ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1999
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
November 10, 1999
Dear Shareholder:
We are pleased to report to you on the performance, investment strategy and
outlook for the Alliance World Dollar Government Fund II (the "Fund"), for the
six-month period ended September 30, 1999. 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 sovereign
debt and U.S. corporate fixed-income obligations that weexpect to benefit from
improving economic and credit fundamentals.
INVESTMENT RESULTS
The following table shows how the Fund performed over the six- and twelve-month
periods ended September 30, 1999. For comparison we have included the
performance for your Fund's benchmark index, JP Morgan Emerging Markets Bond
Index ("JPMEMBI"), which is a standard measure of the performance of a basket
of unmanaged emerging market debt securities.
Over the six-month period ended September 30, 1999, your Fund strongly
outperformed its benchmark primarily as a result of our investment strategy.
Decreasing our holdings in the U.S. bond market as well as eliminating our
holdings in Ecuador were key investment decisions. Ecuador was the
worst-performing country in the emerging markets and the U.S. bond market
lagged due to the rising interest-rate environment. Our overweighting of Russia
and the Latin American region significantly boosted your Fund's performance.
During the six months ended September 30, 1999, the Russian bond market wasthe
top-performing market within the JP Morgan Emerging Markets Bond Index, posting
an 81% gain for the six months ended September 30, 1999, and the bond markets
of Latin America benefited from rising oil prices. We are also pleased to
report that the Fund continued to outperform the index on a twelve-month basis.
INVESTMENT RESULTS*
Periods Ended September 30, 1999
TOTAL RETURNS
6 MONTHS 12 MONTHS
-------- ---------
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II 9.51% 27.90%
JP MORGAN EMERGING MARKETS BOND INDEX 2.88% 18.27%
* THE FUND'S INVESTMENT RESULTS REPRESENT TOTAL RETURNS AND ARE BASED ON THE
NET ASSET VALUE AS OF SEPTEMBER 30, 1999. 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 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. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
INVESTMENT STRATEGY
Over the six-month period, the Fund's holdings of U.S. Treasuries were
decreased as the risk of tighter monetary policy by the U.S. Federal Reserve
dampened valuations. We maintained our allocation in Latin America, however, we
refined the focus of our holdings. We eliminated the Fund's exposure to Ecuador
as the prospects of a delay on their Brady bond debt payments increased.
Alternatively, we added to our oil-sensitive Venezuelan holdings as the
prospects for oil prices significantly improved. We maintained our investments
in Argentina and Brazil as reforms progressed and economic fundamentals
continued to improve. We continued to favor Mexico in the Fund on expectations
that investment-grade status will be achieved within the next twelve months.
Additionally, we added to our Russian holdings as debt valuations continued to
rebound from last years sell off.
MARKET OVERVIEW
During the six-month period ended September 30, 1999, global economic growth
improved and continued to broaden as Europe, Japan and Asia showed further
signs of strengthening. U.S. economic growth downshifted but remained strong
while inflation and unemployment stayed low. With economic activity remaining
strong and
1
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
global liquidity concerns abating, the Federal Reserve adopted a monetary
policy tightening bias in May and increased the Federal Funds rate 25 basis
points in June followed by another 25 basis points in August. (A third increase
in interest rates was announced on November 15, 1999.) The U.S. bond market, as
represented by the Lehman Brothers Aggregate Bond Index, posted a modest
negative return of 0.21% for the six-month period.
Emerging market debt performed relatively well over the period as global
economic growth improved and commodity prices firmed. The emerging market debt
sector, as represented by the JPM EMBI, gained 2.88%, outperforming all other
bond market sectors during the six-month period ended September 30, 1999. Most
individual country returns within the JPM EMBI were positive during the period
with Russia posting the largest gains (+81%) and Venezuela (+13%) and Bulgaria
(+10%) also outperforming. Rising oil prices helped the performance of Russian
and Venezuelan debt as both countries are heavily dependent on oil exports.
Russian bond prices were also boosted by indications that the government will
restructure its Soviet Union-era debt. Ecuador's debt posted the worst
performance, declining by 26% after the government delayed interest payments on
its debt.
