0000936772-01-500245.txt : 20011009
0000936772-01-500245.hdr.sgml : 20011009
ACCESSION NUMBER: 0000936772-01-500245
CONFORMED SUBMISSION TYPE: N-14/A
PUBLIC DOCUMENT COUNT: 1
FILED AS OF DATE: 20010926
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIANCE VARIABLE PRODUCTS SERIES FUND INC
CENTRAL INDEX KEY: 0000825316
STANDARD INDUSTRIAL CLASSIFICATION: []
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-14/A
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-66084
FILM NUMBER: 1744797
BUSINESS ADDRESS:
STREET 1: 500 PLAZA DRIVE
STREET 2: 1345 AVENUE OF THE AMERICAS 31ST FL
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 2013194105
MAIL ADDRESS:
STREET 1: ALLIANCE CAPITAL MANGEMENT LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
N-14/A
1
edg6973k.txt
BRINSON N-14 PRE-EFFECTIVE
Document is copied.
As filed with the Securities and Exchange Commission on September 26, 2001
Registration No. 333-66084
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM N-14
|x|Pre-Effective Amendment No.2 || Post-Effective Amendment No.
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.*
(Exact Name of Registrant as Specified in Charter)
(800) 221-5672
(Area Code and Telephone Number)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Offices)
-------------------------
EDMUND P. BERGAN, JR.
Alliance Capital Management, L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and Address of Agents for Service)
-------------------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
-------------------------
Pursuant to Rule 429 under the Securities Act of 1933, no filing fee is
required because an indefinite number of shares have previously been registered
pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
*On behalf of its Total Return Portfolio, International Portfolio, Global Bond
Portfolio, Growth and Income Portfolio, Growth Portfolio, U.S. Government/High
Grade Securities Portfolio, High Yield Portfolio and Quasar Portfolio.
TABLE OF CONTENTS
Section Title Page
----
VOTING INFORMATION.............................................................1
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS......................................7
PROSPECTUS/PROXY STATEMENT....................................................11
OVERVIEW OF MERGER............................................................14
Proposed Transaction......................................................14
Operating Expenses........................................................15
Federal Income Tax Consequences...........................................26
Comparison of Investment Objectives, Policies and Restrictions............26
Comparison of Distribution Policies and Purchase, Exchange and
Redemption Procedures.....................................................34
Investment Advisors.......................................................35
SUMMARY OF PRINCIPAL RISKS....................................................36
Interest Rate Risk........................................................36
Credit Risk...............................................................36
Market Risk...............................................................37
Industry/Sector Risk......................................................37
Capitalization Risk.......................................................37
Foreign Risk..............................................................37
Currency Risk.............................................................37
Country or Geographic Risk................................................37
Leveraging Risk...........................................................38
Derivatives Risk..........................................................38
Liquidity Risk............................................................38
Management Risk...........................................................38
Focused Portfolio Risk....................................................38
Allocation Risk...........................................................38
Chart of Principal Risks by Portfolio.....................................39
SPECIAL MEETING OF SHAREHOLDERS...............................................40
THE PROPOSAL..................................................................41
Approval or Disapproval of Agreement and Plan of Acquisition and
Termination...............................................................41
Trustees' Recommendations.................................................42
Required Shareholder Vote.................................................42
Background and Reasons for the Proposed Merger............................42
INFORMATION ABOUT THE MERGERS.................................................44
Agreement and Plan of Reorganization......................................44
Description of the Merger Shares..........................................45
Organization..............................................................45
Meetings of Shareholders..................................................46
Quorums...................................................................46
Number of Directors.......................................................46
Removal of Trustees or Directors..........................................46
-i-
Indemnification...........................................................46
Personal Liability........................................................48
Termination...............................................................48
Federal income tax consequences...........................................48
Capitalization............................................................50
VOTING INFORMATION............................................................53
Record date, quorum and method of tabulation..............................53
Shares outstanding and beneficial ownership...............................53
Contact owner Instructions................................................53
Soliciation of instructions...............................................53
Revocation of Instructions................................................54
Shareholder Proposals At Future Meetings of Shareholders..................54
Adjournment...............................................................54
INFORMATION ABOUT THE PORTFOLIOS..............................................55
APPENDIX A: FORM OF AGREEMENT AND PLAN OF ACQUISITION AND TERMINATION.......A-1
APPENDIX B: EXCERPTS FROM THE ALLIANCE FUND ANNUAL REPORT....................B-1
Alliance Total Return Portfolio..........................................B-1
Alliance International Portfolio.........................................B-5
Alliance Global Bond Portfolio...........................................B-8
Alliance Growth & Income Portfolio......................................B-11
Alliance Growth Portfolio...............................................B-14
Alliance U.S./High Grade Portfolio......................................B-17
Alliance High Yield Portfolio...........................................B-20
Alliance Quasar Portfolio...............................................B-23
APPENDIX C: FINANCIAL HIGHLIGHTS OF THE ACQUIRING PORTFOLIOS.................C-1
-ii-
[LOGO]
September 26, 2001
Dear Variable Annuity Contract Owner:
[________________] Insurance Company has been offering variable annuity
contracts Separate Account [__] (the "Separate Account"), a unit investment
trust, since ____. The Separate Account consists of [_________](_#_) investment
divisions (the "Divisions"), each of which is available under an annuity
contract (each a "Contract") funded through the Separate Account. If you've had
your Contract for some time, you'll recall that we periodically ask you to tell
us how you would like us to represent your interests at meetings of shareholders
of Brinson Series Trust (the "Brinson Trust"). The issues that are considered at
shareholder meetings generally have to do with the management of the Brinson
Trust and/or the various portfolios within the Brinson Trust. The Brinson Trust
is a family of portfolios, some of which underlie the investment options in your
Contract, and it includes the Balanced Portfolio, the Global Equity Portfolio,
the Global Income Portfolio, the Growth and Income Portfolio, the Growth
Portfolio, the High Grade Fixed Income Portfolio, the High Income Portfolio, the
Small Cap Portfolio, and the Strategic Income Portfolio.
Included in this booklet is information about the upcoming shareholders' meeting
(the "Special Meeting"):
o A NOTICE OF A SPECIAL MEETING OF THE SHAREHOLDERS OF EACH OF THE BRINSON
PORTFOLIOS, which summarizes the issues for which you are being asked to
provide voting instructions;
o AN INFORMATION STATEMENT, which outlines the voting procedures; and
o A PROSPECTUS/PROXY STATEMENT FOR THE SPECIAL MEETING, which provides
comprehensive information on the specific issues being considered at the
Special Meeting.
ALSO ENCLOSED ARE YOUR BALLOT AND POSTAGE-PAID RETURN ENVELOPE.
We encourage you to review each of these items thoroughly. Once you've
determined how you would like us to vote your shares at the Special Meeting,
please mark your preferences on your ballot, making sure that you sign and date
your ballot before mailing it to us in the postage-paid return envelope. A
prompt response on your part will help to ensure that your interests are
represented.
Sincerely,
[ ]
-----------------
[ Title ]
-----------------
[INSURANCE COMPANY]
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF BRINSON SERIES TRUST
BALANCED PORTFOLIO
GLOBAL EQUITY PORTFOLIO
GLOBAL INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GROWTH PORTFOLIO
HIGH GRADE FIXED INCOME PORTFOLIO
HIGH INCOME PORTFOLIO
SMALL CAP PORTFOLIO
STRATEGIC INCOME PORTFOLIO
To be held on October 18, 2001
Dear [Insurance Company] Client:
The net purchase payments made under your [Insurance Company ("____")] variable
annuity contract ("Contract") have been allocated at your direction to
investment divisions ("Divisions") of Separate Account [__] (the "Separate
Account"). The Divisions of the Separate Account invest in one or more
corresponding series of Brinson Series Trust (the "Brinson Trust"), an open end
management investment company, including one or more of the Balanced Portfolio
(the "Brinson Balanced Portfolio"), the Global Equity Portfolio (the "Brinson
Global Equity Portfolio"), the Global Income Portfolio (the "Brinson Global
Income Portfolio"), the Growth and Income Portfolio (the "Brinson Growth and
Income Portfolio"), the Growth Portfolio (the "Brinson Growth Portfolio"),
the High Grade Fixed Income Portfolio (the "Brinson High Grade Portfolio"),
the High Income Portfolio (the "Brinson High Income Portfolio"), the Small
Cap Portfolio (the "Brinson Small Cap Portfolio"), and the Strategic Income
Portfolio (the "Brinson Strategic Income Portfolio") (each a "Brinson
Portfolio").
As a contract owner of record at the close of business on August 10, 2001 (the
"Record Date")(a "Contract Owner"), you are entitled to instruct [__] as to how
it should vote on certain proposals to be considered at a Special Meeting of
each Portfolio's shareholders.
The Special Meeting of Shareholders of each Brinson Portfolio will be held on
October 18, 2001, at 10:00 a.m. at the offices of UBS PaineWebber Inc., 1285
Avenue of the Americas, New York, New York 10019 to consider the following, on
one or more of which you are entitled to provide [___] with voting instructions:
1. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Balanced Portfolio to the Total Return Portfolio (the "Alliance
Total Return Portfolio") of Alliance Variable Products Series Fund, Inc.
(the "Alliance Fund"), in exchange for shares of the Alliance Total Return
Portfolio and the assumption by the Alliance Total Return Portfolio
-2-
of stated liabilities of the Brinson Balanced Portfolio, and the
distribution of such shares to the shareholders of the Brinson Balanced
Portfolio in liquidation and dissolution of the Brinson Balanced
Portfolio. (To be voted upon by the shareholders of the Brinson Balanced
Portfolio only.)
2. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Global Equity Portfolio to the International Portfolio of the
Alliance Fund (the "Alliance International Portfolio"), in exchange for
shares of the Alliance International Portfolio and the assumption by the
Alliance International Portfolio of stated liabilities of the Brinson
Global Equity Portfolio, and the distribution of such shares to the
shareholders of the Brinson Global Equity Portfolio in liquidation and
dissolution of the Brinson Global Equity Portfolio. (To be voted upon by
the shareholders of the Brinson Global Equity Portfolio only.)
3. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Global Income Portfolio to the Global Bond Portfolio of the
Alliance Fund (the "Alliance Global Bond Portfolio"), in exchange for
shares of the Alliance Global Bond Portfolio and the assumption by the
Alliance Global Bond Portfolio of stated liabilities of the Brinson
Global Income Portfolio, and the distribution of such shares to the
shareholders of the Brinson Global Income Portfolio in liquidation and
dissolution of the Brinson Global Income Portfolio. (To be voted upon by
the shareholders of the Brinson Global Income Portfolio only.)
4. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Growth and Income Portfolio to the Growth and Income Portfolio of
the Alliance Fund (the "Alliance Growth and Income Portfolio"), in
exchange for shares of the Alliance Growth and Income Portfolio and the
assumption by the Alliance Growth and Income Portfolio of stated
liabilities of the Brinson Growth and Income Portfolio, and the
distribution of such shares to the shareholders of the Brinson Growth and
Income Portfolio in liquidation and dissolution of the Brinson Growth and
Income Portfolio. (To be voted upon by the shareholders of the Brinson
Growth and Income Portfolio only.)
5. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Growth Portfolio to the Growth Portfolio of the Alliance Fund (the
"Alliance Growth Portfolio"), in exchange for shares of the Alliance
Growth Portfolio and the assumption by the Alliance Growth Portfolio of
stated liabilities of the Brinson Growth Portfolio, and the
distribution of such shares to the shareholders of the Brinson Growth
Portfolio in liquidation and dissolution of the Brinson Growth Portfolio.
(To be voted upon by the shareholders of the Brinson Growth Portfolio
only.)
6. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson High Grade
-3-
Portfolio to the U.S. Government/High Grade Securities Portfolio of the
Alliance Fund (the "Alliance U.S./High Grade Portfolio"), in exchange for
shares of the Alliance U.S./High Grade Portfolio and the assumption by the
Alliance U.S./High Grade Portfolio of stated liabilities of the
Brinson High Grade Portfolio, and the distribution of such shares to the
shareholders of the Brinson High Grade Portfolio in liquidation and
dissolution of the Brinson High Grade Portfolio. (To be voted upon by the
shareholders of the Brinson High Grade Portfolio only.)
7. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson High Income Portfolio to the High Yield Portfolio of the Alliance
Fund (the "Alliance High Yield Portfolio"), in exchange for shares of the
Alliance High Yield Portfolio and the assumption by the Alliance High
Yield Portfolio of stated liabilities of the Brinson High Income
Portfolio, and the distribution of such shares to the shareholders of the
Brinson High Income Portfolio in liquidation and dissolution of the
Brinson High Income Portfolio. (To be voted upon by the shareholders of
the Brinson High Income Portfolio only.)
8. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Small Cap Portfolio to the Quasar Portfolio of the Alliance Fund
(the "Alliance Quasar Portfolio"), in exchange for shares of the Alliance
Quasar Portfolio and the assumption by the Alliance Quasar Portfolio of
stated liabilities of the Brinson Small Cap Portfolio, and the
distribution of such shares to the shareholders of the Brinson Small Cap
Portfolio in liquidation and dissolution of the Brinson Small Cap
Portfolio. (To be voted upon by the shareholders of the Brinson Small Cap
Portfolio only.)
9. To approve an Agreement and Plan of Acquisition and
Termination providing for the transfer of all of the assets of the
Brinson Strategic Income Portfolio to the Alliance Global Bond Portfolio,
in exchange for shares of the Alliance Global Bond Portfolio and the
assumption by the Alliance Global Bond Portfolio of stated liabilities
of the Brinson Strategic Income Portfolio, and the distribution of such
shares to the shareholders of the Brinson Strategic Income Portfolio in
liquidation and dissolution of the Brinson Strategic Income Portfolio. (To
be voted upon by the shareholders of the Brinson Strategic Income
Portfolio only.)
10. To transact such other business as may properly come before the
meeting.
Attached to this notice are the Information Statement of [insurance company] and
the Prospectus/Proxy Statement of the Alliance Fund. You are urged to read both
of these statements before completing your ballot.
-------------------------
Amy R. Doberman
Secretary
Brinson Series Trust
-4-
September 26, 2001
--------------------------------------------------------------
It is important that your contract be represented. Please promptly mark your
voting instructions on the enclosed ballot; then, sign, date and mail it in the
accompanying envelope, which is addressed for your convenience. No postage is
required if mailed in the United States. Your prompt response will help avoid
the unnecessary expense of a further solicitation of ballots.
--------------------------------------------------------------
[________________] INSURANCE COMPANY
--------------------------------
INFORMATION STATEMENT
REGARDING A SPECIAL MEETING OF THE
SHAREHOLDERS OF BRINSON SERIES TRUST
BALANCED PORTFOLIO
GLOBAL EQUITY PORTFOLIO
GLOBAL INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GROWTH PORTFOLIO
HIGH GRADE FIXED INCOME PORTFOLIO
HIGH INCOME PORTFOLIO
SMALL CAP PORTFOLIO
STRATEGIC INCOME PORTFOLIO
------------------------------
September 26, 2001
GENERAL
This information statement is furnished by [___________________] Insurance
Company ("[___]"), a [State] life insurance company, to owners ("Contract
Owners") of its variable annuity contracts ("Contracts") who had net purchase
payments allocated to any of the Balanced Portfolio, the Global Equity
Portfolio, the Global Income Portfolio, the Growth and Income Portfolio, the
Growth Portfolio, the High Grade Fixed Income Portfolio, the High Income
Portfolio, the Small Cap Portfolio, and the Strategic Income Portfolio
investment divisions of [___]'s Separate Account [__] (the "Separate Account")
as of August 10, 2001 (the "Record Date"). The assets in each such investment
division of the Separate Account (the "Divisions") are invested in the shares of
beneficial interest of one or more of the Balanced Portfolio (the "Brinson
Balanced Portfolio"), the Global Equity Portfolio (the "Brinson Global Equity
Portfolio"), the Global Income Portfolio (the "Brinson Global Income
Portfolio"), the Growth and Income Portfolio
-5-
(the "Brinson Growth and Income Portfolio"), the Growth Portfolio (the
"Brinson Growth Portfolio"), the High Grade Fixed Income Portfolio (the
"Brinson High Grade Portfolio"), the High Income Portfolio (the "Brinson High
Income Portfolio"), the Small Cap Portfolio (the "Brinson Small Cap
Portfolio") and the Strategic Income Portfolio (the "Brinson Strategic
Income Portfolio"), (each "Brinson Portfolio") each a series of Brinson
Series Trust (the "Brinson Trust").
[Insurance Company] is required to offer Contract Owners the opportunity to
instruct [___], as owner of all Brinson Trust shares held by the Separate
Account, as to how it should vote on the proposals to be considered at the
Special Meeting of the shareholders of one or more of the Brinson Portfolios
referred to in the preceding notice, and at any adjournments thereof
(collectively, the "Special Meeting").
The proposals to be considered at the Special Meeting are discussed in the
enclosed Prospectus/Proxy Statement. Contract Owners are urged to read the
enclosed Prospectus/Proxy Statement prior to completing the ballot.
[Insurance Company] is a[n indirect, wholly owned] subsidiary of
[__________________]. The home office of [___] is located at
[___________________], and the mailing address is [___________________].
This Information Statement and the accompanying ballot are being mailed to
Contract Owners on or about October 1, 2001.
HOW TO INSTRUCT [____]
To instruct [____] as to how to vote their shares of beneficial interest of the
Brinson Trust (the "Shares") held in the Divisions, Contract Owners are asked to
promptly mark their voting instructions on the enclosed ballot; then, sign, date
and mail it in the accompanying postage-paid envelope.
IF A BALLOT IS NOT MARKED TO INDICATE VOTING
INSTRUCTIONS BUT IS SIGNED, DATED AND RETURNED,
IT WILL BE TREATED AS AN INSTRUCTION TO
VOTE THE SHARES IN FAVOR OF EACH OF THE PROPOSALS.
The number of Shares held in the Divisions for which a Contract Owner may
provide voting instructions (in the aggregate, "Shares Attributable to Contract
Owners") was determined for each Division as of the Record Date by dividing (i)
a Contract's account value (minus any contract indebtedness) allocable to the
Division by (ii) the net asset value of one share of the respective Brinson
Portfolio.
At any time prior to [___]'s voting of the Shares held in the Divisions at the
Special Meeting, a Contract Owner may revoke his or her ballot with respect to
any of the Divisions by written notice to [__________] or by properly executing
a later-dated ballot.
-6-
HOW [____] WILL VOTE
[___________] will vote the Shares for which [_________] receives timely voting
instructions from Contract Owners in accordance with those instructions. The
Shares attributable to Contract Owners in each Division for which [______]
receives no timely voting instructions will be voted by [___] for and against
approval of a proposal, and as an abstention, in the same proportion as the
Shares attributable to Contract Owners for which [___] receives voting
instructions. Shares attributable to amounts retained by [___] in each Division
will be voted in the same proportion as votes cast by Contract Owners in respect
of each Division.
OTHER MATTERS
[___] is not aware of any matters, other than the specified proposals, to be
acted upon at the Special Meeting. If any other matters come before the Special
Meeting, [___] will vote the Shares upon such matters in its discretion. Ballots
may be solicited by employees of MIS Corporation and its subsidiaries. The
solicitation will be by mail and may also be by telephone, telegram or personal
interview.[__] reserves the right to vote for Adjournment of the Special Meeting
for the purpose of further solicitation of ballots. MIS Corporation has been
retained to assist with solicitation activities (including assembly and mailing
of materials to Contract Owners).
If the necessary quorum to transact business or the vote required to approve or
reject the proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments at the Special Meeting, in
accordance with applicable law, to permit further solicitation of voting
instructions. The persons named as proxies will vote in favor of such
adjournment with respect to those voting instructions which have been voted in
favor of the proposals and will vote against any such adjournment those voting
instructions which have been voted against the proposal.
[-------------------]
[Secretary]
PLEASE PROMPTLY MARK YOUR VOTING INSTRUCTIONS ON THE ENCLOSED BALLOT; THEN SIGN,
DATE AND MAIL IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IT IS IMPORTANT THAT
YOUR CONTRACT BE REPRESENTED.
-7-
BRINSON SERIES TRUST
Balanced Portfolio
Global Equity Portfolio
Global Income Portfolio
Growth and Income Portfolio
Growth Portfolio
High Grade Fixed Income Portfolio
High Income Portfolio
Small Cap Portfolio
Strategic Income Portfolio
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
October 18, 2001
To the Shareholders:
This is to notify you that a Special Meeting of Shareholders of the
Balanced Portfolio (the "Brinson Balanced Portfolio"), the Global Equity
Portfolio (the "Brinson Global Equity Portfolio"), the Global Income Portfolio
(the "Brinson Global Income Portfolio"), the Growth and Income Portfolio (the
"Brinson Growth and Income Portfolio"), the Growth Portfolio (the "Brinson
Growth Portfolio"), the High Grade Fixed Income Portfolio (the "Brinson High
Grade Portfolio"), the High Income Portfolio (the "Brinson High Income
Portfolio"), the Small Cap Portfolio (the "Brinson Small Cap Portfolio"), and
the Strategic Income Portfolio (the "Brinson Strategic Income Portfolio"), each
a series of Brinson Series Trust (the "Brinson Trust"), will be held on October
18, 2001 at 10:00 a.m. Eastern Time, at the offices of UBS PaineWebber Inc.,
1285 Avenue of the Americas, New York, New York 10019, for the following
purposes:
1. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Balanced Portfolio to the Total Return Portfolio (the
"Alliance Total Return Portfolio") of Alliance Variable Products
Series Fund, Inc. (the "Alliance Fund"), in exchange for shares of
the Alliance Total Return Portfolio and the assumption by the
Alliance Total Return Portfolio of stated liabilities of the
Brinson Balanced Portfolio, and the distribution of such shares to
the shareholders of the Brinson Balanced Portfolio in liquidation
and dissolution of the Brinson Balanced Portfolio. (To be voted upon
by the shareholders of the Brinson Balanced Portfolio only.)
2. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Global Equity Portfolio to the International Portfolio of
the Alliance Fund (the "Alliance International Portfolio"), in
exchange for shares of the Alliance International Portfolio and the
assumption by the Alliance International Portfolio of stated
liabilities of the Brinson Global Equity Portfolio, and the
distribution of such shares to the shareholders of the Brinson
Global
-8-
Equity Portfolio in liquidation and dissolution of the Brinson
Global Equity Portfolio. (To be voted upon by the shareholders of
the Brinson Global Equity Portfolio only.)
3. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Global Income Portfolio to the Global Bond Portfolio of the
Alliance Fund (the "Alliance Global Bond Portfolio"), in exchange
for shares of the Alliance Global Bond Portfolio and the assumption
by the Alliance Global Bond Portfolio of stated liabilities of
the Brinson Global Income Portfolio, and the distribution of such
shares to the shareholders of the Brinson Global Income Portfolio in
liquidation and dissolution of the Brinson Global Income Portfolio.
(To be voted upon by the shareholders of the Brinson Global Income
Portfolio only.)
4. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Growth and Income Portfolio to the Growth and Income
Portfolio of the Alliance Fund (the "Alliance Growth and Income
Portfolio"), in exchange for shares of the Alliance Growth and
Income Portfolio and the assumption by the Alliance Growth and
Income Portfolio of stated liabilities of the Brinson Growth and
Income Portfolio, and the distribution of such shares to the
shareholders of the Brinson Growth and Income Portfolio in
liquidation and dissolution of the Brinson Growth and Income
Portfolio. (To be voted upon by the shareholders of the Brinson
Growth and Income Portfolio only.)
5. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Growth Portfolio to the Growth Portfolio of the Alliance
Fund (the "Alliance Growth Portfolio"), in exchange for shares of
the Alliance Growth Portfolio and the assumption by the Alliance
Growth Portfolio of stated liabilities of the Brinson Growth
Portfolio, and the distribution of such shares to the shareholders
of the Brinson Growth Portfolio in liquidation and dissolution of
the Brinson Growth Portfolio. (To be voted upon by the shareholders
of the Brinson Growth Portfolio only.)
6. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson High Grade Portfolio to the U.S. Government/High Grade
Securities Portfolio of the Alliance Fund (the "Alliance U.S./High
Grade Portfolio"), in exchange for shares of the Alliance U.S./High
Grade Portfolio and the assumption by the Alliance U.S./High Grade
Portfolio of stated liabilities of the Brinson High Grade
Portfolio, and the distribution of such shares to the shareholders
of the Brinson High Grade Portfolio in liquidation and dissolution
of the Brinson High Grade Portfolio. (To be voted upon by the
shareholders of the Brinson High Grade Portfolio only.)
7. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson High Income Portfolio to the High Yield Portfolio of the
Alliance Fund (the "Alliance High Yield Portfolio"), in exchange for
shares of the Alliance High Yield Portfolio and the assumption by
the Alliance High Yield Portfolio of stated liabilities of the
Brinson High Income
-9-
Portfolio, and the distribution of such shares to the shareholders
of the Brinson High Income Portfolio in liquidation and dissolution
of the Brinson High Income Portfolio. (To be voted upon by the
shareholders of the Brinson High Income Portfolio only.)
8. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Small Cap Portfolio to the Quasar Portfolio of the Alliance
Fund (the "Alliance Quasar Portfolio"), in exchange for shares of
the Alliance Quasar Portfolio and the assumption by the Alliance
Quasar Portfolio of stated liabilities of the Brinson Small Cap
Portfolio, and the distribution of such shares to the shareholders
of the Brinson Small Cap Portfolio in liquidation and dissolution of
the Brinson Small Cap Portfolio. (To be voted upon by the
shareholders of the Brinson Small Cap Portfolio only.)
9. To approve an Agreement and Plan of Acquisition and Termination
providing for the transfer of all of the assets of the
Brinson Strategic Income Portfolio to the Alliance Global Bond
Portfolio, in exchange for shares of the Alliance Global Bond
Portfolio and the assumption by the Alliance Global Bond Portfolio
of stated liabilities of the Brinson Strategic Income Portfolio,
and the distribution of such shares to the shareholders of the
Brinson Strategic Income Portfolio in liquidation and dissolution of
the Brinson Strategic Income Portfolio. (To be voted upon by the
shareholders of the Brinson Strategic Income Portfolio only.)
10. To transact such other business as may properly come before the
meeting.
The Trustees of the Brinson Trust have fixed the close of business
on August 10, 2001 as the record date for determination of shareholders entitled
to notice of, and to vote at, the Special Meeting.
By order of the Board of Trustees,
----------------------------
Amy R. Doberman
Secretary
New York, New York
September 26, 2001
--------------------------------------------------------------------------------
WE URGE YOU TO MARK, SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID
RETURN ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE SPECIAL MEETING.
--------------------------------------------------------------------------------
-10-
PROSPECTUS/PROXY STATEMENT
September 26, 2001
Acquisition of the assets of: By and in exchange for shares of:
---------------------------- --------------------------------
Balanced Portfolio................. Total Return Portfolio
Global Equity Portfolio............ International Portfolio
Global Income Portfolio............ Global Bond Portfolio
Growth and Income Portfolio........ Growth and Income Portfolio
Growth Portfolio................... Growth Portfolio
High Grade Fixed Income Portfolio.. U.S. Government/High Grade Securities
Portfolio
High Income Portfolio.............. High Yield Portfolio
Small Cap Portfolio................ Quasar Portfolio
Strategic Income Portfolio......... Global Bond Portfolio
each a series of each a series of
Brinson Series Trust Alliance Variable Products Series Fund, Inc.
51 West 52nd Street 1345 Avenue of the Americas
New York, New York 10019-6114 New York, New York 10105
800-986-0088 800-277-4618
This Prospectus/Proxy Statement relates to the proposed mergers (each a
"Merger" and, collectively, the "Mergers") of the Balanced Portfolio (the
"Brinson Balanced Portfolio"), the Global Equity Portfolio (the "Brinson Global
Equity Portfolio"), the Global Income Portfolio (the "Brinson Global Income
Portfolio"), the Growth and Income Portfolio (the "Brinson Growth and Income
Portfolio"), the Growth Portfolio (the "Brinson Growth Portfolio"), the High
Grade Fixed Income Portfolio (the "Brinson High Grade Portfolio"), the High
Income Portfolio (the "Brinson High Income Portfolio"), the Small Cap Portfolio
(the "Brinson Small Cap Portfolio"), and the Strategic Income Portfolio (the
"Brinson Strategic Income Portfolio") (each an "Acquired Portfolio" or a
"Brinson Portfolio"), each a series of Brinson Series Trust ("Brinson Trust")
into, respectively, the Total Return Portfolio (the "Alliance Total Return
Portfolio"), the International Portfolio (the "Alliance International
Portfolio"), the Global Bond Portfolio (the "Alliance Global Bond Portfolio"),
the Growth and Income Portfolio (the "Alliance Growth and Income Portfolio"),
the Growth Portfolio (the "Alliance Growth Portfolio), the U.S. Government/High
Grade Securities Portfolio (the "Alliance U.S./High Grade Portfolio"), the High
Yield Portfolio (the "Alliance High Yield Portfolio"), the Quasar Portfolio (the
"Alliance Quasar Portfolio"), and the Alliance Global Bond Portfolio (each an
"Acquiring Portfolio" or an "Alliance Portfolio" and, collectively, together
with the Brinson Portfolios, the "Portfolios"), each a series of Alliance
Variable Products Series Fund, Inc. (the "Alliance Fund"). The Mergers are to be
effected through the transfer of all of the assets of each Acquired Portfolio to
the corresponding Acquiring Portfolio in
-11-
exchange for shares of common stock of that Acquiring Portfolio (the "Merger
Shares") and the assumption by that Acquiring Portfolio of certain stated
liabilities of the Acquired Portfolio. This will be followed by the distribution
of the relevant Merger Shares to the shareholders of the Acquired Portfolio and
the liquidation and dissolution of the Acquired Portfolio. As a result of the
proposed transaction, each shareholder of an Acquired Portfolio will receive in
exchange for his or her Acquired Portfolio shares a number of Merger Shares of
the corresponding class equal in aggregate net asset value at the date of the
exchange to the aggregate net asset value of the shareholder's Acquired
Portfolio shares. This means that you may end up with a different number of
shares than you originally held, but the total dollar value of your shares will
not be affected by the merger.
Because shareholders of each Acquired Portfolio are being asked to approve
transactions which will result in their receiving shares of the Acquiring
Portfolio, this Proxy Statement also serves as a Prospectus for the Merger
Shares of each Acquiring Portfolio.
The Securities and Exchange Commisions has not approved or disapproved of
these securities or passed upon the adequacy of this prospectus, any
representation to the contrary is a criminal offense.
The Alliance Fund is an open-end series management investment company
organized as a Maryland corporation with principal executive offices at 1345
Avenue of the Americas, New York, New York 10105.
The investment objective of each Acquiring Portfolio is as follows:
1. Alliance Total Return Portfolio's investment objective is to achieve a
high return through a combination of current income and capital
appreciation.
2. Alliance International Portfolio's investment objective is to seek to
obtain a total return on its assets from long-term growth of capital
principally through a broad portfolio of marketable securities of
established international companies, companies participating in foreign
economies with prospects for growth, including U.S. companies having their
principal activities and interests outside the U.S., and in foreign
government securities. As a secondary objective, the Alliance
International Portfolio attempts to increase its current income without
assuming undue risk.
3. Alliance Global Bond Portfolio's investment objective is to seek a high
level of return from a combination of current income and capital
appreciation by investing in a globally diversified portfolio of
high-quality debt securities denominated in the U.S. dollar and a range of
foreign currencies.
4. Alliance Growth and Income Portfolio's investment objective is to seek
reasonable current income and reasonable opportunity for appreciation
through investments primarily in dividend-paying common stocks of good
quality.
5. Alliance Growth Portfolio's investment objective is to provide long-term
growth of capital. Current income is incidental to the Alliance Growth
Portfolio's objective.
6. Alliance U.S./High Grade Portfolio's investment objective is high current
income consistent with preservation of capital.
7. Alliance High Yield Portfolio's investment objective is to earn the
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highest level of current income available without assuming undue risk by
investing principally in high-yielding fixed-income securities rated Baa
or lower by Moody's Investors Service, Inc. ("Moody's") or BBB or lower by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Duff & Phelps or Fitch or, if unrated, of comparable quality as determined
by Alliance Capital Management, L.P. ("Alliance Capital"), the Alliance
Portfolios' investment adviser. As a secondary objective, the Alliance
High Yield Portfolio seeks capital appreciation.
8. Alliance Quasar Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies. Current income is incidental to
the Quasar Portfolio's objective.
This Prospectus/Proxy Statement explains concisely what you should know
before investing in an Acquiring Portfolio. Please read it carefully and keep it
for future reference.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC" or the "Commission") and are incorporated into this
Prospectus/Proxy Statement by reference:
o the current Prospectus of the Brinson Trust, dated May 1, 2001 (the
"Brinson Prospectus");
o The current Class A or Class B Prospectus of the Alliance Fund, as
applicable, dated May 1, 2001 (each an "Alliance Prospectus"); and
o the Statement of Additional Information relating to this Prospectus/Proxy
Statement dated September 26, 2001 (the "Merger SAI").
This Prospectus/Proxy Statement is accompanied by a copy of the Class A or
Class B Alliance Prospectus, as applicable. For a free copy of the current
Statement of Additional Information of the Alliance Fund, dated May 1, 2001 (the
"Alliance SAI") or the Merger SAI, please call 800-277-4618 or write to the
Alliance Fund at:
Alliance Variable Products Series Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
For a free copy of the Brinson Prospectus or the current Statement of
Additional Information of the Brinson Trust dated May 1, 2001 (the "Brinson
SAI"), please call 800-986-0088 or write to the Brinson Fund at:
Brinson Series Trust
51 West 52nd Street
New York, New York 10019-6114
You may lose money by investing in an Acquiring Portfolio. Any Acquiring
Portfolio may not achieve its goals, and none of the Acquiring Portfolios is
intended as a complete investment program. An investment in an Acquiring
Portfolio is not a deposit in a bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
-13-
================================================================================
OVERVIEW OF MERGER
Proposed Transaction
Alliance Capital, the adviser and administrator to each Acquiring
Portfolio, has served as sub-adviser to each Acquired Portfolio since October
10, 2000 pursuant to sub-advisory contracts with Brinson Advisors, Inc.
("Brinson Advisors", formerly known as Mitchell Hutchins Asset Management Inc.),
the investment manager and administrator for each Acquired Portfolio. Both the
interim sub-advisory contract dated October 10, 2000 and the subsequent
sub-advisory contract dated March 1, 2001 were approved by the Brinson Trust's
Board of Trustees (the "Brinson Trustees"), and the subsequent sub-advisory
contract was also approved by the shareholders of each Acquired Portfolio on
March 1, 2001. Brinson Advisors proposed the Mergers to the Brinson Trustees at
a meeting on July 25, 2001 because it believed that the relatively small size of
each Acquired Portfolio made it difficult to manage it efficiently and no
Acquired Portfolio was likely to achieve the asset growth needed to assure its
economic viability in the near future. As a result, Brinson Advisors believed
that continuing to operate each Acquired Portfolio as a stand-alone fund was no
longer consistent with the best interests of the each Acquired Portfolio's
shareholders. In addition, Brinson Advisors believed that each Acquired
Portfolio's shareholders would benefit from the proposed Merger because each
combined Portfolio would have a larger asset base to invest, which should
provide greater opportunities for diversifying investments and realizing
economies of scale. In addition, while there can be no assurance that the
Mergers will result in savings in operating expenses to shareholders, each
Merger is expected to result in lower aggregate operating expenses than those
currently borne by the Acquired Portfolios
The Brinson Trustees and the Directors of the Alliance Fund (the "Alliance
Directors") have approved the proposed mergers on behalf of their respective
Portfolios. Each Merger is proposed to be accomplished pursuant to an Agreement
and Plan of Acquisition and Termination providing for the transfer of all of the
assets of the relevant Acquired Portfolio to the corresponding Acquiring
Portfolio in exchange for shares of the Acquiring Portfolio and the assumption
by the Acquiring Portfolio of stated liabilities of the Acquired Portfolio,
followed by the liquidation and dissolution of the Acquired Portfolio.
As a result of the proposed Mergers, each Acquired Portfolio will receive
a number of Class A or Class B Merger Shares of the corresponding Acquiring
Portfolio equal in aggregate net asset value to the aggregate net asset value of
the Acquired Portfolio being transferred that are attributable to the Class H or
Class I shares of the Acquired Portfolio, respectively, as the case may be.
Following the transfer, (i) the Acquired Portfolio will distribute to each of
its Class H and Class I shareholders a number of full and fractional Class A or
Class B Merger Shares equal in aggregate net asset value at the date of the
exchange to the aggregate net asset value of the shareholder's Class H and Class
I Acquired Portfolio shares, respectively, as the case may be,and (ii) the
Acquired Portfolio will be liquidated and dissolved.
-14-
Shares of both the Acquired and the Acquiring Portfolios are sold without
a front-end sales charge and are not subject to a contingent deferred sales
charge ("CDSC"). You will not be charged a front-end sales load on the issuance
of the Merger Shares, or a CDSC on Acquired Portfolio shares exchanged for
Merger Shares.
The Class H and Class I shares of the Acquired Portfolios have
characteristics substantially similar to those of the corresponding classes of
shares of the Acquiring Portfolios, as described in the Alliance Prospectus and
the Brinson Prospectus. Class A and Class H shares are sold and redeemed at net
asset value and do not pay 12b-1 fees. Class B and Class I shares are also sold
and redeemed at net asset value and, pursuant to separate Rule 12b-1 Plans
adopted by the respective Portfolio, Class B and Class I shares each pay an
annual distribution fee of 0.25% of average daily net assets. The level of
annual distribution fees payable by Class B shares could be increased to 0.50%
of the average daily net assets attributable to such class without a vote of the
shareholders.
As described more fully below, the Brinson Trustees have approved, and
recommend that shareholders of each Acquired Portfolio approve, the Mergers.
For more information about the factors considered by the Brinson Trustees, see
"Proposals -- Background and Reasons for the Proposed Mergers."
Operating Expenses
As the following tables suggest, each Merger should result in the relevant
Acquired Portfolio shareholders experiencing lower portfolio expenses. Of
course, there can be no assurance that the Mergers will result in expense
savings for shareholders. These tables summarize expenses for Class H and Class
I shares, as applicable, for the Acquired Portfolios and Class A shares and
Class B shares, as applicable, for the Acquiring Portfolios:
o that each Acquired Portfolio incurred during its fiscal year ended
December 31, 2000;
o that each corresponding Acquiring Portfolio incurred during its fiscal
year ended December 31, 2000; and
o that each corresponding Acquiring Portfolio would have incurred during
such fiscal year, giving effect on a pro forma combined basis to the
proposed Merger, as if the Merger had occurred as of the beginning of such
fiscal year.(1)
The tables are provided to help you understand your share of the operating
expenses that each Portfolio incurs. The examples show the estimated cumulative
expenses attributable to a hypothetical $10,000 investment in each Portfolio,
and in each Acquiring Portfolio on a pro forma basis, over the specified
periods. By translating "Total Annual Fund Operating Expenses" into dollar
amounts, these examples help you compare the costs of investing in a Portfolio,
or in a particular class of shares, with the costs of investing in other mutual
funds.
