ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
ANNUAL REPORT
MARCH 31, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
May 27, 1998
Dear Shareholder:
We are pleased to report to you on our strategy, performance and outlook of the
Alliance World Dollar Government Fund II for the annual reporting period ended
March 31, 1998. The Fund is designed for investors who seek high current
income. The Fund's secondary objective is capital appreciation. To achieve
these objectives, the Fund invests primarily in high yielding, high risk
sovereign debt and U.S. corporate fixed income obligations that we expect to
benefit from improving economic fundamentals.
MARKET OVERVIEW
During the six-month period ended March 31, 1998, developments in East Asia
caused concern in the world's financial markets. Economic problems that began
in Thailand quickly spread to Malaysia, Indonesia, the Philippines and South
Korea. Throughout the region, fast growth, fueled by strong capital inflows,
and overvalued currencies had combined to produce large external trade
deficits, property and stock market bubbles, and overextended banking systems.
Immediate policy responses in the affected countries were often inadequate
and/or poorly articulated, causing a temporary sell-off across worldwide
financial markets. As a result, the International Monetary Fund (IMF), along
with world leaders, put pressure on the Asian countries to make the necessary
economic reforms. These reforms were then supported by large capital infusions
from the IMF and its sponsors. While there is still volatility in the region,
these efforts appear to have stabilized the situation.
Outside of East Asia, emerging markets worldwide were negatively impacted as
investors assumed that these countries would experience similar problems. As a
result, security prices initially were pushed lower in Latin America and
Eastern Europe. Once sentiment changed and it appeared that these emerging
markets would not experience similar consequences such as currency devaluation,
investors returned looking for undervalued securities. By the end of March
1998, prices of many emerging market debt issues returned to their pre-Asian
crisis level.
In spite of events in East Asia, the U.S. economy continued along a path of
strong growth coupled with low inflation. First quarter Gross Domestic Product
(GDP), a measure of U.S. economic growth, came in at 4.2%, higher than the
fourth quarter's 3.7%. In addition, the Consumer Price Index recorded a low
year-over-year rate of 1.4% in March. Benefiting from the positive domestic
economic news, the high yield market posted the strongest returns among the
major fixed income sectors.
INVESTMENT STRATEGY
Consistent with our long-term positive outlook on the emerging markets, we
maintained an above market spread duration in your Fund's portfolio. Spread
duration is a measure of a bond's price sensitivity to changes in its yield
spread relative to Treasury securities. Among other factors, spread duration
can be driven by a country's credit risk profile. Maintaining an above market
spread duration enhances price movement in a Fund's portfolio. In addition to
the Fund's above-market spread duration, we increased diversification among
Latin American holdings, which make up almost 50% of the Fund's portfolio. In
Eastern Europe, we maintained our above market allocation in Russia. After it
became apparent that these countries would not be negatively affected by the
events in East Asia, we sought out debt issues that we believed offered good
relative value.
INVESTMENT RESULTS
The following table shows how your Fund performed over the past six and
12-month periods. For comparison, we have included the J.P. Morgan Emerging
Markets Bond Index, a standard measure of the performance of a basket of
unmanaged emerging market debt securities.
INVESTMENT RESULTS*
Periods Ended March 31, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II -0.30% 23.48%
J.P. MORGAN EMERGING MARKETS BOND INDEX 2.17% 20.61%
* THE FUND'S INVESTMENT RESULTS ARE CUMULATIVE TOTAL RETURNS FOR THE PERIOD
AND ARE BASED ON THE NET ASSET VALUE AS OF MARCH 31, 1998. ALL FEES AND
EXPENSES RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED. RETURNS FOR
THE FUND INCLUDE THE
1
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
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.
Over the 12-month period under review, the Fund outperformed its benchmark due
to an above-market weighting in Russia, above-market spread duration and
exposure to the U.S. high yield sector. The economic fundamentals in Russia
improved dramatically during the period, causing significant price appreciation
of our Russian holdings. This price appreciation was enhanced as a result of
the Fund's above-market spread duration. However, over the shorter six-month
period when events in Asia unfolded, the same portfolio strategy (overweighting
in Russia and spread duration) caused the Fund to underperform the benchmark.
OUTLOOK
The outlook for emerging market debt continues to be attractive. We remain
positive in our view on Latin America. Although tougher competition and falling
demand from Asia will slow their economies, we still anticipate healthy growth
in the region. In particular, we favor Brazil, the largest economy in the
region. Brazil's government has taken proactive steps to avoid any negative
effects from Asia, proving their commitment to disciplined economic policies.