The high-yield sector, as represented by the CS First Boston High Yield Index,
declined by 0.47% during the six months ended September 30, 1999. Rising
interest rates, large corporate debt issuance and Y2K uncertainty hurt the
performance of all non-Treasury securities. The high-yield sector's performance
was also dampened by these factors as well as rising default rates and mutual
fund outflows. Within the high-yield sector, lower-quality, B-rated securities
underperformed higher-quality, BB-rated securities.
OUTLOOK
The global economy continues to gather momentum. We expect the U.S. economy to
remain strong through year-end and into the millenium. Growth estimates for
1999 and 2000 are close to 3.5%. Positive inflation fundamentals however,
should keep long-term interest rates trading in a range of 6.0%-6.5%. While we
believe there are structural forces in the marketplace rendering credit markets
less liquid, the passing of Y2K should alleviate some liquidity pressures,
causing non-Treasury spreads to narrow somewhat from current levels.
Stronger global growth coupled with the recent firming in commodity prices will
continue to provide the environment necessary for emerging countries to
gradually improve their credit profiles. Country selection within the sector
remains critical, however. In Latin America, Brazil continues to exceed
expectations for fiscal reform, while Mexico could move to investment grade
status in the year 2000. In Asia, the macroeconomic picture continues to
surprise on the upside but progress on corporate restructuring remains slow.
We continue to view the high-yield sector favorably. Currently, the average
high-yield index is yielding about 6.0% over Treasuries, which offers
significant value. The combination of increased inflows, passing of Y2K, strong
growth and low inflation suggest high-yield spreads should contract, resulting
in rising bond prices.
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, 1999 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
SOVEREIGN DEBT OBLIGATIONS-87.0%
OTHER SOVEREIGN DEBT OBLIGATIONS-70.9%
ARGENTINA-16.2%
Republic of Argentina
11.375%, 1/30/17 $10,000 $ 9,463,000
11.75%, 4/07/09 22,000 21,395,000
12.125%, 2/25/19 52,100 52,386,550
Warrants expiring 2/25/00 (a) 40 574,200
Republic of Argentina Series XW
11.00%, 12/04/05 27,500 26,310,625
-------------
110,129,375
BRAZIL-1.1%
Republic of Brazil
10.125%, 5/15/27 10,000 7,563,000
COLOMBIA-4.9%
Republic of Colombia
8.625%, 4/01/08 4,715 3,795,575
9.75%, 4/23/09 34,650 29,712,375
-------------
33,507,950
MEXICO-13.2%
United Mexican States Global Bond
10.375%, 2/17/09 (b) 88,000 89,298,000
PANAMA-4.2%
Republic of Panama
9.375%, 4/01/29 30,000 28,239,000
PHILIPPINES-3.8%
Republic of Philippines
9.875%, 1/15/19 27,000 25,582,500
RUSSIA-15.2%
Russian Federation
8.75%, 7/24/05 (c) 5,000 2,062,500
11.00%, 7/24/18 (c) 5,000 2,087,500
12.75%, 6/24/28 (c) 80,000 37,600,000
12.75%, 6/24/28 (c) 76,700 36,049,000
Russian Principal Loans FRN
6.0625%, 12/15/20 (d) 284,800 25,632,000
-------------
103,431,000
TURKEY-3.1%
Republic of Turkey
12.375%, 6/15/09 21,000 20,842,500
VENEZUELA-9.2%
Republic of Venezuela
9.25%, 9/15/27 94,217 62,183,220
Total Other Sovereign Debt Obligations
(cost $642,447,688) 480,776,545
NON-COLLATERALIZED BRADY BONDS-9.0%
BRAZIL-4.1%
Republic of Brazil C - Bonds
8.00%, 4/15/14 (e) 43,747 27,836,374
PERU-4.9%
Republic of Peru FLIRB