Please note that neither the tables nor the examples reflect any charges
or expenses that may be applicable
----------
(1) The pro forma information for the High Income Portfolio and the Strategic
Income Portfolio reflect the expected redemptions, in connection with the
Mergers, of Brinson's investment in the relevant Acquired Portfolio.
-15-
to your insurance contract. If such charges or expenses were reflected, the
costs shown would be higher.
-16-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Balanced Alliance Total Return Alliance Total Return
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.63% 0.63% 0.63% 0.63%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.59% 0.57% 0.24% 0.24%** 0.19% 0.19%**
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.34% 1.57% 0.87% 1.12% 0.82% 1.07%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.03%* 0.00% 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.34% 1.54%* 0.87% 1.12% 0.82% 1.07%
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
** Because Class B is being established in connection with the merger, Other
Expenses shown are estimates based on the Alliance Total Return Portfolio's
Class A Shares.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses and, except as indicated, redemption at the end
of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Balanced
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $136 $425 $734 $1,613
------------------------------------------------------------------------------------------------------------------------------------
Class I $157 $493 $852 $1,865
------------------------------------------------------------------------------------------------------------------------------------
Alliance Total Return
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 89 $278 $482 $1,073
------------------------------------------------------------------------------------------------------------------------------------
Class B $114 $356 $617 $1,363
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Total Return
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 84 $262 $455 $1,014
------------------------------------------------------------------------------------------------------------------------------------
Class B $109 $340 $590 $1,306
------------------------------------------------------------------------------------------------------------------------------------
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Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Global Equity Alliance International Alliance International
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 1.00% 1.00% 1.00% 1.00%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.99% 1.01% 0.34% 0.34%*** 0.34% 0.34%***
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.74% 2.01% 1.34% 1.59% 1.34% 1.59%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.03%* 0.39%** 0.39% 0.39%** 0.39%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.74% 1.98%* 0.95%** 1.20% 0.95%** 1.20%
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
** Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This waiver
was terminated during the 2000 fiscal year.
*** Because Class B is being established in connection with the merger, Other
Expenses shown are estimates based on the Alliance International Portfolio's
Class A Shares.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses (reflecting, for the first year only, the
contractual waiver described above) and, except as indicated, redemption at the
end of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Global Equity
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $177 $548 $ 944 $2,052
------------------------------------------------------------------------------------------------------------------------------------
Class I $201 $628 $1,080 $2,335
------------------------------------------------------------------------------------------------------------------------------------
Alliance International
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $386 $ 697 $1,579
------------------------------------------------------------------------------------------------------------------------------------
Class B $122 $465 $ 834 $1,888
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance International
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $386 $ 697 $1,579
------------------------------------------------------------------------------------------------------------------------------------
Class B $122 $465 $ 834 $1,888
------------------------------------------------------------------------------------------------------------------------------------
-18-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Global Income Alliance Global Bond Alliance Global Bond
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class A Class A
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.65% 0.65%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 1.80% 0.41% 0.41%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.55% 1.06% 1.06%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.04%** 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 2.55% 1.02%** 1.06%
------------------------------------------------------------------------------------------------------------------------------------
** Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This waiver
was terminated during the 2000 fiscal year.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses (reflecting, for the first year only, the
contractual waiver described above) and, except as indicated, redemption at the
end of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Global Income
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $258 $793 $1,355 $2,885
------------------------------------------------------------------------------------------------------------------------------------
Alliance Global Bond
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $104 $325 $ 563 $1,248
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Global Bond
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $108 $337 $ 585 $1,294
------------------------------------------------------------------------------------------------------------------------------------
-19-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Growth and Alliance Growth and Alliance Growth and
Income Portfolio Income Portfolio Income Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.63% 0.63% 0.63% 0.63%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.44% 0.42% 0.06% 0.07% 0.05% 0.05%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.14% 1.37% 0.69% 0.95% 0.68% 0.93%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.04%* 0.00% 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.14% 1.33%* 0.69% 0.95% 0.68% 0.93%
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses and, except as indicated, redemption at the end
of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Growth and
Income Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $116 $362 $628 $1,386
------------------------------------------------------------------------------------------------------------------------------------
Class I $135 $430 $746 $1,643
------------------------------------------------------------------------------------------------------------------------------------
Alliance Growth and
Income Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 70 $221 $384 $ 859
------------------------------------------------------------------------------------------------------------------------------------
Class B $ 97 $303 $525 $1,167
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Growth and
Income Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 69 $218 $379 $ 847
------------------------------------------------------------------------------------------------------------------------------------
Class B $ 95 $296 $515 $1,143
------------------------------------------------------------------------------------------------------------------------------------
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Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Growth Portfolio Alliance Growth Portfolio Alliance Growth Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.36% 0.41% 0.06% 0.08% 0.07% 0.07%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.11% 1.41% 0.81% 1.08% 0.82% 1.07%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.04%* 0.00% 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.11% 1.37%* 0.81% 1.08% 0.82% 1.07%
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses and, except as indicated, redemption at the end
of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Growth Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $113 $353 $612 $1,352
------------------------------------------------------------------------------------------------------------------------------------
Class I $139 $442 $767 $1,687
------------------------------------------------------------------------------------------------------------------------------------
Alliance Growth
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 83 $259 $450 $1,002
------------------------------------------------------------------------------------------------------------------------------------
Class B $110 $343 $595 $1,318
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Growth
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 84 $262 $455 $1,014
------------------------------------------------------------------------------------------------------------------------------------
Class B $109 $340 $590 $1,306
------------------------------------------------------------------------------------------------------------------------------------
-21-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson High Grade Alliance U.S./High Grade Alliance U.S./High Grade
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class A Class A
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.50% 0.60% 0.60%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 2.23% 0.35% 0.32%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.73% 0.95% 0.92%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 2.73% 0.95% 0.92%
------------------------------------------------------------------------------------------------------------------------------------
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses and, except as indicated, redemption at the end
of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson High Grade
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $276 $847 $1,445 $3,061
------------------------------------------------------------------------------------------------------------------------------------
Alliance U.S./High
Grade Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $303 $ 525 $1,166
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance U.S./High
Grade Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 94 $293 $ 509 $1,131
------------------------------------------------------------------------------------------------------------------------------------
-22-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson High Income Alliance High Yield Alliance High Yield
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class A Class A
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.50% 0.75% 0.75%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.78% 0.67% 0.51%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.28% 1.42% 1.26%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.47%** 0.31%**
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.28% 0.95%** 0.95%**
------------------------------------------------------------------------------------------------------------------------------------
** Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This waiver
extends through the Fund's current fiscal year and may be extended by Alliance
for additional one-year terms.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses (reflecting, for the first year only, the
contractual waiver described above) and, except as indicated, redemption at the
end of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson High Income
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $130 $406 $702 $1,545
------------------------------------------------------------------------------------------------------------------------------------
Alliance High Yield
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $403 $732 $1,661
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance High Yield
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $369 $662 $1,495
------------------------------------------------------------------------------------------------------------------------------------
-23-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Small Cap Alliance Quasar Alliance Quasar
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 1.21% 1.21% 0.14% 0.16% 0.11% 0.11%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 2.21% 2.46% 1.14% 1.41% 1.11% 1.36%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.02%* 0.19%** 0.21%** 0.16%** 0.16%**
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 2.21% 2.44%* 0.95%** 1.20%** 0.95%** 1.20%**
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
** Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This waiver
extends through the Fund's current fiscal year and may be extended by Alliance
for additional one-year terms.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses (reflecting, for the first year only, the
contractual waiver described above), and, except as indicated, redemption at
the end of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Small Cap
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $224 $691 $1,185 $2,544
------------------------------------------------------------------------------------------------------------------------------------
Class I $247 $765 $1,309 $2,795
------------------------------------------------------------------------------------------------------------------------------------
Alliance Quasar
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $116 $322 $544 $1,184
------------------------------------------------------------------------------------------------------------------------------------
Class B $144 $401 $678 $1,460
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Quasar
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $ 97 $337 $596 $1,337
------------------------------------------------------------------------------------------------------------------------------------
Class B $122 $415 $731 $1,632
------------------------------------------------------------------------------------------------------------------------------------
-24-
Annual Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------------------
Expenses as of 12/31/00 Expenses as of 12/31/00 Pro Forma Expenses
Brinson Strategic Income Alliance Global Bond Alliance Global Bond
Portfolio Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses Class H Class I Class A Class B Class A Class B
(as a percentage of average net assets)
------------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.65% 0.65% 0.65% 0.65%
------------------------------------------------------------------------------------------------------------------------------------
12b-1 Fees 0.00% 0.25% 0.00% 0.25% 0.00% 0.25%
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.84% 0.83% 0.41% 0.41% 0.41% 0.41%
------------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 1.59% 1.83% 1.06% 1.35% 1.06% 1.31%
------------------------------------------------------------------------------------------------------------------------------------
Waiver/Expense Reimbursement 0.00% 0.03%* 0.04%** 0.04%** 0.00% 0.00%
------------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.59% 1.80%* 1.02%** 1.31%** 1.06% 1.31%
------------------------------------------------------------------------------------------------------------------------------------
* Pursuant to a voluntary fee waiver which was terminated during the 2000 fiscal
year.
** Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. This waiver
was terminated during the 2000 fiscal year.
Example of Fund Expenses:
An investment of $10,000 would incur the following expenses, assuming 5%
annual return, constant expenses (reflecting, for the first year only, the
contractual waiver described above) and, except as indicated, redemption at the
end of each time period:
------------------------------------------------------------------------------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------------------------------------------------------------------------
Current Expenses
Brinson Strategic Income
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H $162 $502 $866 $1,889
------------------------------------------------------------------------------------------------------------------------------------
Class I $183 $573 $988 $2,145
------------------------------------------------------------------------------------------------------------------------------------
Alliance Global Bond
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $104 $333 $581 $1,291
------------------------------------------------------------------------------------------------------------------------------------
Class B $133 $424 $736 $1,623
------------------------------------------------------------------------------------------------------------------------------------
Pro Forma Expenses
Alliance Global Bond
Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class A $108 $337 $585 $1,294
------------------------------------------------------------------------------------------------------------------------------------
Class B $133 $415 $718 $1,579
------------------------------------------------------------------------------------------------------------------------------------
-25-
Federal Income Tax Consequences
As long as the contracts funded through the separate accounts of the
insurance company shareholders (the "Contracts") qualify as annuity contracts
under Section 72 of the Internal Revenue Code of 1986, as amended (the "Code"),
the Mergers will not create any tax liability for owners of Contracts ("Contract
Owners").
For federal income tax purposes, all of the Mergers are expected to be
tax-free reorganizations. Accordingly, no gain or loss is expected to be
recognized by any Acquired Portfolio or its shareholders as a result of each
Merger, and the aggregate tax basis of the Merger Shares received by each
Acquired Portfolio shareholder will be the same as the aggregate tax basis of
the shareholder's Acquired Portfolio shares.
For more information about the federal income tax consequences of the
Merger, see "Information about the Mergers--Federal Income Tax Consequences."
Comparison of Investment Objectives, Policies and Restrictions
At meetings held on November 7, 2000, and February 14, 2001, the Brinson
Trustees approved changes in the non-fundamental investment policies (the
policies that can be changed without shareholder approval) of each Brinson
Portfolio to conform to those of the corresponding Alliance Portfolio to the
extent practical.
Exceptions to this general rule concern the Brinson Small Cap Portfolio
and the Brinson Global Equity Portfolio Portfolio. The name of the Brinson
Small Cap Portfolio requires it to invest at least 65% of its total assets in
equity securities of small capitalization companies, which it defines as
companies having market capitalizations of up to $1.5 billion at the time of
purchase. The Alliance Quasar Portfolio has no corresponding restriction,
although at present it emphasizes investments in small cap companies, which it
also defines as companies having market capitalizations of up to $1.5 billion.
The Brinson Global Equity Portfolio's name permits it to include securities of
U.S. issuers as part of its normal portfolio investments. The Alliance
International Portfolio in general may not invest in the securities of U.S.
issuers.
To the extent that a Brinson Portfolio has fundamental policies (policies
that cannot be changed without the approval of shareholders) that are less
restrictive than the fundamental policies of the corresponding Alliance
Portfolio, the Brinson Trustees adopted as non-fundamental policies the more
restrictive policies of the corresponding Alliance Portfolio. To the extent that
the fundamental restrictions of a Brinson Portfolio were more restrictive than
those of the corresponding Alliance Portfolio, such differences remain.
Each Acquired Portfolio's investment objective, while not identical to, is
generally similar to that of the corresponding Acquiring Portfolio. As a result
of the actions of the Brinson Trustees described above, most of the Acquired
Portfolios now have investment policies that are substantially similar to those
of the corresponding Acquiring Portfolio. The investment objectives of each
Acquired
-26-
Portfolio and its corresponding Acquiring Portfolio, and certain differences in
their fundamental restrictions, are summarized below.(2) Comparisons of the
Portfolios' average annual total returns are also provided. For a more detailed
description of the investment strategies, policies and restrictions of each
Acquiring Portfolio, please see the Alliance Prospectus. For a more detailed
description of the investment strategies, policies, and restrictions of each
Acquired Portfolio, please see the Brinson Prospectus. For information
concerning the risks associated with investments in the various Portfolios, see
"Risk Factors," below.
Brinson Balanced Portfolio vs. Alliance Total Return Portfolio
The Brinson Balanced Portfolio and the Alliance Total Return Portfolio
have similar investment objectives. The Alliance Total Return Portfolio's
investment objective is to achieve a high return through a combination of
current income and capital appreciation. The Brinson Balanced Portfolio's
investment objective is high total return with low volatility. Both Portfolios
invest in common and preferred stocks, U.S. government and agency obligations,
bonds and fixed-income senior securities (including short- and long-term debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics) in such proportions and of such type as
Alliance Capital deems best adapted to its current economic and market outlooks.
The percentage of each Portfolio's assets invested in each type of security at
any time is determined by Alliance Capital, except that the Brinson Balanced
Portfolio maintains a fixed income allocation (including bonds and cash) of at
least 25%.
The average annual total return for the Brinson Balanced Portfolio and the
Alliance Total Return Portfolio for certain periods is set forth in the chart
below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 10 Years 12/28/92**
------ --------- -------- --------
Brinson Balanced
Portfolio................ 8.71% 11.63% 10.68% 10.60%
Alliance Total
Return Portfolio......... 12.55% 14.37% N/A 12.20%
* Performance shown is for Class H shares of the Brinson Balanced Portfolio and
Class A shares of the Alliance Total Return Portfolio and does not reflect any
insurance account related charges or expenses. For further information about the
Alliance Total Return Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
** The commencement of operations of the Alliance Total Return Portfolio.
The Brinson Balanced Portfolio may not make loans except through loans of
portfolio securities or through repurchase agreements; or invest in real estate.
The Alliance Total Return Portfolio has no such restrictions.
Brinson Global Equity Portfolio vs. Alliance International Portfolio
The Brinson Global Equity Portfolio and the Alliance International
Portfolio both
----------
(2) One difference is that the Brinson Portfolios may invest in the securities
of other investment companies and certain of the Brinson Portfolios in
connection with their securities lending activities invest in Brinson Private
Money Fund LLC. Certain Alliance Portfolios' (the Alliance Global Bond
Portfolio, the Alliance U.S./High Grade Portfolio and the Alliance High Yield
Portfolio) fundamental restrictions prohibit such investments.
-27-
seek long-term growth of capital. The two Portfolios, however, have different
specific investment objectives and use different strategies with respect to
their investments in U.S. companies in seeking to achieve their objectives.
The Alliance International Portfolio's investment objective is to seek to
obtain a total return on its assets from long-term growth of capital principally
through a broad portfolio of marketable securities of established international
companies, companies participating in foreign economies with prospects for
growth, including U.S. companies having their principal activities and interests
outside the U.S., and in foreign government securities. As a secondary
objective, the Alliance International Portfolio attempts to increase its current
income without assuming undue risk. The Portfolio also may invest in other types
of securities, including debt securities of foreign issuers when Alliance
believes that the total return on these types of securities may equal or exceed
the return on equity securities.
The Brinson Global Equity Portfolio's investment objective is long-term
capital appreciation. The Brinson Global Equity Portfolio's investments are
similar to those of the Alliance International Portfolio, except that the
Brinson Global Equity Portfolio also invests in equity securities of U.S.
companies and, under normal circumstances, invests at least 65% of its total
assets in common stocks and securities convertible into common stocks.
The average annual total return for the Brinson Global Equity Portfolio
and the Alliance International Portfolio for certain periods is set forth in the
chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 10 Years 12/28/92**
------ --------- -------- --------
Brinson Global Equity
Portfolio................ (19.21)% 3.69% 4.24% 7.55%
Alliance International
Portfolio................ (31.51)% 1.50% N/A 6.02%
* Performance shown is for Class H shares of the Brinson Global Equity Portfolio
and Class A shares of the Alliance International Portfolio and does not reflect
any insurance account related charges or expenses. For further information about
the Alliance International Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
** The commencement of operations of the Alliance International Portfolio.
The Alliance International Portfolio has a fundamental restriction
prohibiting investment in other investment companies, whereas Brinson Global
Equity Portfolio has no such fundamental restriction.
The Brinson Global Equity Portfolio may not make loans except through
loans of portfolio securities or through repurchase agreements. The Alliance
International Portfolio has no such restrictions.
Brinson Global Income Portfolio vs. Alliance Global Bond Portfolio
The Brinson Global Income Portfolio and the Alliance Global Bond Portfolio
have similar investment objectives in that both seek high current income and
capital appreciation. The Alliance Global Bond Portfolio's investment objective
is to seek a high level of return from a combination of current income and
capital appreciation by investing in a globally diversified portfolio of
high-quality debt securities denominated in the U.S. dollar and a range of
foreign currencies. The Brinson Global Income Portfolio's investment objective
is high
-28-
current income consistent with prudent investment risk; capital appreciation is
a secondary objective.
Both Portfolios invest in debt securities of U.S. or non-U.S. governments,
supranational entities, U.S. and non-U.S. companies and commercial paper of
banks and bank holding companies. Both Portfolios' foreign investments are
generally denominated in foreign currencies, including the Euro. Normally, each
Portfolio invests at least 65% of its total assets in debt securities of at
least three (and usually considerably more) countries and invests approximately
25% of its total assets in U.S. dollar denominated debt securities. The average
weighted maturity of each Portfolio's investments in fixed-income securities is
expected to vary between one year or less and 10 years.
AIGAM International Limited ("AIGAM") serves as sub-adviser for the
Alliance Global Bond Portfolio. More information about AIGAM is set forth in the
Alliance Prospectus that accompanies this Prospectus/Proxy Statement.
The average annual total return for the Brinson Global Income Portfolio
and the Alliance Global Bond Portfolio for certain periods is set forth in the
chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 10 Years 07/15/91**
------ --------- -------- --------
Brinson Global Income
Portfolio................ 1.27% 2.92% 5.03% 6.67%
Alliance Global
Bond Portfolio........... (2.88)% 1.97% N/A 5.42%
* Performance shown is for Class H shares of the Brinson Global Income Portfolio
and Class A shares of the Alliance Global Bond Portfolio and does not reflect
any insurance account related charges or expenses. For further information about
the Alliance Global Bond Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
** The commencement of operations of the Alliance Global Bond Portfolio.
Both Portfolios are "non-diversified." This means that each Portfolio may
invest more of its assets in the securities of fewer companies than a
diversified portfolio. This increases each Portfolio's vulnerability to factors
affecting a single investment and can result in greater losses and volatility.
The Alliance Global Bond Portfolio has a fundamental restriction
prohibiting investment in a security if, as a result, it would own any
securities of an open-end investment company, whereas Brinson Global Income
Portfolio has no such fundamental restriction.
Brinson Growth and Income Portfolio vs. Alliance Growth and Income Portfolio
The Brinson Growth and Income Portfolio and the Alliance Growth and Income
Portfolio have similar investment objectives. The Alliance Growth and Income
Portfolio's investment objective is to seek reasonable current income and
reasonable opportunity for appreciation through investments primarily in
dividend-paying common stocks of good quality. The Brinson Growth and Income
Portfolio's investment objective is current income and capital growth.
Both Portfolios invest primarily in dividend-paying common stocks of
large, well-established "blue-chip" companies. When the economic outlook is
unfavorable for common stocks, each Portfolio may invest in other types of
securities, such as bonds, convertible bonds, preferred stocks and convertible
preferred stocks. Each
-29-
Portfolio may invest in foreign securities, although the Brinson Growth and
Income Portfolio is more limited in that it may invest only up to 25% of its
total assets in U.S. dollar denominated equity securities and bonds of foreign
issuers that are traded on recognized U.S. exchanges or in the U.S.
over-the-counter market. Because investing in foreign securities entails certain
political and economic risks, both Portfolios restrict investments in these
securities to issues of high quality.
The average annual total return for the Brinson Growth and Income
Portfolio and the Alliance Growth and Income Portfolio for certain periods is
set forth in the chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 10 Years 01/02/92**
------ --------- -------- --------
Brinson Growth and
Income Portfolio.......... 3.05% 13.57% N/A 10.51%
Alliance Growth and
Portfolio................ 14.46% 18.77% 15.72% 16.37%
* Performance shown is for Class H shares of the Brinson Growth and Income
Portfolio and Class A shares of the Alliance Growth and Income Portfolio and
does not reflect any insurance account related charges or expenses. For further
information about the Alliance Growth and Income Portfolio's performance,
including information about waivers/reimbursements that affect the Portfolio's
performance, see the Alliance Prospectus.
** The commencement of operations of the Brinson Growth and Income Portfolio.
Performance shown in this column for the Alliance Growth and Income Portfolio is
from 12/31/91, the month end closest to the Brinson Growth and Income
Portfolio's inception date. The performance of the Alliance Growth and Income
Portfolio from its inception, on January 14, 1991, is 15.14%.
The Brinson Growth and Income Portfolio may not make loans except through
loans of portfolio securities or through repurchase agreements; engage in the
business of underwriting securities; or invest in commodities or real estate.
The Alliance Growth and Income Portfolio has no such restrictions, although its
investments in repurchase agreements are limited to 10% of its total assets.
Brinson Growth Portfolio vs. Alliance Growth Portfolio
The Brinson Growth Portfolio and the Alliance Growth Portfolio have very
similar investment objectives. The Alliance Growth Portfolio's investment
objective is to provide long-term growth of capital. Current income is only an
incidental consideration. The Brinson Growth Portfolio's investment objective is
long-term capital appreciation. Both Portfolios invest primarily in equity
securities of companies with favorable earnings outlooks and whose long-term
growth rates are expected to exceed that of the U.S. economy over time. Both
Portfolios emphasize investments in large- and mid-cap companies.
The average annual total return for the Brinson Growth Portfolio and the
Alliance Growth Portfolio for certain periods is set forth in the chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 10 Years 09/15/94**
------ --------- -------- --------
Brinson Growth
Portfolio ............... (29.28)% 7.76% 11.73% 17.26%
Alliance Growth
Portfolio ............... (28.97)% 12.52% N/A 16.83%
* Performance shown is for Class H shares of the Brinson Growth Portfolio and
Class A shares of the Alliance Growth Portfolio and does not reflect any
insurance account related charges or expenses. For further information about the
Alliance Growth Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
-30-
** The commencement of operations of the Alliance Growth Portfolio.
The Brinson Growth Portfolio may not invest in physical commodities, but
may invest in financial futures and other financial contracts or derivative
instruments. The Alliance Growth Portfolio has no such restriction.
Brinson High Grade Portfolio vs. Alliance U.S./High Grade Portfolio
The Brinson High Grade Portfolio and the Alliance U.S./High Grade
Portfolio have very similar investment objectives. The Alliance U.S./High Grade
Portfolio's investment objective is high current income consistent with
preservation of capital. The Brinson High Grade Portfolio's primary investment
objective is current income; capital appreciation is a secondary investment
objective. Both Portfolios invest primarily in U.S. government securities
(including those backed by mortgages), repurchase agreements and forward
contracts relating to U.S. government securities and other high-grade debt
securities (including non-U.S. government mortgage- and asset-backed securities)
that are, at the time of purchase, rated within one of the three highest grades
assigned by S&P, or Moody's, comparably rated by another rating agency or, if
unrated, determined by Alliance Capital to be of comparable quality.
The average annual total return for the Brinson High Grade Portfolio and
the Alliance U.S./High Grade Portfolio for certain periods is set forth in the
chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 11/08/93**
------ --------- --------
Brinson High Grade
Portfolio.... 7.94% 5.07% 3.39%
Alliance U.S./High
Grade Securities
Portfolio..... 10.40% 6.79% 4.37%
* Performance shown is for Class H shares of the Brinson High Grade Portfolio
and Class A shares of the Alliance U.S./High Grade Portfolio and does not
reflect any insurance account related charges or expenses. For further
information about the Alliance U.S./High Grade Portfolio's performance,
including information about waivers/reimbursements that affect the Portfolio's
performance, see the Alliance Prospectus.
** The commencement of operations of the Brinson High Grade Portfolio.
Performance shown in this column for the Alliance U.S./High Grade Securities
Portfolio is from 10/31/98, the month end closest to the Brinson High Grade
Portfolio's inception date. The performance of the Alliance U.S./High Grade
Portfolio from its inception, on September 17, 1992, is 5.97%.
The Alliance U.S./High Grade Portfolio has a fundamental restriction
prohibiting investment in a security if, as a result, it would own any
securities of any other investment company, whereas Brinson High Grade Portfolio
has no such fundamental restriction.
The Brinson High Grade Portfolio may not make loans except through loans
of portfolio securities or through repurchase agreements; or engage in the
business of underwriting securities. The Alliance U.S./High Grade Portfolio has
no such restrictions.
Brinson High Income Portfolio vs. Alliance High Yield Portfolio
The Brinson High Income Portfolio and the Alliance High Yield Portfolio
have similar investment objectives in that both focus primarily on high current
income. The Alliance High Yield Portfolio's investment objective is to earn the
highest level of current income available 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 quality as determined by
-31-
Alliance Capital. As a secondary objective, the Alliance High Yield Portfolio
seeks capital appreciation. The Brinson High Income Portfolio's investment
objective is to provide high income. Both Portfolios invest in a diversified mix
of high-yield, high-risk debt securities rated below investment grade (commonly
known as "junk bonds"). Each Portfolio normally invests at least 65% of its
total assets in high-yield corporate bonds that, at the time of purchase, are
rated at least BBB or lower by S&P, Baa or lower by Moody's, are comparably
rated by another rating agency or, if unrated, of comparable quality as
determined by Alliance Capital. The Portfolios normally do not invest in bonds
that are rated below CCC by S&P, Caa by Moody's, comparably rated by another
rating agency or, if unrated, of comparable quality as determined by Alliance
Capital.
The average annual total return for the Brinson High Income Portfolio and
the Alliance High Yield Portfolio for certain periods is set forth in the chart
below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 09/28/98**
------ --------
Brinson High Income
Portfolio.... (14.36)% (3.96)%
Alliance High
Yield Portfolio..... (3.21)% (2.06)%
* Performance shown is for Class H shares of the Brinson High Income Portfolio
and Class A shares of the Alliance High Yield Portfolio and does not reflect any
insurance account related charges or expenses. For further information about the
Alliance U.S. High Yield Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
** The commencement of operations of the Brinson High Income Portfolio.
Performance shown in this column for the Alliance High Yield Portfolio is from
9/30/98, the month end closest to the Brinson High Income Portfolio's inception
date. The performance of the Alliance High Yield Portfolio from its inception,
on October 27, 1997, is (1.79)%.
The Alliance High Yield Portfolio has a fundamental restriction
prohibiting investment in a security if, as a result, it would own any
securities of any other investment company, whereas Brinson High Income
Portfolio has no such fundamental restriction.
The Brinson High Income Portfolio may not make loans except through loans
of portfolio securities or through repurchase agreements; or invest in
commodities. In addition, the Brinson Portfolio may only invest 25% of its
portfolio in U.S. dollar denominated securities of foreign issuers and 20% of
its total assets in securities denominated in foreign currencies. The Alliance
High Yield Portfolio has no such restrictions.
The Brinson High Income Portfolio may write covered call options provided
that the amount does not exceed 25% of its total assets and may write covered
put options provided that the amount does not exceed 15% of its total assets.
The Alliance High Yield Portfolio may write call and put options provided that
the aggregate value of its portfolio securities subject to outstanding options
does not exceed 15% of its total assets.
Brinson Small Cap Portfolio vs. Alliance Quasar Portfolio
The Brinson Small Cap Portfolio and the Alliance Quasar Portfolio have
similar investment objectives in that both seek long-term growth of capital. The
Alliance Quasar Portfolio's investment objective is growth of capital by
pursuing aggressive investment policies. The Brinson Small Cap Portfolio's
investment objective is long-term capital
-32-
appreciation. The Brinson Small Cap Portfolio's name requires that it normally
invest at least 65% of its total assets in equity securities of small
capitalization ("small cap") companies, which it defines as companies having
market capitalizations of up to $1.5 billion at the time of purchase. The
Alliance Quasar Portfolio has no corresponding restriction, although at present
it emphasizes investments in small cap companies, which it defines as companies
having market capitalizations of up to $1.5 billion. As of June 30, 2001,
approximately 96.8% of the Alliance Quasar Portfolio's total assets were
invested in small cap companies. Current income is only an incidental
consideration in selecting investments for both Portfolios.
The Alliance Quasar Portfolio generally invests in a widely diversified
portfolio of equity securities spread among many industries that offer the
possibility of above-average earnings growth and may invest in both well-known,
established companies and new, unseasoned companies. The Alliance Quasar
Portfolio also may invest in non-convertible bonds, preferred stocks and foreign
securities. The Brinson Small Cap Portfolio, subject to the requirement that it
normally invest at least 65% of its total assets in equity securities of small
cap companies, has similar investment policies. Both Portfolios may invest in
securities of foreign issuers, although the Brinson Small Cap Portfolio limits
these investments to no more than 25% of its total assets and further limits
such investments to U.S. dollar denominated securities of foreign issuers that
are traded on recognized U.S. exchanges or in the U.S. over-the-counter market.
Both Portfolios may invest in special situations which occur when the securities
of a company are expected to appreciate due to a development particularly or
uniquely applicable to that company regardless of general business conditions or
movements of the market as a whole.
The average annual total return for the Brinson Small Cap Portfolio and
the Alliance Quasar Portfolio for certain periods is set forth in the chart
below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 09/28/98**
------ --------
Brinson Small Cap
Portfolio.... 14.78% 21.80%
Alliance Quasar
Portfolio..... 15.34% 7.80%
* Performance shown is for Class H shares of the Brinson Small Cap Portfolio and
Class A shares of the Alliance Quasar Portfolio and does not reflect any
insurance account related charges or expenses. For further information about the
Alliance Quasar Portfolio's performance, including information about
waivers/reimbursements that affect the Portfolio's performance, see the Alliance
Prospectus.
** The commencement of operations of the Brinson Small Cap Portfolio.
Performance shown in this column for the Alliance Quasar Portfolio is from
9/30/98, the month end closest to the Brinson Small Cap Portfolio's inception
date. The performance of the Alliance Quasar Portfolio from its inception, on
August 15, 1996, is 5.20%.
Brinson Strategic Income Portfolio vs. Alliance Global Bond Portfolio
The Brinson Strategic Income Portfolio and the Alliance Global Bond
Portfolio have similar investment objectives in that both seek current income
and capital appreciation. The Alliance Global Bond Portfolio's investment
objective is to seek a high level of return from a combination of current income
and capital appreciation by investing in a globally diversified portfolio of
high-quality debt securities denominated in the U.S. dollar and a range of
foreign
-33-
currencies. The Brinson Strategic Income Portfolio's investment objective is to
achieve a high level of current income. As a secondary objective, the Portfolio
seeks capital appreciation.
Both Portfolios invest in debt securities of U.S. or non-U.S. governments,
supranational entities, and U.S. and non-U.S. companies. The Portfolios' foreign
investments are generally denominated in foreign currencies, including the Euro.
Both Portfolios limit their investments to high-quality bonds and also normally
invest at least 65% of their total assets in debt securities of at least three
(and usually considerably more) countries and approximately 25% of their total
assets in U.S. dollar denominated debt securities. Both Portfolios also normally
maintain an average weighted maturity for fixed-income investments of between
one year or less and ten years.
AIGAM serves as sub-adviser for the Alliance Global Bond Portfolio. More
information about AIGAM is set forth in the Alliance Prospectus that accompanies
this Prospectus/Proxy Statement.
The average annual total return for the Brinson Strategic Income Portfolio
and the Alliance Global Bond Portfolio for certain periods is set forth in the
chart below.
Average Annual Total Return Comparison
As of 6/30/01*
Since
1 Year 5 Years 9/28/98**
------ ------- -------
Brinson Strategic
Income Portfolio.... (1.25)% N/A 1.19%
Alliance Global
Bond Portfolio...... (2.88)% 1.97% (3.03)%
* Performance shown is for Class H shares of the Brinson Strategic Income
Portfolio and Class A shares of the Alliance Global Bond Portfolio and does not
reflect any insurance account related charges or expenses. For further
information about the Alliance Global Bond Portfolio's performance, including
information about waivers/ reimbursements that affect the Portfolio's
performance, see the Alliance Prospectus.
** The commencement of operations of the Brinson Strategic Income Portfolio.
Performance shown in this column for the Alliance Global Bond Portfolio is from
9/30/98, the month end closest to the Brinson Strategic Income Portfolio's
inception date. The performance of the Alliance Global Bond Portfolio from its
inception, on July 15, 1991, is 5.42%.
Both Portfolios are non-diversified. This means that each Portfolio may
invest more of its assets in the securities of fewer companies than a
diversified portfolio. This increases each Portfolio's vulnerability to factors
affecting a single investment and can result in greater losses and volatility.
The Alliance Global Bond Portfolio has a fundamental restriction
prohibiting investment in a security if, as a result, it would own any
securities of an open-end investment company, whereas Brinson Strategic Income
Portfolio has no such fundamental restriction.
Comparison of Distribution Policies and Purchase, Exchange and Redemption
Procedures
Each of the Portfolios declares and pays dividends and net realized
capital gains at least annually. Both the Brinson Trust and the Alliance Fund
make income and capital gains distributions in shares of each Portfolio. It is
expected that, shortly prior to the closing date of each Agreement and Plan of
Acquisition and Termination (the "Closing Date"), each of the Acquired
Portfolios will declare and distribute as a special dividend any investment
company taxable income (computed without regard to the deduction for dividends
paid) and any net realized capital gains through the Closing Date not previously
distributed.
-34-
The Acquired Portfolios and the Acquiring Portfolios have substantially
the same procedures for purchasing shares. Each of the Portfolios offers its
shares to the separate accounts of life insurance companies ("Accounts"). Each
day on which a Portfolio's net asset value is calculated, the Accounts transmit
to that Portfolio any orders to purchase or redeem shares of that Portfolio
based upon the purchase payments, redemption (surrender) requests and transfer
requests from Contract Owners which are priced as of that day. The Portfolios
may also suspend redemptions, if permitted under the Investment Company Act of
1940, as amended (the "1940 Act"), for any period during which the New York
Stock Exchange ("NYSE") is closed or during which trading is restricted by the
SEC for the protection of a Portfolio's shareholders. Each Account purchases
either Class H or Class I shares of a Brinson Portfolio, or Class A or Class B
shares of an Alliance Portfolio as applicable. Class H and Class A shares are
sold and redeemed at net asset value and do not pay any 12b-1 fees. Class I and
Class B shares are also sold and redeemed at net asset value and pay annual
distribution fees of 0.25% of their average daily net assets. The level of
annual distribution fees payable by Class B shares could be increased to 0.50%
of the average daily net assets attributable to such shares without a vote of
the shareholders.
Shares of each Brinson Portfolio can be exchanged for shares of the same
class of any other Brinson Portfolio, provided that the relevant separate
account invests in both Portfolios. Although the shares of the Alliance
Portfolios cannot be exchanged for shares of the same class of another Alliance
Portfolio, the shareholders can redeem shares of one Alliance Portfolio and
purchase shares of another Alliance Portfolio.
See the Alliance Prospectus and Alliance SAI and the Brinson Prospectus
and the Brinson SAI for further information.
Investment Advisors
Brinson Advisors is the investment manager and administrator for each of
the Brinson Portfolios. Alliance Capital is the sub-adviser for each Brinson
Portfolio.
Alliance Capital is the investment adviser of each of the Alliance
Portfolios. AIGAM, is the sub-adviser for the Alliance Global Bond Portfolio.
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SUMMARY OF PRINCIPAL RISKS
Certain risks associated with an investment in the Acquiring Portfolios
are summarized below. As described above under "Comparison of Investment
Objectives, Policies and Restrictions", the investment policies of the Acquired
Portfolios, with some exceptions, have generally been conformed to those of the
corresponding Acquiring Portfolios. Therefore, subject to such limited
exceptions, the risks of an investment in an Acquiring Portfolio are
substantially similar to the risks of an investment in the corresponding
Acquired Portfolio. More detailed descriptions of the risks associated with an
investment in an Acquiring Portfolio can be found in the Alliance Prospectus and
the Alliance SAI. The value of your investment in an Acquiring Portfolio will
change with changes in the values of that Portfolio's investments. Many factors
can affect those values. In this Summary, we describe the principal risks that
may affect a Portfolio's investments as a whole. These risks and the Portfolios
particularly subject to each risk are summarized in a chart at the end of this
section. Each of the Acquiring Portfolios could be subject to additional
principal risks because the types of investments made by each Portfolio can
change over time.
Interest Rate Risk This is the risk that changes in interest rates will affect
the value of a Portfolio's investments in debt securities, such as bonds, notes,
and asset-backed securities, or other income-producing securities. Debt
securities are obligations of the issuer to make payments of principal and/or
interest on future dates. Interest rate risk is particularly applicable to
Portfolios that invest in fixed-income securities. Increases in interest rates
may cause the value of a Portfolio's investments in such securities to decline.
