-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNcB+d3900rRMNYlhQbyMk+oVzqeckq3sGf5FjJje4lWPl6LW3bo0vexloV2q7Az 0K8W0M7jd/yE0DKoGkI5bA== 0000936772-98-000139.txt : 19980603 0000936772-98-000139.hdr.sgml : 19980603 ACCESSION NUMBER: 0000936772-98-000139 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980602 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE WORLD DOLLAR GOVERNMENT FUND II INC CENTRAL INDEX KEY: 0000906013 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MD FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-07732 FILM NUMBER: 98640809 BUSINESS ADDRESS: STREET 1: 1345 AVE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2129691000 MAIL ADDRESS: STREET 1: ALLIANCE CAPITAL MANAGEMENT LP STREET 2: 1345 AVENUE OF THE AMERICAS 31ST FL CITY: NEW YORK STATE: NY ZIP: 10105 N-30D 1 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
JULY 28, 1993(A) YEAR ENDED MARCH 31, TO ---------------------------------------------------- MARCH 31, 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- 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%
(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 -----END PRIVACY-ENHANCED MESSAGE-----