N-30D 1 edg6660.txt VARP - HIGH YIELD PORTFOLIO ALLIANCE ----------------------------- VARIABLE PRODUCTS ----------------------------- SERIES FUND ----------------------------- HIGH-YIELD PORTFOLIO ----------------------------- SEMI-ANNUAL REPORT JUNE 30, 2001 Investment Products Offered --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed --------------------------- HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2001 (unaudited) Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value ------------------------------------------------------------- CORPORATE DEBT OBLIGATIONS-71.9% AIR TRANSPORTATION-0.5% US Airways, Inc. 10.375%, 3/01/13 (a)........ $135 $ 132,735 -------------- AUTOMOTIVE-1.4% Collins & Aikman Products 11.50%, 4/15/06 (a)......... 65 61,750 Delco Remy International, Inc. 11.00%, 5/01/09 (a)(b)...... 85 88,825 Dura Operating Corp. 9.00%, 5/01/09 (a).......... 90 85,050 9.00%, 5/01/09 (a)(b)....... 25 23,625 Hayes Lemmerz International, Inc. 11.875%, 6/15/06 (a)(b)..... 125 122,813 -------------- 382,063 -------------- BANKING-2.0% Chohung Bank Co., Ltd. 11.875%, 4/01/10 (a)(b)..... 150 155,895 Golden State Holdings 6.75%, 8/01/01 (a).......... 100 99,948 Hanvit Bank 12.75%, 3/01/10 (a)(b)...... 250 268,750 -------------- 524,593 -------------- BROADCASTING/MEDIA-3.2% Allbritton Communications Co. 8.875%, 2/01/08 (a)......... 250 250,000 Fox Family Worldwide, Inc. 9.25%, 11/01/07 (a)......... 500 507,500 Mediacom Broadband LLC 11.00%, 7/15/13 (a)(b)...... 40 40,900 Primedia, Inc. 8.875%, 5/15/11 (a)(b)...... 50 46,500 -------------- 844,900 -------------- BUILDING/REAL ESTATE-2.1% LNR Property Corp. 10.50%, 1/15/09 (a)......... 370 371,850 Meritage Corp. 9.75%, 6/01/11 (a)(b)....... 60 60,000 Schuler Homes, Inc. 9.375%, 7/15/09 (a)(b)...... 65 65,325 10.50%, 7/15/11 (a)(b)...... 60 60,300 -------------- 557,475 -------------- CABLE-9.2% Adelphia Communications Corp. 10.25%, 6/15/11 (a)......... 105 103,950 10.875%, 10/01/10 (a)....... 125 127,187 Charter Communications Holdings LLC 9.625%, 11/15/09 (a)(b)..... 60 60,375 10.00%, 5/15/11 (a)(b)...... 35 35,700 10.75%, 10/01/09 (a)........ 635 671,512 11.75%, 5/15/11 (a)(b)(c)... 445 260,325 Comcast UK Cable Partners, Ltd. 11.20%, 11/15/07 (a)(c)..... 250 171,250 EchoStar DBS Corp. 9.25%, 2/01/06 (a).......... 300 297,000 9.375%, 2/01/09 (a)......... 350 344,750 NTL Communications Corp. 11.50%, 10/01/08 (a)........ 30 19,950 Telewest Communications Plc 11.00%, 10/01/07 (a)(c)).... 300 254,250 United Pan-Europe Communications NV Series B 13.75%, 2/01/10 (a)......... 100 15,500 14.50%, 7/15/08 (a)......... 265 86,788 -------------- 2,448,537 -------------- CHEMICALS-3.2% Avecia Group Plc 11.00%, 7/01/09 (a)......... 300 300,000 Equistar Chemicals LP 8.50%, 2/15/04 (a).......... 50 48,400 Georgia Gulf Corp. 10.375%, 11/01/07 (a)....... 150 153,750 Huntsman ICI Chemicals LLC 10.125%, 7/01/09 (a)........ 300 297,000 Millennium America, Inc. 9.25%, 6/15/08 (a)(b)....... 40 40,000 -------------- 839,150 -------------- COMMUNICATIONS-0.6% Tele1 Europe Holding AB 11.875%, 12/01/09(a)........ 35 17,500 Tritel PCS, Inc. 10.375%, 1/15/11 (a)(b)..... 150 138,000 -------------- 155,500 -------------- COMMUNICATIONS - FIXED-1.7% Allegiance Telecom Inc. 12.875%, 5/15/08 (a)........ 40 35,400 Level 3 Communications, Inc. 11.00%, 3/15/08 (a)......... 275 122,375 McLeod Usa, Inc. 11.375%, 1/01/09 (a)........ 155 98,425 Metromedia Fiber Network, Inc. 10.00%, 11/15/08 (a)........ 30 11,550 10.00%, 12/15/09 (a)........ 30 11,550 Time Warner Telecom, Inc. 10.125%, 2/01/11 (a)........ 80 72,400 Williams Communications Group, Inc. 11.70%, 8/01/08 (a)......... 85 35,700 11.875%, 8/01/10 (a)........ 135 56,700 -------------- 444,100 -------------- 1 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value ------------------------------------------------------------- COMMUNICATIONS - MOBILE-7.4% American Cellular Corp. 9.50%, 10/15/09 (a)(b)...... $125 $ 118,125 Dobson/Sygnet Communications 12.25%, 12/15/08 (a)........ 200 203,000 Iridium Capital Corp. LLC 14.00%, 7/15/05 (a)(d)...... 550 25,438 Microcell Telecommunications, Inc. 17.83%, 6/01/06 (a)......... 75 55,875 Nextel Communications, Inc. 5.25%, 1/15/10 (a).......... 205 126,075 9.375%, 11/15/09 (a)........ 10 7,950 10.65%, 9/15/07 (a)(c)...... 