Even Portfolios that invest a substantial portion of their assets in the
highest quality debt securities, including U.S. Government securities, are
subject to interest rate risk. Interest rate risk is, however, generally greater
for those Portfolios that invest a significant portion of their assets in
lower-rated securities or comparable unrated securities. Interest rate risk is
also generally greater for Portfolios that invest in debt securities with longer
maturities. Such risk may also be greater for the Portfolios that invest a
substantial portion of their assets in mortgage-related or other asset-backed
securities. The value of these securities is affected more by changes in
interest rates because when interest rates rise, the maturities of these types
of securities tend to lengthen and the value of the securities decreases more
significantly. In addition, these types of securities are subject to prepayment
when interest rates fall, which generally results in lower returns because the
Portfolios must reinvest their assets in debt securities with lower interest
rates. Increased interest rate risk is also likely for a Portfolio that invests
in debt securities paying no current interest, such as zero coupon,
principal-only, and interest-only securities, or paying non-cash interest in the
form of other debt securities (payment-in-kind securities).
Credit Risk This is the risk that the issuer or the guarantor of a debt
security, or the counterparty to a derivatives contract, will be unable or
unwilling to make timely payments of interest or principal, or to otherwise
honor its obligations. The degree of risk for a particular security may be
reflected in its credit rating. Credit risk is greater for Portfolios that
invest in lower-
-36-
rated securities. High-yield, high-risk debt securities and similar unrated
securities (commonly known as "junk bonds") have speculative elements and are
predominately speculative credit risks.
Credit risk is greater for Portfolios that invest in debt securities
issued in connection with corporate restructurings by highly leveraged issuers
and in debt securities not current in the payment of interest or principal or
which are in default. Portfolios that invest in foreign debt securities are also
subject to increased credit risk because of the difficulties of requiring
foreign entities, including issuers of sovereign debt obligations, to honor
their contractual commitments, and because a number of foreign governments and
other issuers are already in default.
Market Risk This is the risk that the value of a Portfolio's investments will
fluctuate as the stock or bond markets fluctuate and that prices overall will
decline over shorter or longer-term periods. All of the Portfolios are subject
to this risk.
Industry Risk This is the risk of investing in a particular industry. Market or
economic factors affecting that industry could have a major effect on the value
of a Portfolio's investments.
Business Sector Risk This is the risk of investing in a particular business
sector. Market or economic factors affecting that sector could have a major
effect on the value of a Portfolio's investments.
Capitalization Risk This is the risk of investments in small- to
mid-capitalization companies. Investments in small-to-mid-cap companies may be
more volatile than investments in large-cap companies. In addition, a
Portfolio's investments in smaller capitalization stocks may have additional
risks because these companies often have limited product lines, markets, or
financial resources.
Foreign Risk This is the risk of investing in issuers located in foreign
countries. All Portfolios that invest in foreign securities are subject to this
risk. A Portfolio's investments in foreign securities may experience more rapid
and extreme changes in value than investments in securities of U.S. companies.
This is because the securities markets of many foreign countries are relatively
small, with a limited number of companies representing a small number of
industries. Additionally, foreign securities issuers are not usually subject to
the same degree of regulation as are U.S. issuers. Reporting, accounting, and
auditing standards of foreign countries differ, in some cases significantly,
from U.S. standards. Also, nationalization, expropriation or confiscatory
taxation, currency blockage, political changes, or diplomatic developments could
adversely affect a Portfolio's investments in a foreign country. In the event of
nationalization, expropriation, or other confiscation, a Portfolio could lose
its entire investment.
Currency Risk This is the risk that fluctuations in the exchange rates between
the U.S. dollar and foreign currencies may negatively affect the value of a
Portfolio's investments. Portfolios with foreign currency denominated
investments are subject to this risk.
Country or Geographic Risk This is the risk of investing in issuers located in
a particular country or geographic region. Market changes or other factors
affecting that country or region, including political instability and
unpredictable economic
-37-
conditions, may have a particularly significant effect on a Portfolio's net
asset value.
Political, social, and economic changes in a particular country could
result in increased risks for a Portfolio that invests a substantial portion of
its assets in sovereign debt obligations, such as Brady Bonds. Investments in
emerging market countries are likely to involve significant risks. These
countries, such as Mexico, Argentina, Brazil, Morocco, the Philippines, Russia
and Venezuela, have a history of political and economic instability.
Leveraging Risk When a Portfolio borrows money or otherwise leverages its
assets, the value of an investment in that Portfolio will be more volatile and
all other risks will tend to be compounded. Portfolios may create leverage by
using reverse repurchase agreements, inverse floating rate instruments or
derivatives, or by borrowing money.
Derivatives Risk The Portfolios may use derivatives, which are financial
contracts whose value depends on, or is derived from, the value of an underlying
asset, reference rate or index. Alliance Capital will sometimes use derivatives
as part of a strategy designed to reduce other risks. Generally, however, the
Portfolios use derivatives as direct investments to earn income, enhance yield,
and broaden portfolio diversification, which entail greater risks than if used
solely for hedging purposes. In addition to other risks, such as the credit risk
of the counterparty, derivatives involve the risk of difficulties in pricing and
valuation and the risk that changes in the value of the derivative may not
correlate perfectly with the underlying assets, rates or indices.
Liquidity Risk Liquidity risk exists when particular investments are difficult
to purchase or sell, possibly preventing a Portfolio from selling these illiquid
securities at an advantageous price. The Portfolios may be subject to greater
liquidity risk if they use derivatives or invest in securities having
substantial interest rate and credit risk. In addition, liquidity risk tends to
increase to the extent a Portfolio invests in securities whose sale may be
restricted by law or contract.
Management Risk Each Portfolio is subject to management risk because it is an
actively managed investment portfolio. Alliance Capital will apply its
investment techniques and risk analyses in making investment decisions for the
Portfolios, but there can be no guarantee that its decisions will produce the
desired results. In some cases, the use of derivative and other investment
techniques may be unavailable or Alliance Capital may determine not to use them,
possibly even under market conditions where their use could benefit a Portfolio.
Focused Portfolio Risk Portfolios that invest in a limited number of companies
may have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value. Similarly, a Portfolio may have more risk if it is
"non-diversified," meaning that it can invest more of its assets in a smaller
number of companies than can a "diversified" fund.
Allocation Risk Those Portfolios that allocate their investments between equity
and debt securities may have a more significant risk that poor performance of
one asset class will have a greater effect on the Portfolio's net asset value.
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Chart of Principal Risks by Portfolio
The following chart summarizes the principal risks of each Alliance Portfolio.
Risks not marked for a particular Portfolio may, however, still apply to some
extent to that Portfolio at various times.
PORTFOLIO Interest Credit Market Industry/ Capital- Foreign Currency Country or Lever- Derivatives
Rate Risk Risk Sector ization Risk Risk Geographic aging Risk
Risk Risk Risk Risk Risk
------------------------------------------------------------------------------------------------------------------------------------
Growth and X X X X X
Income
Portfolio
US X X X X
Government/
High Grade
Securities
Portfolio
High Yield X X X X X X X
Portfolio
Total Return X X X
Portfolio
International X X X X
Portfolio
Global Bond X X X X X X X
Portfolio
Growth X X X X X X
Portfolio
Quasar X X X X X X
Portfolio
PORTFOLIO Liquidity Manage- Focused Alloca-
Risk ment Portfolio tion
Risk Risk Risk
---------------------------------------------------------------------
Growth and X
Income
Portfolio
US X
Government/
High Grade
Securities
Portfolio
High Yield X X
Portfolio
Total Return X X
Portfolio
International X
Portfolio
Global Bond X X X
Portfolio
Growth X
Portfolio
Quasar X
Portfolio
-39-
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SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is being furnished in connection with a
Special Meeting of Shareholders of each Acquired Portfolio to be held on October
18, 2001 or at such later time as may be made necessary by adjournment (the
"Meeting") and the solicitation of proxies by and on behalf of the shareholders
of the Acquired Portfolios for use at the Meeting. The Meeting is being held to
consider the proposed Merger of each Acquired Portfolio with the corresponding
Acquiring Portfolio by the transfer of all of the Acquired Portfolio's assets
and its stated liabilities to the Acquiring Portfolio (Proposals 1 through 9).
This Prospectus/Proxy Statement and the enclosed form of proxy are initially
being mailed to shareholders on or about October 1, 2001.
The Brinson Trustees know of no matters to be brought before the Meeting
other than those set forth herein. If, however, any other matters properly come
before the Meeting, it is the Brinson Trustees' intention that proxies will be
voted on such matters in accordance with the judgment of the persons named in
the enclosed form of proxy.
If a Reorganization is not approved by shareholders at the Meeting, each
applicable Acquired Portfolio will continue to operate as a series of Brinson
Trust and the Brinson Trustees will then consider other options and alternatives
for the future of such Acquired Portfolio, including the liquidation of the
Acquired Portfolio, resubmitting the proposal for shareholder approval or other
appropriate action.
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THE PROPOSALS
Approval of Agreement and Plan of Acquisition and Termination
The shareholders of the Brinson Balanced Portfolio are being asked to
approve a Merger between the Brinson Balanced Portfolio and the Alliance
Total Return Portfolio (Proposal 1); the shareholders of the Brinson
Global Equity Portfolio are being asked to approve a Merger between
the Brinson Global Equity Portfolio and the Alliance International
Portfolio (Proposal 2); the shareholders of the Brinson Global Income Portfolio
are being asked to approve a Merger between the Brinson Global Income Portfolio
and the Alliance Global Bond Portfolio (Proposal 3); the shareholders of the
Brinson Growth and Income Portfolio are being asked to approve a Merger between
the Brinson Growth and Income Portfolio and the Alliance Growth and Income
Portfolio (Proposal 4); the shareholders of the Brinson Growth Portfolio are
being asked to approve a Merger between the Brinson Growth Portfolio and the
Alliance Growth Portfolio (Proposal 5); the shareholders of the Brinson High
Grade Portfolio are being asked to approve a Merger between the Brinson High
Grade Portfolio and the Alliance U.S./High Grade Portfolio (Proposal 6);
the shareholders of the Brinson High Income Portfolio are being asked to
approve a Merger between the Brinson High Income Portfolio and the Alliance
High Yield Portfolio (Proposal 7); the shareholders of the Brinson Small Cap
Portfolio are being asked to approve a Merger between the Brinson Small Cap
Portfolio and the Alliance Quasar Portfolio (Proposal 8); and the shareholders
of the Brinson Strategic Income Portfolio are being asked to approve a
Merger between the Brinson Strategic Income Portfolio and the Alliance Global
Bond Portfolio (Proposal 9). Each Merger is proposed to take place pursuant to
an Agreement and Plan of Acquisition and Termination between the Acquired
Portfolio and the Acquiring Portfolio (the "Agreements"), each of which is in
the form attached to this Prospectus/Proxy Statement as Appendix A.
Each Agreement provides, among other things, for the transfer of all of
the assets of the relevant Acquired Portfolio to the corresponding Acquiring
Portfolio in exchange for (i) the issuance to the Acquired Portfolio of the
Class A and Class B Merger Shares, the number of which will be calculated by
dividing the value of the net assets attributable to the Class H and Class I
shares, respectively, of the Acquired Portfolio acquired by the Acquiring
Portfolio by the net asset value per Class A and Class B share of the relevant
Acquiring Portfolio and (ii) the assumption by the relevant Acquiring Portfolio
of all of the stated liabilities of the Acquired Portfolio, all as more fully
described below under "Information About the Mergers."
After receipt of the Merger Shares, each Acquired Portfolio will cause the
Class A Merger Shares to be distributed to its Class H shareholders, and the
Class B Merger Shares to be distributed to its Class I shareholders, as
applicable, in termination of the Acquired Portfolio. Each shareholder of an
Acquired Portfolio will receive a number of full and fractional Class A and
Class B Merger Shares equal in value as of Closing Date to the aggregate value
of the shareholder's Class H and Class I Acquired Portfolio shares.
-41-
Trustees' Recommendations
The Brinson Trustees have voted unanimously to approve each Merger and to
recommend that shareholders of each Acquired Portfolio also approve the
Merger applicable to them.
Required Shareholder Vote
Approval of each Merger requires the approval of a "majority of the
outstanding voting securities" of the Portfolio, which, as defined in the 1940
Act, means the lesser of (A) 67% or more of the shares of the Portfolio present
at a meeting, if the holders of more than 50% of the outstanding shares of the
Portfolio are present or represented by proxy, or (B) more than 50% of the
outstanding shares of the Portfolio.
Background and Reasons for the Proposed Merger
The Brinson Trustees, including all of the Brinson Trustees who are not
"interested persons" of the Brinson Portfolios (the "Independent Trustees"),
have unanimously determined that each Merger would be in the best interests of
the relevant Acquired Portfolio, and that the interests of each Acquired
Portfolio's shareholders would not be diluted as a result of effecting its
Merger. At a meeting held on July 25, 2001, the Brinson Trustees unanimously
approved each proposed Merger and recommended approval by shareholders. In
determining whether to approve each Merger and to recommend its approval to
shareholders, the Brinson Trustees, including the Independent Trustees,
considered the potential impact of the Mergers on Brinson Trust shareholders and
a variety of factors relating thereto, including among others: 1) the expertise,
resources and historical performance of Alliance; 2) the viability of, and
expense involved in operating, each Acquired Portfolio on a stand-alone basis;
3) the fact that the Acquired Portfolios are currently being subadvised by
Alliance; 4) the terms and conditions of the Agreements and Plans of Acquisition
and Termination, including provisions intended to avoid any dilution of
shareholder interests; 5) the compatibility of the investment objectives,
policies and limitations of each Acquired Portfolio and corresponding Acquiring
Portfolio; 6) the historical and projected operating expenses of the Acquired
Portfolios and the Acquiring Portfolios; 7) the historical performance of the
Acquired Portfolios and the Acquiring Portfolios; 8) the fact that Alliance and
Brinson will share equally all of the expenses associated with the Mergers,
other than portfolio transfer costs (if any), brokerage and other similar
expenses, all of which will be borne by the relevant Brinson Portfolio; 9) any
direct or indirect costs to be incurred by the Acquired Portfolios or Acquiring
Portfolios as a result of each Merger; 10) the tax consequences of each Merger;
11) the fact that seed capital will be redeemed from the High Income Portfolio,
the Small Cap Portfolio, and the Strategic Income Portfolio prior to the
consummation of the Merger; and 12) possible alternatives to the Merger.
In reaching the decision to recommend approval of each Merger, the Brinson
Trustees concluded that each Merger is in the
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best interests of each Acquired Portfolios and its respective shareholders. The
principal reasons why the Brinson Trustees recommend each Merger are as follows:
(i) Sustainable decreases in overall expenses. The Mergers are expected to
result in aggregate operating expenses that would be lower than those expected
to be borne by the Acquired Portfolios as described more fully in the Overview
under "Operating Expenses." Of course, there can be no assurance that the
Mergers will result in savings in operating expenses to shareholders.
(ii) Appropriate investment objectives, diversification, etc. The investment
objective, policies, and restrictions of each Acquiring Portfolio are, in
general, substantially similar to those of each corresponding Acquired
Portfolio. Although the investment objectives and policies of certain of the
Acquired Portfolios are different from those of the corresponding Acquiring
Portfolios (as described above in "Comparison of Investment Objectives, Policies
and Restrictions"), because of the similarity between the broader goals of each
Acquiring Portfolio and those of its respective Acquired Portfolio, the Brinson
Trustees believe that an investment in shares of each Acquiring Portfolio will
provide Acquired Portfolio shareholders with an investment opportunity
comparable to that currently afforded by the corresponding Acquired Portfolio.
(iii) Economics of Scale. The Brinson Trustees further believe that the greater
size of each combined Portfolio will offer Brinson shareholders greater
prospects for efficient Portfolio management and economic viability, as well as
the potential for reduced investment risk because of the opportunities for
additional diversification of portfolio investments.
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INFORMATION ABOUT THE MERGERS
Agreement and Plan of Acquisition and Termination
Each proposed Agreement and Plan of Acquisition and Termination provides
that the relevant Acquiring Portfolio will acquire all of the assets of the
corresponding Acquired Portfolio in exchange for the issuance of Class A and
Class B Merger Shares and for the assumption by the Acquiring Portfolio of the
stated liabilities of the Acquired Portfolio, all as of the Effective Time
(defined in each Agreement to be 4:00 p.m. on the Closing Date). The following
discussion of the Agreements is qualified in its entirety by the full text of
each Agreement, the form of which is attached as Appendix A to this
Prospectus/Proxy Statement.
At the Effective Time, each Acquired Portfolio will sell all of its assets
to the corresponding Acquiring Portfolio, and, in exchange, the Acquiring
Portfolio will assume the stated liabilities of the Acquired Portfolio and
deliver to the Acquired Portfolio (i) a number of full and fractional Class A
Merger Shares having an aggregate net asset value equal to the aggregate net
asset value of the Acquired Portfolio attributable to its Class H shares, less
the value of the liabilities of the Acquired Portfolio assumed by the Acquiring
Portfolio attributable to the Class H shares of the Acquired Portfolio, and (ii)
a number of full and fractional Class B Merger Shares having an aggregate net
asset value equal to the aggregate net asset value of the Acquired Portfolio
attributable to its Class I shares, less the value of the liabilities of the
Acquired Portfolio assumed by the Acquiring Portfolio attributable to the Class
I shares of the Acquired Portfolio.
At or as soon as reasonably practical after the Effective Time, each
Acquired Portfolio will terminate by transferring to its shareholders of record
as of the Effective Time the full and fractional Merger Shares received by the
Acquired Portfolio, with Class A Merger Shares being distributed to holders of
Class H shares of the Acquired Portfolio and Class B Merger Shares being
distributed to holders of Class I shares of the Acquired Portfolio. As a result
of the proposed transaction, each holder of Class H and Class I shares of the
Acquired Portfolio will receive a number of Class A and Class B Merger Shares
equal in aggregate net asset value at the Effective Time to the aggregate net
asset value of the Class H and Class I shares, respectively, of the Acquired
Portfolio held by the shareholder. Each Acquiring Portfolio shall record on its
books the ownership by the corresponding Acquired Portfolio's shareholders of
the Class A and Class B Merger Shares, and the Acquired Portfolio shall
simultaneously redeem and cancel on its books all of its issued and outstanding
Class H and Class I shares.
The consummation of each Merger is subject to the conditions set forth in
the Agreement, any of which may be waived by the party entitled to its
protections, except for the condition requiring shareholder approval of the
Agreement. The Agreement may be terminated and the Merger abandoned at any time,
before or after approval by the shareholders of the Acquired Portfolio, prior to
the Effective Time, by a majority of either the Alliance Directors or the
Brinson Trustees if (i) any of the Portfolio's conditions precedent as set forth
in the Agreement has not been fulfilled or (ii)
-44-
the Alliance Directors or the Brinson Trustees determine that the consummation
of the Acquisition is not in the best interests of the Portfolio or its
shareholders and gives notice of such termination to the other party.
All expenses incurred in connection with the Agreement, and all
transactions contemplated thereby, will be borne equally by Alliance and
Brinson Advisors (other than portfolio transfer cost (if any), brokerage and
other similar expenses, all of which will be borne by the relevant Portfolio,
except that such expenses, if any, incurred in connection with the redemption
of seed capital from the High Income Portfolio, the Small Cap Portfolio and the
Strategic Income Portfolio will not be excluded). Notwithstanding the
foregoing, expenses will in any event be paid by the party directly incurring
such expenses if and to the extent that the payment by any other party of such
expenses would result in the disqualification of the first party as a
"regulated investment company" within the meaning of Section 851 of the Code.
Neither Brinson Advisors nor the Brinson Trust is currently aware of any such
expenses and neither Brinson Advisors nor the Brinson Trust believe that any
will be incurred in connection with the Mergers.
Indemnification of Acquiring Funds
In connection with the Mergers, Brinson Advisors has agreed to indemnify
each Acquiring Fund and its affiliates from and against losses which it may
suffer as a result of any liabilities, whether absolute, accrued,
contingent or otherwise, and to reimburse such Acquiring Fund and its affiliates
for any reasonable legal or other costs and expenses incurred by it or its
affiliates in connection with discharging, investigating or defending against
any such liability.
Description of the Merger Shares
Full and fractional Merger Shares will be issued to each Acquired
Portfolio's shareholders in accordance with the procedure under the Agreement as
described above. The Merger Shares are Class A and Class B shares of the
Acquiring Portfolio, which have characteristics substantially similar to those
of, respectively, the Class H and Class I shares of each Acquired Portfolio
with respect to 12b-1 servicing and/or distribution fees. Class H and Class A
shares are purchased at net asset value. Class I and Class B shares are also
sold and redeemed at net asset value and, pursuant to separate Rule 12b-1 Plans
adopted by the respective Portfolio, Class B and Class I shares each pay an
annual distribution fee of 0.25% of average daily net assets. The level of
annual distribution fees payable by Class B shares could be increased to 0.50%
of the average daily net assets attributable to such class without a vote of the
shareholders.
Each of the Merger Shares will be fully paid and nonassessable by the
Acquiring Portfolio when issued, will be transferable without restriction, and
will have no preemptive or conversion rights.
See the Alliance Prospectus for more information about the characteristics
of Class A and Class B shares of the Acquiring Portfolios.
Organization
The following is a summary of the major differences between the governing
documents and laws applicable to each of the Acquiring Funds and the Acquired
Funds.
The Brinson Trust is organized as a Massachusetts business trust and the
Alliance Fund is organized as a Maryland corporation. Except as otherwise noted
-45-
below, the provisions of Maryland law and the Articles of Incorporation (the
"Alliance Articles") and Bylaws (the "Alliance Bylaws") of the Alliance Fund are
substantially similar to those of Massachusetts law, the Declaration of Trust
(the "Brinson Declaration of Trust") and the Bylaws (the "Brinson Bylaws") of
the Brinson Trust. All of the Acquiring Portfolios and the Acquired Portfolios
are subject to the 1940 Act.
Meetings of Shareholders
The Brinson Declaration of Trust gives the Brinson Trustees and
shareholders holding at least 10% of the shares then outstanding the right to
call (or cause to be called) a special meeting of shareholders. By contrast, the
Alliance Bylaws enable a special meeting of the shareholders to be called by the
chairman of the board, the president, the Board of Directors, or upon the
written request of shareholders entitled to cast 25% of the votes at such
special meeting, by the secretary.
Quorums
The Brinson Declaration of Trust provides that a majority of shares
entitled to vote constitutes a quorum at a shareholders' meeting. The Alliance
Articles provide that one-third of the shares entitled to vote constitutes a
quorum at shareholder meetings. Unlike the Brinson Declaration of Trust, which
provide that a majority of Trustees constitutes a quorum for a meeting of
Trustees, the Alliance Bylaws provide that one-third of the Directors (but no
fewer than two) constitutes a quorum for a meeting of Directors.
Number of Directors
The Brinson Declaration of Trust provides for a minimum of one and a
maximum of 15 Trustees. The Alliance Articles provide that the number of
Directors shall initially be one and may be increased or decreased by a majority
of the entire board of directors, but shall not be greater than 20.
Removal of Trustees or Directors
The Brinson Declaration of Trust provides that a Trustee may be removed
(i) with or without cause at any time by written instrument signed by at least
two-thirds of the Trustees, or (ii) at any special meeting of shareholders of
the Brinson Trust by a vote of at least two-thirds of the outstanding shares.
Pursuant to Maryland law and the Alliance Bylaws, any Director may be removed
with or without cause at any meeting of shareholders at which a quorum is
present by the affirmative vote of a majority of the votes entitled to be cast.
Indemnification of Trustees, Directors and Officers
The Brinson Declaration of Trust provides that every person who is or has
been a Trustee or an officer shall be indemnified to the fullest extent
permitted by Massachusetts law against all liabilities and against all expenses
reasonably incurred in connection with any indemnifiable claim. However, no
indemnification is provided (i) to any person who is adjudicated by a court (a)
to be liable to the Brinson Trust by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of such person's duties, or (b) not to
have acted in good faith in the reasonable belief that his action was in the
best interest of the Brinson Trust, or (ii) in the event of a settlement, unless
there is a determination that the Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office, (a) by the court
-46-
approving the settlement, (b) by a majority of the disinterested Trustees, or
(c) by written opinion of independent legal counsel.
Similarly, the Alliance Articles indemnify current and former directors
and officers and those persons who, at the Alliance Fund's request serve or have
served another organization as a director or officer to the maximum extent
permitted under Maryland Law. Under Maryland law, a corporation may indemnify
any director against liabilities for acts incurred by reason of service as a
director unless it is established that (i) the act or omission was material to
the matter giving rise to the proceeding and (a) was committed in bad faith or
(b) was the result of active and deliberate dishonesty, (ii) the director
actually received an improper personal benefit or (iii) in the case of a
criminal proceeding, the director had reasonable cause to believe the act or
omission was unlawful. In addition, indemnification may not be made (i) in a
proceeding by or in the right of the corporation where the director is found
liable to the corporation (a "Corporate Liability") or (ii) in a proceeding
charging improper personal benefit where the director is found to be liable
because such benefit was improperly received, whether or not involving action in
the director's official capacity (a "Personal Liability").
Maryland law also provides that indemnification is not payable by a
corporation unless a determination has been made that the director has met the
standard of conduct noted in the foregoing paragraph. Such determination may be
made by (i) a vote of a majority of a quorum of directors consisting of
directors not, at the time, parties to the proceedings, or, if such a quorum
cannot be obtained, then by a majority vote of a committee of the board
(designated by a majority of the board in which directors who are parties may
participate) consisting solely of two or more directors not, at the time,
parties to such proceedings, (ii) special legal counsel selected by the board or
a committee as set forth in (i) above, or if the quorum of the full board cannot
be obtained and the committee cannot be established, by a majority vote of the
full board in which directors who are parties may participate, or (iii) the
stockholders. Upon the application of a director, a court may order
indemnification if it determines that (i) a director is entitled to
reimbursement because such director has been successful, on the merits or
otherwise, in the defense of a proceeding in which such director has been
determined to have met the applicable standards of conduct or (ii) whether or
not the director has met the applicable standards of conduct, the director is
entitled to indemnification in view of all the relevant circumstances, provided
that the indemnification payment shall be limited to the director's expenses in
cases involving Corporate Liability or Personal Liability.
The Brinson Declaration of Trust provides that indemnification expenses
may be paid in advance only if (i) there is an undertaking to repay the advance
and appropriate security for such undertaking is given, (ii) the relevant
Portfolio is insured against losses arising from any such advance payments, or
(iii) either a majority of the disinterested Trustees, or independent legal
counsel, in a written opinion, determines that there is reason to believe that
the indemnified persons will be found to be entitled to indemnification. Under
Maryland law, indemnification expenses may be paid in advance of the final
disposition if a director provides (i) a written affirmation of
-47-
his good faith belief that the standard of conduct necessary for indemnification
has been met, and (ii) a written undertaking to repay the amount if it is
determined that the standard of conduct has not been met. This undertaking need
not be secured.
Personal Liability
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the Brinson Declaration of Trust disclaims
shareholder liability for acts or obligations of the Brinson Trust and requires
that notice of such disclaimer be given in each agreement, undertaking, or
obligation entered into or executed by the Brinson Trust, the Acquired
Portfolios or the Brinson Trustees. The Brinson Declaration of Trust provides
for indemnification out of Acquired Portfolio property for all loss and expense
of any shareholder held personally liable for the obligations of the Acquired
Portfolio. Thus, the risk of a shareholder's incurring financial loss from
shareholder liability is limited to circumstances in which the Acquired
Portfolio would be unable to meet its obligations. The likelihood of such a
circumstance is considered remote. Under Maryland law, shareholders have no
personal liability for acts or obligations of the corporation.
Termination
The Brinson Declaration of Trust provides that the Brinson Trust or any
series thereof may be terminated by a "majority of the outstanding voting
securities" (which, as defined in the 1940 Act, means the lesser of (A) 67% or
more of the shares of the portfolio present at a meeting, if the holders of more
than 50% of the outstanding shares of the portfolio are present or represented
by proxy, or (B) more than 50% of the outstanding shares of the portfolio) of
the series or the Trust, or by the Trustees without obtaining a "majority of the
outstanding voting securities" if a majority of the Trustees makes a
determination that the continuation of a Series or the Trust is not in the best
interests of such Series or Trust or their respective shareholders. Under
Maryland law, a corporation may be dissolved by vote of the majority of the
Directors.
Amendments
The Brinson Declaration of Trust may be amended by a majority of the Brinson
Trustees, as long as the amendment does not adversely affect the rights of any
shareholder. If an Amendment adversely affects the rights of shareholders, it
may be adopted by a majority of the Brinson Trustees when authorized to do so by
a "majority of the outstanding voting securities." The Brinson Bylaws may be
amended by a majority of the Brinson Trustees. The Alliance Articles may be
amended by a vote of two-thirds of all the votes entitled to be cast by the
shareholders. The Alliance Bylaws may only be amended by the Directors.
Federal income tax consequences
As long as the Contracts funded through the separate accounts of the
insurance company shareholders qualify as annuity contracts under Section 72 of
the Internal Revenue Code, the Mergers will not create any tax liability for
Contract Owners.
Each Acquired Portfolio and each Acquiring Portfolio will receive an
opinion from Ropes & Gray, special counsel to the Alliance Fund, to the effect
that, on the basis
-48-
of the existing provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (i) under Section 361 of the Code,
no gain or loss will* be recognized by the Acquired Portfolio as a result of the
Merger; (ii) under Section 354 of the code, no gain or loss will* be recognized
by shareholders of the Acquired Portfolio on the distribution of Merger Shares
to them in exchange for their shares of the Acquired Portfolio; (iii) under
Section 358 of the Code, the aggregate tax basis of the Merger Shares that the
Acquired Portfolio's shareholders receive in exchange for their Acquired
Portfolio shares will* be the same as the aggregate tax basis of the Acquired
Portfolio shares exchanged; (iv) under Section 1223(1) of the Code, an Acquired
Portfolio's shareholder's holding period for the Merger Shares received pursuant
to the Agreement will* be determined by including the holding period for the
Acquired Portfolio shares exchanged for the Merger Shares, provided that the
shareholder held the Acquired Portfolio shares as a capital asset; (v) under
Section 1032 of the Code, no gain or loss will* be recognized by the Acquiring
Portfolio as a result of the reorganization; (vi) under Section 362(b) of the
Code, the Acquiring Portfolio's tax basis in the assets that the Acquiring
Portfolio receives from the Acquired Portfolio will* be the same as the Acquired
Portfolio's tax basis in such assets; and (vii) under Section 1223(2) of the
Code, the Acquiring Portfolio's holding period in such assets will* include the
Acquired Portfolio's holding period in such assets. The opinion will be based on
certain factual certifications made by officers of Brinson Advisors and Alliance
Capital and will also be based on customary assumptions and qualifications.
A substantial portion of the assets of each Acquired Portfolio has been
or will be sold in connection with the Mergers of those Portfolios into the
respective Acquiring Portfolios. The actual tax impact of such sales will depend
on the difference between the price at which such portfolio assets are sold and
the selling Portfolio's basis in such assets. Any capital gains recognized in
these sales will be distributed to the selling Portfolio's shareholders (but not
Contract Owners) as capital gain dividends (to the extent of the excess of net
realized long-term capital gains over net realized short-term capital losses)
and ordinary dividends (to the extent of net realized short-term capital gains)
during or with respect to the year of sale, and such distributions will be
taxable to shareholders (but not to the Contract Owners).
For all of the Mergers, prior to the Exchange Date, the Acquired Portfolio
will declare a distribution to its shareholders which, together with all
previous distributions, will have the effect of distributing to its shareholders
all of its investment company taxable income (computed without regard to the
deduction for dividends paid) and net realized capital gains, if any, through
the Exchange Date.
The foregoing description of the federal income tax consequences of the
Mergers is made without regard to the particular circumstances of any
shareholder.
----------
* The word "should" applies in place of the word "will" where indicated in the
case of the Mergers involving the Brinson Balanced Portfolio, the Brinson Global
Equity Portfolio and the Brinson High Income Portfolio.
-49-
Shareholders are therefore urged to consult their tax advisers as to the
specific consequences to them of the Mergers, including the applicability and
effect of state, local, foreign and other taxes.
Capitalization
The following tables show the capitalization of each Acquired Portfolio
and each Acquiring Portfolio as of December 31, 2000 and of each Acquiring
Portfolio on a pro forma basis as of that date, giving effect to the proposed
acquisition by the Acquiring Portfolio of the assets and stated liabilities of
the corresponding Acquired Portfolio at net asset value, and in the case of the
High Income Portfolio, the Small Cap Portfolio and the Strategic Income
Portfolio, the redemption by Brinson of its shares of such Portfolio in
connection with the merger:
-50-
Capitalization Tables
6/30/01
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Brinson Balanced Alliance Total Return Pro Forma Combined
Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class I Class A Class A Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 13,188 1,675 148,629 161,817 1,675
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 1,503 191 8,259 8,990 191
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 8.77 8.75 18.00 18.00 8.75
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Brinson Global Equity Alliance International Pro Forma Combined
Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class I Class A Class A Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 6,218 518 66,055 72,273 518
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 642 54 5,353 5,857 54
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 9.69 9.64 12.34 12.34 9.64
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Brinson Global Brinson Strategic Alliance Global Pro Forma
Income Portfolio Income Portfolio Bond Portfolio Combined
------------------------------------------------------------------------------------------------------------------------------------
Class H Class H* Class I Class A Class B Class A** Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 4,900 11,088 1,895 44,981 5,438 50,638 7,333
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 472 1,004 172 4,303 523 4,846 705
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 10.38 11.04 11.03 10.45 10.40 10.45 10.40
------------------------------------------------------------------------------------------------------------------------------------
* Includes seed capital that will be withdrawn before consummation of the Acquisition.
** Reflects the redemption of $10,331,000 of seed capital.
------------------------------------------------------------------------------------------------------------------------------------
Brinson Growth and Alliance Growth and Pro Forma Combined
Income Portfolio Income Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class I Class A Class B Class A Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 16,080 8,554 682,943 453,043 699,023 461,587
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 1,305 695 29,276 19,520 29,962 19,888
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 12.33 12.31 23.33 23.21 23.33 23.21
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Brinson Growth Alliance Growth Pro Forma Combined
Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class I Class A Class B Class A Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 15,955 1,547 270,353 81,084 286,308 82,631
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 2,643 258 14,889 4,490 15,765 4,575
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 6.04 5.99 18.16 18.06 18.16 18.06
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Brinson High Grade Alliance U.S./High Pro Forma Combined
Fixed Income Portfolio Grade Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class A Class B Class A Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 2,117 69,640 4,810 71,757 4,810
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 249 6,076 421 6,262 421
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 8.50 11.46 11.42 11.46 11.42
------------------------------------------------------------------------------------------------------------------------------------
-51-
------------------------------------------------------------------------------------------------------------------------------------
Brinson High Income Alliance High Yield Pro Forma Combined**
Portfolio* Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H Class A Class A
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 9,629 26,551 27,236
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 1,412 3,580 3,670
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 8.44 7.42 7.42
------------------------------------------------------------------------------------------------------------------------------------
* Includes seed capital that will be withdrawn before consumation of the
Acquisition.
** Reflects the redemption of $8,944,000 of seed capital.
------------------------------------------------------------------------------------------------------------------------------------
Brinson Small Cap Alliance Quasar Pro Forma Combined
Portfolio Portfolio
------------------------------------------------------------------------------------------------------------------------------------
Class H* Class I Class A Class B Class A** Class B
------------------------------------------------------------------------------------------------------------------------------------
Net assets (000's omitted) 5,825 853 225,452 5,032 226,108 5,885
------------------------------------------------------------------------------------------------------------------------------------
Shares outstanding (000's omitted) 387 57 20,317 455 20,370 532
------------------------------------------------------------------------------------------------------------------------------------
Net asset value per share ($) 15.07 14.98 11.10 11.07 11.10 11.07
------------------------------------------------------------------------------------------------------------------------------------
* Includes seed capital that will be withdrawn before consummation of the
Acquisition.
** Reflects the redemption of $5,169,000 of seed capital.
-52-
================================================================================
VOTING INFORMATION
Record date, quorum and method of tabulation
Shareholders of record of each Acquired Portfolio at the close of business on
August 10, 2001 (the "Record Date") will be entitled to notice of and to vote at
the Meeting or any adjournment thereof. The holders of a majority of the shares
of each Acquired Portfolio outstanding at the close of business on the Record
Date present in person or represented by proxy will constitute a quorum for the
Meeting. Shareholders are entitled to one vote for each share held, with
fractional shares voting proportionally. Class H and Class I shareholders of
each Acquired Portfolio will vote together as a single class in connection with
the approval or disapproval of the Mergers. Shareholders of each Acquired
Portfolio will vote only on the approval or disapproval of that Portfolio's
Merger.
Votes cast by proxy or in person at the Meeting will be counted by persons
appointed by the Brinson Trustees as tellers for the Meeting. The tellers will
count the total number of votes cast "for" approval of each Proposal for
purposes of determining whether sufficient affirmative votes have been cast.
Proxies with respect to which an Account has not received instructions will be
voted for, voted against, or withheld from voting on each proposal in the same
proportion as the other outstanding shares of the same Portfolio held by such
Account are voted. The tellers will count broker non-votes as shares that are
present and entitled to vote on the matter for purposes of determining the
presence of a quorum. So long as a quorum is present, abstentions and broker
non-votes have the effect of negative votes on the Merger.
Shares outstanding and beneficial ownership.
As of the Record Date, as shown on the books of each Acquired Portfolio
and each Acquiring Portfolio, there were issued and outstanding the following
number of shares of beneficial interest of each class of each Acquired
Portfolio and each class of each Acquiring Portfolio.
