreciation of investments.
At September 30, 1998, the Fund had an outstanding swap contract with the
following terms:
<TABLE>
<CAPTION>
RATE TYPE
--------------------------------
SWAP NOTIONAL TERMINATION PAYMENTS MADE PAYMENTS RECEIVED UNREALIZED
COUNTERPARTY AMOUNT DATE BY THE FUND BY THE FUND DEPRECIATION
- ------------ -------------- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan US$ 65,000,000 10/19/98 LIBOR# 9.375% $450,259
</TABLE>
# LIBOR (London Interbank Offered Rate).
10
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized.
Of the 75,007,555 shares outstanding at September 30, 1998, the Adviser owned
7,200 shares. During the six months ended September 30, 1998, the Fund issued
516,952 shares in connection with the Fund's dividend reinvestment plan. During
the year ended March 31, 1998, the Fund issued 2,510,318 shares in connection
with the Fund's dividend reinvestment plan.
NOTE E: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks, which
include 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
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.
NOTE F: YEAR 2000 AND EURO
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 man
11
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
aged 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.
12
FINANCIAL HIGHLIGHTS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS JULY 28,
ENDED 1993(A)
SEP. 30, YEAR ENDED MARCH 31, TO
1998 ---------------------------------------------------- MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
------------ ------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.82 $13.77 $11.96 $ 9.53 $12.31 $13.93(b)
INCOME FROM INVESTMENT OPERATIONS
Net investment income .59(c) 1.30(c) 1.21 1.25(c) 1.19(c) .77
Net realized and unrealized gain (loss)
on investments and swap contracts (5.77) 1.70 2.32 2.49 (2.32) (1.28)
Net increase (decrease) in net asset
value from operations (5.18) 3.00 3.53 3.74 (1.13) (.51)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.78) (1.42) (1.21) (1.25) (1.19) (.77)
Distributions in excess of net
investment income -0- -0- (.51) (.06) (.23) (.10)
Distributions from net realized gain
on investments -0- (1.53) -0- -0- (.23) (.24)
Total dividends and distributions (.78) (2.95) (1.72) (1.31) (1.65) (1.11)
Net asset value, end of period $7.86 $13.82 $13.77 $11.96 $ 9.53 $12.31
Market value, end of period $9.00 $13.75 $13.375 $12.375 $10.375 $13.375
TOTAL RETURN
Total investment return based on: (d)
Market value (29.61)% 26.49% 23.11% 33.51% (10.08)% (4.05)%
Net asset value (38.73)% 23.48% 31.15% 40.48% (10.26)% (5.04)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $589,475 $1,029,791 $991,503 $860,842 $666,567 $827,943
Ratio of expenses to average net assets 1.29%(e) 1.26% 1.29% 1.30% 1.28% 1.26%(e)
Ratio of net investment income to
average net assets 10.16%(e) 8.92% 8.92% 10.99% 10.31% 7.62%(e)
Portfolio turnover rate 138% 327% 257% 395% 274% 192%
</TABLE>
(a) Commencement of operations.
(b) Net of offering costs of $.02.
(c) Based on average shares outstanding.
(d) 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. Total investment return calculated for a period of less than one
year is not annualized.
(e) Annualized.
13
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
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
WAYNE C. TAPPE, 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, NY10105
CUSTODIAN
THE BANK OF NEW YORK
One Wall Street
New York, NY10286
DIVIDENDPAYINGAGENT,
TRANSFERAGENTANDREGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA02110-1520
INDEPENDENTAUDITORS
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.
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its Common Stock in the open market.
This report, including the financial statements herein, is transmitted to
the shareholders of Alliance World Dollar Government Fund II for their
information. The financial information included herein is taken from the
records of the Fund. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
14
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
Summary of General Information
THE FUND
Alliance World Dollar Government Fund II is a non-diversified, closed-end
management investment company investing exclusively in fixed income securities
denominated in U.S. dollars. The Fund is designed for investors who seek high
current income and capital appreciation over a period of years from investment
in a portfolio of high yielding, high risk sovereign debt & U.S. corporate
fixed income obligations which the Fund's investment adviser expects to benefit
from improving economic fundamentals.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions Section of newspaper each day. The Fund's NYSE
trading symbol is "AWF". 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
If your shares are held in your own name, you will automatically be a
participant in the Plan unless you elect to receive cash. If your shares are
held in nominee or street name through a broker or nominee who provides this
service, you will also automatically be a participant in the Plan. If your
shares are held in the name of a broker or nominee who does not provide this
service, you will need to instruct them to participate in the Plan on your
behalf or your distributions will not be reinvested. In such case, you will
receive your distributions in cash.
For questions concerning shareholder account information, or if you would like
a brochure describing the Dividend Reinvestment Plan, please call State Street
Bank and Trust Company at 1-800-219-4218.
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
1345 Avenue of the Americas
New York, New York 10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
WDGIISR