3.75%, 3/07/17 (c) (f) 61,250 33,001,500
Total Non-Collateralized Brady Bonds
(cost $64,780,582) 60,837,874
COLLATERALIZED BRADY BONDS (g)-5.1%
BULGARIA-5.0%
Republic of Bulgaria Discount Bonds FRN
6.50%, 7/28/24 50,000 34,375,000
NIGERIA-0.1%
Central Bank of Nigeria Par Bonds
6.25%, 11/15/20 (h) 500 295,000
Total Collateralized Brady Bonds
(cost $38,933,547) 34,670,000
3
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SHARES OR
PRINCIPAL
AMOUNT
(000) U.S. $ VALUE
- -------------------------------------------------------------------------------
LOAN PARTICIPATIONS & ASSIGNMENTS-2.0%
ALGERIA-2.0%
Algeria Refinancing Trust
FRN Loan Assignment
Tranche 1
6.00%, 3/04/00 $17,273 $13,040,909
Tranche A
6.75%, 3/04/00 795 779,545
Total Loan Participations & Assignments
(cost $17,522,929) 13,820,454
Total Sovereign Debt Obligations
(cost $763,684,746) 590,104,873
CORPORATE DEBT OBLIGATIONS-8.1%
Grupo Mexicano de Desarrollo, SA
8.25%, 2/17/01(d) 17,000 3,060,000
Guangdong Enterprises Holdings
8.75%, 12/15/03 (c) 15,000 3,525,000
8.875%, 5/22/07 (c) 25,850 5,945,500
MC-Cuernavaca Trust
9.25%, 7/25/01 4,404 3,413,123
Mexico City Toluca Toll Road
11.00%, 5/19/02 22,724 15,452,126
Tenaga Nasional Berhad
7.625%, 4/29/07 (c) 5,000 4,531,525
Trikem, SA
10.625%, 7/24/07 (c) 35,000 19,425,000
Total Corporate Debt Obligations
(cost $96,792,680) 55,352,274
COMMON STOCK-0.1%
Pegasus Media & Communications, Inc. (a)
(cost $35,817) 11,282 509,100
TIME DEPOSIT-8.7%
Bank of New York
4.75%, 10/01/99
(cost $58,853,000) 58,853 58,853,000
TOTAL INVESTMENTS-103.9%
(cost $919,366,243) 704,819,247
Other assets less liabilities-(3.9%) (26,666,442)
NET ASSETS-100% $678,152,805
(a) Non-income producing security.
(b) Security trades with warrants expiring February 17, 2009.
(c) 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,
1999, these securities amounted to $144,227,525 or 21.3% of net assets.
(d) Security is in default and is non-income producing.
(e) Coupon consists of 5.00% cash payment and 3.00% paid-in-kind.
(f) Coupon increases periodically based upon a predetermined schedule. Stated
interest rate in effect at September 30, 1999.
(g) 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.
(h) Security trades with oil warrants expiring November 15, 2020.
Glossary of Terms:
FLIRB - Front Loaded Interest Reduction Bond.
FRN - Floating Rate Note.
See notes to financial statements.
4
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999 (UNAUDITED) ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $919,366,243) $ 704,819,247
Cash 851,397
Receivable for investment securities sold 164,643,204
Interest receivable 21,439,337
Unrealized appreciation on swap contract 247,000
Other assets 34,628
Total assets 892,034,813
LIABILITIES
Payable for investment securities purchased 204,955,172
Dividend payable 7,979,663
Advisory fee payable 631,674
Administration fee payable 94,751
Accrued expenses 220,748
Total liabilities 213,882,008
NET ASSETS $ 678,152,805
COMPOSITION OF NET ASSETS
Capital stock, at par $ 778,504
Additional paid-in capital 1,051,881,391
Distributions in excess of net investment income (11,600,979)
Accumulated net realized loss on investment
transactions and swap contracts (148,606,115)
Net unrealized depreciation on investment
transactions and swap contracts (214,299,996)
$ 678,152,805
NET ASSET VALUE PER SHARE (based on 77,850,368
shares outstanding) $8.71
See notes to financial statements.