Brinson Series Trust Class H Class I
Brinson Balanced Portfolio 1,470,730 187,661
Brinson Global Equity Portfolio 610,818 53,869
Brinson Global Income Portfolio 469,139 N/A
Brinson Growth and Income Portfolio 1,289,923 721,677
Brinson Growth Portfolio 2,592,961 240,217
Brinson High Grade Portfolio 236,184 N/A
Brinson High Income Portfolio 1,138,098 N/A
Brinson Small Cap Portfolio 386,402 45,480
Brinson Strategic Income Portfolio 1,003,276 171,328
Alliance Variable Products Series Fund, Inc. Class A Class B
Alliance Total Return Portfolio 8,484,423 N/A
Alliance International Portfolio 5,360,147 N/A
Alliance Global Bond Portfolio 4,145,267 517,701
Alliance Growth and Income Portfolio 29,179,168 24,217,299
Alliance Growth Portfolio 14,341,797 4,870,417
Alliance U.S./High Grade Portfolio 6,263,417 440,032
Alliance High Yield Portfolio 3,557,583 N/A
Alliance Quasar Portfolio 20,380,328 447,407
As of the Record Date, trustees and officers owned in the aggregate less
than 1% of the outstanding shares of any class of each Brinson Portfolio and
directors and officers owned in the aggregate less than of 1% of the
outstanding shares of any class of each Alliance Portfolio. To the
knowledge of the Brinson Trust's management, as of the Record Date, there
were no Contract Owners with the ability to provide voting instructions with
respect to more than 5% of a class of an Acquired Portfolio's shares. To the
knowledge of the Alliance Fund's Management, as of the Record Date, there were
no Contract Owners with the ability to give voting instructions with respect
to more than 5% of a class of an Acquiring Portfolio's shares. However,
the proportionate voting by the insurance companies of shares for which no
voting instruction cards are returned may result in certain Contract Owners'
instructions affecting the vote of 5% or more of the outstanding shares of a
class. Those persons who beneficially own more than 25% of a particular class
of shares may be deemed to control such class. Brinson Advisors and the
following insurance company separate accounts are shown on the Brinson Trust's
records as owning 5% or more of a class of a Brinson Portfolio's shares as of
the Record Date:
PORTFOLIO PERCENTAGE OWNED SHAREHOLDER
---- ---------------- -----------
BRINSON BALANCED PORTFOLIO
--Class H shares 47.18% PaineWebber Life Insurance Company
1285 Avenue of the Americas
New York, New York 10019
36.31% American Republic Insurance Company
Attn: Annuity Administration
P.O. Box 1
Des Moines IA 50301
12.17% AIG Life Paradigm Variable Annuity
c/o Robert Shock
Stop 6-01B
1 Alico Plaza
Wilmington, DE 19801
--Class I shares 100% Keyport Life Insurance Company
125 High Street
Boston, MA 02110-2712
BRINSON GLOBAL EQUITY PORTFOLIO
--Class H shares 61.75% PaineWebber Life Insurance Company
37.30% American Republic Insurance Company
--Class I shares 97.84% Keyport Life Insurance Company
BRINSON GLOBAL INCOME PORTFOLIO
--Class H shares 52.29% American Republic Insurance Company
34.03% PaineWebber Life Insurance Company
10.18% AIG Life Paradigm Variable Annuity
BRINSON GROWTH AND INCOME PORTFOLIO
--Class H shares 38.05% AIG Life Paradigm Variable Annuity
28.31% PaineWebber Life Insurance Company
16.57% American Republic Insurance Company
14.84% Conseco Variable Insurance Company
Attn: Carla Higgs -
Separate Accounts
11825 N. Pennsylvania Street
Carmel, IN 46032
--Class I shares 45.80% Hartford Life Insurance Company
Separate Account Two
Attn: Carol Lewis
200 Hopmeadow Street
Simsbury, CT 06089
29.07% The Ohio National Life Insurance Company
One Financial Way
Cincinnati, OH 45242
13.06% Keyport Life Insurance Company
11.25% Aetna Life Insurance & Annuity Company
ARS Central Valuation Unit
Attn: Gordon Elrod
151 Farmington Ave.
Hartford, CT 06156
BRINSON GROWTH PORTFOLIO
--Class H shares 49.63% American Republic Insurance Company
38.96% PaineWebber Life Insurance Company
10.13% AIG Life Paradigm Variable Annuity
--Class I shares 99.44% Keyport Life Insurance Company
BRINSON HIGH GRADE FIXED INCOME
PORTFOLIO
--Class H shares 100% PaineWebber Life Insurance Company
BRINSON HIGH INCOME PORTFOLIO
--Class H shares 93.11% Brinson Advisors
51 W. 52nd Street
New York, New York 10019-6114
5.05% AIG Life Paradigm Variable Annuity
BRINSON SMALL CAP PORTFOLIO
--Class H shares 88.76% Brinson Advisors
9.77% AIG Life Paradigm Variable Annuity
--Class I shares 68.11% The Ohio National Life Insurance Company
31.88% Aetna Life Insurance & Annuity Company
BRINSON STRATEGIC INCOME PORTFOLIO
--Class H shares 93.26% Brinson Advisors
6.04% AIG Life Paradigm Variable Annuity
--Class I shares 39.91% Hartford Life Insurance Company
Separate Account Two
34.47% The Ohio National Life Insurance Company
25.61% Keyport Life Insurance Company
The following insurance company separate accounts are shown on the Alliance
Fund's records as owning 5% or more of a class of an Alliance Portfolio's
shares as of the Record Date:
PORTFOLIO PERCENTAGE OWNED SHAREHOLDER
--------- ---------------- -----------
ALLIANCE TOTAL RETURN PORTFOLIO
--Class A Shares 87.27% AIG Life Insurance Company
One ALICO Plaza
600 N. King Street
Wilmington DE 19801
12.73% American International Life
Assurance Company of New York
(American International Life)
80 Pine St
New York, New York 10005
ALLIANCE
INTERNATIONAL PORTFOLIO
--Class A Shares 84.96% AIG Life Insurance Company
11.47% American International Life
ALLIANCE GLOBAL BOND PORTFOLIO
--Class A Shares 60.89% Keyport Life Insurance Company
19.52% National Union Fire Insurance
c/o American International Life
Attn: Bill Tucker
80 Pine St.
New York, New York 10005
16.54% AIG Life Insurance Company
--Class B Shares 100.00% Keyport Life Insurance
ALLIANCE
GROWTH AND INCOME PORTFOLIO
--Class A Shares 67.68% AIG Life Insurance Company
11.25% Merrill Lynch Life Insurance
Administrative Offices
800 Scudder Mill Rd.
Plainsboro, NJ 08536
10.19% American International Life
--Class B Shares 26.44% Allmerica Financial Life Insurance
440 Lincoln St.
Worcester, MA 01653
21.23% AIG Life Insurance Company
18.83% Northbrook Life Insurance Company
3100 Sanders Rd
Northbrook, IL 60062
7.79% Lincoln Life Variable Annuity
1300 South Clinton
Fort Wayne, IL 46802
6.30% GE Life and Annuity Assurance
6610 West Broad St.
Richmond, VA 23230
5.77% Keyport Life Insurance
ALLIANCE GROWTH PORTFOLIO
--Class A Shares 85.49% AIG Life Insurance Company
14.47% American International Life
--Class B Shares 59.54% AIG Life Insurance Company
16.24% Northbrook Life Insurance Company
15.33% Lincoln National Separate Account
5.14% Allmerica Financial Life Insurance
ALLIANCE U.S. GOVERNMENT /
HIGH GRADE SECURITIES PORTFOLIO
--Class A Shares 89.58% AIG Life Insurance Company
10.42% American International Life
--Class B Shares 55.88% American Enterprise Life Insurance
44.12% AIG Life Insurance Company
ALLIANCE HIGH YIELD PORTFOLIO
--Class A Shares 92.60% AIG Life Insurance Company
7.40% American International Life
ALLIANCE QUASAR PORTFOLIO
--Class A Shares 66.32% Merrill Lynch Insurance Group
29.00% AIG Life Insurance Company
--Class B Shares 59.50% GE Life and Annuity Assurance
40.50% Sun Life Financial Futurity
1 Copley Place
Suite 200
Boston, MA 02116
The following pro forma table shows the insurance company separate accounts
that will own 5% or more of a class of an Aqquiring Portfolio's shares giving
effect to the proposed acquisition by the Acquiring Portfolio of the assets and
stated liabilities of the corresponding Acquired Portfolio at net asset value,
and in the case of the High Income Portfolio, the Small Cap Portfolio and the
Strategic Income Portfolio, the redemption by Brinson of its shares of such
Portfolio in connection with the merger.
PROFORMA
PORTFOLIO PERCENTAGE OWNED SHAREHOLDER
--------- ---------------- -----------
ALLIANCE TOTAL RETURN PORTFOLIO
--Class A Shares 80.43% AIG Life Insurance Company
11.74% American International Life
--Class B Shares 97.84% Keyport Life Insurance Company
ALLIANCE
INTERNATIONAL PORTFOLIO
--Class A Shares 77.92% AIG Life Insurance Company
10.52% American International Life
5.12% PaineWebber Life Insurance Company
ALLIANCE GLOBAL BOND PORTFOLIO
--Class A Shares 53.97% Keyport Life Insurance Company
17.30% National Union Fire Insurance
16.99% AIG Life Insurance Company
5.17% American Republic Insurance Co.
--Class B Shares 100.00% Keyport Life Insurance
ALLIANCE
GROWTH AND INCOME PORTFOLIO
--Class A Shares 66.13% AIG Life Insurance Company
11.00% Merrill Lynch Life Insurance
9.96% American International Life
--Class B Shares 26.02% Allmerica Financial Life Insurance
20.90% AIG Life Insurance Company
18.53% Northbrook Life Insurance Company
7.67% Lincoln Life Variable Annuity
6.50% Keyport Life Insurance
6.20% GE Life and Annuity Assurance
ALLIANCE GROWTH PORTFOLIO
--Class A Shares 80.65% AIG Life Insurance Company
13.66% American International Life
--Class B Shares 58.57% AIG Life Insurance Company
15.97% Northbrook Life Insurance Company
15.80% Lincoln National Separate Account
5.06% Allmerica Financial Life Insurance
ALLIANCE U.S. GOVERNMENT /
HIGH GRADE SECURITIES PORTFOLIO
--Class A Shares 87.15% AIG Life Insurance Company
10.14% American International Life
--Class B Shares 53.28% American Enterprise Life Insurance
44.12% AIG Life Insurance Company
ALLIANCE HIGH YIELD PORTFOLIO
--Class A Shares 92.13% AIG Life Insurance Company
7.22% American International Life
ALLIANCE QUASAR PORTFOLIO
--Class A Shares 66.26% Merrill Lynch Insurance Group
29.17% AIG Life Insurance Company
--Class B Shares 52.36% GE Life and Annuity Assurance
35.64% Sun Life Financial Futurity
8.17% The Ohio National Life Insurance Co.
Contract Owner Instructions.
Each Contract Owner is entitled to instruct his or her insurance company
as to how to vote its shares and can do so by marking voting
instructions on a ballot enclosed with the insurance company's
information statement and this Prospectus/Proxy Statement and then signing,
dating and mailing the ballot to the insurance company shareholder. If a ballot
is not marked to indicated voting instructions, but is signed, dated and
returned, it will be treated as an instruction to vote the shares in favor of
each of the proposals. Each insurance company shareholder will vote the shares
for which it receives timely voting instructions from Contract Owners in
accordance with those instructions and will vote those shares for which it
receives no timely voting instructions for and against approval of a proposal,
and as an abstention, in the same proportion as the shares for which it
receives voting instructions. Shares attributable to amounts retained by each
insurance company shareholder will be voted in the same proportion as votes
cast by Contract Owners.
Solicitation of instructions.
-53-
Solicitation of instructions by personal interview, mail, or telephone,
may be made by officers and Brinson Trustees and employees of Brinson Advisors
and Alliance and their affiliates. The costs for solicitation of instructions,
like the other costs associated with the Mergers, will be borne by Brinson
Advisors and Alliance. See "Information About The Merger."
Revocation of Instructions
Any Contract Owner giving instructions has the power to revoke such
instructions by mail by executing superseding instructions or by voting in
person. All properly executed instructions received in time for the Meeting will
be voted as specified in the instructions.
Shareholder Proposals At Future Meetings of Shareholders
The Brinson Declaration of Trust does not provide for annual meetings of
shareholders and the Brinson Trust does not currently intend to hold such a
meeting in 2001. Shareholder proposals to be considered at any subsequent
meeting of any Acquired Portfolio's shareholders must be received by the Brinson
Trust within a reasonable period of time prior to any such meeting. If the
Merger of an Acquired Portfolio is consummated, that Portfolio's existence will
terminate on the Closing Date, or shortly thereafter, after which there would be
no meetings of the shareholders of that Brinson Portfolio.
Adjournment
If sufficient votes in favor of any Proposal are not received by the time
scheduled for the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. Any
adjournment will require the affirmative vote of a majority of the votes cast on
the question in person or by proxy at the session of the Meeting to be
adjourned. If the Meeting is adjourned only with respect to one Proposal, any
other Proposal may still be acted upon by the shareholders. The persons named as
proxies will vote in favor of such adjournment those proxies, which they are
entitled to vote in favor of the Proposal. They will vote against any such
adjournment those proxies required to be voted against the Proposal. Brinson
Advisors and Alliance will pay the costs of any additional solicitation and of
any adjourned session.
Third Party Proxy Solicitation
As noted above MIS Corporation has been retained to assist with solicitation
activities in connection with the Mergers (including assembly and mailing of
materials to Contract Owners). Brinson Advisors and Alliance have estimated the
cost of these services to be approximately $33,300.
-54-
INFORMATION ABOUT THE PORTFOLIOS
Other information regarding the Acquired and Acquiring Portfolios,
including information with respect to their investment objectives, policies and
restrictions and financial histories, may be found in, respectively, the Brinson
Prospectus, and the Brinson SAI, which are available free of charge upon request
by calling 1-800-986-0088; and in the Alliance Prospectus which accompanies this
Prospectus/Proxy Statement, the Merger SAI, and the Alliance SAI, which are
available free of charge upon request by calling 1-800-277-4618.
Proxy materials, reports and other information filed by the Brinson Trust
with respect to the Brinson Portfolios and by the Alliance Fund with respect to
the Alliance Portfolios can be inspected and copied at the SEC's public
reference room, located at 450 5th Street NW, Room 1200, Washington DC 20549.
You may call the Commission at 1-202-942-8090 for information about the
operation of the public reference rooms. You may also access reports and other
information about the Trusts on the EDGAR database or the Commission's Internet
site at http://www.sec.gov. You may also obtain copies of this information, with
payment of a duplication fee, by electronic request at the following email
address: publicinfo@sec.gov or by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009. You may need to refer to the following
file numbers:
File No. 811-4919: Brinson Series Trust
File No. 811-05398: Alliance Variable Products Series Fund, Inc.
Certain information and commentary from the Acquiring Portfolios' most
recent annual reports relating to the Acquiring Portfolios' recent investment
performance is set forth in Appendix B to this Prospectus/Proxy Statement.
Financial Highlights intended to help you understand each of the Acquired and
Acquiring Portfolio's recent financial performance are incorporated by reference
to the Merger SAI.
September 26, 2001
-55-
Appendix A
FORM OF AGREEMENT AND PLAN OF ACQUISITION AND TERMINATION
[ ], 2001
This Agreement and Plan of Acquisition and Termination (the "Plan") is made as
of this [__] day of [__________], 2001, by and between ________________
Portfolio (the "Acquiring Fund"), a series of Alliance Variable Products Series
Fund, Inc., a Maryland corporation ("AVP"), and [___________] Portfolio (the
"Acquired Fund"), a series of Brinson Series Trust, a Massachusetts business
trust ("BST"). All agreements, representations, actions and obligations herein
that are made or to be taken or undertaken by the Acquiring Fund or the
Acquired Fund are made and shall be taken or undertaken by AVP or BST,
respectively, on its behalf.
WHEREAS, the Acquiring Fund and the Acquired Fund are open-end management
investment companies registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the parties desire that the Acquiring Fund acquire the assets and
assume the Liabilities of the Acquired Fund in exchange for shares of equal net
asset value of the Acquiring Fund and the distribution of such shares of the
Acquiring Fund to the shareholders of the Acquired Fund (the "Acquisition") and
that the Acquired Fund thereafter liquidate and dissolve; and
WHEREAS, the parties intend that the Acquisition qualify as a "reorganization"
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that with respect to the Acquisition, the Acquiring
Fund and the Acquired Fund will each be a "party to a reorganization" within
the meaning of section 368(b) of the Code;
Now, therefore, the Acquiring Fund and the Acquired Fund agree as follows:
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1. Definitions.
In addition to the terms elsewhere defined herein, each of the following terms
shall have the meaning indicated for that term as follows:
1933 Act Securities Act of 1933, as amended.
1934 Act Securities Exchange Act of 1934, as amended.
Assets All assets of any kind and all interests,
rights, privileges and powers of or
attributable to the Acquired Fund or any
class of the Acquired Fund's shares, as
appropriate, at the Effective Time (or, for
purposes of Section 4(d) hereof, the time
of delivery of the list referred to
therein), whether or not determinable at
the Effective Time and wherever located,
including, without limitation, all cash,
cash equivalents, securities, claims
(whether absolute or contingent, known or
unknown, accrued or unaccrued or conditional
or unmatured), contract rights and
receivables (including dividend and interest
receivables) owned by the Acquired Fund or
attributable to any class of the Acquired
Fund's shares and any deferred or prepaid
expense shown as an asset on the Acquired
Fund's books.
Closing Date Such date prior to December 31, 2001 as the
parties agree to.
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Effective Time 4:00 p.m. Eastern time on the Closing Date,
or such other time as the parties may agree
to in writing.
Financial Statements The audited financial statements of the
relevant Fund for its most recently
completed fiscal year and, if applicable,
the unaudited financial statements of that
Fund for its most recently completed semi-
annual period.
Fund The Acquiring Fund and/or the Acquired
Fund, as the case may be.
Liabilities All liabilities of the Acquired Fund at the
Effective Time, whether accrued or unaccrued,
absolute or contingent or conditional or
unmatured, but only to the extent disclosed
or provided for in the most recent Financial
Statements of the Acquired Fund referred to
in paragraph 6(i) and not identified by the
Acquired Fund to the Acquiring Fund as
having been paid or provided for on or prior
to the Closing Date, or otherwise disclosed
in writing to, and accepted by, the Acquiring
Fund as of the Valuation Time.
N-14 Registration Statement The Registration Statement of the Acquiring
Fund on Form N-14 under the 1940 Act that
will register the shares of the Acquiring
Fund to be issued in the Acquisition and
will include the proxy materials necessary
for the shareholders of the Acquired Fund
to approve the Acquisition.
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Valuation Time The time on the Closing Date, or the
business day immediately preceding the
Closing Date if the Closing Date is not a
business day or such other date as the
parties may agree to in writing, when for
purposes of this Plan the Acquiring Fund
determines its net asset value per share
and the Acquired Fund determines the net
value of the Assets.
2. Regulatory Filings.
The Acquiring Fund shall promptly prepare and file the N-14 Registration
Statement with the SEC, and each Fund also shall make any other required or
appropriate filings with respect to the actions contemplated hereby. Each
Fund, if requested, shall use reasonable commercial efforts to cooperate in
such filings.
3. Shareholder Action
As soon as practicable after the effective date of the N-14 Registration
Statement, the Acquired Fund shall hold a shareholder meeting to consider and
approve the Acquisition and this Plan, and such other matters as the Trustees
of BST may determine. Such approval by the shareholders of the Acquired Fund
shall, to the extent necessary to permit the consummation of the transactions
contemplated herein without violating any investment objective, policy or
restriction of the Acquired Fund, be deemed to constitute approval by the
shareholders of a temporary amendment of any investment objective, policy or
restriction that would otherwise be inconsistent with or violated upon the
consummation of such transactions solely for the purpose of consummating such
transactions.
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4. Transfer of the Acquired Fund's Assets. Each Fund shall take the following
steps with respect to the Acquisition, as applicable:
(a) Prior to the Effective Time, the Acquired Fund shall declare and pay to its
shareholders a dividend and/or other distribution in an amount such that it
will have distributed substantially all of its theretofore undistributed
investment company taxable income, (as defined in section 852 of the Code, if
any, and net capital gain (as defined in Code section 1222), if any.
(b) At the Effective Time, the Acquired Fund shall assign, transfer, deliver
and convey the Assets to the Acquiring Fund, subject to the Liabilities. The
Acquiring Fund shall then accept the Assets and assume the Liabilities such
that at and after the Effective Time (i) the Assets at or after the Effective
Time shall become and be assets of the Acquiring Fund, and (ii) the Liabilities
at the Effective Time shall attach to the Acquiring Fund, enforceable against
the Acquiring Fund to the same extent as if initially incurred by the Acquiring
Fund.
(c) Within a reasonable time prior to the Closing Date, the Acquired Fund shall
provide, if requested, a list of the Assets to the Acquiring Fund. The
Acquired Fund may sell any Asset on such list prior to the Effective Time.
After the Acquired Fund provides such list, the Acquired Fund will not acquire
any additional securities or permit to exist any encumbrances, rights,
restrictions or claims not reflected on such list, without the approval of the
Acquiring Fund. Within a reasonable time after receipt of the list and prior
to the Closing Date, the Acquiring Fund will advise the Acquired Fund in
writing of any investments shown on the list that the Acquiring Fund has
determined to be inconsistent with its investment objective, policies and
restrictions. The Acquired Fund will dispose of any such securities prior to
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the Closing Date to the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives, policies and
restrictions. In addition, if the Acquiring Fund determines that, as a result
of the Acquisition, the Acquiring Fund would own an aggregate amount of an
investment that would exceed a percentage limitation applicable to the
Acquiring Fund, the Acquiring Fund will advise the Acquired Fund in writing of
any such limitation and the Acquired Fund shall dispose of a sufficient amount
of such investment as may be necessary to avoid the limitation as of the
Effective Time, to the extent practicable and consistent with applicable legal
requirements, including the Acquired Fund's investment objectives, policies and
restrictions.
(d) The Acquired Fund shall assign, transfer, deliver and convey the Assets to
the Acquiring Fund at the Effective Time on the following basis:
(1) the Acquiring Fund shall simultaneously issue and deliver to the
Acquired Fund that number of full and fractional shares of common stock
of each class of the Acquiring Fund, rounded to the third decimal place
or such other decimal place as the parties may agree to in writing,
determined by dividing the value of the Assets less the amount of the
Liabilities attributable to a class of the Acquired Fund by the net asset
value per share of the corresponding class of the Acquiring Fund.
(2) For purposes of paragraph (1), the net asset value per share of each
class of the Acquiring Fund shall be determined as of the Valuation Time
in accordance with the Acquiring Fund's then applicable valuation
procedures, and the value of the Assets and the amount of the Liabilities
shall be determined as of the Valuation Time in accordance with the then
applicable valuation procedures of the Acquired Fund.
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(3) The Acquired Fund shall deliver or make arrangements to deliver the
Assets with good and marketable title to the custodian for the account of
the Acquiring Fund. All cash shall be transferred in the form of
immediately available funds payable to the order of the Acquiring Fund's
custodian.
(e) Promptly after the Closing Date, the Acquired Fund will deliver to the
Acquiring Fund a statement of Assets and Liabilities of the Acquired Fund as of
the Closing Date.
5. Termination and Dissolution of the Acquired Fund, Registration of Shares of
the Acquiring Fund and Access to Records. Each Fund also shall take the
following steps, as applicable:
(a) At or as soon as reasonably practical after the Effective Time, the
Acquired Fund shall terminate by transferring to shareholders of record of each
class of the Acquired Fund full and fractional shares of common stock of the
corresponding class of the Acquiring Fund equal in value to the shares of the
class of the Acquired Fund held by the shareholder. Each shareholder also
shall have the right to receive any unpaid dividends or other distributions
that the Acquired Fund declared with respect to the class of the Acquired
Fund's shares held by the shareholder before the Effective Time. The Acquiring
Fund shall record on its books the ownership by the Acquired Fund's
shareholders of the Acquiring Fund shares so transferred to such shareholders
and the Acquired Fund shall simultaneously redeem and cancel on its books all
of the issued and outstanding shares of each class of the Acquired Fund. The
Acquiring Fund shall issue certificates representing the Acquiring Fund shares
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in accordance with the then current Acquiring Fund prospectus; provided,
however, that the Acquiring Fund shall not issue certificates representing the
Acquiring Fund shares to replace certificates representing Acquired Fund shares
unless the Acquired Fund share certificates are first surrendered to the
Acquiring Fund. Following distribution by the Acquired Fund to its
shareholders of all of the shares of the Acquiring Fund delivered to the
Acquired Fund, the Acquired Fund shall wind up its affairs and shall take all
steps as are necessary and proper to dissolve as soon as is reasonably
practical after the Effective Time.
(b) At and after the Closing Date, the Acquired Fund shall provide the
Acquiring Fund and its transfer agent with immediate access to: (i) all records
containing the names, addresses and taxpayer identification numbers of all of
the Acquired Fund's shareholders and the number and percentage ownership of the
outstanding shares of each class of the Acquired Fund owned by shareholders as
of the Effective Time, and (ii) all original documentation (including all
applicable Internal Revenue Service forms, certificates, certifications and
correspondence) relating to the Acquired Fund shareholders' taxpayer
identification numbers and their liability for or exemption from back-up
withholding. The Acquired Fund shall preserve and maintain, or shall direct
its service providers to preserve and maintain, records with respect to the
Acquired Fund as required by Section 31 of, and Rules 31a-1 and 31a-2 under,
the 1940 Act.
6. Certain Representations and Warranties of the Acquired Fund. BST, on behalf
of the Acquired Fund, represents and warrants to the Acquiring Fund as follows:
(a) The Acquired Fund is a series of BST, a business trust duly formed, validly
existing and in good standing under the laws of the Commonwealth of
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Massachusetts, and has the power to own all of its properties and assets and to
carry out its obligations under this Plan. BST is qualified as a foreign
association in every jurisdiction where required, except to the extent that
failure to so qualify would not have a material adverse effect on BST. The
Board of Trustees of BST duly established and designated each class of the
Acquired Fund as a class of the Acquired Fund. BST is registered with the SEC
as an open-end management investment company under the 1940 Act, and such
registration will be in full force and effect as of the Effective Time.
(b) BST, on behalf of the Acquired Fund has the power and all necessary
federal, state and local qualifications and authorizations to own all its
assets, to carry on its business as now being conducted, to enter into and
carry out this Plan, and to consummate the transactions contemplated herein.
(c) The Board of Trustees of BST has duly authorized the execution and delivery
of this Plan by BST on behalf of the Acquired Fund and the transactions
contemplated herein. Duly authorized officers of BST have executed and
delivered this Plan on behalf of the Acquired Fund. Assuming that this Plan
has been duly authorized and executed by AVP on behalf of the Acquiring Fund,
this Plan represents a valid and binding contract, enforceable in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
reorganization, arrangement, moratorium, and other similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. The execution and delivery of this Plan does not, and, subject to
the approval of its shareholders referred to in Section 3 hereof, the
consummation of the transactions contemplated by this Plan will not, violate
BST's Declaration of Trust, its By-Laws or any material agreement to which the
Acquired Fund is subject. Except for the approval of the Acquired Fund's
shareholders, BST does not need to take any other action to authorize its
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officers to effectuate this Plan and the transactions contemplated herein on
behalf of the Acquired Fund.
(d) The Acquired Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code, in respect of
each taxable year since the commencement of its operations and intends to
continue to qualify as a regulated investment company thereunder for its
taxable year ending upon the transfer of Acquiring Fund shares pursuant to
Section 5(a) hereof.
(e) The information pertaining to the Acquired Fund included within the N-14
Registration Statement when filed with the SEC, when Part A of the N-14
Registration Statement is distributed to shareholders, at the time of the
shareholder meeting of the Acquired Fund for approval of the Acquisition and at
the Effective Time shall (i) comply in all material respects with the
applicable provisions of the 1933 Act, the 1934 Act and the 1940 Act, and the
rules and regulations thereunder and applicable state securities laws, and (ii)
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein not misleading.
(f) On behalf of the Acquired Fund, BST has duly authorized and validly issued
all of the issued and outstanding shares of beneficial interest in the Acquired
Fund, and all such shares are fully paid and non-assessable and were offered
for sale and sold in conformity with the registration requirements of all
applicable federal and state securities laws. There are no outstanding options,
warrants or other rights to subscribe for or purchase any of the shares of the
Acquired Fund, nor are there any securities convertible into shares of the
Acquired Fund.
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(g) The Acquired Fund shall operate its business in the ordinary course between
the date hereof and the Effective Time. Such ordinary course of business will
include the declaration and payment of customary dividends and distributions
and any other dividends and distributions referred to in Section 4(b) hereof.
(h) At the Effective Time, the Acquired Fund will have good and marketable
title to the Assets and full right, power and authority to assign, transfer,
deliver and convey the Assets free and clear of all liens, security interests
and other encumbrances.
(i) The Financial Statements of the Acquired Fund, copies of which have been
previously delivered to the Acquiring Fund, fairly present the financial
position of the Acquired Fund as of the Acquired Fund's most recent fiscal
year-end and, if applicable, as of the most recently completed semi-annual
period, and the results of the Acquired Fund's operations and changes in the
Acquired Fund's net assets for the periods indicated in accordance with
generally accepted accounting principles.
(j) To the knowledge of the Acquired Fund, the Acquired Fund has no
liabilities, whether or not determined or determinable, other than the
Liabilities disclosed or provided for in its Financial Statements or
liabilities incurred in the ordinary course of business subsequent to the date
of the most recent Financial Statement referencing Liabilities.
(k) The Acquired Fund does not know of any claims, actions, suits,
investigations or proceedings of any type pending or threatened against it.
There are no facts that the Acquired Fund has reason to believe are likely to
form the basis for the institution of any such claim, action, suit,
investigation or proceeding against it. The Acquired Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
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governmental body that adversely affects, or is reasonably likely to adversely
affect, its financial condition, results of operations, or the Assets or its
ability to consummate the transactions contemplated by this Plan.
(l) Except for agreements entered into or granted in the ordinary course of its
business, in each case under which no material default exists, the Acquired
Fund is not a party to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit of any kind or
nature whatsoever.
(m) The Acquired Fund has filed its federal income tax returns, copies of which
have been previously made available to the Acquiring Fund, for all taxable
years for which such returns are due and has paid all taxes payable pursuant to
such returns. No such return is currently under audit and no unpaid assessment
has been asserted with respect to such returns. The Acquired Fund will timely
file its federal income tax return for each subsequent taxable year including
its current taxable year.
(n) Since the date of the Financial Statements of the Acquired Fund, there has
been no material adverse change in its financial condition, results of
operations, business or Assets. For this purpose, negative investment
performance shall not be considered a material adverse change.
(o) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquired Fund of the
transactions contemplated by this Agreement.
7. Certain Representations and Warranties of the Acquiring Fund. AVP, on
behalf of the Acquiring Fund, represents and warrants to the Acquired Fund as
follows:
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(a) AVP is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Maryland and has the power to own all
of its assets and to carry out its obligations under this Plan. The Board of
Directors of AVP duly established and designated the Acquiring Fund as a series
of AVP and each class of shares of the Acquiring Fund as a class of the
Acquiring Fund. AVP is registered with the SEC as an open-end management
investment company under the 1940 Act, and such registration will be in full
force and effect as of the Effective Time.
(b) On behalf of the Acquiring Fund, AVP has the power and all necessary
federal, state and local qualifications and authorizations to own all of its
assets, to carry on its business, to enter into and carry out this Plan, and to
consummate the transactions contemplated herein.
(c) The Board of Directors of AVP has duly authorized the execution and
delivery of this Plan and the transactions contemplated herein by AVP on behalf
of the Acquiring Fund. Duly authorized officers of AVP have executed and
delivered this Plan. Assuming that this Plan has been duly authorized and
executed by BST on behalf of the Acquired Fund, this Plan represents a valid
and binding contract, enforceable in accordance with its terms, subject as to
enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium
and other similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles. The execution and delivery
of this Plan does not, and the consummation of the transactions contemplated by
this Plan will not, violate the Articles of Incorporation of AVP, its By-Laws
or any material agreement to which the Acquiring Fund is subject. AVP does not
need to take any other action to authorize its officers to effectuate this Plan
and the transactions contemplated herein.
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(d) The Acquiring Fund has qualified as a regulated investment company under
Part I of Subchapter M of Subtitle A, Chapter 1, of the Code in respect of each
taxable year since the commencement of its operations and qualifies and intends
to continue to qualify as a regulated investment company thereunder for its
current taxable year.
(e) The N-14 Registration Statement, when filed with the SEC, when Part A of
the N-14 Registration Statement is distributed to shareholders, at the time of
the shareholder meeting of the Acquired Fund for the approval of the
Acquisition and at the Effective Time, insofar as it relates to the Acquiring
Fund shall (i) comply in all material respects with the applicable provisions
of the 1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations
thereunder and applicable state securities laws, and (ii) not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein not
misleading.
(f) On behalf of the Acquiring Fund, AVP has duly authorized and validly issued
all of the issued and outstanding shares of common stock of the Acquiring Fund,
and all such shares are fully paid and non-assessable and were offered for sale
and sold in conformity with the registration requirements of all applicable
federal and state securities laws. AVP has duly authorized shares of the
Acquiring Fund to be issued and delivered to the Acquired Fund as of the
Effective Time. When issued and delivered, such shares of the Acquiring Fund
shall be validly issued, fully paid and non-assessable, and no stockholder of
the Acquiring Fund shall have any preemptive right of subscription or purchase
in respect of any such share. There are no outstanding options, warrants or
other rights to subscribe for or purchase any shares of the Acquiring Fund, nor
are there any securities convertible into shares of the Acquiring Fund.
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(g) The Acquiring Fund does not know of any claims, actions, suits,
investigations or proceedings of any type pending or threatened against it.
There are no facts that the Acquiring Fund currently has reason to believe are
likely to form the basis for the institution of any such claim, action, suit,
investigation or proceeding against it. The Acquiring Fund is not a party to
or subject to the provisions of any order, decree or judgment of any court or
governmental body that adversely affects, or is reasonably likely to adversely
affect, its financial condition, results of operations, its assets or its
ability to consummate the transactions contemplated by this Plan.
(h) Except for agreements entered into or granted in the ordinary course of its
business, in each case under which no material default exists, the Acquiring
Fund is not a party to or subject to any material contract, debt instrument,
employee benefit plan, lease, franchise, license or permit of any kind or
nature whatsoever.
(i) AVP, on behalf of the Acquiring Fund, has filed its federal income tax
returns, copies of which have been previously made available to the Acquired
Fund, for all taxable years for which such returns are due and has paid all
taxes payable pursuant to such returns. No such return is currently under audit
and no unpaid assessment has been asserted with respect to such returns. AVP,
on behalf of the Acquiring Fund, will timely file its federal income tax return
for each subsequent taxable year including its current taxable year.
(j) Since the date of the Financial Statements of the Acquiring Fund, there has
been no material adverse change in its financial condition, results of
operations, business or assets. For this purpose, negative investment
performance shall not be considered a material adverse change.
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(k) No consent, approval, authorization or order of any court or governmental
authority is required for the consummation by the Acquiring Fund of the
transactions contemplated by this Plan, other than the effectiveness of the
N-14 Registration Statement.
8. Conditions to the Obligations of each Fund. The obligations of each Fund
with respect to the Acquisition shall be subject to the following conditions
precedent:
(a) The shareholders of the Acquired Fund shall have approved the Acquisition
in the manner required by BST's Declaration of Trust, its By-Laws and
applicable law. If shareholders of the Acquired Fund fail to approve the
Acquisition, that failure shall release the Funds of their obligations under
this Plan.
(b) Each of AVP and BST shall have delivered to the other party a certificate
dated as of the Closing Date and executed in its name by its President, in a
form reasonably satisfactory to the receiving party, stating that the
representations and warranties of the Acquiring Fund or the Acquired Fund, as
applicable, in this Plan are true and correct in all material respects at and
as of the Effective Time.
(c) AVP, on behalf of the Acquiring Fund, and BST, on behalf of the Acquired
Fund, shall have performed and complied in all material respects with each of
its representations and warranties required by this Plan to be performed or
complied with by it prior to or at the Valuation Time and the Effective Time.
(d) There shall have been no material adverse change in the financial
condition, results of operations, business, properties or assets of the
Acquired Fund or the Acquiring Fund since December 31, 2000. For this purpose,
negative investment performance shall not be considered a material adverse
change.
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(e) The Acquiring Fund and the Acquired Fund shall have received an opinion of
Ropes & Gray, in form and substance reasonably satisfactory to each of them,
based upon representations made in certificates provided by the Funds, their
affiliates and/or principal stockholders and dated as of the Closing Date,
substantially to the effect that, based on facts and assumptions stated
therein, for federal income tax purposes:
(1) the Acquisition will constitute a "reorganization" within the meaning
of section 368(a) of the Code and that the Acquiring Fund and the Acquired
Fund will each be "a party to a reorganization" within the meaning of
section 368(b) of the Code;
(2) each stockholder of the Acquired Fund will recognize no gain or loss
on such stockholder's receipt of shares of the Acquiring Fund (including
any fractional share to which the stockholder may be entitled) in exchange
for the stockholder's shares of the Acquired Fund in connection with the
Acquisition;
(3) neither the Acquired Fund nor the Acquiring Fund will recognize any
gain or loss upon the transfer of all of the Assets to the Acquiring Fund
in exchange for shares of the Acquiring Fund and the assumption by the
Acquiring Fund of the Liabilities pursuant to this Plan or upon the
distribution of shares of the Acquiring Fund to stockholders of the
Acquired Fund in exchange for their respective shares of Acquired Fund;
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(4) the holding period and tax basis of the Assets acquired by the
Acquiring Fund will be the same as the holding period and tax basis that
the Acquired Fund had in such Assets immediately prior to the Acquisition;
(5) the aggregate tax basis of the Acquiring Fund shares received in
connection with the Acquisition by each stockholder of the Acquired Fund
(including any fractional share to which the stockholder may be entitled)
will be the same as the aggregate tax basis of the shares of the Acquired
Fund surrendered in exchange therefor;
(6) the holding period of the Acquiring Fund shares received in connection
with the Acquisition by each stockholder of the Acquired Fund (including
any fractional share to which the stockholder may be entitled) will
include the holding period of the shares of the Acquired Fund surrendered
in exchange therefor, provided that such Acquired Fund shares constitute
capital assets in the hands of the stockholder as of the Closing Date; and
the Acquiring Fund will succeed to the capital loss carryovers of the Acquired
Fund, if any, under Section 381 of the Code, but the use by the Acquiring Fund
of any such capital loss carryovers (and of capital loss carryovers of the
Acquiring Fund) may be subject to limitation under section 383 of the Code.
(f) The N-14 Registration Statement shall have become effective under the 1933
Act as to the shares of the Acquiring Fund, and the SEC shall not have
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instituted and to the knowledge of the Acquiring Fund shall not be
contemplating instituting, any stop order suspending the effectiveness of the
N-14 Registration Statement.
(g) No action, suit or other proceeding shall be threatened or pending before
any court or governmental agency in which it is sought to restrain or prohibit,
or obtain damages or other relief in connection with, the Acquisition.
(h) The SEC shall not have issued any unfavorable advisory report under Section
25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin
consummation of the Acquisition under Section 25(c) of the 1940 Act.
(i) Neither party shall have terminated this Plan pursuant to Section 12 of
this Plan.