60 42,525 Nextel International, Inc. 12.75%, 8/01/10 (a)......... 80 25,600 Nextel Partners, Inc. 11.00%, 3/15/10 (a)......... 135 106,650 Rogers Wireless Communications, Inc. 9.625%, 5/01/11 (a)(b)...... 60 60,600 TeleCorp PCS, Inc. 10.625%, 7/15/10 (a)........ 500 472,500 11.625%, 4/15/09 (a)(c)..... 250 157,500 Triton PCS, Inc. 11.00%, 5/01/08 (a)......... 50 40,562 Voicestream Wireless Co. 10.375%, 11/15/09 (a)....... 450 515,250 -------------- 1,957,650 -------------- CONGLOMERATES-0.2% Netia Holdings BV 11.25%, 11/01/07 (a)(c)..... 125 49,375 -------------- CONSUMER MANUFACTURING-0.2% Playtex Products, Inc. 9.375%, 6/01/11 (a)(b)...... 60 61,350 -------------- CORPORATE-1.3% Lyondell Chemical Co. 10.875%, 5/01/09 (a)........ 350 344,750 -------------- ENERGY-2.0% Chesapeake Energy Corp. 8.125%, 4/01/11 (a)(b)...... 130 122,200 Dresser, Inc. 9.375%, 4/15/11 (a)(b)...... 60 61,050 EOTT Energy Partners LP 11.00%, 10/01/09 (a)........ 75 80,625 Lone Star Technologies, Inc. 9.00%, 6/01/11 (a)(b)....... 50 48,500 PG&E National Energy Group, Inc. 10.375%, 5/16/11 (a)(b)..... 155 154,951 Range Resources Corp. 8.75%, 1/15/07 (a)(b)....... 75 72,750 -------------- 540,076 -------------- ENTERTAINMENT & LEISURE-1.0% Six Flags, Inc. 9.50%, 2/01/09 (a)(b)....... 100 100,375 9.75%, 6/15/07 (a).......... 100 101,000 10.00%, 4/01/08 (a)(c)...... 70 56,875 -------------- 258,250 -------------- FINANCIAL-4.8% Conseco, Inc. 8.75%, 2/09/04 (a).......... 175 166,250 Dime Bancorp, Inc. 9.00%, 12/19/02 (a)......... 150 155,474 Finova Capital Corp. 7.125%, 5/01/02 (a)......... 55 52,097 7.25%, 11/08/04 (a)......... 165 153,410 Intrawest Corp. 10.50%, 2/01/10 (a)......... 150 156,750 Renaissancere Capital Trust 8.54%, 3/01/27 (a).......... 175 142,643 Safeco Capital Trust I 8.072%, 7/15/37 (a)......... 385 329,662 W.R. Berkley Capital Trust 8.197%, 12/15/45 (a)........ 100 80,707 Willis Corroon Corp. 9.00%, 2/01/09 (a).......... 35 35,612 -------------- 1,272,605 -------------- FOOD/BEVERAGE-0.4% Chiquita Brands International, Inc. 10.00%, 6/15/09 (a)......... 100 68,250 Del Monte Corp. 9.25%, 5/15/11 (a)(b)....... 35 35,175 -------------- 103,425 -------------- GAMING-3.4% Ameristar Casinos, Inc. 10.75%, 2/15/09 (a)(b)...... 125 131,250 Mandalay Resort Group 10.25%, 8/01/07 (a)......... 300 315,750 MGM Mirage, Inc. 8.375%, 2/01/11 (a)......... 150 151,688 Park Place Entertainment Corp. 9.375%, 2/15/07 (a)......... 300 316,125 -------------- 914,813 -------------- HEALTHCARE-3.9% Concentra Operating Corp. 13.00%, 8/15/09 (a)......... 190 204,725 HCA-The Healthcare Co. 7.875%, 2/01/11 (a)......... 375 378,848 Iasis Healthcare Corp. 13.00%, 10/15/09 (a)........ 300 319,500 Triad Hospitals, Inc. 8.75%, 5/01/09 (a)(b)....... 65 66,462 11.00%, 5/15/09 (a)......... 70 75,775 -------------- 1,045,310 -------------- 2 Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount (000) U.S. $ Value ------------------------------------------------------------- HOME FURNISHINGS-0.3% Sealy Mattress Co. 9.875%, 12/15/07 (a)(b)..... $ 80 $ 79,400 -------------- HOTEL/LODGING-2.3% Extended Stay America, Inc 9.875%, 6/15/11 (a)(b)...... 60 59,850 Felcor Lodging LP 8.50%, 6/01/11 (a)(b)....... 30 28,800 9.50%, 9/15/08 (a)(b)....... 100 101,000 Host Marriot LP 9.25%, 10/01/07 (a)......... 410 414,100 -------------- 603,750 -------------- INDUSTRIAL-3.7% Amtrol, Inc. 10.625%, 12/31/06 (a)....... 145 119,625 Applied Extrusion Technologies, Inc. 10.75%, 7/01/11 (a)(b)...... 105 106,575 Flowserve Corp. 12.25%, 8/15/10 (a)......... 250 268,750 Hexcel Corp. 9.75%, 1/15/09 (a).......... 75 72,000 9.75%, 1/15/09 (a)(b)....... 50 48,000 LIN Holdings Co. 10.00%, 3/01/08 (a)......... 75 58,875 Resolution Performance 13.50%, 11/15/10 (a)........ 100 109,000 Russell-Stanley Holdings, Inc. 10.875%, 2/15/09 (a)........ 500 77,500 Service Corp. International 6.00%, 12/15/05 (a)......... 105 87,675 6.30%, 3/15/20 (a).......... 10 9,375 6.50%, 3/15/08 (a).......... 30 24,300 -------------- 981,675 -------------- MINING & METALS-0.2% Republic Technologies International 13.75%, 7/15/09 (a)......... 500 60,000 warrants, expiring 7/15/09 (b)(e).............. 500 5 -------------- 60,005 -------------- PAPER/PACKAGING-5.4% Doman Industries, Ltd. 12.00%, 7/01/04 (a)......... 400 412,000 Owens-Illinois, Inc. 7.80%, 5/15/18 (a).......... 