In Eastern Europe, we continue to view Russia, our biggest single holding,
positively. The government remains committed to reforms and the economy
continues to show signs of improvement.
In the U.S., we continue to have a favorable outlook for the high yield market.
The combination of moderate growth and low inflation provide an ideal
environment for investing in these securities. However, should the economy
begin to slow, security selection within the high yield sector will take on
added importance. We will continue to review each security using a fundamental,
bottom-up approach.
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
MARCH 31, 1998 ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS-87.3%
OTHER SOVEREIGN DEBT OBLIGATIONS-49.6%
ARGENTINA-9.9%
Republic of Argentina
9.75%, 9/19/27 $ 97,250 $ 96,399,062
Republic of Argentina
Global Bond
11.375%, 1/30/17 5,000 5,663,750
------------
102,062,812
COLOMBIA-4.7%
Republic of Colombia
8.625%, 4/01/08 48,000 48,120,000
MEXICO-9.1%
United Mexican States
11.50%, 5/15/26 77,000 93,843,750
PHILIPPINES-1.5%
Bangko Sentral Pilipinas
8.60%, 6/15/27 17,000 15,640,000
RUSSIA-20.1%
Russian IAN FRN
6.719%, 12/15/15 51,513 36,606,315
Russian Principal Loans FRN
6.719%, 12/15/20 (a) 271,800 170,663,220
------------
207,269,535
VENEZUELA-4.3%
Republic of Venezuela
9.25%, 9/15/27 48,000 43,728,000
Total Other Sovereign Debt Obligations
(cost $511,543,661) 510,664,097
COLLATERALIZED BRADY BONDS (b)-9.9%
BULGARIA-4.8%
Republic of Bulgaria
Discount Bonds FRN
6.563%, 7/28/24 60,000 49,462,500
ECUADOR-2.9%
Republic of Ecuador
Discount Bonds
6.625%, 2/28/25 (c) 40,000 29,800,000
NIGERIA-2.2%
Central Bank of Nigeria
Par Bonds
6.25%, 11/15/20 (d) 30,500 22,341,250
Total Collateralized Brady Bonds
(cost $93,732,020) 101,603,750
LOAN PARTICIPATION & ASSIGNMENTS-7.2%
ALGERIA-2.6%
Algeria Refinancing Trust FRN
Loan Assignment Tranche A
6.625%, 3/04/00 19,091 14,890,909
7.313%, 3/04/00 12,727 11,995,455
------------
26,886,364
MOROCCO-4.6%
Kingdom of Morocco
Loan Participation FRN
Series A
6.656%, 1/01/09 53,000 47,700,000
Total Loan Participation & Assignments
(cost $74,583,908) 74,586,364
NON-COLLATERALIZED BRADY BONDS-20.6%
BRAZIL-13.6%
Republic of Brazil
C-Bonds
8.00%, 4/15/14 (e) 166,478 140,153,633
PANAMA-2.3%
Republic of Panama
PDI FRN
6.563%, 7/17/16 (f) 28,120 23,936,886
3
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
PERU-4.7%
Republic of Peru FLIRB
3.25%, 3/07/17 (c)(g) $ 61,250 $ 38,606,641
Republic of Peru PDI
4.00%, 3/07/17 (c) 13,250 9,121,797
------------
47,728,438
Total Non-Collateralized Brady Bonds
(cost $208,218,524) 211,818,957
Total Sovereign Debt Obligations
(cost $888,078,113) 898,673,168
CORPORATE DEBT OBLIGATIONS-6.6%
Grupo Mexicano de Desarrollo, SA
8.25%, 2/17/01 (g)(h) 17,000 5,100,000
Mc-Cuernavaca Trust
9.25%, 7/25/01 7,231 6,906,009
Mexico City Toluca Toll Road
11.00%, 5/19/02 24,560 23,331,767
Trikem, SA
10.625%, 7/24/07 (g) 35,000 33,075,000
Total Corporate Debt Obligations
(cost $77,217,031) 68,412,776
U.S. GOVERNMENT OBLIGATION-4.3%
U.S. Treasury Strip
Zero coupon, 11/15/11
(cost $45,635,831) 100,000 44,638,000
COMMON STOCK-0.0%
Pegasus Media & Communications, Inc. (i)
(cost $35,817) 11,282 259,486
TIME DEPOSIT-6.1%
Bank of New York
5.125%, 4/01/98
(cost $62,553,000) $ 62,553 62,553,000
TOTAL INVESTMENTS-104.3%
(cost $1,073,519,792) 1,074,536,430
Other assets less liabilities-(4.3%) (44,745,144)
NET ASSETS-100% $ 1,029,791,286
(a) Coupon consists of 3.249% cash payment and 3.47% paid-in-kind of Russian
IAN.