9. Additional Conditions to the Obligations of the Acquired Fund. The
obligations of the Acquired Fund with respect to the Acquisition shall be
subject to the following additional conditions precedent:
(a) The Acquired Fund shall have received an opinion of counsel to AVP in form
and substance reasonably satisfactory to the Acquired Fund and dated as of the
Closing Date, substantially to the effect that:
(1) AVP is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Maryland and is an open-end,
management investment company registered under the 1940 Act, and the
Acquiring Fund is a duly established series thereof;
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(2) This Plan has been duly authorized, executed and delivered by AVP, on
behalf of the Acquiring Fund, and, assuming due authorization, execution
and delivery of this Plan by BST, on behalf of the Acquired Fund,
represents a legal, valid and binding contract, enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
moratorium, fraudulent conveyance and transfer and similar laws relating
to or affecting creditors' rights generally and court decisions with
respect thereto, and further subject to the application of equitable
principles in any proceeding, whether at law or in equity or with respect
to the enforcement of provisions of this Plan and the effect of judicial
decisions which have held that certain provisions are unenforceable when
their enforcement would violate an implied covenant of good faith and
fair dealing or would be commercially unreasonable or when default under
this Plan is not material;
(3) The shares of the Acquiring Fund to be delivered as provided for by
this Plan are duly authorized and upon delivery will be validly issued,
fully paid and non-assessable by the Acquiring Fund;
(4) The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Articles of Incorporation of
AVP, its By-Laws or any agreement of the Acquiring Fund known to such
counsel, after reasonable inquiry; and
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(5) To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or regulatory
agency is required for the Acquiring Fund to enter into this Plan or carry
out its terms, except those that have been obtained under the 1933 Act,
the 1940 Act and the rules and regulations under those Acts or that may
be required under state securities laws, or subsequent to the Effective
Time or when the failure to obtain the consent, approval, authorization
or order would not have a material adverse effect on the operation of the
Acquiring Fund.
In rendering such opinion, counsel to AVP may (i) rely on the opinion of
Maryland counsel to the extent set forth in such opinion, (ii) make assumptions
regarding the authenticity, genuineness and/or conformity of documents and
copies thereof without independent verification thereof, (iii) limit such
opinion to applicable federal and state law, (iv) define the word "knowledge"
and related terms to mean the knowledge of attorneys then with such firm who
have devoted substantive attention to matters directly related to this Plan and
(v) rely on certificates of officers or directors of AVP as to factual matters.
10. Additional Conditions to the Obligations of the Acquiring Fund. The
obligations of the Acquiring Fund with respect to the Acquisition shall be
subject to the following additional conditions precedent:
A-21
(a) The Acquiring Fund shall have received an opinion of Kirkpatrick & Lockhart
LLP, as counsel to the Acquired Fund, in form and substance reasonably
satisfactory to the Acquiring Fund and dated as of the Closing Date,
substantially to the effect that:
(1) BST is a business trust duly organized, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and is an
open-end, management investment company registered under the 1940 Act,
and the Acquired Fund is a duly established series thereof;
(2) This Plan has been duly authorized, executed and delivered by the
Acquired Fund and, assuming due authorization, execution and delivery of
this Plan by AVP, on behalf of the Acquiring Fund, represents a legal,
valid and binding contract, enforceable in accordance with its terms,
subject to the effect of bankruptcy, insolvency, moratorium, fraudulent
conveyance and transfer and similar laws relating to or affecting
creditors' rights generally and court decisions with respect thereto, and
further subject to the application of equitable principles in any
proceeding, whether at law or in equity or with respect to the enforcement
of provisions of this Plan and the effect of judicial decisions which have
held that certain provisions are unenforceable when their enforcement
would violate an implied covenant of good faith and fair dealing or would
be commercially unreasonable or when default under this Plan is not
material;
A-22
(3) The execution and delivery of this Plan did not, and the consummation
of the Acquisition will not, violate the Declaration of Trust of BST, its
By-Laws or any agreement of the Acquired Fund, known to such counsel, after
reasonable inquiry; and
(4) To the knowledge of such counsel, no consent, approval, authorization
or order of any federal or state court or administrative or regulatory
agency is required for the Acquired Fund to enter into this Plan or carry
out its terms, except those that have been obtained under the 1933 Act,
the 1940 Act and the rules and regulations under those Acts or that may be
required under state securities laws or subsequent to the Effective Time
or when the failure to obtain the consent, approval, authorization or
order would not have a material adverse effect on the operation of the
Acquired Fund.
In rendering such opinion, Kirkpatrick & Lockhart, LLP may (i) rely on the
opinion of other counsel to the extent set forth in such opinion, (ii) make
assumptions regarding the authenticity, genuineness and/or conformity of
documents and copies thereof without independent verification thereof, (iii)
limit such opinion to applicable federal and state law, (iv) define the word
"knowledge" and related terms to mean the knowledge of attorneys then with such
firm who have devoted substantive attention to matters directly related to this
Plan and (v) rely on certificates of officers or Trustees of BST as to factual
matters.
A-23
(b) Except to the extent prohibited by Rule 19b-1 under the 1940 Act, the
Acquired Fund shall have declared a dividend or dividends that, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund substantially all of its investment company
taxable income, (as defined in Code section 852), if any, and all of its net
capital gain (as defined in Code section 1222), if any.
(c) The Acquiring Fund shall have received a letter from Brinson Advisors, Inc.
in which Brinson Advisors, Inc. agrees to indemnify the Acquiring Fund and its
affiliates in respect of any and all liabilities of the Acquired Fund that are
not reflected in the net asset value of the Acquired Fund as of the Valuation
Time, such agreement to be in a form satisfactory to the Acquiring Fund.
11. Survival of Representations and Warranties. No representations, warranties
or covenants in or pursuant to this Plan (including certificates of officers)
shall survive the completion of the transactions contemplated herein.
12. Termination of Plan. A majority of the Board of Directors of AVP or the
Board of Trustees of BST may terminate this Plan at any time before the
applicable Effective Time if: (i) the conditions precedent to the Fund's
obligations set forth in Sections 8, 9 or 10, as appropriate, are not
satisfied; or (ii) the Board of Directors of AVP or the Board of Trustees of
BST determines that the consummation of the Acquisition is not in the best
interests of the relevant Fund or its shareholders and gives notice of such
termination to the other party.
13. Governing Law. This Plan and the transactions contemplated hereby shall be
governed, construed and enforced in accordance with the laws of the State of
New York, except to the extent preempted by federal law, without regard to
conflicts of law principles.
A-24
14. Brokerage Fees. Each party represents and warrants that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for in this Plan.
15. Amendments. The parties may, by agreement in writing authorized by its
respective Board, amend this Plan at any time before or after the shareholders
of the Acquired Fund approve the Acquisition. However, after shareholders of
the Acquired Fund approve the Acquisition, the parties may not amend this Plan
in a manner that materially alters the obligations of either party. This
Section shall not preclude the parties from changing the Closing Date or the
Effective Time by mutual agreement.
16. Waivers. At any time prior to the Closing Date, either party may by written
instrument signed by it (i) waive the effect of any inaccuracies in the
representations and warranties made to it contained herein and (ii) waive
compliance with any of the agreements, covenants or conditions made for its
benefit contained herein. Any waiver shall apply only to the particular
inaccuracy or requirement for compliance waived, and not any other or future
inaccuracy or lack of compliance.
17. Cooperation and Further Assurances. Each party will cooperate with the
other in fulfilling its obligations under this Plan and will provide such
information and documentation as is reasonably requested by the other in
carrying out this Plan's terms. Each party will provide such further
assurances concerning the performance of its obligations hereunder and execute
all documents for or in connection with the consummation of the Acquisition as,
with respect to such assurances or documents, the other shall deem necessary or
appropriate.
A-25
18. Updating of N-14 Registration Statement. If at any time prior to the
Effective Time, a party becomes aware of any untrue statement of a material
fact or omission to state a material fact required to be stated therein or
necessary to make the statements made not misleading in the N-14 Registration
Statement, the party discovering the item shall notify the other party and the
parties shall cooperate in promptly preparing, filing and clearing with the SEC
and, if appropriate, distributing to shareholders appropriate disclosure with
respect to the item.
19. Limitation on Liabilities. The obligations of each Fund shall not bind
any of the directors, trustees, shareholders, nominees, officers, employees or
agents of BST or AVP personally or any series of either AVP or BST except the
parties hereto, but shall bind only the Acquired Fund or the Acquiring Fund, as
appropriate. The execution and delivery of this Plan by an officer of either
party shall not be deemed to have been made by the officer individually or to
impose any liability on the officer personally, but shall bind only BST, on
behalf of the Acquired Fund, or AVP, on behalf of the Acquiring Fund, as
applicable.
20. Termination of the Acquired Fund. If the parties complete the Acquisition,
the Acquired Fund shall terminate and dissolve.
21. Notices. Any notice, report, statement, certificate or demand required or
permitted by any provision of this Plan shall be in writing and shall be given
in person or by telecopy, certified mail or overnight express courier to:
For the Acquired Fund:
[Acquired Fund] of Brinson Series Trust
51 West 52nd St.
New York, New York 10019
Attention: Secretary
A-26
For the Acquiring Fund:
[Acquiring Fund] of Alliance Variable Products Series Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Attention: Secretary
22. Expenses. Alliance Capital Management L.P., the investment adviser to the
Acquiring Fund, and Brinson Advisors, Inc., the investment manager to the
Acquired Fund, will share equally all expenses incurred in connection with this
Plan, and all transactions contemplated hereby, whether or not the Acquisition
is consummated.
23. General. This Plan supersedes all prior agreements between the parties
with respect to the subject matter hereof and may be amended only in writing
signed by both parties. The headings contained in this Plan are for reference
only and shall not affect in any way the meaning or interpretation of this
Plan. Whenever the context so requires, the use in this Plan of the singular
will be deemed to include the plural and vice versa. Nothing in this Plan,
expressed or implied, confers upon any other person any rights or remedies
under or by reason of this Plan. Neither party may assign or transfer any right
or obligation under this Plan without the written consent of the other party.
A-27
In Witness Whereof, the parties hereto have executed this Plan as of the day
and year first above written.
BRINSON SERIES TRUST, on behalf of
[Acquired Fund]
Attest:
By:______________________________ By:______________________________
Name: Name:
Title: Title:
A-28
Alliance Variable Products Series
Fund, Inc., on behalf of [Acquiring
Fund]
Attest:
By:______________________________ By:______________________________
Name: Name:
Title: Title:
Accepted and agreed with respect to Section 22 only:
Alliance Capital Management L.P.
By: Alliance Capital Management
Corporation, its General Partner
By:________________________________
Name_______________________________
Title:_____________________________
Accepted and agreed with respect to Section 22 only:
Brinson Advisors, Inc.
By:________________________________
Name_______________________________
Title:_____________________________
A-29
Appendix B
Excerpts from Alliance Fund Annual Report Dated December 31, 2000
Management Discussion and Analysis
Alliance Total Return Portfolio
Investment Objective
The Total Return Portfolio seeks to achieve a high return through a
combination of current income and capital appreciation by investing in a
diversified portfolio of common and preferred stocks, senior corporate debt
securities, and U.S. government and agency obligations, bonds and senior debt
securities.
Market Review
In stark contrast to the beginning of the year "New Millennium fanfare,"
the U.S. economy hobbled through year-end in rather tired shape. In 2000, bold
"New Era" proclamations succumbed to the laws of financial gravity and the
Internet was deemed not to be ready for prime time. The NASDAQ imploded (down
39% for the year and 54% off its March high), taking consumer confidence down
with it. As the trajectory of economic growth became less certain, fixed income
and equity investors sharpened their pencils and concluded that the economics of
many a "New Era" business model just would not work. Against this backdrop of
heightened sensitivity to financial risk, conservative assets performed better
than risky assets, reversing the trend of the prior two years (at least in
equities). Generally, global capital markets saw high quality assets perform
better than low quality assets and fixed investments perform better than
equities.
Over the six- and 12-month periods ended December 31, 2000, the Lehman
Government/Credit Index returned 7.36% and 11.85%, respectively. Corporate bonds
underperformed, returning 9.39% for the 12-month period. During 2000, investors
were challenged to avoid problem situations in rapidly deteriorating credits,
both operationally (Bank of America, Conseco, Finova, Xerox, auto part firms and
most retailers) and special situations (Owens Corning and other Asbestos exposed
companies). Decelerating corporate earnings growth, escalating defaults, tighter
credit availability, and expectations of weaker economic growth in 2001 argue
for caution. Many industries continue to be plagued by over-capacity and are
wrestling with short-term pressures from higher energy costs and tight labor
markets.
As for equities, smaller and more mid-sized companies performed better
than large companies, and value stocks significantly outperformed growth stocks.
For the full calendar year,
B-1
value stocks delivered their best returns ever when compared to growth stocks as
the extreme disconnect in last year's market, between the underlying economic
values of businesses as compared to their equity market valuations, appears to
have undergone a substantial adjustment. As measured by the Russell 1000 Value
Index, value stocks were up 7.1%, while growth stocks, as measured by the
Russell 1000 Growth Index, were down 22.4%.
Equities
The Portfolio's equity investments meaningfully outperformed the S&P 500
during the past six- and 12-month periods ended December 31, 2000. Our strong
performance was driven in large part by the success of our value style
philosophy and the outsized returns generated from some of our largest equity
holdings. On a more thematic note, the Portfolio's performance benefited from
the preference shift undertaken by investors as they reduced their holdings of
risky assets in favor of more conservative ones. The attractive relationship
between our investments and their underlying economic values provided great
resiliency and positive impetus to Portfolio results in 2000.
The extreme success of growth strategies in 1998 and 1999 peaked in March
of last year as an unprecedented valuation anomaly opened between growth and
value style securities. As evidence of slower economic growth became more
prevalent through 2000, the high valuation structure of growth stocks succumbed
to the pressure of downward earnings revisions and high profile, richly valued
growth stocks dramatically underperformed.
One cannot help but sit in awe of the dramatic swings in investor
sentiment and stock prices that have become this market's signature feature. The
combination of lower corporate profit growth expectations, partly engineered by
the Federal Reserve, and the apparent lack of investor conviction underpinning
the price structure of individual securities conspired to create one of the most
elevated periods of market volatility ever observed. By staying focused on the
economics of individual company businesses, the increase in market volatility
generated many opportunities for the Portfolio to respond.
Equity investments favorably impacting last year's performance were mainly
in companies where earnings were believed to be relatively insensitive to the
overall level of economic activity. In fact, many of this year's winners would
have been characterized as "out-of-favor" earlier on this year. Securities
negatively impacting performance were concentrated in technology and
telecommunications, areas where fortunately, we were meaningfully underweighted
versus the S&P 500.
Fixed Income
Performance of the fixed income portion of the Portfolio modestly
underperformed its benchmark (the Lehman Brother's Government Corporate Index)
as widened corporate spreads negatively impacted the Portfolio's BBB rated
bonds. The Portfolio's shorter-than-market duration, relatively high cash
position, and lack of government agencies also contributed to the
B-2
shortfall. During December, cash was deployed to increase duration, agencies,
and corporate bonds. At year-end, the Portfolio's positions were more closely
aligned to our fixed income benchmark. Duration was lengthened to 5.5 years
(comparable to the index) in expectation of lower Treasury yields in 2001.
Investments in non-investment grade securities remained moderate and relatively
high in quality. These actions allowed the Portfolio to narrow its performance
differential relative to its benchmark in December and positioned it for
outperformance in 2001.
Our fixed-income investments are positioned to benefit from lower interest
rates and greater demand for spread product in 2001 as risk spreads revert to
more normal levels in the wake of the Fed's efforts to increase system
liquidity. We will continue to closely monitor economic developments and, as
long as a recession is not envisioned, selectively add corporate bonds to the
Portfolio. We shall continue to actively trade positions when securities reach
fairly valued prices and will strive to minimize exposure to weakening credits.
Investment Results(3)
Over the six- and 12-month periods ended December 31, 2000, the Total
Return Portfolio significantly outperformed its composite benchmark (40% Lehman
Brothers Government/Credit Bond Index and 60% S&P 500 Stock Index). The Total
Return Portfolio returned 7.91% for the six-month period and 12.52% for the
12-month period, respectively.
Investment Outlook
The Federal Reserve's policy to slow U.S. economic activity to relieve
potential inflation pressure appears to have achieved its desired intent. With
the recent surge in disappointing corporate earnings pre-announcements
confirming the perception of a slower U.S. economy, it appears the Federal
Reserve has embraced a more liberal policy directive committed to engineering
interest rates lower to support the economy.
Our outlook for the economy and financial markets assume that the level of
U.S. business activity will continue slowing into the first half of 2001. More
determined easing by the Federal Reserve of another 100-150 basis points should
help to cushion the downturn, and a reacceleration of growth to 3% is possible
later this year. Elsewhere the slowdown will be less pronounced. However, we
expect moderating growth to become a more consistent global theme for at least
the next few quarters. Central banks will adopt more accommodative rhetoric and
policies, and bond yields are more likely to move lower than higher. Slower U.S.
profit growth over the next 12-18 months should keep broad stock market gains in
single-digit territory.
Investment Results As Of December 31, 2000(4)
----------
(3) Average annual total returns are for the Portfolio's Class A shares.
B-3
Listed below are the Portfolio's average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
Total Return Portfolio
1 Year 12.52%
5 Years 4.36%
Since Inception (12/92) 12.42%
Performance Update
12/31/92* 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-----------------------------------------------------------------------------
Fund $10,000 $10,970 $10,557 $13,055 $15,036 $18,210
Composite $10,000 $11,045 $10,976 $14,311 $16,311 $16,571
12/31/98 12/31/99 12/31/00
--------------------------------------------
Fund $21,304 $22,695 $25,536
Composite $20,857 $25,718 $29,662
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total
--------------------------------------------------------------------------------
(4) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. these figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-4
return at net asset value (NAV). An investor cannot invest directly in an index
or average, and its results are not indicative of the performance for any
Alliance mutual fund.
International Portfolio
Investment Objective
The International Portfolio seeks to obtain a total return on its assets
from long-term growth of capital principally through a broad portfolio of
marketable securities of established non-United States companies (or United
States companies having their principal activities and interests outside the
United States), companies participating in foreign economies with prospects for
growth, and foreign government securities.
Market Review
The Year 2000 began with much fanfare. The world had entered into a new
decade, a new century and a new millennium. Global markets continued their "race
to the moon" with a 1% gain in the world markets, a 3% gain in the Standard &
Poor's (S&P) 500 Stock Index and a powerful 10.7% gain in the NASDAQ in the
first quarter of 2000. Technology, media and telecommunication (TMT) stocks
maintained their reign of superior performance. We had entered the world of the
"new" economy, a new way of life.
What a difference a year makes. The great engine of global growth, the
U.S. economy, began to sputter and subsequently slow, the technology revolution
lost its fire and technology stocks began to crumble under the weight of
overextended valuations. Global markets nose-dived, the euro touched new lows,
the Japanese recovery became unconvincing and the U.S. finally ended a heated
and chaotic election.
Despite the triumphant beginning and great expectations for 2000, global
markets returned the worst results seen in a decade. The Morgan Stanley Capital
World Index and the Morgan Stanley Capital Index (MSCI) Europe, Australasia and
Far East (EAFE) Index were down 13.2% and 14.2%, respectively. The S&P 500
declined 9.1% and the NASDAQ dropped 39.3%. The euro declined 6.3% versus the
U.S. dollar and hit a low of .827 per U.S. dollar in November. The Japanese yen
fell 10.5% against the greenback.
The swing in market sentiment towards economic growth was swift this past
year. Only 12 months prior, annualized fourth quarter growth for U.S. gross
domestic product (GDP) was over 8%. That compares with a 2.7% consensus forecast
for fourth quarter 2000. Certainly, the continuous increasing of interest rates
around the world by central banks had a dampening effect on global economies.
High energy prices also served as a brake on economic growth. In addition, the
stockpiling of inventories, particularly in the technology arena, in order to
ameliorate earlier problems of drastic component shortages, may have exacerbated
the situation, causing growth to decline more rapidly. Signs of growing
inventories and shorter lead times upset the markets, and technology stocks
tumbled as a result.
B-5
With concerns over economic growth and slowing demand, the easy capital
flows for internet-related investments during the prior two years suddenly
ceased, and certain credit markets around the world tightened rapidly. As a
result, those companies with shaky and/or extended business models and no
immediate cash flow soon fell by the wayside. With continuous news of dot.com
bankruptcies, technology companies' earnings misses and market declines, the
consumer has taken a rather sober view of the world recently, and has in turn,
affected global growth negatively. This year's holiday spending may have been
the lowest in years.
Investment Results(5)
With a growth bias, the Portfolio underperformed the MSCI EAFE Index for
the year 2000. The overweight position in TMT stocks hurt performance of the
Portfolio on a relative basis, leading to a -19.86% return for the year.
Mitigating the negative results vis-a-vis the Index were the Portfolio's large
positions in financial and pharmaceutical stocks. Relative to global growth
indices, such as the MSCI EAFE Growth Index, the Portfolio returned superior
results given the holdings in these latter groups.
Investment Outlook
Our investment process has always stressed valuation as well as growth and
we continue to focus on those stocks where the most exciting growth is available
at the best price. The Portfolio is diversified among industries and
concentrated in those companies offering the best earning visibility over the
next year. We remain fully invested and believe the focus on strong relative
earnings fundamentals will be rewarded by the markets in the future and over the
long-term.
Portfolio Strategy
In Europe, media and telecommunication stocks were the hardest hit sectors
in the Portfolio as the market grasped for clarity on valuations. As mobile
phone providers bid colossal amounts for third generation licenses, investors
began to question the ultimate returns expected. Concerns over balance sheet
strength and ballooning capital expenditures replaced last year's fascination
with subscriber growth and monumental mergers. In Europe, as in the U.S., cable
companies lost their luster, and the promise of interactive television moved
realistically further into the future. Again, similar to the U.S., the largest
contributors to performance in Europe were financial and health care-related
stocks.
Despite Japan's weak showing this year (the MSCI Japan Index was down
28.2% in 2000), the Portfolio's holdings in the region contributed positively to
performance. The increase in value of the pharmaceutical, financial, and
consumer stock positions more than offset the decline in technology-related
holdings.
----------
(5) Average annual total returns are for the Portfolio's Class A shares.
B-6
Asia Pacific performance was mixed for the year. Positions in China and
Hong Kong added to performance, while positions in Australia and Korea detracted
from performance.
The shift in psychology has been very rapid and has spread to almost all
sectors of the economy. With the exception of financials, energy/utilities,
pharmaceutical and consumer staples, all other industry sectors underperformed
the world markets during 2000. Investor concerns are myopic in nature with
extreme focus on the upcoming quarter's results with little or no value ascribed
to growth prospects over the next 12-18 months. Despite the obvious change in
global growth fundamentals, we believe the pendulum is beginning to swing too
far to the other side. Global markets seem to be discounting a rather negative
earnings scenario. With the decline in earnings estimates around the world
complemented by numerous analyst-rating downgrades, global markets have settled
into more realistic expectations, which we believe is favorable for the market.
Although timing is very difficult, we believe 2001 can bring recovery to global
markets. With the recent shift in focus from inflation to economic growth by the
Federal Reserve, the U.S. will likely see the Fed lower rates further in the
year 2001. In addition, there are signs of growing concerns of central bank
members over an economic slowdown in both the Europe/UK and the Japan regions,
which may result in lower rates outside the U.S. as well.
Investment Results As Of December 31, 2000(6)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
International Portfolio
1 Year 19.86%
5 Years 7.08%
Since Inception (12/92) 9.08%
Performance Update
----------
(6) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-7
12/31/92* 12/31/93 12/31/94 12/31/95 12/31/96
-----------------------------------------------------------------------------
Fund $10,000 $12,160 $12,975 $14,254 $15,287
MSCI EAFE Index $10,000 $13,294 $14,366 $16,026 $17,045
Lipper International
Funds Avg $10,000 $13,625 $13,572 $15,049 $17,014
12/31/97 12/31/98 12/31/99 12/31/00
------------------------------------------------------------------
Fund $15,796 $17,852 $25,034 20,062
MSCI EAFE Index $17,396 $20,933 $26,647 22,928
Lipper International
Funds Avg $18,044 $20,521 $28,151 23,629
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
Global Bond Portfolio
Investment Objective
The Global Bond Portfolio (the "Portfolio") seeks a high level of return
from a combination of current income and capital appreciation by investing in a
globally diversified portfolio of high-quality debt securities denominated in
the U.S. dollar and a range of foreign securities.
Market Review
After a strong first half of the year, the global economy lost some
momentum during the third quarter. Past interest rate increases, stable-to-lower
stock prices, and higher oil prices dampened global growth. Monetary policy
makers retained their tightening bias, but appeared to be nearing the end of
their tightening cycle.
B-8
In the U.S., economic growth moderated with a downshift in consumer
spending. In May, the U.S. Federal Reserve raised interest rates by 50 basis
points from 6.00% to 6.50%. Faced with a growing budget surplus, the Treasury
began a long-term project to reduce the supply of outstanding government debt.
Therefore, even in the face of higher official rates, the two-year Treasury
yields fell from 6.72% to 5.91%, while 30-year Treasury yields fell from 5.99%
to 5.79%. Stable growth allowed the Federal Reserve to hold rates steady thus
far and their focus remains on inflationary imbalances in the labor market and
inflation threats from higher oil prices.
In the euro region, a weaker euro currency and higher oil prices dampened
consumer confidence. Similar to the U.S., European monetary policy makers have
also retained their aggressive attitudes.
In Japan, the economy remains fragile and dependent on public spending and
exports. There appears to be a moderation in private demand and a substantial
decline in public spending. The Bank of Japan (BOJ) abandoned its "zero-rate"
policy in August and raised its short-term rates to 0.25%.
Global economic growth remained strong, as most individual country returns
were positive toward the end of 2000. Ecuador posted the largest gain as a
result of its progress in the dollarization process and debt restructuring
reforms (Dollarization is the official adoption of the U.S. dollar as the
currency of choice in a foreign country). Within the Latin American region,
performance of Venezuelan debt remained positive, helped by rising oil prices
(Venezuela is very dependent on oil exports). Other individual outperformers
included Mexico and Brazil. Peru was among the worst performers on the back of
growing political and economic uncertainties.
The external environment has been very supportive of Mexican debt over the
past six months as it benefited from a strong U.S. economy and robust oil
prices. Internal factors such as sound fiscal policy, a credit rating upgrade to
investment quality and a peaceful election also enhanced the performance of
Mexican bonds. These positive credit events led to the lowering of the yield
premium over Treasuries that investors demand from their Mexican holdings. The
July election marked the first time that Mexico has seen a peaceful and
democratic transfer of power between political parties. In Argentina, economic
growth remains anemic, and the country has been severely hampered by external
shocks--restrictive U.S. monetary policy, a weak euro currency and low
agricultural commodity prices.
Investment Results(7)
During the reporting period ended December 31, 2000, the Portfolio
underperformed the benchmark, as represented by the Salomon Smith Barney World
Government Bond Index (unhedged), over the 12-month period posting a return of
1.17% as compared to 1.59%,
----------
(7) Average annual total returns are for the Portfolio's Class A shares.
B-9
respectively. However, over the six-month reporting period, the Portfolio
outperformed the benchmark with a return of 1.86% as compared to 1.56%,
respectively.
Investment Outlook
Although we expect the U.S. economy to slow further during the first half
of 2001, we do not anticipate an outright recession. Further aggressive easing
by the Federal Reserve--as much as another 100 to 150 basis points--should help
cushion the downturn and make a re-acceleration of growth to 3% later this year
possible. In our view, the Federal Reserve will continue to lower rates, the
yield curve will steepen further, and volatility will likely remain high. The
fundamental economic causes of the current slowdown are harder for the Federal
Reserve to ameliorate than the more purely financial challenges of 1995 and
1998. As a result, rates are likely to fall further and stay low for a sustained
period of time.
Although the prospects of an easier monetary policy in the U.S. and a
likely end to global tightening should benefit emerging markets, a hard landing
for the U.S. would probably cancel those gains, while the effects of further
declines in oil prices will vary from country to country. On balance, we look
for oil-importing countries to benefit, while oil exporters will be negatively
affected.
Despite the inevitable variation across countries, we believe that most
emerging-market governments remain committed to necessary economic and financial
reforms. Going forward, we believe emerging-market debt will continue to produce
attractive returns, albeit with considerable volatility over the medium term.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(8)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
Global Bond Portfolio
1 Year 1.17%
5 Years 2.99%
Since Inception (7/91) 6.24%
----------
8) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-10
Performance Update
7/31/91* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
------------------------------------------------------------------------------
Fund $10,000 $11,100 $11,641 $12,939 $12,272 $15,306
Salomon
Brothers
World Gov't
Bond Index
(unhedged) $10,000 $11,436 $12,068 $13,670 $13,991 $16,655
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-------------------------------------------------------------------
Fund $16,257 $16,366 $18,676 $17,534 $17,740
Salomon
Brothers
World Gov't
Bond Index
(unhedged) $17,258 $17,298 $19,944 $19,093 $19,396
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
Growth & Income Portfolio
Investment Objective
The Growth & Income Portfolio seeks reasonable current income and
reasonable opportunities for appreciation through investments primarily in
dividend-paying common stocks of good quality.
Market Review
For the full calendar year, value stocks delivered their best returns ever
as compared to growth stocks at the extreme disconnect in last year's market.
Between the underlying economic values of businesses compared to their equity
market valuations, a substantial adjustment appears
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to have occurred. As measured by the Russell 1000 Value Index, value stocks were
up 7.1%, while growth stocks, as measured by the Russell 1000 Growth Index, were
down 22.4%.
The extreme success of growth strategies in 1998 and 1999 peaked in March
of 2000 as an unprecedented valuation anomaly opened between growth and value
style securities. As evidence of slower economic growth became more prevalent
through the calendar year, the high multiple structure of growth succumbed to
the pressure of downward earnings revisions, and expensive growth stocks
dramatically underperformed.
One cannot help but sit in awe of the dramatic swings in investor
sentiment and stock prices that have become this market's signature feature. The
combination of lower corporate profit growth expectations, partly engineered by
the Federal Reserve, and the apparent lack of investor conviction underpinning
the price structure of individual securities conspired to create one of the most
elevated periods of market volatility ever observed. By staying focused on the
economics of individual company businesses, the increase in market volatility
generated many opportunities for the Portfolio.
The Federal Reserve's policy to slow U.S. economic activity and relieve
potential inflation pressure appears to have achieved its desired intent. As
always, the key questions for investors relate to the levels of interest rates
and earnings. With the recent surge in disappointing corporate earnings
pre-announcements confirming the perception of a slower U.S. economy, it seems
appropriate to conclude that the Federal Reserve's policy focus will continue to
be more hospitable than was the case in 1999 and 2000.
Investment Results(9)
For the 12-month period ended December 31, 2000, the Alliance Variable
Products Series Growth & Income Portfolio generated a 13.89% return, compared
with a return of -9.10% for the S&P 500 Index and -0.59% for the Lipper Growth
and Income Funds Average (using 1546 funds from Lipper's Variable Annuity
Universe). The broad market declined sharply in 2000 as evidenced by the S&P
500's decline and NASDAQ's 39.3% plunge. Generally, small and mid-sized
companies performed better than large companies, and value stocks significantly
outperformed growth stocks.
Portfolio Strategy
The Portfolio's performance benefited from the preference shift undertaken
by investors as they reduced their holdings of risky assets in favor of more
conservative ones. The attractive relationship between our investments and their
underlying economic values provided great resiliency and positive impetus to the
Portfolio's results in this year's difficult market. Securities favorably
impacting the Portfolio's performance were mainly investments in companies where
company earnings are believed to be relatively insensitive to overall economic
activity.
----------
(9) Average annual total returns are for the Portfolio's Class A shares.
B-12
Securities negatively impacting performance were concentrated in the
technology and telecommunications sectors.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(10)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
Growth & Income Portfolio
1 Year 13.89%
5 Years 19.63%
Since Inception (1/91) 15.30%
Performance Update
----------
(10) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-13
1/31/91* 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
-------------------------------------------------------------------------------
Fund $10,000 $10,350 $11,171 $12,477 $12,434 $16,879
S&P 500
Stock Index $10,000 $12,497 $13,448 $14,800 $14,995 $20,623
Lipper G&I
Funds Avg $10,000 $12,264 $13,145 $14,734 $14,614 $19,143
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
--------------------------------------------------------------------
Fund $20,945 $26,976 $32,611 $36,319 $41,362
S&P 500
Stock Index $25,355 $33,811 $43,480 $52,626 $47,836
Lipper G&I
Funds Avg $23,018 $29,268 $34,685 $38,858 $37,242
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
Growth Portfolio
Investment Objective
The Growth Portfolio (the "Portfolio") seeks long-term growth of capital
by investing primarily in common stocks and other equity securities of companies
with favorable earnings outlooks and long-term growth rates that are expected to
exceed that of the U.S. economy over time. The Portfolio emphasizes investments
in large- and mid-cap companies. The Portfolio also may invest up to 25% of its
total assets in lower-rated, fixed income securities and convertible bonds and
generally up to 20% of its total assets in foreign securities.
Market Review
The market was nervous throughout 2000 as high valuations and rising
interest rates created an unstable environment for equities. Rotation among
sectors was dramatic between defensive groups, health care particularly, and
more aggressive sectors such as
B-14
telecommunications and technology. In the fourth quarter, a serious correction
in the technology sector and related industries occurred as concerns about a
slowing economy raised fears of earnings disappointments. This sell-off reduced
a great deal of overvaluation but exacerbated investor fears regarding the rate
of earnings growth in 2001.
Investment Results(11)
During the six- and 12-month periods ended December 31, 2000, the
Portfolio returned -16.08% and -17.51%, respectively. The Portfolio's
benchmarks, as represented by the Russell 1000 Growth Stock Index and the
Standard and Poor's (S&P) 500 Stock Index, posted returns of -25.57% and -8.71%,
respectively, for the six-month period, and -22.42% and -9.10% for the 12-month
period, respectively.
Higher volatility characterized the equity market in 2000. Dramatic price
swings were particularly intense during the fourth quarter. Evidence that the
economy was slowing made investors cautious about future earnings growth.
Pre-announcements from technology companies as well as Home Depot, Inc. and
consumer durables companies increased investor nervousness. The decline was
particularly adverse for technology stocks, which were selling at significant
price-to-earnings ratio premiums to the market. The correction was
indiscriminate, taking companies with intact fundamentals down as much as those
with questionable business models. The Portfolio was underweighted in the
technology sector versus growth indices throughout the year - representation
focused on leading companies was appropriate. This helped performance relative
to the Russell 1000 Growth Stock Index, but hurt results relative to the S&P 500
Stock Index.
Investment Outlook
For some time, we have been expecting a slowdown in the economy led by the
consumer where spending has been unsustainably strong. We were convinced that
the Federal Reserve would keep real short-term rates high until slower growth
was apparent. However, deceleration of growth was remarkably abrupt in the
fourth quarter. Not only were investors taken aback by the severity of the
slowdown, but the Federal Reserve was as well. The 50 basis point reduction in
the Federal Funds Rate only three days into January signaled that the Federal
Reserve did not want a recession. Going forward, we look for further rate cuts
during the first half of the year depending on the tone of the economy. Slower
consumer spending and reduction of excess inventories will likely subdue gross
domestic product (GDP) growth in the first half of this year. Further, cutbacks
in capital spending are generally expected. Inflation is expected to remain
subdued, reflecting continued good productivity experience. An absence of any
inflation threats gives the Federal Reserve latitude in further reducing rates.
In the environment described above, profits are expected to be flat. To
summarize, we look for GDP to grow around 2% in the first half of 2001, and to
accelerate to 3% in the second half. Long term rates are likely to fluctuate
----------
(11) Average annual total returns are for the Portfolio's Class A shares.
B-15
between 5.0% and 6.0%. Inflation is estimated at 2.0% to 3.0%. In this
environment, equities with intact earnings are likely to do well. Time will be
required, however, before investors become comfortable with slower growth.
Areas of Opportunity
Clearly, we believe this year will require even greater diligence in stock
selection. We are constructive regarding equities, but believe the positive
response to lower interest rates probably will be gradual. We believe the broad
market indices have experienced most of the correction likely, and that stocks
generally are priced attractively. The obvious exception is the technology
sector, where concerns about disappointing earnings continue to create
unprecedented price volatility. Patience will be required for the next one to
two quarters, as investors assess the impact of lower interest rates and
restoration of appropriate inventory levels. During this time, some of the
Portfolio's more defensive holdings in health care and staples probably will
continue to outperform. We intend to use the expected volatility in technology
to consolidate holdings in those companies with unique products and undiminished
leadership positions. We believe these stocks will respond strongly when
investors become more comfortable about the prospect of growth resuming.
Finally, financial services will continue to be an important position of the
Portfolio for all the reasons previously cited: they are beneficiaries of
consolidation both domestically and abroad; merger and acquisition activity
likely will pick up as interest rates decline; and valuation levels are
compelling. The proposed change by the Financial Accounting Standards Board
(FASB) to eliminate goodwill in corporate combinations also would be an added
positive if passed.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(12)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
Growth Portfolio
1 Year 17.51%
5 Years 18.99%
Since Inception (9/94) 21.42%
----------
(12) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-16
Performance Update
9/30/94* 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
-------------------------------------------------------------------------------
Fund $10,000 $10,530 $14,239 $18,295 $23,788 $30,621
Russell 1000
Growth Index $10,000 $10,075 $13,821 $17,017 $22,205 $30,800
S&P 500
Stock Index $10,000 $9,998 $13,751 $16,906 $22,545 $28,992
12/31/99 12/31/00
-----------------------------------
Fund $41,176 $33,967
Russell 1000
Growth Index $41,012 $31,815
S&P 500
Stock Index $35,090 $31,896
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
U.S./High Grade Portfolio
Investment Objective
The U.S. Government/High Grade Securities Portfolio (the "Portfolio")
seeks a high level of current income consistent with the preservation of capital
by investing principally in a portfolio of U.S. government securities and other
high-grade debt securities.
Market Review
Following a strong first half of the year, the U.S. economy lost momentum
during the third and fourth quarters. U.S. gross domestic product (GDP) growth
slowed from 5.2% in the first half of the year to 1.8% in the second half. Past
interest-rate increases, lower stock prices
B-17
and higher oil prices contributed to the slowdown. The Federal Reserve removed
its tightening bias late in the year in response to slower economic growth.
The U.S. bond market as measured by the Lehman Brothers Aggregate Bond
Index (the "Index") returned 11.63% during 2000 - its best annual return since
1995. In general, fixed-income securities benefited from slowing economic growth
and weak equity markets in 2000. Among the traditional sectors of the Index,
U.S. Treasuries posted the strongest result at 13.52%, followed by commercial
mortgage-backed securities (CMBS) at 13.47%, U.S. agencies at 12.18%,
mortgage-backed securities (MBS) at 11.16%, asset-backed securities (ABS) at
10.84% and investment-grade corporates at 9.39%. Higher-quality securities
outperformed lower-quality securities as the economy slowed and investors sought
out less risky instruments. U.S. Treasuries also benefited from the government's
plan to use the fiscal surplus to reduce outstanding government debt.