85 53,125 7.85%, 5/15/04 (a).......... 55 44,275 Pliant Corp. warrants, expiring 6/01/10 (b)(e)..... 125 12 Riverwood International Corp. 10.625%, 8/01/07 (a)........ 350 360,500 Stone Container Corp. 9.25%, 2/01/08 (a)(b)....... 200 204,250 9.75%, 2/01/11 (a)(b)....... 250 256,250 Tembec Industries, Inc. 8.625%, 6/30/09 (a)......... 100 102,500 -------------- 1,432,912 -------------- PETROLEUM PRODUCTS-0.6% Frontier Oil Corp. 11.75%, 11/15/09 (a)........ 150 161,250 -------------- PUBLIC UTILITIES - ELECTRIC & GAS-3.9% AES Corp. 8.875%, 2/15/11 (a)......... 160 156,000 9.375%, 9/15/10 (a)(b)...... 200 203,000 Calpine Canada Energy Finance 8.50%, 5/01/08 (a).......... 320 312,383 Calpine Corp. 8.625%, 8/15/10 (a)......... 75 72,692 CMS Energy Corp. 8.50%, 4/15/11 (a).......... 60 58,370 Northeast Utilities 8.38%, 3/01/05 (a).......... 10 9,841 PSEG Energy Holdings, Inc. 10.00%, 10/01/09 (a)........ 200 215,509 -------------- 1,027,795 -------------- PUBLISHING-0.2% Quebecor Media, Inc. 11.125%, 7/15/11 (a)(b)..... 60 60,075 -------------- RETAIL-1.4% Jostens, Inc. 12.75%, 5/01/10 (a)......... 200 204,000 warrants, expiring 5/01/10 (b)(e)..... 200 3,025 Rite Aid Corp. 11.25%, 7/01/08 (a)(b)...... 100 101,375 Saks, Inc. 8.25%, 11/15/08 (a)......... 65 59,475 -------------- 367,875 -------------- SERVICES-4.0% Allied Waste North America, Inc. 8.875%, 4/01/08 (a)(b)...... 200 206,250 10.00%, 8/01/09(a).......... 500 516,250 Avis Rent a Car, Inc. 11.00%, 5/01/09 (a)......... 250 280,313 Stewart Enterprises, Inc. 10.75%, 7/01/08 (a)(b)...... 50 51,750 -------------- 1,054,563 -------------- TECHNOLOGY-1.4% Fairchild Semiconductor Corp. 10.125%, 3/15/07 (a)........ 150 144,750 10.50%, 2/01/09 (a)......... 100 98,000 Filtronic Plc 10.00%, 12/01/05 (a)........ 200 141,500 -------------- 384,250 -------------- Total Corporate Debt Obligations (cost $20,644,185).......... 19,090,207 -------------- 3 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount (000) U.S. $ Value ------------------------------------------------------------- PREFERRED STOCKS-6.0% CABLE-2.2% CSC Holdings, Inc. (f)......... $ 5,427 $ 580,689 -------------- COMMUNICATIONS-1.1% Global Crossing Holdings, Ltd. 10.50%, 6/01/02 (f)......... 5,000 288,750 -------------- COMMUNICATIONS - FIXED-0.9% Intermedia Communication 13.50%, 3/31/09 (f)......... 242 242,299 XO Communications, Inc. 14.00%, 2/01/09 (f)......... 70 333 -------------- 242,632 -------------- COMMUNICATIONS - MOBILE-1.3% Nextel Communications, Inc. 11.125%, 2/15/03 (f)........ 637 350,350 -------------- FINANCIAL-0.5% Sovereign Real Estate Investor Trust 12.00%, 8/29/49 (a)(b)(f)... 130 130,000 -------------- Total Preferred Stocks (cost $1,928,926)........... 1,592,421 -------------- SOVEREIGN DEBT OBLIGATION-0.9% United Mexican States 11.375%, 9/15/16 (cost $223,074) (a)......... 190 228,475 -------------- SHORT-TERM INVESTMENT-19.3% TIME DEPOSIT-19.3% State Street Euro Dollar 3.25%, 7/02/01 (amortized cost $5,128,000)................. 5,128 5,128,000 -------------- TOTAL INVESTMENTS-98.1% (cost $27,924,185).......... 26,039,103 Other assets less liabilities-1.9%............ 511,957 -------------- NET ASSETS-100%................ $ 26,551,060 ============== -------------------------------------------------------------------------------- (a) Securities, or portions thereof, with an aggregate market value of $19,445,640 have been segregated to collateralize forward exchange currency contracts. (b) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration normally applied to certain qualified buyers. At June 30, 2001, the aggregate market value of these securities amounted to $4,139,738 or 15.6% of net assets. (c) Indicates a security that has a zero coupon that remains in effect until a predetermined date at which time the stated coupon rate becomes effective until final maturity. (d) Security is in default and is non-income producing. (e) Non-income producing security. (f) PIK (Paid-in-kind) preferred quarterly stock payments. See Notes to Financial Statements. 4 HIGH-YIELD PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2001 (unaudited) Alliance Variable Products Series Fund ================================================================================ ASSETS Investments in securities, at value (cost $27,924,185) ....................... $ 26,039,103 Cash ......................................................................... 