(b) 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.
(c) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at March 31, 1998.
(d) Security trades with oil warrants expiring November 15, 2020.
(e) Coupon consists of 4.50% cash payment and 3.50% paid in kind.
(f) Coupon consists of 4.0% cash payment and 2.563% paid-in-kind.
(g) 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 March 31, 1998,
these securities amounted to $76,781,641 or 7.5% of net assets.
(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.
PDI - Past Due Interest.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998 ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,073,519,792) $ 1,074,536,430
Cash 630
Receivable for investment securities sold 27,687,309
Interest receivable 21,967,529
Deferred organization expenses and other assets 60,722
Total assets 1,124,252,620
LIABILITIES
Payable for investment securities purchased 93,222,970
Advisory fee payable 905,417
Administration fee payable 135,813
Accrued expenses 197,134
Total liabilities 94,461,334
NET ASSETS $ 1,029,791,286
COMPOSITION OF NET ASSETS
Capital stock, at par $ 744,906
Additional paid-in capital 1,022,198,356
Undistributed net investment income 1,042,539
Accumulated net realized gain on investment transactions 4,788,847
Net unrealized appreciation on investments 1,016,638
$ 1,029,791,286
NET ASSET VALUE PER SHARE (based on 74,490,603 shares outstanding) $13.82
See notes to financial statements.
5
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998 ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 107,459,117
EXPENSES
Advisory fee $ 10,601,760
Administrative fee 1,590,264
Custodian 362,489
Transfer agency 240,472
Audit and legal 179,866
Taxes 85,650
Printing 77,515
Registration 54,892
Directors' fees 40,632
Amortization of organization expenses 5,997
Miscellaneous 21,993
Total expenses 13,261,530
Net investment income 94,197,587
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on investment transactions 130,312,843
Net change in unrealized appreciation
of investments (6,975,590)
Net gain on investment transactions 123,337,253
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 217,534,840
See notes to financial statements.
6
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
1998 1997
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 94,197,587 $ 86,709,523
Net realized gain on investment
transactions 130,312,843 165,236,482
Net change in unrealized appreciation
of investments (6,975,590) 2,749,361
Net increase in net assets from operations 217,534,840 254,695,366
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Dividends from net investment income (103,011,328) (86,709,523)
Distributions in excess of net
investment income -0- (37,324,856)
Distribution from net realized gain
on investments (109,913,895) -0-
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting in
issuance of common stock 33,678,191 -0-
Total increase 38,287,808 130,660,987
NET ASSETS
Beginning of year 991,503,478 860,842,491
End of year (including undistributed net
investment income of $1,042,539 and
$9,513,979, respectively) $ 1,029,791,286 $ 991,503,478
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 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 are 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. During the current fiscal year, permanent differences,
primarily due to the tax characterization of certain items of income, resulted
in a net decrease in accumulated net realized gain on investment transactions
and additional paid-in capital and a corresponding increase in undistributed
net investment income. This reclassification had no affect on net assets.
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
8
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
"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 AFS for costs relating to servicing phone inquiries for the Fund.
During the year ended March 31, 1998, the Fund reimbursed AFS $5,030, relating
to shareholder servicing costs.
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments,
U.S. government securities and U.S. government agencies) aggregated
$3,043,332,763 and $2,926,449,388, respectively, for the year ended March 31,
1998. There were purchases of $227,899,989 and sales of $185,982,656 of U.S.
government and government agency obligations for the year ended March 31, 1998.
At March 31, 1998, the cost of investments for federal income tax purposes was
$1,075,584,948. Accordingly, gross unrealized appreciation of investments was
$25,817,392 and gross unrealized depreciation of investments was $26,865,910,
resulting in net unrealized depreciation of $1,048,518.
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.
INTEREST RATESWAP 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 March 31, 1998, the Fund did not have any interest rate swap contracts
outstanding.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized.
Of the 74,490,603 shares outstanding at March 31, 1998, the Adviser owned 7,200
shares. During the year ended March 31, 1998, the Fund issued 2,510,318 shares
in connection with the Fund's dividend reinvestment plan. During the year ended
March 31, 1998, the Fund did not issue shares in connection with the Fund's
dividend reinvestment plan.