Longer-maturity issues outperformed shorter issues as expectations for interest
rate cuts rose.
The CMBS sector benefited from increased investor interest due to credit
deterioration in other fixed-income sectors, as well as from sound commercial
real estate fundamentals. Real estate markets in general remained healthy, and
capital market participation in commercial real estate finance should mitigate
some of the valuation fluctuations that have occurred in the past. In addition,
the Department of Labor finally declared all investment-grade classes of CMBS to
be ERISA eligible, which increased demand incrementally for double A through
triple B rated CMBS securities. Rising prepayment expectations dampened MBS
performance, though less so than we had anticipated. Because mortgage interest
rates stand at their lowest level since the spring of 1999, more of the sector
is subject to refinancing risk than at any time in the past three years. The
investment-grade corporate sector posted relatively weak results because of
deteriorating corporate earnings, rising defaults, tighter credit availability
and expectations of weaker economic growth in 2000.
Investment Results(13)
For the 12-month period ended December 31, 2000, the Portfolio returned
11.08%, compared with 12.78% for its composite benchmark (a blend of 67% Lehman
Brothers (LB) Government Bond Index and 33% LB Credit Bond Index). In the first
half of the year, our maturity structure detracted from our relative
performance: our Treasury holdings were in a barbell structure, between short
and long maturities when the Treasury yield curve became less inverted during
the second quarter. However, our subsequent repositioning of our maturity
structure in anticipation of a steepening yield curve added significantly to our
relative returns in the second half of the year. In fact, our concern regarding
a slowing economy and the resulting decline in interest rates proved well
justified.
----------
(13) Average annual total returns are for the Portfolio's Class A shares.
B-18
The stock market weakened, consumers scaled back and the Treasury yield
curve steepened as a result of slowing economic growth. The Portfolio also
benefited from our underweighting of the corporate sector in light of slowing
economic growth, and from our focus on higher-quality corporates in a
deteriorating credit environment. The agency sector, in which we gradually
increased holdings to an overweight position, also contributed to performance.
Our mortgage security selection had the greatest negative impact on the
Portfolio's relative returns. As interest rates declined and the Federal Reserve
prepared to cut rates late in the year, the risk increased that homeowners would
begin to refinance their higher-interest home loans. In response, we shifted
into lower-coupon mortgage pass-throughs, which are better protected from this
prepayment risk. When prepayment risk depressed mortgage performance less than
we had anticipated in the fourth quarter, our holdings of lower-coupon mortgages
dampened the Portfolio's relative performance.
Investment Outlook
While the odds of a "hard landing" for the U.S. economy have risen in
recent months, the fact that the Federal Reserve moved so quickly in the new
year to lower interest rates should help to ensure a "soft landing." We believe
that the economy will slow in 2001 to a 2.5% to 3% growth rate, with most of the
slowing coming in the first half.
In our view, the Federal Reserve will likely continue to lower rates, the
yield curve will steepen further and volatility will remain high. In
anticipation of a steepening yield curve, we are concentrating the Portfolio in
intermediate maturities. Within the government sector, we expect to remain
overweighted in both Treasury and agency debt. On the one hand, lower rates and
a steeper yield curve bode well for the corporate sector; on the other hand, the
credit cycle is clearly in a downtrend, and earnings disappointments abound.
Therefore, over the near term, we plan to maintain a neutral exposure to the
sector. Falling interest rates and the rising prepayments that accompany them
cause us to remain underweighted in mortgages and to focus our holdings on
lower-coupon securities, which will be less subject to a wave of mortgage
refinancings.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(14)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
----------
(14) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-19
U.S. Government/High Grade Securities Portfolio
1 Year 11.08%
5 Years 5.50%
Since Inception (9/92) 5.95%
Performance Update
9/30/92* 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------------------------------------------------------------------------------
Fund $10,000 $9,890 $10,800 $10,364 $12,360 $12,675
Composite $10,000 $9,988 $11,069 $10,721 $12,711 $13,114
12/31/97 12/31/98 12/31/99 12/31/00
--------------------------------------------------------
Fund $13,776 $14,907 14,542 16,153
Composite $14,317 $15,653 15,427 17,275
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
High Yield Portfolio
Investment Objective
The High Yield Portfolio (the "Portfolio") seeks the highest level of
current income available by investing principally in high-yield fixed-income
securities without assuming undue risk. The Portfolio invests a substantial
portion of its assets in higher-yielding, higher-risk fixed-
B-20
income securities (commonly known as "junk bonds") that are rated below
investment grade and are considered to have predominantly speculative
characteristics.
Market Review
During 2000, the high-yield market recorded its third consecutive year of
weak performance, returning -5.21%, as represented by the Credit Suisse First
Boston (CSFB) High Yield Index. This negative performance reflected the Federal
Reserve's long-held tightening bias, as well as fundamental concerns about
credit quality and weakening sentiment toward the telecommunications and
technology sectors. Higher-than-average default levels supported these concerns.
Although credit availability dried up across all investment grades, it was felt
most acutely in the high-yield market, as investors avoided lending to the
riskier issuers.
In keeping with investors' preference for better quality high-yield debt,
double B issuers outperformed single B issuers by more than 1200 basis points.
The energy, gaming, utility and financial sectors posted the strongest returns,
while entertainment, fixed communications, automotive and metals posted the
weakest returns. The yield difference between the high-yield market and
risk-free Treasuries reached 9.5% at year-end--the largest yield advantage in a
decade, and nearly 4% higher than levels just one year ago. Money continued to
flow out of high-yield mutual funds, with outflows totaling approximately $10
billion in 2000. Not surprisingly, high-yield debt issuance declined during the
year.
Investment Results(15)
The Portfolio returned -5.15% for the 12-month period ended December 31,
2000, modestly outperforming the -5.21% return of its benchmark, the CSFB High
Yield Index. Given the increasingly negative tone of the market, we moved to a
more defensive posture during the year, adding double B securities. We also
shortened the Portfolio's duration and acquired an overweight position in cash
and in traditionally defensive sectors, such as cable and energy. As a result,
the Portfolio outperformed both the index and the Lipper average high-yield
fund. Our outlook for 2001 is more positive. We expect to lengthen duration,
while remaining selective with regard to cyclical industries. In our analysis,
single B debt will continue to be more attractive over the long term. The
Portfolio will continue to be well diversified.
Investment Outlook
We believe the Federal Reserve will aggressively lower interest rates,
easing in excess of an additional 100 basis points by spring of 2001. This
should lead to a "soft landing" for the U.S. economy: we estimate the year 2001
U.S. economic growth rate to be approximately 3%, with the second half of 2001
outpacing the first. Slower U.S. profit growth over the next 12 months should
mute stock price gains. We expect to see positive returns in high yield over the
near term, reflecting interest rate stability and continued modest economic
growth. Substantial returns
----------
(15) Average annual total returns are for the Portfolio's Class A shares.
B-21
remain dependent on increased retail and institutional demand. Prospects for the
high-yield market should improve as the rate of economic growth slows and the
Federal Reserve shifts to an accommodative monetary policy. With a healthy
economy, a more relaxed monetary policy and high-yield securities yielding more
than 13%, we believe the high-yield market offers significant value.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(16)
Listed below are the Portfolio's average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
High Yield Portfolio
1 Year -5.15%
Since Inception (10/97) -2.61%
Performance Update
----------
(16) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-22
10/31/97* 12/31/97 12/31/98 12/31/99 12/31/00
------------------------------------------------------------------------
Fund $10,000 $10,330 $9,949 $9,692 $9,193
CS First Boston
High Yield Index $10,000 $10,163 $10,222 $10,557 $10,007
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
Quasar Portfolio
Investment Objective
The Quasar Portfolio seeks growth of capital by pursuing aggressive
investment policies. While it invests primarily in the equity securities of
small-capitalization companies, it may invest in any type of securities issues,
by any company, in any industry that we believe to offer possibilities for
capital appreciation. The Portfolio may also pursue investment opportunities
outside of the United States.
Market Review
While perhaps not the global meltdown that many doomsayers had forecasted,
Y2K certainly posed many challenges to small-cap growth stock investors. 2000
was a year marked by ongoing economic uncertainty, enormous volatility, massive
sector rotation and, ultimately, disappointing small-cap growth stock returns.
In fact, the Russell 2000 Growth Index turned in its single worst calendar year
performance since its inception in 1979.
B-23
Investment Results(17)
The Quasar Portfolio finished out the year with strong second half
relative performance. For the six-month period ended December 31, 2000, the
Portfolio decreased in value by 12.5% versus a 23.5% decline in the Russell 2000
Growth Index. This brings the Portfolio's full-year return to -6.1%, which
compares favorably to the Russell 2000 Growth Index's -22.4% return.
As for the environment, year 2000 was filled with ups and downs. The run
from January 1 to March 10 was one of the most powerful, euphoric rides ever
experienced by small-cap investors. Over this timeframe, the Russell 2000 Growth
Index gained more than 30%, as investors aggressively bid up new-economy stocks
to unprecedented levels. The good news did not last long. Over the course of the
next 25 trading sessions, the Russell 2000 Growth Index would give up all of its
year-to-date gains, and then some, as it declined an astonishing 34%. Although
small-cap growth stocks would stage periodic rallies of varying intensity, the
Russell 2000 Growth Index ultimately went on to decline another 18% before
finding a hitting bottom on December 21, 46% below the March 10 high.
Consistent with the portfolio management team's historical discipline, the
Portfolio's sector bets during the six- and 12-month periods were kept to a
minimum. A modest overweight in health care and a modest underweight in
technology did favorably impact relative performance for the six-month period.
Overall, stock selection proved to be by far the single largest contributor to
outperformance for both the six- and 12-month periods. In fact, for the year,
all four-sectors significantly outperformed the Russell 2000 Growth Index.
Investment Outlook
Looking forward, we believe that small-cap growth stocks are well
positioned for strong relative performance. Coming off what was obviously a
disappointing year, relative valuations have improved to near-historical lows.
As is the case when looking at specific stocks, however, cheap is never reason
enough to expect outperformance. In the case of small-cap growth stocks, we
believe a more accommodating Federal Reserve will provide the catalyst for
small-cap outperformance.
Reviewing the past 11 declining interest rate cycles, small-cap stocks
have outperformed nearly 75% of the time. While performance during a Fed easing
can vary dramatically, small-caps have on average outperformed large-caps by
nearly 400 basis points and 700 basis points, respectively, over the six- and
12- month periods following an initial cut.
We do not expect the road to outperformance to be without speed bumps. As
is typically the case around inflection points, increased investor uncertainty
is likely to keep volatility high. This will clearly pose unique challenges to
small-cap investors. However, cognizant of the changes underway, the Alliance
Small Cap Team is very focused on making appropriate
----------
(17) Average annual total returns are for the Portfolio's Class A shares.
B-24
adjustments to the Portfolio with a view toward improvements in economic
activity likely later in the year.
Average annual total returns are for the Portfolio's Class A shares.
Investment Results as of December 31, 2000(18)
Listed below are the Portfolios' average annual total returns for Class A
shares for the one-year, five-year (where applicable) and since inception
periods ended December 31, 2000.
Quasar Portfolio
1 Year -6.09%
Since Inception (8/96) 6.59%
Performance Update
8/31/96* 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
-----------------------------------------------------------------------------
Fund $10,000 $10,640 $12,619 $12,052 $14,111 $13,252
Russell 2000
Growth Index $10,000 $10,543 $11,908 $12,054 $17,248 $13,380
----------
(18) Total returns are based on net asset value (NAV) performance for Class A
shares and reflect reinvestment of dividends and/or capital gains distributions
in additional shares. These figures do not reflect insurance company separate
account or annuity contract charges, which would reduce total return to a
contract owner. Past performance does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
B-25
Past performance is no guarantee of future results.
These charts illustrate the total value of an assumed $10,000 investment
in each Portfolio as compared to the performance of an appropriate broad-based
index for the time frames indicated for each Portfolio. Performance results for
each Portfolio represent the Portfolio's total return at net asset value (NAV).
An investor cannot invest directly in an index or average, and its results are
not indicative of the performance for any Alliance mutual fund.
B-26
FORM N-14
PART B
ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
September 26, 2001
This Statement of Additional Information relates to the proposed
mergers (each a "Merger" and, collectively, the "Mergers") of the Balanced
Portfolio(the "Brinson Balanced Portfolio"), the Global Equity Portfolio (the
"BrinsonGlobal Equity Portfolio"), the Global Income Portfolio (the "Brinson
GlobalIncome Portfolio"), the Growth and Income Portfolio (the "Brinson Growth
andIncome Portfolio"), the Growth Portfolio (the "Brinson Growth Portfolio"),
theHigh Grade Fixed Income Portfolio (the "Brinson High Grade Portfolio"), the
HighIncome Portfolio (the "Brinson High Income Portfolio"), the Small Cap
Portfolio(the "Brinson Small Cap Portfolio"), and the Strategic Income Portfolio
(the "Brinson Strategic Income Portfolio") (each an "Acquired Portfolio" or a
"Brinson Portfolio"), each a series of Brinson Series Trust ("Brinson Trust")
into, respectively, the Total Return Portfolio (the "Alliance Total Return
Portfolio"), the International Portfolio (the "Alliance International
Portfolio"), the Global Bond Portfolio (the "Alliance Global Bond Portfolio"),
the Growth and Income Portfolio (the "Alliance Growth and Income Portfolio"),
the Growth Portfolio (the "Alliance Growth Portfolio), the U.S. Government/High
Grade Securities Portfolio (the "Alliance U.S./High Grade Portfolio"), the High
Yield Portfolio (the "Alliance High Yield Portfolio"), the Quasar Portfolio (the
"Alliance Quasar Portfolio"), and the Alliance Global Bond Portfolio (each an
"Acquiring Portfolio" or an "Alliance Portfolio" and, collectively, together
with the Brinson Portfolios, the "Portfolios"), each a series of Alliance
Variable Products Series Fund, Inc. (the "Alliance Fund").
This SAI contains information which may be of interest to
shareholders, but which is not included in the Prospectus/Proxy Statement dated
September 26, 2001 (the "Prospectus/Proxy Statement") of the Acquiring
Portfolios, which relates to the Mergers. As described in the Prospectus/Proxy
Statement, the Mergers are to be effected through the transfer of all of the
assets of each Acquired Portfolio to the corresponding Acquiring Portfolio in
exchange for shares of beneficial interest of that Acquiring Portfolio (the
"Merger Shares") and the assumption by that Acquiring Portfolio of the stated
liabilities of the Acquired Portfolio. This will be followed by the
distribution of the relevant Merger Shares to the shareholders of the Acquired
Portfolio in liquidation of the Acquired Portfolio.
This SAI is not a prospectus and should be read in conjunction with
the Prospectus/Proxy Statement. The Prospectus/Proxy Statement has been filed
with the Securities and Exchange Commission and is available upon request and
without charge by writing to the Alliance Fund, 1345 Avenue of the Americas,
New York,New York, 10105, or by calling 1-800-221-5672.
Table of Contents
I. Additional Information about the Acquiring Portfolios and the Acquired
Portfolios................................................................
II. Financial Statements......................................................
I. Additional Information about the Acquiring Portfolios and the
Acquired Portfolios.
Incorporated by reference (1) to Post-Effective Amendment No. 32 to
the Registrant's Registration Statement on Form N-1A (filed on April 27, 2001)
(Registration Nos. 33-21677 and 811-05547), and (2) to Post-Effective Amendment
No. 32 to the Registration Statement of the Brinson Series Trust on Form N-1A
(filed on April 20, 2001) (Registration Nos. 33-10438 and 811-4919).
II. Financial Statements.
Pro forma financial statements of the Alliance International
Portfolio, the Alliance Global Bond Portfolio and the Alliance High Yield
Portfolio for the Merger are provided on the following pages. Pro forma
financial statements of the Alliance Total Return Portfolio, the Alliance
Growth and Income Portfolio, the Alliance Growth Portfolio, the Alliance
U.S./High Grade Portfolio, and the Alliance Quasar Portfolio are not
provided because as of July 6, 2001, the net asset value of each of the
Brinson Balanced Portfolio, the Brinson Growth and Income Portfolio, the
Brinson Growth Portfolio, the Brinson High Grade Portfolio, and the Brinson
Small Cap Portfolio does not exceed ten percent of the net asset value of,
respectively, the Alliance Total Return Portfolio, the Alliance Growth and
Income Portfolio, the Alliance Growth Portfolio, the Alliance U.S./High Grade
Portfolio, and the Alliance Quasar Portfolio.
PRO-FORMA COMBINED
----------------------------------------
FINANCIAL STATEMENTS
----------------------------------------
BRINSON SERIES TRUST--
GLOBAL EQUITY PORTFOLIO
ALLIANCE VARIABLE PRODUCTS SERIES FUND--
INTERNATIONAL PORTFOLIO
JUNE 30, 2001
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
June 30, 2001 (unaudited)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Combined Portfolio Portfolio Adjustments Combined (b)
Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
---------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 96.2%
AUSTRALIA - 1.2%
National Australia Bank, Ltd. .... 1,954 $ 34,934 $ -0- $ -0- $ 34,934
New Corp., Ltd. (ADR) ............ 22,270 69,471 757,860 -0- 827,331
------------- ------------- ------------- -------------
104,405 757,860 -0- 862,265
------------- ------------- ------------- -------------
AUSTRIA - 0.0%
OMV AG ........................... 448 37,586 -0- -0- 37,586
------------- ------------- ------------- -------------
CANADA - 0.1%
Nortel Networks Corp. ............ 370 3,413 -0- -0- 3,413
Potash Corp. of Saskatchewan, Inc. 511 29,331 -0- -0- 29,331
Royal Bank of Canada ............. 1,032 33,029 -0- -0- 33,029
------------- ------------- ------------- -------------
65,773 -0- -0- 65,773
------------- ------------- ------------- -------------
FINLAND - 2.0%
Elisa Communications ............. 1,035 16,937 -0- -0- 16,937
Nokia AB Corp. ................... 63,028 48,276 1,381,591 -0- 1,429,867
------------- ------------- ------------- -------------
65,213 1,381,591 -0- 1,446,804
------------- ------------- ------------- -------------
FRANCE - 15.0%
Alcatel, SA Cl.A ................. 32,330 48,771 627,960 -0- 676,731
Alstom ........................... 570 15,873 -0- -0- 15,873
Ass Gen De France ................ 269 14,977 -0- -0- 14,977
AXA .............................. 2,684 76,539 -0- -0- 76,539
BNP Paribas, SA .................. 26,840 64,467 2,273,776 -0- 2,338,243
Cap Gemini, SA ................... 165 12,025 -0- -0- 12,025
Carrefour, SA .................... 31,100 -0- 1,647,230 -0- 1,647,230
Lafarge .......................... 556 47,590 -0- -0- 47,590
L'Oreal, SA ...................... 15,500 -0- 1,001,580 -0- 1,001,580
LVMH Moet Hennessy Louis Vuitton . 6,000 -0- 302,540 -0- 302,540
Orange, SA (a) ................... 35,000 17,085 267,659 -0- 284,744
Rhodia Inc., SA .................. 2,630 28,974 -0- -0- 28,974
Rhone Poulenc, SA ................ 1,889 150,959 -0- -0- 150,959
Sanofi-Synthelabo, SA ............ 34,340 -0- 2,255,360 -0- 2,255,360
STMicroelectronics NV ............ 22,600 -0- 785,247 -0- 785,247
Suez, SA ......................... 1,400 45,084 -0- -0- 45,084
TotalFinaElf, SA Cl.B ............ 8,564 118,302 1,082,098 -0- 1,200,400
Vivendi Universal ................ 700 40,843 -0- -0- 40,843
------------- ------------- ------------- -------------
681,489 10,243,450 -0- 10,924,939
------------- ------------- ------------- -------------
GERMANY - 1.5%
Deutsche Bank AG ................. 620 44,471 -0- -0- 44,471
Direkt Anlage Bank (a) ........... 528 7,383 -0- -0- 7,383
Dresdner Bank AG ................. 1,490 68,123 -0- -0- 68,123
Ergo Versicherungs ............... 220 32,375 -0- -0- 32,375
Metro AG ......................... 1,400 52,345 -0- -0- 52,345
Munchener Ruckvers AG ............ 364 101,549 -0- -0- 101,549
SAP AG ........................... 4,600 -0- 638,965 -0- 638,965
Schering AG ...................... 500 26,271 -0- -0- 26,271
Siemens AG ....................... 870 53,453 -0- -0- 53,453
Veba AG .......................... 800 41,993 -0- -0- 41,993
------------- ------------- ------------- -------------
427,963 638,965 -0- 1,066,928
------------- ------------- ------------- -------------
1
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Combined Portfolio Portfolio Adjustments Combined (b)
Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------
GREECE - 0.0%
Hellenic Telecommunications
(ADR) .......................... 1,460 $ 9,359 $ -0- $ -0- $ 9,359
------------- ------------- ------------- -------------
HONG KONG - 4.1%
Cheung Kong Holdings, Ltd. ....... 66,000 -0- 719,249 -0- 719,249
China Mobile (Hong Kong),
Ltd. (a) ....................... 128,000 -0- 674,479 -0- 674,479
Citic Pacific, Ltd. .............. 299,000 -0- 925,774 -0- 925,774
Li & Fung, Ltd. .................. 400,000 -0- 656,427 -0- 656,427
------------- ------------- ------------- -------------
-0- 2,975,929 -0- 2,975,929
------------- ------------- ------------- -------------
IRELAND - 2.4%
Bank of Ireland .................. 3,919 38,862 -0- -0- 38,862
CRH Plc .......................... 99,750 -0- 1,696,592 -0- 1,696,592
------------- ------------- ------------- -------------
38,862 1,696,592 -0- 1,735,454
------------- ------------- ------------- -------------
ISRAEL - 0.0%
Orbotech, Ltd. (a) ............... 597 20,632 -0- -0- 20,632
------------- ------------- ------------- -------------
ITALY - 3.9%
Alleanza Assicurazioni ........... 182,600 -0- 1,928,114 -0- 1,928,114
ENI SpA .......................... 16,000 -0- 195,252 -0- 195,252
Ras .............................. 3,410 41,960 -0- -0- 41,960
San Paolo - IMI SpA .............. 52,000 51,321 615,859 -0- 667,180
------------- ------------- ------------- -------------
93,281 2,739,225 -0- 2,832,506
------------- ------------- ------------- -------------
JAPAN - 24.3%
Asahi Bank ....................... 5,000 10,825 -0- -0- 10,825
Bank of Fukuoka, Ltd. ............ 181,000 -0- 812,766 -0- 812,766
Banyu Pharmaceutical Co., Ltd. ... 31,000 -0- 567,998 -0- 567,998
Canon, Inc. ...................... 58,200 8,083 2,343,998 -0- 2,352,081
Chugai Pharmaceutical Co. ........ 2,000 30,423 -0- -0- 30,423
Fujitsu, Ltd. .................... 1,000 10,504 -0- -0- 10,504
Furukawa Electric ................ 1,000 7,979 -0- -0- 7,979
Hitachi, Ltd. .................... 38,000 -0- 373,266 -0- 373,266
Honda Motor Co., Ltd. ............ 9,000 -0- 395,478 -0- 395,478
Hoya Corp. ....................... 18,000 -0- 1,140,245 -0- 1,140,245
Kao Corp. ........................ 73,000 -0- 1,814,610 -0- 1,814,610
Keyence Corp. .................... 2,000 -0- 396,921 -0- 396,921
Kyocera Corp. .................... 200 17,641 -0- -0- 17,641
Matsushita Electric
Industrial Co. Ltd. ........... 1,000 15,652 -0- -0- 15,652
NEC Corp. ........................ 78,000 27,023 1,026,862 -0- 1,053,885
Nikko Securities Co., Ltd. ....... 4,000 32,042 -0- -0- 32,042
Nippon Telephone & Telegraph Corp. 4 20,848 -0- -0- 20,848
Nomura Securities Co., Ltd. ...... 52,000 38,329 958,223 -0- 996,552
NTT Docomo, Inc. ................. 93 -0- 1,618,234 -0- 1,618,234
NTT Mobile Communication ......... 1 17,400 -0- -0- 17,400
Shin-Etsu Chemical Co., Ltd. ..... 43,000 -0- 1,579,184 -0- 1,579,184
SMC Corp. ........................ 4,000 -0- 428,193 -0- 428,193
Sony Corp. ....................... 700 46,027 -0- -0- 46,027
Sumitomo Trust & Banking Co., Ltd. 241,000 -0- 1,516,999 -0- 1,516,999
Takeda Chemical Industries, Ltd. . 50,500 23,254 2,325,395 -0- 2,348,649
Toshiba Corp. .................... 6,000 31,705 -0- -0- 31,705
UFJ Holdings, Inc. ............... 4 21,522 -0- -0- 21,522
Yamada Denki Co. ................. 400 32,716 -0- -0- 32,716
------------- ------------- ------------- -------------
391,973 17,298,372 -0- 17,690,345
------------- ------------- ------------- -------------
2
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Combined Portfolio Portfolio Adjustments Combined (b)
Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------
KOREA - 0.1%
Korea Telecom Corp. .............. 479 $ 10,529 $ -0- $ -0- $ 10,529
Samsung Electronic ............... 200 29,527 -0- -0- 29,527
------------- ------------- ------------- -------------
-- 40,056 -0- -0- 40,056
------------- ------------- ------------- -------------
MEXICO - 0.2%
Grupo Televisa, SA (ADR) (a) ..... 3,400 -0- 136,034 -0- 136,034
------------- ------------- ------------- -------------
NETHERLANDS - 2.3%
Ahold Kon NV ..................... 912 28,596 -0- -0- 28,596
Akzo Nobel NV .................... 938 39,745 -0- -0- 39,745
ASM Lithography Holding NV (a) ... 43,400 -0- 974,284 -0- 974,284
Buhrmann NV ...................... 2,117 19,986 -0- -0- 19,986
Getronics NV ..................... 2,150 8,928 -0- -0- 8,928
ING Groep NV (a) ................. 2,080 136,080 -0- -0- 136,080
Kon KPN NV ....................... 1,607 9,124 -0- -0- 9,124
Koninklijke Philips
Electronics NV ................ 2,722 72,225 -0- -0- 72,225
Numico Kon NV .................... 812 31,193 -0- -0- 31,193
Unilever NV ...................... 660 39,600 -0- -0- 39,600
United Pan-Europe Communications
NV Series A (a) ............... 137,288 4,256 344,778 -0- 349,034
------------- ------------- ------------- -------------
389,733 1,319,062 -0- 1,708,795
------------- ------------- ------------- -------------
NORWAY - 0.0%
Petroleum Geo Services (a) ....... 1,394 14,120 -0- -0- 14,120
------------- ------------- ------------- -------------
PORTUGAL - 0.1%
Brisa Auto Estrada ............... 9,285 78,686 -0- -0- 78,686
------------- ------------- ------------- -------------
SINGAPORE - 0.6%
Flextronics International,
Ltd. (a) ...................... 17,800 -0- 464,758 -0- 464,758
------------- ------------- ------------- -------------
SOUTH KOREA - 2.4%
Samsung Electronics Co., Ltd. .... 6,520 -0- 962,584 -0- 962,584
SK Telecom Co., Ltd. (ADR) ....... 45,250 -0- 764,725 -0- 764,725
------------- ------------- ------------- -------------
-0- 1,727,309 -0- 1,727,309
------------- ------------- ------------- -------------
SPAIN - 3.7%
Banco Bilbao Vizcaya
Argentaria, SA ................ 161,200 -0- 2,087,384 -0- 2,087,384
Telefonica, SA ................... 43,700 8,637 530,571 -0- 539,208
Telefonica, SA (ADR) (a) ......... 859 31,989 -0- -0- 31,989
------------- ------------- ------------- -------------
40,626 2,617,955 -0- 2,658,581
------------- ------------- ------------- -------------
SWEDEN - 3.4%
Atlas Copco AB Series A .......... 58,520 -0- 1,159,851 -0- 1,159,851
Ericsson LM B Shares ............. 8,384 45,880 -0- -0- 45,880
Investor AB ...................... 6,910 88,019 -0- -0- 88,019
Nordbanken Holding ............... 12,264 69,932 -0- -0- 69,932
Skandia Forsakrings AB ........... 116,600 -0- 1,072,381 -0- 1,072,381
------------- ------------- ------------- -------------
203,831 2,232,232 -0- 2,436,063
------------- ------------- ------------- -------------
SWITZERLAND - 1.0%
Credit Suisse Group .............. 3,000 -0- 493,460 -0- 493,460
Novartis AG ...................... 2,440 88,351 -0- -0- 88,351
Syngenta AG (a) .................. 20 1,052 -0- -0- 1,052
UBS AG ........................... 542 77,687 -0- -0- 77,687
Zurich Financial Services Group .. 231 78,821 -0- -0- 78,821
------------- ------------- ------------- -------------
245,911 493,460 -0- 739,371
------------- ------------- ------------- -------------
3
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Combined Portfolio Portfolio Adjustments Combined (b)
Shares (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------
TAIWAN - 0.5%
Taiwan Semiconductor
Manufacturing Co., Ltd. ....... 139,776 $ -0- $ 259,822 $ -0- $ 259,822
Taiwan Semiconductor
Manufacturing Co.,
Ltd. (ADR) .................... 7,980 -0- 121,216 -0- 121,216
------------- ------------- ------------- -------------
-0- 381,038 -0- 381,038
------------- ------------- ------------- -------------
UNITED KINGDOM - 27.4%
Aegis Group Plc .................. 17,191 25,421 -0- -0- 25,421
Amvescap Plc ..................... 3,936 68,457 -0- -0- 68,457
AstraZeneca Group Plc ............ 46,139 11,056 2,141,555 -0- 2,152,611
BG Group Plc ..................... 6,630 26,167 -0- -0- 26,167
BP Plc ........................... 254,886 91,254 2,006,843 -0- 2,098,097
British Sky Broadcasting Group
Plc (a) ....................... 179,910 -0- 1,733,032 -0- 1,733,032
British Telecommunications Plc ... 4,500 28,328 -0- -0- 28,328
Cable & Wireless Plc ............. 3,500 20,616 -0- -0- 20,616
Carlton Communications Plc ....... 5,001 23,664 -0- -0- 23,664
Centrica Plc ..................... 191,000 -0- 611,269 -0- 611,269
CGNU Plc ......................... 155,500 -0- 2,152,678 -0- 2,152,678
Commercial Union Plc ............. 19,000 263,028 -0- -0- 263,028
Diageo Plc ....................... 160,663 163,266 1,601,575 -0- 1,764,841
Dixons Group Plc ................. 184,557 -0- 605,594 -0- 605,594
GlaxoSmithKline Plc .............. 3,690 103,933 -0- -0- 103,933
Lattice Group .................... 6,630 14,822 -0- -0- 14,822
Logica Plc ....................... 8,600 -0- 104,521 -0- 104,521
Marconi Plc ...................... 2,940 10,475 -0- -0- 10,475
Misys ............................ 2,470 17,288 -0- -0- 17,288
National Grid Group Plc .......... 27,000 -0- 199,247 -0- 199,247
Reckitt & Colman Plc ............. 5,015 72,392 -0- -0- 72,392
Reuters Group Plc ................ 121,400 -0- 1,578,031 -0- 1,578,031
RMC Group ........................ 3,200 30,870 -0- -0- 30,870
Rolls-Royce Plc .................. 11,900 39,299 -0- -0- 39,299
Royal & Sun Alliance ............. 11,300 85,139 -0- -0- 85,139
Royal Bank of Scotland Group
Plc ........................... 91,700 -0- 2,023,641 -0- 2,023,641
Spirent Plc ...................... 3,630 11,298 -0- -0- 11,298
Standard Chartered Plc ........... 103,793 -0- 1,331,624 -0- 1,331,624
Tesco Plc ........................ 154,000 -0- 556,293 -0- 556,293
Unilever Plc ..................... 3,380 28,513 -0- -0- 28,513
United Business Media Plc (a) .... 3,529 28,726 -0- -0- 28,726
United Business Media Plc,
B Shares ...................... 5,355 18,552 -0- -0- 18,552
Vodafone Group Plc ............... 949,091 68,643 2,036,510 -0- 2,105,153
WPP Group Plc .................... 2,800 27,603 -0- -0- 27,603
------------- ------------- ------------- -------------
1,278,810 18,682,413 -0- 19,961,223
------------- ------------- ------------- -------------
4
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal Global Equity International Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (b)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------
UNITED STATES - 0.0%
AOL Time Warner, Inc. ............ 598 $ 31,694 $ -0- $ (31,694) $ -0-
Cisco Systems, Inc. .............. 2,233 40,641 -0- (40,641) -0-
Citigroup, Inc. .................. 1,780 94,055 -0- (94,055) -0-
Honeywell, Inc. .................. 696 24,353 -0- (24,353) -0-
Household International, Inc. .... 1,000 66,700 -0- (66,700) -0-
IBM Corp. ........................ 850 96,050 -0- (96,050) -0-
Ingersoll Rand Co. ............... 716 29,499 -0- (29,499) -0-
Intel Corp. ...................... 1,342 39,253 -0- (39,253) -0-
International Paper Co. .......... 534 19,064 -0- (19,064) -0-
J.P. Morgan Chase & Co. .......... 2,651 118,235 -0- (118,235) -0-
JDS Uniphase Corp. ............... 747 9,338 -0- (9,338) -0-
Johnson Controls, Inc. ........... 466 33,771 -0- (33,771) -0-
Knight-Ridder, Inc. .............. 1,225 72,642 -0- (72,642) -0-
Lear Corp. ....................... 1,210 42,229 -0- (42,229) -0-
MBNA Corp. ....................... 1,286 42,374 -0- (42,374) -0-
Mettler-Toledo International,
Inc ........................... 734 31,745 -0- (31,745) -0-
Microsoft Corp. .................. 1,548 113,004 -0- (113,004) -0-
Morgan Stanley Dean Witter
& Co. ......................... 1,303 83,692 -0- (83,692) -0-
Motorola, Inc. ................... 2,395 39,661 -0- (39,661) -0-
New York Times Co., Cl.A ......... 849 35,658 -0- (35,658) -0-
Pfizer, Inc. ..................... 2,398 96,040 -0- (96,040) -0-
Phillips Petroleum Co. ........... 713 40,641 -0- (40,641) -0-
Providian Corp. .................. 706 41,795 -0- (41,795) -0-
Royal Dutch Petroleum Co., ADR ... 1,583 92,242 -0- (92,242) -0-
Schering-Plough Corp. ............ 2,229 80,779 -0- (80,779) -0-
Target Corp. ..................... 2,978 103,039 -0- (103,039) -0-
Texas Instruments, Inc. .......... 1,000 31,500 -0- (31,500) -0-
Tosco Corp. ...................... 908 39,997 -0- (39,997) -0-
Transocean Sedco Forex, Inc. ..... 463 19,099 -0- (19,099) -0-
TRW, Inc. ........................ 663 27,183 -0- (27,183) -0-
Tyco International Ltd., ADR ..... 1,021 55,644 -0- (55,644) -0-
United Technologies Corp. ........ 930 68,132 -0- (68,132) -0-
Verizon Communications ........... 1,000 53,500 -0- (53,500) -0-
Viacom, Inc. Cl.B ................ 559 28,928 -0- (28,928) -0-
Weyerhaeuser Co. ................. 1,467 80,641 -0- (80,641) -0-
WorldCom, Inc. ................... 2,176 30,899 -0- (30,899) -0-
WorldCom, Inc.- MCI Group ........ 87 1,402 -0- (1,402) -0-
------------- ------------- ------------- -------------
1,955,119 -0- (1,955,119) -0-
------------- ------------- ------------- -------------
Total Common Stocks
(cost $78,724,358) ............ 6,183,428 65,786,245 (1,955,119) 70,014,554
------------- ------------- ------------- -------------
SHORT-TERM INVESTMENT
REPURCHASE AGREEMENT - 0.8%
Repurchase Agreement dated
6/29/01 with State Street Bank
& Trust Co., collateralized
by $618,000 U.S. Treasury
Bills, 3.310% due 12/27/01
(value - $607,185); proceeds:
$595,195 (cost $595,000) ...... $ 595 595,000 -0- -0- 595,000
------------- ------------- ------------- -------------
5
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Portfolio Portfolio Adjustments Combined (b)
(U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
--------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 97.0%
(cost $79,319,358) ............ $ 6,778,428 $ 65,786,245 $ (1,955,119) $ 70,609,554
Other assets less
liabilities - 3.0% ............ (42,083) 269,110 1,955,119 2,182,146
------------- ------------- ------------- -------------
NET ASSETS - 100% ................ $ 6,736,345 $ 66,055,355 $ -0- $ 72,791,700
============= ============= ============= =============
----------
(a) Non-income producing security.
(b) The pro-forma combined information reflects the sale of U.S. holdings held
by the Brinson portfolio before consummation of the acquisition.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
6
SECTOR DIVERSIFICATION
PRO-FORMA COMBINED
June 30, 2001 (unaudited)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance Pro-Forma
Global Equity International Pro-Forma Combined(a)
Portfolio Portfolio Adjustments Combined (a) (Percent of
(U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) Net Assets)
---------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense .................... $ 39,299 $ -0- $ -0- $ 39,299 0.1%
Basic Industries ....................... 226,772 1,579,184 (99,705) 1,706,251 2.3
Capital Goods .......................... 362,607 1,588,044 (131,402) 1,819,249 2.5
Consumer Manufacturing ................. 241,296 2,092,070 (101,157) 2,232,209 3.1
Consumer Services ...................... 625,127 11,173,363 (271,961) 11,526,529 15.8
Consumer Staples ....................... 363,560 6,923,828 -0- 7,287,388 10.0
Energy ................................. 453,943 3,284,193 (191,979) 3,546,157 4.9
Finance ................................ 2,026,722 17,986,154 (446,851) 19,566,025 26.9
Healthcare ............................. 611,066 7,290,308 (176,819) 7,724,555 10.6
Multi Industry ......................... 174,293 925,774 (79,997) 1,020,070 1.4
Technology ............................. 689,211 11,602,240 (369,447) 11,922,004 16.4
Utilities .............................. 369,532 1,341,087 (85,801) 1,624,818 2.2
------------- ------------- ------------- ------------- ----------
Total Investments* ..................... 6,183,428 65,786,245 (1,955,119) 70,014,554 96.2
Cash and receivables, net of
liabilities ......................... 552,917 269,110 1,955,119 2,777,146 3.8
------------- ------------- ------------- ------------- ----------
Net Assets ............................. $ 6,736,345 $ 66,055,355 $ -0- $ 72,791,700 100.0%
============= ============= ============= ============= ==========
----------
* Excludes short-term obligations.