581 Interest receivable .......................................................... 573,779 Receivable for investment securities sold .................................... 106,126 ------------ Total assets ................................................................. 26,719,589 ============ LIABILITIES Payable for investment securities purchased .................................. 115,016 Advisory fee payable ......................................................... 14,460 Unrealized depreciation of forward exchange currency contracts ............... 414 Accrued expenses ............................................................. 38,639 ------------ Total liabilities ............................................................ 168,529 ------------ NET ASSETS ...................................................................... $ 26,551,060 ============ COMPOSITION OF NET ASSETS Capital stock, at par ........................................................ $ 3,580 Additional paid-in capital ................................................... 34,526,243 Undistributed net investment income .......................................... 1,078,704 Accumulated net realized loss on investments and foreign currency transactions (7,171,970) Net unrealized depreciation of investments and foreign currency denominated assets and liabilities .................................................... (1,885,497) ------------ $ 26,551,060 ============ Class A Shares Net assets ................................................................... $ 26,551,060 ============ Shares of capital stock outstanding .......................................... 3,579,858 ============ Net asset value per share .................................................... $ 7.42 ============
-------------------------------------------------------------------------------- See Notes to Financial Statements. 5 HIGH-YIELD PORTFOLIO STATEMENT OF OPERATIONS Six Months Ended June 30, 2001 (unaudited) Alliance Variable Products Series Fund ================================================================================ INVESTMENT INCOME Interest ................................................ $ 1,203,081 Dividends ............................................... 48,241 ----------- Total investment income ................................. 1,251,322 ----------- EXPENSES Advisory fee ............................................ 95,064 Custodian ............................................... 35,275 Administrative .......................................... 32,781 Printing ................................................ 17,894 Audit and legal ......................................... 15,255 Directors' fees ......................................... 632 Transfer agency ......................................... 454 Miscellaneous ........................................... 92 ----------- Total expenses .......................................... 197,447 Less: expenses waived and reimbursed .................... (77,032) ----------- Net expenses ............................................ 120,415 ----------- Net investment income ................................... 1,130,907 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS Net realized loss on investment transactions ............ (2,058,768) Net realized gain on foreign currency transactions ...... 2,868 Net change in unrealized appreciation/depreciation of: Investments .......................................... 1,164,869 Foreign currency denominated assets and liabilities .. (415) ----------- Net loss on investments and foreign currency transactions (891,446) ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS ................. $ 239,461 =========== -------------------------------------------------------------------------------- See Notes to Financial Statements. 6 HIGH-YIELD PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund ================================================================================