5
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
INVESTMENT INCOME
Interest $49,432,385
EXPENSES
Advisory fee $3,410,270
Administrative fee 511,541
Custodian 125,952
Audit and legal 96,221
Printing 93,153
Transfer agency 55,203
Registration 34,323
Directors' fees 16,317
Miscellaneous 7,848
Total expenses 4,350,828
Net investment income 45,081,557
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND SWAP CONTRACTS
Net realized loss on investment
transactions (19,868,844)
Net realized gain on swap contracts 3,748,366
Net change in unrealized depreciation
of investment transactions and swap
contracts 33,345,675
Net gain on investment transactions 17,225,197
NET INCREASE IN NET ASSETS FROM
OPERATIONS $62,306,754
See notes to financial statements.
6
STATEMENTS OF CHANGES
IN NET ASSETS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
Six Months Ended Year Ended
September 30, 1999 March 31,
(unaudited) 1999
------------------ ----------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 45,081,557 $ 89,841,564
Net realized loss on investment
transactions and swap contracts (16,120,478) (128,009,950)
Net change in unrealized depreciation
of investment transactions and
swap contracts 33,345,675 (248,662,309)
Net increase (decrease) in net assets
from operations 62,306,754 (286,830,695)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Dividends from net investment income (48,679,778) (108,151,832)
COMMON STOCK TRANSACTIONS
Reinvestment of dividends resulting
in issuance of common stock 12,559,184 17,157,886
Total increase (decrease) 26,186,160 (377,824,641)
NET ASSETS
Beginning of year 651,966,645 1,029,791,286
End of period $678,152,805 $ 651,966,645
See notes to financial statements.
7
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 (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. 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.
3. 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.
4. 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.
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, 1999, there was no reimbursement paid
to AFS.
8
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
NOTE C: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments,
U.S. government securities and U.S. government agencies) aggregated
$685,805,368 and$675,793,601, respectively, for the six months ended September
30, 1999. There were sales of $72,015,000 and no purchases of U.S. government
and government agency obligations for the six months ended September 30, 1999.
At September 30, 1999, the cost of investments for federal income tax purposes
was substantially the same as the cost for financial reporting purposes.
Accordingly,gross unrealized appreciation of investments was$6,688,910 and
gross unrealized depreciation of investments was $221,235,905, resulting in net
unrealized depreciation of $214,546,995 (excluding swap contracts).
At March 31, 1999, the Fund had a capital loss carryforward of $103,516,115
which expires in the year 2007.
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
$20,590,379 during fiscal year 1999. 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 obligationsto 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 specifiedintervals based upon or calculated
by reference tochanges 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 aswap contract in evaluating potential credit risk.
Additionally, risks may arise from unanticipated movements in interest rates or
in the underlying value of the 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 and swap contracts.
At September 30, 1999 the Fund had a total return swap agreement outstanding
based on a notional amount of $65,000,000 Republic of Brazil Global Bonds
obligating the Fund to pay Morgan Guaranty Trust Company ("Morgan Guaranty"),
the swap counterparty, interest based on the London Interbank Offered Rate
("LIBOR") less a spread on the principal amount of $51,380,469 and obligating
the swap counterparty to pay the Fund any appreciation in the value of the
underlying bond plus accrued interest. At September 30, 1999 unrealized
appreciation on this total return swap amounted to $247,000.
NOTE D: CAPITAL STOCK
There are 100,000,000 shares of $0.01 par value common stock authorized.
Of the 77,850,368 shares outstanding at September 30, 1999, the Adviser owned
7,200 shares. During the six months ended September 30, 1999, the Fund issued
1,365,986 shares in connection with the Fund's dividend reinvestment plan.
During the year ended March 31, 1999 the Fund issued 1,993,779 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 companies and foreign governments involves
special risks, which include changes in foreign exchange rates and the
possibility of future political and economic developments which could adversely
affect the value of such securities. Moreover, securities of many foreign
companies and foreign governments and their markets may be less liquid and
their prices more volatile than those of comparable U.S. companies and the
United States government.