(a) The pro-forma combined information reflects the sale of U.S. holdings held
by the Brinson portfolio before consummation of the acquisition.
7
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 2001 (unaudited)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Portfolio Portfolio Adjustments Combined (a)
============= ============= ============= =============
ASSETS
Investments in securities, at
value (cost $79,319,358) ........ $ 6,778,428 $ 65,786,245 $ (1,955,119) $ 70,609,554
Cash .............................. 6,137 15,286 -0- 21,423
Foreign cash, at value
(cost $238,097) ................. -0- 238,229 -0- 238,229
Receivable for investment
securities sold ................. -0- -0- 1,955,119 1,955,119
Receivable for foreign taxes
withheld ........................ 9,168 -0- -0- 9,168
Collateral held securities
loaned .......................... -0- 455,000 -0- 455,000
Dividends and interest
receivable ...................... 5,802 106,360 -0- 112,162
Other assets ...................... 3,020 -0- -0- 3,020
------------- ------------- ------------- -------------
Total assets ...................... 6,802,555 66,601,120 -0- 73,403,675
------------- ------------- ------------- -------------
LIABILITIES
Payable for collateral received
on securities loaned ............ -0- 455,000 -0- 455,000
Payable to affiliate .............. 4,358 -0- -0- 4,358
Advisory fee payable .............. -0- 35,465 -0- 35,465
Accrued expenses and other
liabilities ..................... 61,852 55,300 -0- 117,152
------------- ------------- ------------- -------------
Total liabilities ................. 66,210 545,765 -0- 611,975
------------- ------------- ------------- -------------
NET ASSETS ........................... $ 6,736,345 $ 66,055,355 $ -0- $ 72,791,700
============= ============= ============= =============
Class H Shares Class A Shares Class A Shares
Net assets ........................ $ 6,218,279 $ 66,055,355 $ 72,273,634
============= ============= =============
Shares of capital stock
outstanding (b) ................. 641,645 5,352,869 (137,733) 5,856,781
============= ============= ============= =============
Net asset value per share ......... $ 9.69 $ 12.34 $ 12.34
============= ============= =============
Class I Shares Class B Shares
Net assets ........................ $ 518,066 $ 518,066
============= =============
Shares of capital stock
outstanding (b) ................. 53,760 (11,777) 41,983
============= ============= =============
Net asset value per share ......... $ 9.64 $ 12.34
============= =============
----------
(a) The pro-forma combined information reflects the sale of U.S. holdings held
by the Brinson portfolio before consummation of the acquisition.
(b) The Class H and Class I shares of the Global Equity Portfolio have
characteristics substantially similar to the Class A and Class B shares of
the International Portfolio, respectively. Class A and Class H shares are
sold and redeemed at net asset value and do not pay 12b-1 fees. Class B
and Class I shares are also sold and redeemed at net asset value. However,
under a Rule 12b-1 plan adopted by each Portfolio, Class B and Class I
shares pay annual distribution fees equal to .25% of the average daily net
assets attributable to such respective class. Class B shares is being
established in connection with the proposed merger.
See notes to financial statements.
8
STATEMENT OF OPERATIONS
Twelve Months Ended
June 30, 2001 (unaudited)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
Brinson Alliance
Global Equity International Pro-Forma
Portfolio Portfolio Adjustments Combined*
============= ============= ============= ============
INVESTMENT INCOME
Dividend (net of foreign
withholding taxes of
$123,591) ................... $ 116,293 $ 823,036 $ -0- $ 939,329
Interest ...................... 39,839 102,065 -0- 141,904
------------- ------------- ------------- ------------
Total investment income ....... 156,132 925,101 -0- 1,081,233
------------- ------------- ------------- ------------
EXPENSES
Advisory fee .................. 64,286 790,430 4,252 858,968 (a)
Distribution fee - Class B .... 1,461 -0- -0- 1,461 (b)
Audit and legal ............... 34,378 52,468 (27,769) 59,077 (c)
Printing ...................... 32,670 10,728 (29,315) 14,083 (c)
Custodian ..................... 22,551 149,062 (10,593) 161,020 (d)
Directors' fees ............... 7,500 1,542 (7,500) 1,542 (c)
Transfer agency ............... 3,000 969 (3,000) 969 (c)
Administrative ................ -0- 67,281 -0- 67,281 (c)
Miscellaneous ................. 2,810 7,511 (1,516) 8,805 (c)
------------- ------------- ------------- ------------
Total expenses ................ 168,656 1,079,991 (75,441) 1,173,206
Expenses waived and
reimbursed .................. -0- (329,083) (26,642) (355,725)
------------- ------------- ------------- ------------
Net expenses .................. 168,656 750,908 (102,083) 817,481
------------- ------------- ------------- ------------
Net investment income (loss) .. (12,524) 174,193 102,083 263,752
------------- ------------- ------------- ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investment transactions ..... 130,920 (4,202,550) -0- (4,071,630)
Net realized loss on foreign
currency transactions ....... (5,452) (71,498) -0- (76,950)
Net change in unrealized
appreciation/depreciation of:
Investments ................ (1,199,839) (9,639,417) -0- (10,839,256)
Foreign currency denominated
assets and liabilities ... (698) (3,531) -0- (4,229)
------------- ------------- ------------- ------------
Net loss on investments ....... (1,075,069) (13,916,996) -0- (14,992,065)
------------- ------------- ------------- ------------
NET DECREASE IN NET ASSETS
FROM OPERATIONS ............... $ (1,087,593) $ (13,742,803) $ 102,083 $(14,728,313)
============= ============= ============= ============
----------
* Based on combined net assets for the twelve months ended June 30, 2001.
(a) Advisory fee based on an annual rate of 1.00% of the total combined
average net assets for the twelve months ended June 30, 2001.
(b) Distribution fee based on an annual rate of .25% of the total combined
average net assets for the twelve months ended June 30, 2001.
(c) Expenses are based on one fund.
(d) Custodian fees are based on monthly fixed fees and on average net assets.
See notes to financial statements.
9
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 2001 (unaudited)
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
NOTE A: General
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Brinson Series Trust - Global Equity Portfolio by Alliance
Variable Products Series Fund - International Portfolio (the "Portfolio")
pursuant to an Agreement and Plan of Acquisition and Termination. The
acquisition would be accomplished by a tax-free exchange of the assets of
Brinson Series Trust - Global Equity Portfolio for shares of the Portfolio.
The unaudited Pro-Forma Statements of Investments, of Assets and Liabilities and
of Operations have been prepared as though the acquisition had been effective
June 30, 2001 and should be read in conjunction with the historical financial
statements and schedules of investments of the Portfolio, included in the
Statement of Additional information. The Pro-Forma Statement of Operations has
been prepared under the assumption that certain expenses would be lower for the
combined entity as a result of the acquisition. The expense of the acquisition,
including the cost of proxy solicitation, will be borne by Alliance Capital
Management L.P.
--------------------------------------------------------------------------------
NOTE B: Significant Accounting Policies
The financial statements have been prepared in accordance 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.
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 prices 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 prices. 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 withholding 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.
10
Brinson Series Trust--Global Equity Portfolio
Alliance Variable Products Series Fund--International Portfolio
================================================================================
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. Dividends and Distributions
The Portfolio declares and distributes dividend 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.
--------------------------------------------------------------------------------
NOTE C: 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 1% of the Portfolio's average daily net assets.
During the twelve 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 twelve months ended June 30, 2001, such
waivers/reimbursements would amount to $329,083.
--------------------------------------------------------------------------------
NOTE D: Distribution Plan
The Portfolio has adopted a Plan for Class B shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Plan"). Under the Plan, the Portfolio
pays distribution and servicing fees to the Distributor at an annual rate of up
to .50% of each portfolio's average daily net assets attributable to the Class B
shares. The fees are accrued daily and paid monthly. The Board of Directors
currently limit payments under the Plan to .25% of the Portfolio's average daily
net assets attributable to Class B shares. The Plan provides that the
Distributor will use such payments in their entirety for distribution assistance
and promotional activities.
11
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(This page left intentionally blank.)
PRO-FORMA COMBINED
----------------------------------------
FINANCIAL STATEMENTS
----------------------------------------
BRINSON SERIES TRUST--
GLOBAL INCOME PORTFOLIO
STRATEGIC INCOME PORTFOLIO
ALLIANCE VARIABLE PRODUCTS SERIES FUND--
GLOBAL BOND PORTFOLIO
JUNE 30, 2001
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
June 30, 2001 (unaudited)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Combined Brinson Brinson Alliance
Principal Global Income Strategic Income Global Bond Pro-Forma
Amount Portfolio Portfolio Portfolio Adjustments Combined(e)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------------------------
AUSTRALIA - 0.2%
DEBT OBLIGATION-0.2%
National Australia Bank
4.665%, 5/19/10 (a) ....... US$ 113 $ 113,645 $ -0- $ -0- $ -0- $ 113,645
------------- --------------- ------------- ------------- -------------
BRAZIL - 0.1%
GOVERNMENT OBLIGATIONS-0.1%
Federal Republic of Brazil,
DCB 5.500%, 4/15/12 (a) ... 62 43,710 -0- -0- -0- 43,710
------------- --------------- ------------- ------------- -------------
CANADA - 4.5%
GOVERNMENT OBLIGATIONS-4.5%
Government of Canada
5.00%, 9/01/04 (b) ........ CAD 500 -0- -0- 325,155 -0- 325,155
5.50%, 6/01/10 (b) ........ 3,900 192,232 384,252 1,921,455 (192,126) 2,305,813
------------- --------------- ------------- ------------- -------------
192,232 384,252 2,246,610 (192,126) 2,630,968
------------- --------------- ------------- ------------- -------------
DENMARK - 2.8%
GOVERNMENT OBLIGATION-2.8%
Kingdom of Denmark
6.00%, 11/15/09 (b) ....... DKK 13,590 -0- -0- 1,619,925 -0- 1,619,925
------------- --------------- ------------- ------------- -------------
FRANCE - 4.4%
GOVERNMENT OBLIGATIONS-4.4%
Government of France
4.00%, 4/25/09 (b) ........ EUR 2,950 -0- -0- 2,330,286 -0- 2,330,286
5.50%, 10/25/07 ........... 130 113,714 -0- -0- -0- 113,714
Republic of France
5.50%, 4/25/29 ............ 97 78,831 -0- -0- -0- 78,831
------------- --------------- ------------- ------------- -------------
192,545 -0- 2,330,286 -0- 2,522,831
------------- --------------- ------------- ------------- -------------
GERMANY - 14.9%
GOVERNMENT OBLIGATIONS-14.6%
Federal Republic of Germany
4.00%, 7/04/09 (b) ........ 2,350 -0- -0- 1,864,028 -0- 1,864,028
5.00%, 2/17/06 (b) ........ 2,500 -0- -0- 2,151,887 -0- 2,151,887
6.00%, 2/16/06 (b) ........ 4,350 -0- -0- 3,879,681 -0- 3,879,681
3.25% to 6.25%,
2/17/04 to 1/04/30 ........ DEM 3,423 561,681 2,390,202 -0- (2,390,202) 561,681
------------- --------------- ------------- ------------- -------------
561,681 2,390,202 7,895,596 (2,390,202) 8,457,277
------------- --------------- ------------- ------------- -------------
DEBT OBLIGATION-0.3%
Deutsche Ausgleichbank
7.00%, 6/23/05 ............ US$ 150 158,261 -0- -0- -0- 158,261
------------- --------------- ------------- ------------- -------------
719,942 2,390,202 7,895,596 (2,390,202) 8,615,538
------------- --------------- ------------- ------------- -------------
HUNGARY - 0.1%
GOVERNMENT OBLIGATION-0.1%
Government of Hungary
13.50%, 6/12/01 ........... HUF 20,000 69,554 -0- -0- -0- 69,554
------------- --------------- ------------- ------------- -------------
1
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Combined Brinson Brinson Alliance
Principal Global Income Strategic Income Global Bond Pro-Forma
Amount Portfolio Portfolio Portfolio Adjustments Combined(e)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------------------------
ITALY - 5.2%
GOVERNMENT OBLIGATIONS-5.2%
Republic of Italy
4.75%, 7/01/05 ............ ITL $ 650 $ -0- $ 551,811 $ -0- $ (275,906) $ 275,905
5.00%, 5/01/08 (b) ........ EUR 3,000 -0- -0- 2,511,856 -0- 2,511,856
8.50%, 4/01/04 ............ ITL 245 228,781 -0- -0- -0- 228,781
------------- --------------- ------------- ------------- -------------
228,781 551,811 2,511,856 (275,906) 3,016,542
------------- --------------- ------------- ------------- -------------
JAPAN - 5.0%
GOVERNMENT OBLIGATIONS-5.0%
Government of Japan
1.10%, 3/21/11 (b) ........ JPY 335,000 -0- -0- 2,673,607 -0- 2,673,607
1.90%, 12/20/10 ........... 29,000 249,299 -0- -0- -0- 249,299
------------- --------------- ------------- ------------- -------------
249,299 -0- 2,673,607 -0- 2,922,906
------------- --------------- ------------- ------------- -------------
MEXICO - 0.2%
DEBT OBLIGATION-0.2%
PEMEX Finance, Ltd.
6.125%, 11/15/03 .......... US$ 123 123,544 -0- -0- -0- 123,544
------------- --------------- ------------- ------------- -------------
NETHERLANDS - 3.1%
GOVERNMENT OBLIGATIONS-3.1%
Government of Netherlands
5.50%, 7/15/10 (b) ........ EUR 1,710 -0- -0- 1,477,977 -0- 1,477,977
5.50%, 1/15/28 ............ NLG 316 258,605 -0- -0- -0- 258,605
8.750%, 09/15/01 .......... 100 85,404 -0- -0- -0- 85,404
------------- --------------- ------------- ------------- -------------
344,009 -0- 1,477,977 -0- 1,821,986
------------- --------------- ------------- ------------- -------------
SPAIN - 8.1%
GOVERNMENT OBLIGATIONS-8.1%
Government of Spain
4.95%, 7/30/05 ............ ESP 270 230,477 -0- -0- -0- 230,477
6.00%, 1/31/29 (b) ........ EUR 1,780 -0- -0- 1,518,982 -0- 1,518,982
7.90%, 2/28/02 (b) ........ 3,415 -0- -0- 2,957,009 -0- 2,957,009
------------- --------------- ------------- ------------- -------------
230,477 -0- 4,475,991 -0- 4,706,468
------------- --------------- ------------- ------------- -------------
SWEDEN - 3.6%
GOVERNMENT OBLIGATION-3.6%
Kingdom of Sweden
5.00%, 11/15/04 (b) ....... SEK 15,000 -0- -0- 1,383,294 -0- 1,383,294
8.00%, 8/15/07 (b) ........ 7,900 105,248 242,114 481,873 (121,057) 708,178
------------- --------------- ------------- ------------- -------------
105,248 242,114 1,865,167 (121,057) 2,091,472
------------- --------------- ------------- ------------- -------------
UNITED KINGDOM - 6.4%
GOVERNMENT OBLIGATION-6.4%
United Kingdom Gilt
6.50% to 10.00%,
8/27/02 to 12/07/07 ....... GBP 980 543,661 936,210 -0- (936,210) 543,661
United Kingdom Treasury
6.25%, 11/25/10 (b) ....... 2,090 -0- -0- 3,141,434 -0- 3,141,434
------------- --------------- ------------- ------------- -------------
543,661 936,210 3,141,434 (936,210) 3,685,095
------------- --------------- ------------- ------------- -------------
2
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Combined Brinson Brinson Alliance
Principal Global Income Strategic Income Global Bond Pro-Forma
Amount Portfolio Portfolio Portfolio Adjustments Combined(e)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------------------------
UNITED STATES - 25.8%
GOVERNMENT AND
AGENCY OBLIGATIONS-25.8%
Federal National Mortgage
Association
1.75%, 3/26/08 (b) ........ JPY 200,000 $ -0- $ -0- $ 1,722,182 $ -0- $ 1,722,182
5.25% to 7.125%,
3/15/07 to 4/29/09 ........ US$ 1,505 -0- 1,497,458 -0- (1,497,458) -0-
U.S. Treasury Bond
6.125%, 8/15/29 ........... 415 -0- 430,398 -0- -0- 430,398
6 375%, 8/15/27 (b) ....... 3,095 -0- -0- 3,280,700 -0- 3,280,700
U S Treasury Notes
3 875%, 1/15/09 ........... 249 89,725 167,086 -0- -0- 256,811
4 75%, 11/15/08 (b) ....... 3,180 -0- -0- 3,069,686 -0- 3,069,686
5 00%, 2/15/11 (b) ........ 1,000 -0- -0- 970,150 -0- 970,150
5 50%, 5/15/09 (b) ........ 2,420 -0- -0- 2,441,175 -0- 2,441,175
5 75%, 8/15/03 (b) ........ 2,000 -0- -0- 2,056,860 -0- 2,056,860
5 000% to 6 125%,
2/15/11 to 11/15/27 ....... 1,400 400,127 970,312 -0- (680,938) 689,501
------------- --------------- ------------- ------------- -------------
489,852 3,065,254 13,540,753 (2,178,396) 14,917,463
------------- --------------- ------------- ------------- -------------
CORPORATE DEBT OBLIGATIONS-7.3%
Abbey National Capital Trust
8.963%, 6/30/30 (c) ....... 79 88,349 -0- -0- -0- 88,349
AES Corp.
9.50%, 6/01/09 ............ 125 -0- 126,563 -0- (126,563) -0-
Airplanes Pass-Through Trust
10.875%, 3/15/19 .......... 123 -0- 82,720 -0- (82,720) -0-
Allegiance Telecom, Inc.
12.875%, 5/15/08 .......... 125 -0- 110,000 -0- (110,000) -0-
Allied Waste North America, Inc.
10.00%, 8/01/09 ........... 125 -0- 128,437 -0- (128,437) -0-
Avecia Group Plc
11.00%, 7/01/09 ........... 125 -0- 127,500 -0- (127,500) -0-
BCI US Funding Trust One
8.01%, 7/15/08 ............ 200 -0- 200,692 -0- (200,692) -0-
British Telecommunications PLC
8.875%, 12/15/30 .......... 400 -0- 436,223 -0- (436,223) -0-
Centaur Funding
9.08%, 4/21/20 ............ 200 -0- 213,750 -0- (213,750) -0-
Clorox Corp.
8.80%, 7/15/01 ............ 200 200,211 -0- -0- -0- 200,211
Fairchild Semiconductor Corp.
10.125%, 3/15/07 .......... 125 -0- 120,000 -0- (120,000) -0-
Fidelity Investment Co.
7.57%, 6/15/29 ............ 120 125,518 -0- -0- -0- 125,518
GE Financial Assurance Holdings
1.60%, 6/20/11 (b) ...... 400 -0- -0- 3,228,290 -0- 3,228,290
General Motors Acceptance Corp.
5.75%, 11/10/03 ........... 185 186,307 -0- -0- -0- 186,307
Global Crossing Holdings, Ltd.
8.70%, 8/01/07 ............ 150 -0- 114,000 -0- (114,000) -0-
3
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Combined Brinson Brinson Alliance
Principal Global Income Strategic Income Global Bond Pro-Forma
Amount Portfolio Portfolio Portfolio Adjustments Combined(e)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------------------------
HSBC Capital Funding LP
10.176%, 6/30/30 (c)(d) ... US$ 73 $ 90,174 $ -0- $ -0- $ -0- $ 90,174
Huntsman ICI Chemicals LLC
10.125%, 7/01/09 .......... 125 -0- 123,125 -0- (123,125) -0-
Knology Holdings, Inc.
11.875%, 10/15/07 ......... 200 -0- 65,000 -0- (65,000) -0-
Lyondell Chemical Co.
9.875%, 5/01/07 ........... 250 -0- 249,375 -0- (249,375) -0-
McLeodUSA, Inc.
11.375%, 1/01/09 .......... 100 -0- 63,000 -0- (63,000) -0-
Metromedia Fiber Network,
Inc. 10.00%, 11/15/08 ..... 105 -0- 40,425 -0- (40,425) -0-
MGM Grand, Inc.
9.75%, 6/01/07 ............ 250 -0- 266,250 -0- (266,250) -0-
Morgan Stanley Dean Witter
& Co. 7.75%, 6/15/05 ...... 104 110,768 -0- -0- -0- 110,768
Nextel Communications, Inc.
9.375%, 11/15/09 .......... 150 -0- 118,875 -0- (118,875) -0-
9.95%, 2/15/08 ............ 125 -0- 80,000 -0- (80,000) -0-
NorthEast Optic Network, Inc.
12.75%, 8/15/08 ........... 125 -0- 35,000 -0- (35,000) -0-
NTL Communications Group
12.375%, 2/01/08 .......... 200 -0- 122,033 -0- (122,033) -0-
Park Place Entertainment Corp.
7.875%, 12/15/05 .......... 125 -0- 125,312 -0- (125,312) -0-
PSE&G Energy
8.500%, 6/15/11 ........... 300 99,823 199,356 -0- (199,356) 99,823
Spectrasite Holdings, Inc.
11.25%, 4/15/09 ........... 125 -0- 56,250 -0- (56,250) -0-
Stena AB
8.75%, 6/15/07 ............ 175 -0- 157,500 -0- (157,500) -0-
Tembec Industry, Inc.
8.625%, 6/30/09 ........... 125 -0- 127,500 -0- (127,500) -0-
Tenet Healthcare Corp.
8.125%, 12/01/08 .......... 100 -0- 103,125 -0- (103,125) -0-
UIH Australia Pacific, Inc.
14.00%, 5/15/06 ........... 250 -0- 106,250 -0- (106,250) -0-
United Pan Europe
Communications N.V.
10.875%, 8/01/09 .......... 175 -0- 54,872 -0- (54,872) -0-
13.375%, 11/01/09 ......... 200 -0- 32,000 -0- (32,000) -0-
Voicestream Wireless Corp.
10.375%, 11/15/09 ......... 250 -0- 283,635 -0- (283,635) -0-
Versatel Telecom
4.00%, 3/30/05 ............ 500 -0- 117,967 -0- (117,967) -0-
Wells Fargo Co.
6.50%, 9/03/02 ............ 99 101,209 -0- -0- -0- 101,209
Williams Communications Group
10.875%, 10/01/09 ......... 125 -0- 50,000 -0- (50,000) -0-
------------- --------------- ------------- ------------- -------------
1,002,359 4,236,735 3,228,290 (4,236,735) 4,230,649
------------- --------------- ------------- ------------- -------------
4
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Combined Brinson Brinson Alliance
Principal Global Income Strategic Income Global Bond Pro-Forma
Amount Portfolio Portfolio Portfolio Adjustments Combined(e)
(000) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value) (U.S.$ Value)
----------------------------------------------------------------------------------------------------------------------------------
TIME DEPOSIT-8.1%
State Street Euro Dollar
3.25%, 7/02/01 ............ US$ 4,706 $ -0- $ -0- $ 4,706,000 $ -0- $ 4,706,000
------------- --------------- ------------- ------------- -------------
1,492,211 7,301,989 21,475,043 (6,415,131) 23,854,112
------------- --------------- ------------- ------------- -------------
REPURCHASE AGREEMENT-3.8%
Repurchase agreement dated
6/29/01 with State Street
Bank and Trust Co.,
collateralized by $2,310,000
U.S. Treasury Bills 3.310%
due 12/27/01 (value -
$2,269,575); proceeds:
$2,225,729 ................ 2,225 0 2,225,000 0 0 2,225,000
------------- --------------- ------------- ------------- -------------
TOTAL INVESTMENTS - 103.6%
(cost $61,844,192) ........ 4,648,858 14,031,578 51,713,492 (10,330,632) 60,063,296
Other assets less
liabilities - (3.6%) ...... 250,895 (1,048,311) (1,294,546) 0 (2,091,962)
------------- --------------- ------------- ------------- -------------
NET ASSETS - 100% ............ $ 4,899,753 $ 12,983,267 $ 50,418,946 $ (10,330,632) $ 57,971,334
============= =============== ============= ============= =============
----------
(a) Floating rate securities -- the interest rates shown are the current rates
as of June 30, 2001.
(b) Securities or portion thereof, with an aggregate market value of
$47,007,492 have been segregated to collateralize forward exchange
currency contracts.
(c) Maturity date shown is the callable date for perpetual rewriting
securities.
(d) Securities 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 June 30, 2001,
the aggregate market value of these securities amounted to $90,174 or 0.2%
of net assets.
(e) The pro-forma combined information is prepared based on merged net assets
net of the withdrawal of seed capital of $10,330,632 by Brinson, in the
Strategic Income Portfolio, before consummation of the acquisition.
Glossary:
DCB -Debt Conversion Bond.
See notes to financial statements.
5
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 2001 (unaudited)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Brinson Brinson
Global Strategic Alliance
Income Income Global Bond Pro-Forma
Portfolio Portfolio Portfolio Adjustments Combined(b)
============= ============= ============= ============== =============
ASSETS
Investments in securities, at value
(cost $61,844,192) ...................... $ 4,648,858 $ 14,031,578 $ 51,713,492 $ (10,330,632) $ 60,063,296
Cash ...................................... 115,504 31,658 257 -0- 147,419
Foreign currency (cost $124,336) .......... -0- -0- 123,318 -0- 123,318
Receivable for investment securities sold . 364,668 663,625 2,001,559 -0- 3,029,852
Interest receivable ....................... 102,612 281,774 864,221 -0- 1,248,607
Unrealized appreciation on forward
exchange currency contracts ............. 5,593 19,393 18,090 -0- 43,076
Other assets .............................. 710 24,552 -0- -0- 25,262
------------- ------------- ------------- -------------- -------------
Total assets .............................. 5,237,945 15,052,580 54,720,937 (10,330,632) 64,680,830
------------- ------------- ------------- -------------- -------------
LIABILITIES
Payable for investment securities
purchased ............................... 295,476 2,043,030 4,209,935 -0- 6,548,441
Payable to affiliates ..................... 3,095 8,619 -0- -0- 11,714
Payable of capital stock redeemed ......... 1,868 -0- -0- -0- 1,868
Advisory fee payable ...................... -0- -0- 27,185 -0- 27,185
Accrued expenses .......................... 37,753 17,664 64,871 -0- 120,288
------------- ------------- ------------- -------------- -------------
Total liabilities ......................... 338,192 2,069,313 4,301,991 -0- 6,709,496
------------- ------------- ------------- -------------- -------------
NET ASSETS ................................... $ 4,899,753 $ 12,983,267 $ 50,418,946 $ (10,330,632) $ 57,971,334
============= ============= ============= ============== =============
Class H Shares Class H Shares Class A Shares Class A Shares
Net assets ................................ $ 4,899,753 $ 11,087,857 $ 44,981,136 $ (10,330,632) $ 50,638,114
============= ============= ============= ============== =============
Shares of capital stock outstanding (a) ... 472,001 1,004,159 4,302,549 (934,822) 4,843,887
============= ============= ============= ============== =============
Net asset value per share ................. $ 10.38 $ 11.04 $ 10.45 $ 10.45
============= ============= ============== =============
Class I Shares Class B Shares Class B Shares
Net assets ................................ $ 1,895,410 $ 5,437,810 $ 7,333,220
============= ============== =============
Shares of capital stock outstanding (a) ... 171,853 522,720 10,398 704,971
============= ============= ============== =============
Net asset value per share ................. $ 11.03 $ 10.40 $ 10.40
============= ============== =============
----------
(a) The Class H and Class I shares of the Global Income and Strategic Income
Portfolios have characteristics substantially similar to the Class A and
Class B shares of the Global Bond Portfolio, respectively. Class A and
Class H shares are sold and redeemed at net asset value and do not pay
12b-1 fees. Class B and Class I shares are also sold and redeemed at net
asset value. However, under a Rule 12b-1 plan adopted by each Portfolio,
Class B and Class I shares pay annual distribution fees equal to .25% of
the average daily net assets attributable to such respective class.
(b) The pro-forma combined information is prepared based on merged net assets
net of the withdrawal of seed capital of $10,330,632 by Brinson, in the
Strategic Income Portfolio, before consummation of the acquisition.
See notes to financial statements.
6
STATEMENT OF OPERATIONS
Twelve Months Ended
June 30, 2001 (unaudited)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
Brinson Brinson
Global Strategic Alliance
Income Income Global Bond Pro-Forma
Portfolio Portfolio Portfolio Adjustments Combined*
========= =========== =========== =========== ===========
INVESTMENT INCOME
Interest (net of foreign withholding
taxes of $1,408) ....................... $ 419,233 $ 1,147,646 $ 2,539,315 $ (918,117) $ 3,188,077
--------- ----------- ----------- ----------- -----------
EXPENSES
Advisory fee ............................. 45,947 102,838 354,499 (99,196) 404,088(a)
Distribution fee--Class B ................ -0- 5,405 14,221 -0- 19,626(b)
Custodian ................................ 51,911 11,701 120,655 (55,178) 129,089(c)
Audit and legal .......................... 33,068 36,292 32,769 (67,196) 34,933(d)
Printing ................................. 15,635 21,790 14,447 (37,081) 14,791(d)
Directors' fees .......................... 7,500 7,500 1,450 (15,000) 1,450(d)
Transfer agency .......................... 3,000 3,000 947 (6,000) 947(d)
Administrative ........................... -0- -0- 67,076 -0- 67,076(d)
Miscellaneous ............................ 3,099 6,480 1,495 (9,396) 1,678(d)
--------- ----------- ----------- ----------- -----------
Total expenses ........................... 160,160 195,006 607,559 (289,047) 673,678
--------- ----------- ----------- ----------- -----------
Net investment income .................... 259,073 952,640 1,931,756 (629,070) 2,514,399
--------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on investment
transactions ........................... 12,825 (225,561) 167,547 180,449 135,260
Net realized gain (loss) on foreign
currency transactions .................. 11,597 145,945 (574,041) (116,756) (533,255)
Net change in unrealized appreciation/
depreciation of:
Investments ............................ (285,336) (967,770) (2,983,873) 774,216 (3,462,763)
Foreign currency denominated assets
and liabilities ...................... (21,621) 262,150 56,270 (209,720) 87,079
--------- ----------- ----------- ----------- -----------
Net loss on investments, futures contracts
and foreign currency transactions ...... (282,535) (785,236) (3,334,097) 628,189 (3,773,679)
--------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS .......................... $ (23,462) $ 167,404 $(1,402,341) $ (881) $(1,259,280)
========= =========== =========== =========== ===========
----------
* The pro-forma combined information is prepared based on merged net assets
net of the withdrawal by Brinson, in the Strategic Income Portfolio, of
seed capital of $10,330,632 at the beginning of the period on July 1,
2000.
(a) Advisory fee based on an annual rate of .65% of the total combined average
net assets for the twelve months ended June 30, 2001.
(b) Distribution fee based on an annual rate of .25% of the total combined
average net assets for the twelve months ended June 30, 2001.
(c) Custodian fees are based on monthly fixed fees and on average net assets.
(d) Expenses are based on one fund.
See notes to financial statements.
7
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 2001 (unaudited)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
NOTE A: General
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Brinson Series Trust - Global Income Portfolio and Strategic
Income Portfolio by Alliance Variable Products Series Fund - Global Bond
Portfolio (the "Portfolio") pursuant to an Agreement and Plan of Acquisition and
Termination. The acquisition would be accomplished by a tax-free exchange of the
assets of Brinson Series Trust - Global Income Portfolio and Strategic Income
Portfolio for shares of the Portfolio.
The unaudited Pro-Forma Portfolio of Investments, Statements of Assets and
Liabilities and of Operations have been prepared as though the acquisition had
been effective June 30, 2001 and should be read in conjunction with the
historical financial statements and schedules of investments of the Portfolio,
included in the Statement of Additional information. The Pro-Forma Statement of
Operations has been prepared under the assumption that certain expenses would be
lower for the combined entity as a result of the acquisition. The expense of the
acquisition, including the cost of proxy solicitation, will be borne by Alliance
Capital Management L.P.
--------------------------------------------------------------------------------
NOTE B: Significant Accounting Policies
The financial statements have been prepared in accordance 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.
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 prices 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 prices. 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 withholding 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.
8
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS
(continued)
Brinson Series Trust--Global Income Portfolio
Brinson Series Trust--Strategic Income Portfolio
Alliance Variable Products Series Fund--Global Bond Portfolio
================================================================================
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. Dividends and Distributions
The Portfolio declares and distributes dividend 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.
--------------------------------------------------------------------------------
NOTE C: 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 .65% of the Portfolio's average daily net assets.
--------------------------------------------------------------------------------
NOTE D: 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 each 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.
9
PRO-FORMA COMBINED
----------------------------------------
FINANCIAL STATEMENTS
----------------------------------------
BRINSON SERIES TRUST--
HIGH INCOME PORTFOLIO
ALLIANCE VARIABLE PRODUCTS SERIES FUND--
HIGH YIELD PORTFOLIO
JUNE 30, 2001
(unaudited)
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
June 30, 2001 (unaudited)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
CORPORATE DEBT OBLIGATIONS - 70.1%
AIR TRANSPORTATION - 0.5%
US Airways, Inc.
10.375%, 3/01/13 (a) ...................... $135 $ -0- $ 132,735 $ -0- $ 132,735
------------- ------------- ------------- -------------
AUTOMOTIVE - 1.4%
Collins & Aikman Products
11.50%, 4/15/06 (a) ....................... 490 28,350 61,750 (28,350) 61,750
Delco Remy International, Inc.
11.00%, 5/01/09 (a)(b) .................... 120 36,400 88,825 (36,400) 88,825
Dura Operating Corp.
9.00%, 5/01/09 (a) ........................ 130 37,600 85,050 (37,600) 85,050
9.00%, 5/01/09 (a)(b) ..................... 40 14,100 23,625 (14,100) 23,625
Hayes Lemmerz International, Inc.
11.875%, 6/15/06 (a)(b) ................... 180 53,350 122,813 (53,350) 122,813
Lear Corp.
7.96%, 5/15/05 ............................ 250 254,472 -0- (254,472) -0-
------------- ------------- ------------- -------------
424,272 382,063 (424,272) 382,063
------------- ------------- ------------- -------------
BANKING - 1.9%
Chohung Bank Co., Ltd.
11.875%, 4/01/10 (a)(b) ................... 200 52,375 155,895 (52,375) 155,895
Golden State Holdings
6.75%, 8/01/01 (a) ........................ 100 -0- 99,948 -0- 99,948
Hanvit Bank
12.75%, 3/01/10 (a)(b) .................... 325 80,625 268,750 (80,625) 268,750
------------- ------------- ------------- -------------
133,000 524,593 (133,000) 524,593
------------- ------------- ------------- -------------
BROADCASTING/MEDIA - 3.1%
Allbritton Communications Co.
8.875%, 2/01/08 (a) ....................... 250 -0- 250,000 -0- 250,000
Fox Family Worldwide, Inc.
9.25%, 11/01/07 (a) ....................... 675 175,875 507,500 (175,875) 507,500
Mediacom Broadband LLC
11.00%, 7/15/13 (a)(b) .................... 70 30,525 40,900 (30,525) 40,900
Primedia, Inc.
8.875%, 5/15/11 (a)(b) .................... 70 18,500 46,500 (18,500) 46,500
------------- ------------- ------------- -------------
224,900 844,900 (224,900) 844,900
------------- ------------- ------------- -------------
BUILDING/REAL ESTATE - 2.0%
D.R. Horton, Inc.
8.00%, 2/01/09 ............................ 250 240,000 -0- (240,000) -0-
LNR Property Corp.
10.50%, 1/15/09 (a) ....................... 490 120,000 371,850 (120,000) 371,850
Meritage Corp.
9.75%, 6/01/11 (a)(b) ..................... 60 -0- 60,000 -0- 60,000
Schuler Homes, Inc.
9.375%, 7/15/09 (a)(b) .................... 65 -0- 65,325 -0- 65,325
10.50%, 7/15/11 (a)(b) .................... 60 -0- 60,300 -0- 60,300
------------- ------------- ------------- -------------
360,000 557,475 (360,000) 557,475
------------- ------------- ------------- -------------
1
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
CABLE - 9.0%
@Entertainment, Inc
14.50%, 7/15/08 ........................... $110 $ 35,475 $ -0- $ (35,475) $ -0-
Adelphia Communications Corp.
10.25%, 6/15/11 (a) ....................... 155 50,006 103,950 (50,006) 103,950
10.875%, 10/01/10 (a) ..................... 175 50,006 127,187 (50,006) 127,187
Charter Communications Holdings LLC
9.625%, 11/15/09 (a)(b) ................... 60 -0- 60,375 -0- 60,375
10.00%, 5/15/11 (a)(b) .................... 155 121,800 35,700 (121,800) 35,700
10.75%, 10/01/09 (a) ...................... 845 221,025 671,512 (221,025) 671,512
11.75%, 5/15/11 (a)(b)( c) ................ 645 116,000 260,325 (116,000) 260,325
Comcast UK Cable Partners, Ltd.
11.20%, 11/15/07 (a)(c) ................... 250 -0- 171,250 -0- 171,250
EchoStar DBS Corp.
9.25%, 2/01/06 (a) ........................ 300 -0- 297,000 -0- 297,000
9.375%, 2/01/09 (a) ....................... 570 214,500 344,750 (214,500) 344,750
NTL Communications Corp.
11.20%, 11/15/01 .......................... 63 42,210 -0- (42,210) -0-
11.50%, 10/01/08 (a) ...................... 70 26,400 19,950 (26,400) 19,950
Park 'N View, Inc.
warrants .................................. 842 8 -0- (8) -0-
Telewest Communications Plc
11.00%, 10/01/07 (a)(c) ................... 500 168,500 254,250 (168,500) 254,250
UIH Australia Pacific, Inc.
14.00%, 5/15/06 ........................... 250 106,250 -0- (106,250) -0-
United Pan-Europe Communications NV
Series B
11.50%, 2/01/10 ........................... 30 10,800 -0- (10,800) -0-
13.75%, 2/01/10 (a) ....................... 100 -0- 15,500 -0- 15,500
14.50%, 7/15/08 (a) ....................... 265 -0- 86,788 -0- 86,788
------------- ------------- ------------- -------------
1,162,980 2,448,537 (1,162,980) 2,448,537
------------- ------------- ------------- -------------
CHEMICALS - 3.1%
Applied Extrusion Technologies, Inc.
10.75%, 7/01/11 ........................... 50 50,500 -0- (50,500) -0-
Avecia Group Plc
11.00%, 7/01/09 (a) ....................... 500 204,000 300,000 (204,000) 300,000
Equistar Chemicals LP
8.50%, 2/15/04 (a) ........................ 50 -0- 48,400 -0- 48,400
Georgia Gulf Corp.
10.375%, 11/01/07 (a) ..................... 150 -0- 153,750 -0- 153,750
Huntsman ICI Chemicals LLC
10.125%, 7/01/09 (a) ...................... 425 123,125 297,000 (123,125) 297,000
Lyondell Chemical Co.