Six Months Ended Year Ended June 30, 2001 December 31, (unaudited) 2000 =================== =================== INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income....................................... $ 1,130,907 $ 2,030,394 Net realized loss on investments and foreign currency transactions.............................................. (2,055,900) (1,507,434) Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities........................................... 1,164,454 (1,719,323) ----------------- ----------------- Net increase (decrease) in net assets from operations....... 239,461 (1,196,363) DIVIDENDS TO SHAREHOLDERS FROM: Net investment income Class A.................................................. (2,037,954) (2,056,687) CAPITAL STOCK TRANSACTIONS Net increase................................................ 6,016,864 1,018,904 ----------------- ----------------- Total increase (decrease)................................... 4,218,371 (2,234,146) NET ASSETS Beginning of period......................................... 22,332,689 24,566,835 ----------------- ----------------- End of period (including undistributed net investment income of $1,078,704 and $1,985,751, respectively)........ $ 26,551,060 $ 22,332,689 ================= =================
-------------------------------------------------------------------------------- See Notes to Financial Statements. 7 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS June 30, 2001 (unaudited) Alliance Variable Products Series Fund ================================================================================ NOTE A: Significant Accounting Policies The High-Yield Portfolio (the "Portfolio") is a series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to earn the highest level of current income without assuming undue risk by investing principally in high-yielding, fixed-income securities rated Baa or lower by Moody's or BBB or lower by S&P Duff & Phelps or Fitch or, if unrated of comparable quantity. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers nineteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. As of June 30, 2001, the Portfolio had only Class A shares outstanding. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, 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 Portfolio. 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) or on The Nasdaq Stock Market, Inc., are generally valued at the last reported sales price or if no sale occurred, at the mean of the closing bid and asked price on that day. Readily marketable securities traded in the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the U.S. over-the-counter market, and securities listed on a national securities exchange whose primary market is believed to be over-the-counter (but excluding securities traded on The Nasdaq Stock Market, Inc.), are valued at the mean of the current bid and asked price. U.S. government and fixed income securities which mature in 60 days or less are valued at amortized cost, unless this method does not represent fair value. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by, or in accordance with procedures adopted by, the Board of Directors. Fixed income securities may be valued on the basis of prices obtained from a pricing service when such prices are believed to reflect the fair market value of such securities. 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked price of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates of exchange prevailing when accrued. Net realized gains and losses on foreign currency transactions represent foreign exchange gains and losses from sales and maturities of securities and forward exchange currency contracts, holdings of foreign currencies, exchange gains and losses realized between the trade and settlement dates on investment transactions, and the difference between the amounts of interest, dividends and foreign witholding tax reclaims recorded on the Portfolio's books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of investments and foreign currency denominated assets and liabilities. 3. Taxes It is the Portfolio's policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. 4. Investment Income and Investment Transactions Dividend income is recorded on the ex-dividend date. Interest income is accrued daily. Investment transactions are accounted for on the date securities are purchased or sold. The Portfolio accretes discounts as adjustments to interest income. Investment gains and losses are determined on the identified cost basis. 