NOTE F: YEAR 2000
Many computer systems and applications that process transactions use two-digit
date fields for the year ofa transaction, rather than the full four digits. If
these systems are not modified or replaced, transactions occurring after 1999
could be processed as year "19XX," which could result in processing
inaccuracies and inoperability at or after the year 2000. The Funds and their
major service providers, including Alliance, utilize a number of computer
systems and applications that have been either developed internally or licensed
from third-party suppliers. In addition, the Funds and their major service
providers, including Alliance, are dependent on third-party suppliers for
certain systems applications and for electronic receipt of information critical
to their business. Should any of the computer systems employed by the Funds or
their major service providers, including Alliance, fail to process Year 2000
related information properly, that could have a significant negative impact on
the Funds' operations and the services that are provided to the Funds'
shareholders. To the extent that the operations of issuers of securities held
by the Funds are impaired by the Year 2000 problem, the value of the Funds'
shares may be materially affected. In addition, for the Funds' investments in
foreign markets, it ispossible that foreign companies and markets will not be
as prepared for Year 2000 as domestic companies and markets.
The Year 2000 issue is a high priority for the Funds and Alliance. During 1997,
Alliance began a formal Year 2000 initiative which established a structured and
coordinated process to deal with the Year 2000 issue. As part of its
initiative, Alliance established a Year 2000 project office tomanage the Year
2000 initiative, focusing on both information technology and non-information
technology systems. The Year 2000 project office meets periodically with the
audit committee of the board of directors of Alliance Capital Management
Corporation, Alliance's general partner, and with Alliance's executive
management to review the status of the Year 2000 efforts. Alliance has also
retained the services of a number of consulting firms which have expertise in
advising and assisting with regard to Year 2000 issues. Alliance reports that
by June 30, 1998 it had completed its inventory and assessment of its domestic
and international computer systems and applications, identified mission
critical systems (those systems where loss of their function would result in
immediate stoppage orsignificant impairment to core business units) and
nonmission critical systems and determined which of these systems were not Year
2000 compliant. All third-party suppliers of mission critical computer systems
and applications and nonmission critical systems have been contacted to verify
whether their systems and applications will be Year 2000 compliant and their
responses are being evaluated. Substantially all of those contacted have
responded and approximately 90% have informed Alliance that their systems and
applications are or will be Year 2000 compliant. All mission and nonmission
critical systems supplied by third parties have been tested with the exception
of those third parties not able to comply with Alliance's testing schedule.
Alliance reports that it expects that all testing will be completed before the
end of 1999.
Alliance has remediated, replaced or retired all of its non-compliant mission
critical systems and applications that can affect the Funds. All nonmission
critical systems have been remediated. After each system has been remediated,
it is tested with 19XX dates to determine if it still performs itsintended
business function correctly. Next, each system undergoes a simulation test
using dates occurring after December 31, 1999. Inclusive of the replacement and
retirement of some of its systems, Alliance has completed these testing phases
for approximately 98% of mission critical systems and 100% of nonmission
critical systems. Integrated systems tests were conducted to verify that the
systems would continue to work together. Full integration testing of all
mission critical and nonmission critical systems is com-
10
ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
plete. Testing of interfaces with third-party suppliers has begun and will
continue throughout 1999. Alliance reports that it has completed an inventory
of its facilities and related technology applications and has begun to evaluate
and test these systems. Alliance reports that it anticipates that these systems
will be fully operable in the year 2000. Alliance has deferred certain other
planned information technology projects until after the Year 2000 initiative is
completed. Such delay is not expected to have amaterial adverse effect on
Alliance's financial condition orresults of operations. Alliance, with the
assistance of aconsulting firm, is developing Year 2000 specific contingency
plans with emphasis on mission critical functions. These plans seek to provide
alternative methods of processing in the event of a failure that is outside
Alliance's control.