9
NOTES TO FINANCIAL STATEMENTS
(CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
NOTE E: CONCENTRATION OF RISK
Investing in securities of foreign governments involves special risks, which
include revaluation of currencies and the possibility of future adverse
political and economic developments. Moreover, securities of many foreign
governments and their markets may be less liquid and their prices more volatile
than those of the United States government. The Fund 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 (UNAUDITED)
Many computer software systems in use today cannot properly process
date-related information from and after January 1, 2000. Should any of the
computer systems employed by the Fund's major service providers fail to process
this type of information properly, that could have a negative impact on the
Fund's operations and the services that are provided to the Fund's
shareholders. The Adviser, as well as Alliance Fund Services, have advised the
Fund that they are reviewing all of their computer systems with the goal of
modifying or replacing such systems prior to January 1, 2000, to the extent
necessary to foreclose any such negative impact. In addition, the Adviser has
been advised by the Fund's custodian that it is also in the process of
reviewing its systems with the same goal. As of the date of this report, the
Fund and the Adviser have no reason to believe that these goals will not be
achieved. Similarly, the values of certain of the portfolio securities held by
the Fund may be adversely affected by the inability of the securities' issuers
or of third parties to process this type of information properly.
10
FINANCIAL HIGHLIGHTS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
JULY 28,
1993(A)
YEAR ENDED MARCH 31, TO
---------------------------------------------------- MARCH 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.77 $11.96 $9.53 $12.31 $13.93(b)
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.30(c) 1.21 1.25(c) 1.19(c) .77
Net realized and unrealized gain (loss)
on investment transactions 1.70 2.32 2.49 (2.32) (1.28)
Net increase (decrease) in net asset
value from operations 3.00 3.53 3.74 (1.13) (.51)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (1.42) (1.21) (1.25) (1.19) (.77)
Distributions in excess of net
investment income -0- (.51) (.06) (.23) (.10)
Distributions from net realized gain
on investments (1.53) -0- -0- (.23) (.24)
Total dividends and distributions (2.95) (1.72) (1.31) (1.65) (1.11)
Net asset value, end of period $13.82 $13.77 $11.96 $9.53 $12.31
Market value, end of period $13.75 $13.375 $12.375 $10.375 $13.375
TOTAL RETURN
Total investment return based on: (d)
Market value 26.49% 23.11% 33.51% (10.08)% (4.05)%
Net asset value 23.48% 31.15% 40.48% (10.26)% (5.04)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,029,791 $991,503 $860,842 $666,567 $827,943
Ratio of expenses to average net assets 1.26% 1.29% 1.30% 1.28% 1.26%(e)
Ratio of net investment income to
average net assets 8.92% 8.92% 10.99% 10.31% 7.62%(e)
Portfolio turnover rate 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.
11
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II,INC.
We have audited the accompanying statement of assets and liabilities of
Alliance World Dollar Government Fund II, Inc., including the portfolio of
investments, as of March 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
March 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 II, Inc. at March 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.
ERNST & YOUNG LLP
New York, New York
April 30, 1998
12
ADDITIONAL INFORMATION ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
Shareholders whose shares are registered in their own names may elect to 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. State Street Bank
and Trust Company (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 State Street Bank and Trust Company, P.O. Box 366,
Boston, Massachusetts 02101.
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, except that
50% of the Fund's required investments in sovereign debt obligations is no
longer required to be invested in collateralized Brady Bonds, (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
ADDITIONAL INFORMATION (CONTINUED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SUPPLEMENTAL PROXY INFORMATION
The Annual Meeting of Shareholders of The Alliance World Dollar Government Fund
II was held on March 31, 1998. The description of each proposal and number of
shares voted at the meeting are as follows:
SHARES VOTED
SHARES WITHOUT
VOTED FOR AUTHORITY
------------ ---------
1. To elect directors: Class One Directors
(term expires in 2001)
David H. Dievler 57,625,101 729,239
Clifford L. Michel 57,669,429 684,911
Donald J. Robinson 57,630,418 723,922
SHARES SHARES
SHARES VOTED VOTED
VOTED FOR AGAINST ABSTAIN
------------ --------- ---------
2. To ratify the selection of Ernst &
Young LLP as the Fund's independent
auditors for the Fund's fiscal year
ending March 31, 1998: 57,625,689 238,128 531,523
14
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
48 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.
15
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.
WDGIIAR