5. Income and Expenses Expenses attributable to a single portfolio are charged to that portfolio. Expenses of the Fund are charged to each portfolio in proportion to net assets. All income earned and expenses incurred by a portfolio, with multi-class shares outstanding, are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate 8 Alliance Variable Products Series Fund ================================================================================ interest in the portfolio represented by the net assets of such class, except that the portfolio's Class B shares bear the distribution fees. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States. 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. 7. Change in Accounting Principle As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities for financial statement reporting purposes only. This change will have no impact on the net assets of the Portfolio. Prior to January 1, 2001, the Portfolio did not amortize premiums on debt securities. The cumulative effect of this accounting change resulted in a $10,373 reduction in cost of investments and a corresponding $10,373 increase in net unrealized appreciation / depreciation, based on investments owned by the Portfolio on January 1, 2001. The effect of this change for the period ended June 30, 2001, was to decrease net investment income by $12,275, increase net unrealized appreciation (depreciation) by $2,664, and increase net realized gains (losses) by $9,611. The statement of changes in net assets and financial highlights for prior periods have not been restated to reflect this change in accounting principle. -------------------------------------------------------------------------------- NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Portfolio pays Alliance Capital Management L.P. (the "Adviser"), an investment advisory fee at an annualized rate of .75% of the Portfolio's average daily net assets. During the six months ended June 30, 2001, the Adviser agreed to waive its fee and to reimburse the additional operating expenses to the extent necessary to limit total operating expenses on an annual basis to .95% of the average daily net assets for Class A shares. Expense waivers/reimbursements, if any, are accrued daily and paid monthly. For the six months ended June 30, 2001, such waivers/reimbursements amounted to $77,032. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $474 for the six months ended June 30, 2001. -------------------------------------------------------------------------------- NOTE C: Distribution Plan The Portfolio has adopted a Plan for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"). Under the Plan, the Portfolio pays distribution and servicing fees to the Distributor at an annual rate of up to .50% of the Portfolio's average daily net assets attributable to the Class B shares. The fees are accrued daily and paid monthly. The Board of Directors currently limit payments under the Plan to .25% of the Portfolio's average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities. The Portfolio is not obligated under the Plan to pay any distribution services fee in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio's shares. Since the Distributor's compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution services fees (other than current amounts accrued but not yet paid) would be owed by the Portfolios to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. 9 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2001, were as follows: Purchases: Stocks and debt obligations................................. $ 16,054,782 U.S. government and agencies................................ -0- Sales: Stocks and debt obligations................................. $ 13,249,467 U.S. government and agencies................................ -0- At June 30, 2001, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows: Gross unrealized appreciation............................... $ 655,553 Gross unrealized depreciation............................... (2,541,050) --------------- Net unrealized depreciation................................. $ (1,885,497) =============== At December 31, 2000, for federal income tax purposes, the Portfolio had net capital loss carryforwards of $5,053,673, of which $63,971 expires in the year 2006, $3,196,833 expires in the year 2007, and $1,792,869 expires in the year 2008. Capital and foreign currency losses incurred after October 31 ("post-October" losses) within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. The Portfolio incurred and will elect to defer net capital losses of $62,272 and net foreign currency losses of $2,783 during the fiscal year. 