The estimated current cost to Alliance of the Year 2000 initiative ranges from
approximately $40 million to $45 million. These costs consist principally of
modification and testing and costs to develop formal Year 2000 specific
contingency plans. These costs, which will generally be expensed as incurred,
will be funded from Alliance's operations and the issuance of debt. Through
June 30, 1999, Alliance had incurred approximately $36.0 million ofcosts
related to the Year 2000 initiative. At this time, management of Alliance
believes that the costs associated with resolving the Year 2000 issue will not
have a material adverse effect on Alliance's results of operations, liquidity
or capital resources.
There are many risks associated with Year 2000 issues, including the risks that
the computer systems and applications used by the Funds and its major service
providers will not operate as intended and that the systems and applications of
third-party suppliers to the Funds and their service providers will not be Year
2000 compliant. Likewise there can be no assurance the compliance schedules
outlined above will be met or that the actual cost incurred will not exceed
current cost estimates. Should the significant computer systems and
applications used by the Funds or their major service providers, or the systems
of their important third-party suppliers, be unable to process date-sensitive
information accurately after 1999, the Funds and their service providers may be
unable to conduct their normal business operations and to provide shareholders
with required services. In addition, the Funds and their service providers may
incur unanticipated expenses, regulatory actions and legal liabilities. The
Funds and Alliance cannot determine which risks, if any, are most reasonably
likely to occur or the effects of any particular failure to be Year 2000
compliant. Certain statements provided by Alliance in this section entitled
"Year 2000", assuch statements relate to Alliance, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. To the fullest extent permitted by law, the foregoing Year 2000
discussion is a "Year 2000 Readiness Disclosure" within the meaning of the Year
2000 Information and Readiness Disclosure Act, 15 U.S.C. Sec. 1 (1998).
11
FINANCIAL HIGHLIGHTS ALLIANCE WORLD DOLLAR GOVERNMENT FUND II
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF COMMON STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 ---------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year $8.52 $13.82 $13.77 $11.96 $9.53 $12.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income .58(a) 1.20(a) 1.30(a) 1.21 1.25(a) 1.19(a)
Net realized and unrealized gain (loss)
on investments and swap contracts .24 (5.06) 1.70 2.32 2.49 (2.32)
Net increase (decrease) in net asset
value from operations .82 (3.86) 3.00 3.53 3.74 (1.13)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.63) (1.44) (1.42) (1.21) (1.25) (1.19)
Distributions in excess of net
investment income -0- -0- -0- (.51) (.06) (.23)
Distributions from net realized gain
on investments -0- -0- (1.53) -0- -0- (.23)
Total dividends and distributions (.63) (1.44) (2.95) (1.72) (1.31) (1.65)
Net asset value, end of period $8.71 $8.52 $13.82 $13.77 $11.96 $9.53
Market value, end of period $8.875 $9.375 $13.75 $13.375 $12.375 $10.375
TOTAL RETURN
Total investment return based on: (b)
Market value 1.44% (20.95)% 26.49% 23.11% 33.51% (10.08)%
Net asset value 9.51% (28.44)% 23.48% 31.15% 40.48% (10.26)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $678,153 $651,967 $1,029,791 $991,503 $860,842 $666,567
Ratio of expenses to average net assets 1.28%(c) 1.31% 1.26% 1.29% 1.30% 1.28%
Ratio of net investment income to
average net assets 13.22%(c) 11.89% 8.92% 8.92% 10.99% 10.31%
Portfolio turnover rate 108% 262% 327% 257% 395% 274%
</TABLE>
(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. Total investment return calculated for a period of less than one
year is not annualized.
(c) Annualized.
12
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
DIVIDEND PAYING AGENT,TRANSFER AGENT AND REGISTRAR
STATE STREET BANK AND TRUST COMPANY
225 Franklin Street
Boston, MA02110-1520
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL LLP
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 FundII 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.
13
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
The daily net asset value of the Fund's shares is available from the Fund's
Transfer Agent by calling 1-800-426-5523. The Fund also distributes its daily
net asset value to various financial publications or independent organizations
such as Lipper Analytical Services, Inc., Morningstar, Inc. and Bloomberg.
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 AmericasNew York, New York10105
ALLIANCE CAPITAL
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER, ALLIANCE
CAPITAL MANAGEMENT L.P.
WDGIISR999