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts to hedge exposure to changes in foreign currency exchange rates on foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Portfolio may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. It may also use contracts in a manner intended to protect foreign currency denominated securities from declines in value due to unfavorable exchange rate movements. The gain or loss arising from the difference between the original contracts and the closing of such contracts is included in realized gains or losses from foreign currency transactions. Fluctuations in the value of forward exchange currency contracts are recorded for financial reporting purposes as unrealized gains or losses by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having an approximate value equal to the aggregate amount of the portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. At June 30, 2001, the Portfolio had outstanding forward exchange currency contracts as follows: 10 Alliance Variable Products Series Fund ================================================================================
Contract U.S. $ Value on U.S. $ Unrealized Amount Origination Current Appreciation (000) Date Value (Depreciation) =================== =================== ================= ================ Forward Exchange Currency Buy Contracts Euro, settling 7/11/01.... 106 $ 91,282 $ 89,810 $ (1,472) Euro, settling 7/31/01.... 38 32,432 31,918 (514) Forward Exchange Currency Sale Contracts Euro, settling 7/31/01.... 118 100,732 99,900 832 Euro, settling 7/31/01.... 80 68,496 67,756 740 -------------- $ (414) ==============
2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write call options and purchase put options on U.S. securities that are traded on U.S. securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from which written options expire unexercised are recorded by the Portfolio on the expiration date as realized gains from written options. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. The Portfolio had no transactions in options written for the six months ended June 30, 2001. -------------------------------------------------------------------------------- NOTE E: Capital Stock There are 500,000,000 Class A shares of $.001 par value capital stock authorized. Transactions in capital stock were as follows:
----------------------------------------- ----------------------------------------- SHARES AMOUNT ----------------------------------------- ----------------------------------------- Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2001 December 31, June 30, 2001 December 31, (unaudited) 2000 (unaudited) 2000 =================== =================== =================== =================== Class A Shares sold........... 941,422 576,169 $ 7,694,547 $ 4,989,359 Shares issued in reinvestment of dividends......... 268,152 250,510 2,037,954 2,056,687 Shares redeemed...... (452,254) (691,158) (3,715,637) (6,027,142) ----------------- ----------------- ----------------- ----------------- Net increase......... 757,320 135,521 $ 6,016,864 $ 1,018,904 ================= ================= ================= =================
11 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ NOTE F: Concentration of Risk Investing in securities of foreign companies or 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 or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. -------------------------------------------------------------------------------- NOTE G: Bank Borrowing A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $750 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2001. 12 HIGH-YIELD PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------------------------------------- CLASS A ---------------------------------------------------------------------------- Six Months October 27, Ended Year Ended December 31, 1997(b) to June 30, 2001(a) ======================================== December 31, (unaudited) 2000 1999 1998 1997 ========== ========== ========== ========== ========== Net asset value, beginning of period . $ 7.91 $ 9.14 $ 9.94 $ 10.33 $ 10.00 ---------- ---------- ---------- ---------- ---------- Income From Investment Operations Net investment income (c)(d) ............... .36 .74 .91 1.03 .13 Net realized and unrealized gain (loss) on investments and foreign currency transactions (.20) (1.18) (1.16) (1.41) .20 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value from operations .................. .16 (.44) (.25) (.38) .33 ---------- ---------- ---------- ---------- ---------- Less: Dividends Dividends from net investment income ..... (.65) (.79) (.55) (.01) -0- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ....... $ 7.42 $ 7.91 $ 9.14 $ 9.94 $ 10.33 ========== ========== ========== ========== ========== Total Return Total investment return based on net asset value (e) ................... 1.80% (5.15)% (2.58)% (3.69)% 3.30% Ratios/Supplemental Data Net assets, end of period (000's omitted) $ 26,551 $ 22,333 $ 24,567 $ 16,910 $ 1,141 Ratio to average net assets of: Expenses, net of waivers and reimbursements .... .95%(f) .95% .95% .95% .95%(f) Expenses, before waivers and reimbursements .... 1.56%(f) 1.42% 1.40% 1.80% 8.26%(f) Net investment income (c) ............ 8.92%(f) 8.68% 9.72% 9.77% 7.28%(f) Portfolio turnover rate .................. 60% 175% 198% 295% 8%
-------------------------------------------------------------------------------- (a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. The effect of this change for the six months ended June 30, 2001 was to decrease net investment income per share by $.01, increase net realized and unrealized gains and losses per share by $.01, and decrease the ratio of net investment income to average net assets from 9.10% to 8.92%. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (b) Commencement of operations. (c) Net of expenses reimbursed or waived by the Adviser. (d) Based on average shares outstanding. (e) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total investment return calculated for a period of less than one year is not annualized. (f) Annualized. 13 Alliance Variable Products Series Fund ================================================================================ BOARD OF DIRECTORS John D. Carifa, Chairman and President Ruth Block (1) David H. Dievler (1) John H. Dobkin (1) William H. Foulk, Jr. (1) Clifford L. Michel (1) Donald J. Robinson (1) OFFICERS Kathleen A. Corbet, Senior Vice President Alfred L. Harrison, Senior Vice President Andrew S. Adelson, Vice President Peter Anastos, Vice President Andrew Aran, Vice President Bruce K. Aronow, Vice President Edward Baker, Vice President Thomas J. Bardong, Vice President Matthew Bloom, Vice President Mark H. Breedon, Vice President Russell Brody, Vice President Kenneth T. Carty, Vice President Frank Caruso, Vice President John F. Chiodi, Vice President Paul J. DeNoon, Vice President Joseph C. Dona, Vice President Gregory Dube, Vice President Marilyn G. Fedak, Vice President F. Jeanne Goetz, Vice President Jane Mack Gould, Vice President David A. Kruth, Vice President Alan E. Levi, Vice President Michael Levy, Vice President Gerald T. Malone, Vice President Andrew Moloff, Vice President Michael Mon, Vice President Raymond J. Papera, Vice President Douglas J. Peebles, Vice President Daniel G. Pine, Vice President Steven Pisarkiewicz, Vice President John Ricciardi, Vice President Paul C. Rissman, Vice President Gregory R. Sawers, Vice President Kevin F. Simms, Vice President Kenneth D. Smalley, Vice President Michael A. Snyder, Vice President Annie Tsao, Vice President Jean Van De Walle, Vice President Sandra Yeager, Vice President Edmund P. Bergan, Jr., Secretary Mark D. Gersten, Treasurer & Chief Financial Officer Thomas Manley, Controller CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 DISTRIBUTOR Alliance Fund Distributors, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT AUDITORS Ernst & Young LLP 787 Seventh Avenue New York, NY 10019 LEGAL COUNSEL Seward & Kissel One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 1520 Secaucus, NJ 07096-1520 Toll-free 1-(800) 221-5672 -------------------------------------------------------------------------------- (1) Member of the Audit Committee. 14 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.)