10.875%, 5/01/09 .......................... 140 137,900 -0- (137,900) -0-
Millennium America, Inc.
9.25%, 6/15/08 (a)(b) ..................... 60 19,900 40,000 (19,900) 40,000
------------- ------------- ------------- -------------
535,425 839,150 (535,425) 839,150
------------- ------------- ------------- -------------
2
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS - 0.6%
Tele1 Europe Holding AB
11.875%, 12/01/09 (a) ..................... $ 35 $ -0- $ 17,500 $ -0- $ 17,500
Tritel PCS, Inc.
10.375%, 1/15/11 (a)(b) ................... 200 45,625 138,000 (45,625) 138,000
------------- ------------- ------------- -------------
45,625 155,500 (45,625) 155,500
------------- ------------- ------------- -------------
COMMUNICATIONS - FIXED - 1.6%
Allegiance Telecom Inc.
12.875%, 5/15/08 (a) ...................... 185 127,600 35,400 (127,600) 35,400
Global Crossing Holdings Ltd.
8.70%, 8/01/07 ............................ 35 26,600 -0- (26,600) -0-
Level 3 Communications, Inc.
11.00%, 3/15/08 (a) ....................... 275 -0- 122,375 -0- 122,375
McLeod Usa, Inc.
11.375%, 1/01/09 (a) ...................... 225 44,100 98,425 (44,100) 98,425
Metromedia Fiber Network, Inc.
10.00%, 11/15/08 (a) ...................... 55 9,625 11,550 (9,625) 11,550
10.00%, 12/15/09 (a) ...................... 30 -0- 11,550 -0- 11,550
NorthEast Optic Network, Inc.
12.75%, 8/15/08 ........................... 125 35,000 -0- (35,000) -0-
Time Warner Telecom, Inc.
10.125%, 2/01/11 (a) ...................... 105 22,500 72,400 (22,500) 72,400
Viatel, Inc.
12.50%, 4/15/08 ........................... 250 7,500 -0- (7,500) -0-
Williams Communications Group, Inc.
10.875%, 10/01/09 ......................... 125 50,000 -0- (50,000) -0-
11.70%, 8/01/08 (a) ....................... 85 -0- 35,700 -0- 35,700
11.875%, 8/01/10 (a) ...................... 135 -0- 56,700 -0- 56,700
------------- ------------- ------------- -------------
322,925 444,100 (322,925) 444,100
------------- ------------- ------------- -------------
COMMUNICATIONS - MOBILE - 7.2%
American Cellular Corp.
9.50%, 10/15/09 (a)(b) .................... 180 51,700 118,125 (51,700) 118,125
Dobson/Sygnet Communications
12.25%, 12/15/08 (a) ...................... 285 85,850 203,000 (85,850) 203,000
Iridium Capital Corp. LLC
14.00%, 7/15/05 (a)(d) .................... 550 -0- 25,438 -0- 25,438
Microcell Telecommunications, Inc.
14.00%, 6/01/06 ........................... 35 25,900 -0- (25,900) -0-
17.83%, 6/01/06 (a) ....................... 75 -0- 55,875 -0- 55,875
Nextel Communications, Inc.
5.25%, 1/15/10 (a) ........................ 295 53,154 126,075 (53,154) 126,075
9.375%, 11/15/09 (a) ...................... 10 -0- 7,950 -0- 7,950
9.50%, 2/01/11 ............................ 15 11,756 -0- (11,756) -0-
9.95%, 2/15/08 ............................ 250 160,000 -0- (160,000) -0-
10.65%, 9/15/07 (a)(c) .................... 60 -0- 42,525 -0- 42,525
Nextel International, Inc.
12.75%, 8/01/10 (a) ....................... 120 11,600 25,600 (11,600) 25,600
Nextel Partners, Inc.
11.00%, 3/15/10 (a) ....................... 195 46,200 106,650 (46,200) 106,650
3
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
Rogers Wireless Communications, Inc.
9.625%, 5/01/11 (a)(b) .................... $ 90 $ 30,150 $ 60,600 $ (30,150) $ 60,600
TeleCorp PCS, Inc.
10.625%, 7/15/10 (a) ...................... 500 -0- 472,500 -0- 472,500
11.625%, 4/15/09 (a)(c) ................... 350 61,000 157,500 (61,000) 157,500
Triton PCS, Inc.
11.00%, 5/01/08 (a) ....................... 50 -0- 40,562 -0- 40,562
Voicestream Wireless Co.
10.375%, 11/15/09 (a) ..................... 700 283,635 515,250 (283,635) 515,250
------------- ------------- ------------- -------------
820,945 1,957,650 (820,945) 1,957,650
------------- ------------- ------------- -------------
CONGLOMERATES - 0.2%
Netia Holdings BV
11.25%, 11/01/07 (a)(c ) .................. 175 19,500 49,375 (19,500) 49,375
------------- ------------- ------------- -------------
CONSUMER MANUFACTURING - 0.2%
Playtex Products, Inc.
9.375%, 6/01/11 (a)(b) .................... 85 25,438 61,350 (25,438) 61,350
------------- ------------- ------------- -------------
CORPORATE - 1.3%
Lyondell Chemical Co.
10.875%, 5/01/09 (a) ...................... 350 -0- 344,750 -0- 344,750
------------- ------------- ------------- -------------
DIVERSIFIED INDUSTRIES - 0.0%
Atlantic Express Transportation Corp.
10.75%, 2/01/04 ........................... 200 122,000 -0- (122,000) -0-
------------- ------------- ------------- -------------
ENERGY - 2.0%
Chesapeake Energy Corp.
8.125%, 4/01/11 (a)(b) .................... 185 51,425 122,200 (51,425) 122,200
Dresser, Inc.
9.375%, 4/15/11 (a)(b) .................... 85 25,312 61,050 (25,312) 61,050
EOTT Energy Partners LP
11.00%, 10/01/09 (a) ...................... 110 37,712 80,625 (37,712) 80,625
Lone Star Technologies, Inc.
9.00%, 6/01/11 (a)(b) ..................... 75 24,125 48,500 (24,125) 48,500
PG&E National Energy Group, Inc.
10.375%, 5/16/11 (a)(b) ................... 225 69,872 154,951 (69,872) 154,951
R & B Falcon Corp.
9.50%, 12/15/08 ........................... 250 287,417 -0- (287,417) -0-
Range Resources Corp.
8.75%, 1/15/07 (a)(b) ..................... 75 -0- 72,750 -0- 72,750
------------- ------------- ------------- -------------
495,863 540,076 (495,863) 540,076
------------- ------------- ------------- -------------
ENTERTAINMENT & LEISURE - 0.9%
Six Flags, Inc.
9.50%, 2/01/09 (a)(b) ..................... 175 74,906 100,375 (74,906) 100,375
9.75%, 6/15/07 (a) ........................ 100 -0- 101,000 -0- 101,000
10.00%, 4/01/08 (a)(c ) ................... 85 12,113 56,875 (12,113) 56,875
------------- ------------- ------------- -------------
87,019 258,250 (87,019) 258,250
------------- ------------- ------------- -------------
FINANCIAL - 4.7%
Conseco, Inc.
8.75%, 2/09/04 (a) ........................ 250 70,875 166,250 (70,875) 166,250
Dime Bancorp, Inc.
9.00%, 12/19/02 (a) ....................... 150 -0- 155,474 -0- 155,474
4
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
Finova Capital Corp.
7.125%, 5/01/02 (a) ....................... $ 55 $ -0- $ 52,097 $ -0- $ 52,097
7.25%, 11/08/04 (a) ....................... 255 84,263 153,410 (84,263) 153,410
Intrawest Corp.
10.50%, 2/01/10 (a) ....................... 150 -0- 156,750 -0- 156,750
Renaissancere Capital Trust
8.54%, 3/01/27 (a) ........................ 175 -0- 142,643 -0- 142,643
Safeco Capital Trust I
8.072%, 7/15/37 (a) ....................... 540 128,946 329,662 (128,946) 329,662
W.R. Berkley Capital Trust
8.197%, 12/15/45 (a) ...................... 140 32,188 80,707 (32,188) 80,707
Willis Corroon Corp.
9.00%, 2/01/09 (a) ........................ 50 15,263 35,612 (15,263) 35,612
------------- ------------- ------------- -------------
331,535 1,272,605 (331,535) 1,272,605
------------- ------------- ------------- -------------
FOOD/BEVERAGE - 0.4%
Chiquita Brands International, Inc.
10.00%, 6/15/09 (a) ....................... 100 -0- 68,250 -0- 68,250
Del Monte Corp.
9.25%, 5/15/11 (a)(b) ..................... 50 15,300 35,175 (15,300) 35,175
------------- ------------- ------------- -------------
15,300 103,425 (15,300) 103,425
------------- ------------- ------------- -------------
GAMING - 3.3%
Ameristar Casinos, Inc.
10.75%, 2/15/09 (a)(b) .................... 175 52,250 131,250 (52,250) 131,250
Mandalay Resort Group
10.25%, 8/01/07 (a) ....................... 475 182,000 315,750 (182,000) 315,750
MGM Grand, Inc.
9.75%, 6/01/07 ............................ 250 266,250 -0- (266,250) -0-
MGM Mirage, Inc.
8.375%, 2/01/11 (a) ....................... 250 100,625 151,688 (100,625) 151,688
Park Place Entertainment Corp.
7.875%, 12/15/05 .......................... 250 250,625 -0- (250,625) -0-
9.375%, 2/15/07 (a) ....................... 300 -0- 316,125 -0- 316,125
------------- ------------- ------------- -------------
851,750 914,813 (851,750) 914,813
------------- ------------- ------------- -------------
GENERAL INDUSTRIAL - 0.0%
Blount, Inc.
13.00%, 8/01/09 ........................... 150 90,000 -0- (90,000) -0-
------------- ------------- ------------- -------------
HEALTHCARE - 3.8%
Concentra Operating Corp.
13.00%, 8/15/09 (a) ....................... 265 80,438 204,725 (80,438) 204,725
HCA-The Healthcare Co.
7.875%, 2/01/11 (a) ....................... 525 151,312 378,848 (151,312) 378,848
Iasis Healthcare Corp.
13.00%, 10/15/09 (a) ...................... 400 106,000 319,500 (106,000) 319,500
Triad Hospitals, Inc.
8.75%, 5/01/09 (a)(b) ..................... 95 30,525 66,462 (30,525) 66,462
11.00%, 5/15/09 (a) ....................... 100 32,325 75,775 (32,325) 75,775
------------- ------------- ------------- -------------
400,600 1,045,310 (400,600) 1,045,310
------------- ------------- ------------- -------------
5
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
HOME FURNISHINGS - 0.3%
Sealy Mattress Co.
9.875%, 12/15/07 (a)(b) ................... $115 $ 34,562 $ 79,400 $ (34,562) $ 79,400
------------- ------------- ------------- -------------
HOTEL/LODGING - 2.2%
Extended Stay America, Inc.
9.875%, 6/15/11 (a)(b) .................... 90 29,934 59,850 (29,934) 59,850
Felcor Lodging LP
8.50%, 6/01/11 (a)(b) ..................... 90 57,300 28,800 (57,300) 28,800
9.50%, 9/15/08 (a)(b) ..................... 100 -0- 101,000 -0- 101,000
Host Marriott LP
8.375%, 2/15/06 ........................... 200 195,500 -0- (195,500) -0-
9.25%, 10/01/07 (a) ....................... 410 -0- 414,100 -0- 414,100
------------- ------------- ------------- -------------
282,734 603,750 (282,734) 603,750
------------- ------------- ------------- -------------
INDUSTRIAL - 3.6%
Amtrol, Inc.
10.625%, 12/31/06 (a) ..................... 145 -0- 119,625 -0- 119,625
Applied Extrusion Technologies, Inc.
10.75%, 7/01/11 (a)(b) .................... 105 -0- 106,575 -0- 106,575
Flowserve Corp.
12.25%, 8/15/10 (a) ....................... 250 -0- 268,750 -0- 268,750
Hexcel Corp.
9.75%, 1/15/09 (a) ........................ 105 28,875 72,000 (28,875) 72,000
9.75%, 1/15/09 (a)(b) ..................... 75 24,063 48,000 (24,063) 48,000
LIN Holdings Co.
10.00%, 3/01/08 (a) ....................... 110 27,475 58,875 (27,475) 58,875
Resolution Performance
13.50%, 11/15/10 (a) ...................... 100 -0- 109,000 -0- 109,000
Russell-Stanley Holdings, Inc.
10.875%, 2/15/09 (a) ...................... 500 -0- 77,500 -0- 77,500
Service Corp. International
6.00%, 12/15/05 (a) ....................... 190 69,962 87,675 (69,962) 87,675
6.30%, 3/15/20 (a) ........................ 15 4,713 9,375 (4,713) 9,375
6.50%, 3/15/08 (a) ........................ 30 -0- 24,300 -0- 24,300
------------- ------------- ------------- -------------
155,088 981,675 (155,088) 981,675
------------- ------------- ------------- -------------
MEDIA - 0.0%
Paxson Communications Corp.
10.75%, 7/15/08 ........................... 30 30,000 -0- (30,000) -0-
------------- ------------- ------------- -------------
MINING & METALS - 0.2%
Republic Technologies International
13.75%, 7/15/09 (a) ....................... 500 -0- 60,000 -0- 60,000
warrants, expiring 7/15/09 (b)(e) ......... 500 -0- 5 -0- 5
------------- ------------- ------------- -------------
-0- 60,005 -0- 60,005
------------- ------------- ------------- -------------
PAPER/PACKAGING - 5.3%
Doman Industries, Ltd.
12.00%, 7/01/04 (a) ....................... 575 180,250 412,000 (180,250) 412,000
Owens-Illinois, Inc.
7.80%, 5/15/18 (a) ........................ 120 24,400 53,125 (24,400) 53,125
7.85%, 5/15/04 (a) ........................ 90 24,400 44,275 (24,400) 44,275
6
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
Pliant Corp.
warrants, expiring 6/01/10 (b)(e) ......... 125 $ -0- $ 12 $ -0- $ 12
Riverwood International Corp.
10.625%, 8/01/07 (a) ...................... $450 102,000 360,500 (102,000) 360,500
Stone Container Corp.
9.25%, 2/01/08 (a)(b) ..................... 275 76,312 204,250 (76,312) 204,250
9.75%, 2/01/11 (a)(b) ..................... 325 76,313 256,250 (76,313) 256,250
Tembec Industries, Inc.
8.625%, 6/30/09 (a) ....................... 350 255,000 102,500 (255,000) 102,500
------------- ------------- ------------- -------------
738,675 1,432,912 (738,675) 1,432,912
------------- ------------- ------------- -------------
PETROLEUM PRODUCTS - 0.6%
Frontier Oil Corp.
11.75%, 11/15/09 (a) ...................... 150 -0- 161,250 -0- 161,250
------------- ------------- ------------- -------------
PUBLIC UTILITIES - ELECTRIC & GAS - 3.8%
AES Corp.
8.875%, 2/15/11 (a) ....................... 315 155,887 156,000 (155,887) 156,000
9.375%, 9/15/10 (a)(b) .................... 200 -0- 203,000 -0- 203,000
Calpine Canada Energy Finance
8.50%, 5/01/08 (a) ........................ 470 146,244 312,383 (146,244) 312,383
Calpine Corp.
8.625%, 8/15/10 (a) ....................... 100 24,309 72,692 (24,309) 72,692
CMS Energy Corp.
8.50%, 4/15/11 (a) ........................ 90 29,138 58,370 (29,138) 58,370
Northeast Utilities
8.38%, 3/01/05 (a) ........................ 10 -0- 9,841 -0- 9,841
PSEG Energy Holdings, Inc.
10.00%, 10/01/09 (a) ...................... 200 -0- 215,509 -0- 215,509
------------- ------------- ------------- -------------
355,578 1,027,795 (355,578) 1,027,795
------------- ------------- ------------- -------------
PUBLISHING - 0.2%
Quebecor Media, Inc.
11.125%, 7/15/11 (a)(b) ................... 90 29,442 60,075 (29,442) 60,075
------------- ------------- ------------- -------------
RETAIL - 1.3%
Jostens, Inc.
12.75%, 5/01/10 (a) ....................... 280 80,400 204,000 (80,400) 204,000
warrants, expiring 5/01/10 (b)(e) ......... 240 800 3,025 (800) 3,025
Rite Aid Corp.
11.25%, 7/01/08 (a)(b) .................... 140 40,350 101,375 (40,350) 101,375
Saks, Inc.
8.25%, 11/15/08 (a) ....................... 120 50,050 59,475 (50,050) 59,475
------------- ------------- ------------- -------------
171,600 367,875 (171,600) 367,875
------------- ------------- ------------- -------------
SERVICES - 3.9%
Allied Waste North America, Inc.
8.875%, 4/01/08 (a)(b) .................... 285 87,231 206,250 (87,231) 206,250
10.00%, 8/01/09 (a) ....................... 700 205,500 516,250 (205,500) 516,250
Avis Rent a Car, Inc.
11.00%, 5/01/09 (a) ....................... 250 -0- 280,313 -0- 280,313
Stewart Enterprises, Inc.
10.75%, 7/01/08 (a)(b) .................... 75 25,750 51,750 (25,750) 51,750
------------- ------------- ------------- -------------
318,481 1,054,563 (318,481) 1,054,563
------------- ------------- ------------- -------------
7
PORTFOLIO OF INVESTMENTS
PRO-FORMA COMBINED
(continued)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Combined
Shares or Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY - 1.5%
Fairchild Semiconductor Corp.
10.125%, 3/15/07 (a) ...................... $ 275 $ 120,000 $ 144,750 $ (120,000) $ 144,750
10.50%, 2/01/09 (a) ....................... 100 -0- 98,000 -0- 98,000
Filtronic Plc
10.00%, 12/01/05 (a) ...................... 275 52,688 141,500 (52,688) 141,500
------------- ------------- ------------- -------------
172,688 384,250 (172,688) 384,250
------------- ------------- ------------- -------------
Total Corporate Debt Obligations
(cost $20,644,185) ........................ 8,757,925 19,090,207 (8,757,925) 19,090,207
------------- ------------- ------------- -------------
SOVEREIGN DEBT OBLIGATION - 0.8%
United Mexican States
11.375%, 9/15/16
(cost $223,074) (a) ....................... 275 102,000 228,475 (102,000) 228,475
------------- ------------- ------------- -------------
PREFERRED STOCKS - 5.9%
CABLE - 2.1%
CSC Holdings, Inc. (f) ....................... 5,427 -0- 580,689 -0- 580,689
------------- ------------- ------------- -------------
COMMUNICATIONS - 1.1%
Global Crossing Holdings, Ltd.
10.50%, 6/01/02 (f) ....................... 7,000 115,000 288,750 (115,000) 288,750
------------- ------------- ------------- -------------
COMMUNICATIONS - FIXED - 0.9%
Intermedia Communication
13.50%, 3/31/09 (f) ....................... 356 11,400 242,299 (11,400) 242,299
XO Communications, Inc.
14.00%, 2/01/09 (f) ....................... 105 158 333 (158) 333
------------- ------------- ------------- -------------
11,558 242,632 (11,558) 242,632
------------- ------------- ------------- -------------
COMMUNICATIONS - MOBILE - 1.3%
Nextel Communications, Inc.
11.125%, 2/15/03 (f) ...................... 637 -0- 350,350 -0- 350,350
------------- ------------- ------------- -------------
FINANCIAL - 0.5%
Sovereign Real Estate Investor Trust
12.00%, 8/29/49 (a)(b)(f) ................. 215 84,575 130,000 (84,575) 130,000
------------- ------------- ------------- -------------
Total Preferred Stocks
(cost $1,928,926) ......................... 211,133 1,592,421 (211,133) 1,592,421
------------- ------------- ------------- -------------
SHORT-TERM INVESTMENTS - 18.8%
TIME DEPOSIT - 18.8%
State Street Euro Dollar
3.25%, 7/02/01
(amortized cost $5,128,000) ............... 5,128 -0- 5,128,000 -0- 5,128,000
------------- ------------- ------------- -------------
8
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Brinson Alliance
Principal High Income High Yield Pro-Forma
Amount Portfolio Portfolio Adjustments Combined (g)
(000) (Value) (Value) (Value) (Value)
---------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.0%
State Street Bank and Trust Co.
3.93%, dated 6/29/01, due 7/02/01
(cost $347,000; collateralized by
$360,000 U.S. Treasury Bills,
0.00%, 12/27/01, value $353,700;
proceeds $347,114) (cost $347,000) ........ $347 $ 347,000 $ -0- $ (347,000) $ -0-
------------- ------------- ------------- -------------
TOTAL INVESTMENTS - 95.6%
(cost $27,924,185) ........................ 9,418,058 26,039,103 (9,418,058) 26,039,103
Other assets less liabilities - 4.4% ......... 210,594 511,957 473,808 1,196,359
------------- ------------- ------------- -------------
NET ASSETS - 100% ............................ $ 9,628,652 $ 26,551,060 $ (8,944,250) $ 27,235,462
============= ============= ============= =============
----------
(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 15.2% 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.
(g) The pro-forma combined information is prepared based on merged net assets
net of the withdrawal of seed capital of $8,944,250 by Brinson before
consummation of the acquisition.
See note to financial statements.
9
STATEMENT OF ASSETS
AND LIABILITIES
June 30, 2001 (unaudited)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Brinson Alliance
High Income High-Yield Pro-Forma
Portfolio Portfolio Adjustments Combined (a)
============= ============= ============= =============
ASSETS
Investments in securities, at value
(cost $27,924,185) ............. $ 9,418,058 $ 26,039,103 $ (9,418,058) $ 26,039,103
Cash .............................. 938 581 -0- 1,519
Receivable for investment
securities sold ................ 344,666 106,126 473,808 924,600
Interest receivable ............... 247,398 573,779 -0- 821,177
Other assets ...................... 43 -0- -0- 43
------------- ------------- ------------- -------------
Total assets ...................... 10,011,103 26,719,589 (8,944,250) 27,786,442
------------- ------------- ------------- -------------
LIABILITIES
Payable for investment securities
purchased ...................... 345,827 115,016 -0- 460,843
Payable to affiliate .............. 4,069 -0- -0- 4,069
Advisory fee payable .............. -0- 14,460 -0- 14,460
Unrealized depreciation of
forward exchange currency
contracts ...................... -0- 414 -0- 414
Accrued expenses and other
liabilities .................... 32,555 38,639 -0- 71,194
------------- ------------- ------------- -------------
Total liabilities ................. 382,451 168,529 -0- 550,980
------------- ------------- ------------- -------------
NET ASSETS ........................... $ 9,628,652 $ 26,551,060 $ (8,944,250) $ 27,235,462
============= ============= ============= =============
Class H Shares Class A Shares Class A Shares
Net assets ........................ $ 9,628,652 $ 26,551,060 $ (8,944,250) $ 27,235,462
============= ============= ============= =============
Shares of capital stock
outstanding (b) ................ 1,141,511 3,579,858 (1,049,274) 3,672,095
============= ============= ============= =============
Net asset value per share ......... $ 8.44 $ 7.42 $ 7.42
============= ============= =============
----------
(a) The pro-forma combined information is prepared based on merged net assets
net of the withdrawal of seed capital of $8,944,250 by Brinson before
consummation of the acquisition.
(b) The Class H Shares of the High Income Portfolio has characteristics
substantially similar to Class A shares of the High-Yield Portfolio. Class
H and Class A shares are redeemed at the net asset value and do not pay
12b-1 fees.
See notes to financial statements.
10
STATEMENT OF OPERATIONS
Twelve Months Ended
June 30, 2001 (unaudited)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
Brinson Alliance
High Income High-Yield Pro-Forma
Portfolio Portfolio Adjustments Combined (a)
============= ============= ============= =============
INVESTMENT INCOME
Interest ....................... $ 1,121,796 $ 2,331,914 $ (1,043,270) $ 2,410,440
Dividends (net of foreign
withholding taxes of $196) .. 14,804 74,491 (13,768) 75,527
------------- ------------- ------------- -------------
Total investment income ........ 1,136,600 2,406,405 (1,057,038) 2,485,967
------------- ------------- ------------- -------------
EXPENSES
Advisory fee ................... 52,948 181,607 (47,577) 186,978 (a)
Audit and legal ................ 41,908 30,537 (41,337) 31,108 (b)
Printing ....................... 28,589 23,292 (28,105) 23,776 (b)
Custodian ...................... 7,231 67,467 (6,845) 67,853 (c)
Directors' fees ................ 7,500 1,268 (7,500) 1,268 (b)
Transfer agency ................ 1,500 932 (1,500) 932 (b)
Administrative ................. -0- 67,281 -0- 67,281 (b)
Miscellaneous .................. 7,947 520 (7,585) 882 (b)
------------- ------------- ------------- -------------
Total expenses ................. 147,623 372,904 (140,449) 380,078
Expenses waived and reimbursed . -0- (142,867) -0- (142,867)
------------- ------------- ------------- -------------
Net expenses ................... 147,623 230,037 (140,449) 237,211
------------- ------------- ------------- -------------
Net investment income .......... 988,977 2,176,368 (916,589) 2,248,756
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment
transactions ................ (1,554,834) (2,058,768) 1,445,996 (2,167,606)
Net realized gain (loss) on
foreign currency transactions (1,763) 2,868 1,640 2,745
Net change in unrealized
appreciation/depreciation of:
Investments ................. 593,075 1,164,869 (551,560) 1,206,384
Foreign currency denominated
assets and liabilities .... -0- (415) -0- (415)
------------- ------------- ------------- -------------
Net loss on investments and
foreign currency
transactions ................ (963,522) (891,446) 896,076 (958,892)
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ................ $ 25,455 $ 1,284,922 $ (20,513) $ 1,289,864
============= ============= ============= =============
----------
* The pro-forma combined information is prepared based on merged net assets
net of the withdrawal by Brinson of seed capital of $8,944,250 at the
beginning of the period on July 1, 2000.
(a) Advisory fee based on an annual rate of .75% of the total combined average
net assets for the twelve months ended June 30, 2001.
(b) Expenses are based on one fund.
(c) Custodian fees are based on monthly fixed fees and on average net assets.
See notes to financial statements.
11
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS
June 30, 2001 (unaudited)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
NOTE A: General
The Pro-Forma Financial Statements give effect to the proposed acquisition of
the assets of Brinson Series Trust - High Income Portfolio by Alliance Variable
Products Series Fund - High Yield Portfolio (the "Portfolio") pursuant to an
Agreement and Plan of Acquisition and Termination. The acquisition would be
accomplished by a tax-free exchange of the assets of Brinson Series Trust - High
Income Portfolio for shares of the Portfolio.
The unaudited Pro-Forma Portfolio of Investments, Statements of Assets and
Liabilities and of Operations have been prepared as though the acquisition had
been effective June 30, 2001 and should be read in conjunction with the
historical financial statements and schedules of investments of the Portfolio,
included in the Statement of Additional information. The Pro-Forma Statement of
Operations has been prepared under the assumption that certain expenses would be
lower for the combined entity as a result of the acquisition. The expense of the
acquisition, including the cost of proxy solicitation, will be borne by Alliance
Capital Management L.P.
--------------------------------------------------------------------------------
NOTE B: Significant Accounting Policies
The financial statements have been prepared in accordance 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.
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 prices 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 prices. 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 withholding 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 invest-
12
NOTES TO PRO-FORMA COMBINED
FINANCIAL STATEMENTS
(continued)
Brinson Series Trust--High Income Portfolio
Alliance Variable Products Series Fund--High Yield Portfolio
================================================================================
ment 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. Dividends and Distributions
The Portfolio declares and distributes dividend 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.
--------------------------------------------------------------------------------
NOTE C: 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.
For the twelve 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 twelve months ended June 30, 2001, such
waivers/reimbursements would amount to $142,867.
13
A Guide to the Portfolios' Financial Statements from each Acquiring Portfolio's
Semi-Annual Report, dated June 30, 2001, and from each Acquired Portfolio's
Semi-Annual Report, dated June 30, 2001.
The following pages constitute the financial statements of each Acquiring
Portfolio and each Acquired Portfolio.
o The Portfolio of Investments lists all of a Portfolio's investments and
their values as of the last day of the reporting period. Holdings are
organized by asset type and industry sector, country, or state to show
areas of concentration and diversification.
o The statement of assets and liabilities shows how a Portfolio's net
assets and share price are determined. All investment and noninvestment
assets are added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of shares
to determine the net asset value per share, which is calculated separately
for each class of shares.
o The statement of operations shows a Portfolio's net investment gain or
loss for the reporting period. This is determined by adding up all the
Portfolio's earnings -- from dividends and interest income -- and
subtracting its operating expenses. This statement also lists any net gain
or loss the Portfolio realized on the sales of its holdings and -- for
holdings that remain in the portfolio -- any change in unrealized gains or
losses over the period. Statement of changes in net assets shows how the
Portfolio's net assets were affected by distributions to shareholders and
by changes in the number of the Portfolio's shares. It lists distributions
and their sources (net investment income or realized capital gains) over
the current reporting period and the most recent fiscal year-end. The
distributions listed here may not match the sources listed in the
Statement of operations because the distributions are determined on a tax
basis and may be paid in a different period from the one in which they
were earned.
o The statement of changes and assets shows the increases and decreases in
a Portfolio's assets.
o The financial highlights provide an overview of the Portfolio's investment
results, per-share distributions, expense ratios, net investment income
ratios and portfolio turnover in one summary table, reflecting the five
most recent reporting periods and the current reporting period. A separate
table is provided for each share class.
ALLIANCE
------------------------------
VARIABLE PRODUCTS
------------------------------
SERIES FUND
------------------------------
TOTAL RETURN PORTFOLIO
------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
TOTAL RETURN PORTFOLIO
TEN LARGEST HOLDINGS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
--------------------------------------------------------------------------------
U.S. $ VALUE PERCENT OF NET ASSETS
--------------------------------------------------------------------------------
U.S. Treasury Notes $ 19,272,737 13.0%
--------------------------------------------------------------------------------
Federal National Mortgage Assoc. 11,254,929 7.6
--------------------------------------------------------------------------------
U.S. Treasury Bonds 4,904,801 3.3
--------------------------------------------------------------------------------
AT&T Corp. 4,664,527 3.1
--------------------------------------------------------------------------------
Citigroup, Inc. 3,963,000 2.6
--------------------------------------------------------------------------------
Tyco International, Ltd. 3,815,000 2.6
--------------------------------------------------------------------------------
Household International, Inc. 3,568,450 2.4
--------------------------------------------------------------------------------
Philip Morris Cos., Inc. 3,552,500 2.4
--------------------------------------------------------------------------------
Kroger Co. 3,375,000 2.3
--------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 3,345,000 2.2
--------------------------------------------------------------------------------
$ 61,715,944 41.5%
--------------------------------------------------------------------------------
1
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
COMMON STOCKS - 61.7%
FINANCE - 15.4%
BANKING - MONEY CENTERS - 2.3%
J.P. Morgan Chase & Co. ...................... 75,000 $ 3,345,000
-----------
BANKS - REGIONAL - 5.4%
Bank of America Corp. ........................ 45,000 2,701,350
Bank One Corp. ............................... 80,000 2,864,000
KeyCorp. ..................................... 65,000 1,693,250
National City Corp. .......................... 25,000 769,500
-----------
8,028,100
-----------
INSURANCE - 1.6%
ACE, Ltd. .................................... 20,000 781,800
PMI Group, Inc. .............................. 11,000 788,260
XL Capital, Ltd. Cl.A ........................ 10,000 821,000
-----------
2,391,060
-----------
SAVINGS AND LOAN - 0.5%
Washington Mutual, Inc. ...................... 18,500 694,675
-----------
MISCELLANEOUS - 5.6%
Citigroup, Inc. .............................. 75,000 3,963,000
Household International, Inc. ................ 53,500 3,568,450
MBNA Corp. ................................... 25,000 823,750
-----------
8,355,200
-----------
22,814,035
-----------
CONSUMER STAPLES - 8.6%
BEVERAGES - 2.1%
Anheuser Busch Cos., Inc. .................... 55,000 2,266,000
The Pepsi Bottling Group,
Inc. ...................................... 20,000 802,000
-----------
3,068,000
-----------
COSMETICS - 1.5%
Avon Products, Inc. .......................... 50,000 2,314,000
-----------
HOUSEHOLD PRODUCTS - 0.3%
Colgate-Palmolive Co. ........................ 8,500 501,415
-----------
RETAIL - FOOD & DRUG - 2.3%
Kroger Co. (a) ............................... 135,000 3,375,000
-----------
TOBACCO - 2.4%
Philip Morris Cos., Inc. ..................... 70,000 3,552,500
-----------
12,810,915
-----------
ENERGY - 7.6%
DOMESTIC INTEGRATED - 1.0%
Kerr-McGee Corp. ............................. 21,500 1,424,805
-----------
INTERNATIONAL - 2.8%
BP Plc (ADR)
(United Kingdom) .......................... 50,000 2,492,500
Chevron Corp. ................................ 8,500 769,250
Exxon Mobil Corp. ............................ 10,000 873,500
-----------
4,135,250
-----------
OIL SERVICE - 1.9%
Baker Hughes, Inc. ........................... 30,000 1,005,000
Noble Drilling Corp. (a) ..................... 27,500 900,625
Transocean Sedco Forex, Inc. ................. 22,500 928,125
-----------
2,833,750
-----------
MISCELLANEOUS - 1.9%
Dynegy, Inc. ................................. 62,500 2,906,250
-----------
11,300,055
-----------
HEALTH CARE - 5.8%
DRUGS - 1.9%
Pharmacia Corp. .............................. 62,500 2,871,875
-----------
MEDICAL PRODUCTS - 1.8%
Abbott Laboratories .......................... 16,000 768,160
Guidant Corp. (a) ............................ 7,500 270,000
Johnson & Johnson ............................ 32,500 1,625,000
-----------
2,663,160
-----------
MEDICAL SERVICES - 2.1%
IMS Health, Inc. ............................. 26,000 741,000
Tenet Healthcare Corp. ....................... 45,000 2,321,550
-----------
3,062,550
-----------
8,597,585
-----------
CONSUMER SERVICES - 5.7%
AIRLINES - 1.8%
AMR Corp. .................................... 40,000 1,445,200
Continental Airlines, Inc.
Cl.B (a) .................................. 25,000 1,231,250
-----------
2,676,450
-----------
BROADCASTING & CABLE - 2.8%
AT&T Corp. - Liberty Media
Group Cl.A (a) ............................ 50,000 874,500
Comcast Corp. Cl.A (a) ....................... 75,000 3,255,000
-----------
4,129,500
-----------
ENTERTAINMENT &
LEISURE - 0.7%
Royal Caribbean Cruises,
Ltd. ...................................... 15,000 331,650
Walt Disney Co. .............................. 25,000 722,250
-----------
1,053,900
-----------
RETAIL - GENERAL
MERCHANDISE - 0.4%
Limited, Inc. ................................ 40,000 660,800
-----------
8,520,650
-----------
UTILITIES - 5.6%
ELECTRIC & GAS
UTILITIES - 1.7%
AES Corp. (a) ................................ 17,500 753,375
Duke Energy Corp. ............................ 13,500 526,635
FirstEnergy Corp. ............................ 20,000 643,200
FPL Group, Inc. .............................. 10,000 602,100
-----------
2,525,310
-----------
TELEPHONE UTILITIES - 3.9%
AT&T Corp. ................................... 127,500 2,805,000
BellSouth Corp. .............................. 17,500 704,725
SBC Communications, Inc. ..................... 40,000 1,602,400
Sprint Corp. ................................. 17,500 373,800
2
Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
WorldCom, Inc. ............................... 17,500 $ 248,500
WorldCom, Inc. - MCI Group ................... 700 11,270
-----------
5,745,695
-----------
8,271,005
-----------
TECHNOLOGY - 5.1%
COMPUTER SERVICES - 1.1%
Electronic Data Systems
Corp. ..................................... 12,500 781,250
First Data Corp. ............................. 12,500 803,125
-----------
1,584,375
-----------
CONTRACT
MANUFACTURING - 1.8%
Flextronics International, Ltd.
(Singapore) (a) ........................... 50,000 1,305,500
Sanmina Corp. (a) ............................ 40,000 936,400
Solectron Corp. (a) .......................... 20,000 366,000
-----------
2,607,900
-----------
SEMI-CONDUCTOR
COMPONENTS - 1.8%
Fairchild Semiconductor
Corp. (a) ................................. 25,000 575,000
Micron Technology, Inc. (a) .................. 52,500 2,157,750
-----------
2,732,750
-----------
SOFTWARE - 0.4%
Amdocs, Ltd. (Guerensey) (a) ................. 12,500 673,125
-----------
7,598,150
-----------
MULTI-INDUSTRY
COMPANIES - 3.4%
Honeywell International, Inc. ................ 36,000 1,259,640
Tyco International, Ltd. ..................... 70,000 3,815,000
-----------
5,074,640
-----------
CAPITAL GOODS - 2.2%
MISCELLANEOUS - 2.2%
General Electric Co. ......................... 15,000 731,250
United Technologies Corp. .................... 35,000 2,564,100
-----------
3,295,350
-----------
BASIC INDUSTRIES - 1.8%
CHEMICALS - 1.5%
E.I. du Pont de Nemours &
Co. ....................................... 17,500 844,200
Eastman Chemical Co. ......................... 7,000 333,410
Lyondell Chemical Co. ........................ 50,000 769,000
Solutia, Inc. ................................ 25,000 318,750
-----------
2,265,360
-----------
MINING & METALS - 0.3%
Alcoa, Inc. .................................. 11,500 453,100
-----------
2,718,460
-----------
AUTOS & TRANSPORTATION - 0.5%
RAILROAD - 0.5%
Union Pacific Corp. .......................... 14,000 768,740
-----------
Total Common Stocks
(cost $82,294,377) ........................ 91,769,585
-----------
Principal
Amount
Company (000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS - 23.8%
Federal National Mortgage Assoc
5.50%, 3/15/11 ............................ $ 2,500 $ 2,385,257
6.00%, 12/15/05 ........................... 1,000 1,019,840
6.625%, 10/15/07 .......................... 2,250 2,350,193
6.75%, 8/15/02 ............................ 5,350 5,499,639
U.S. Treasury Bonds
6.25%, 8/15/23 ............................ 1,400 1,456,868
6.875%, 8/15/25 ........................... 1,615 1,810,561
8.125%, 8/15/19 ........................... 1,315 1,637,372
U.S. Treasury Notes
5.00%, 2/15/11 ............................ 7,000 6,791,050
5.625%, 5/15/08 ........................... 800 831,496
5.75%, 8/15/10 ............................ 725 741,784
6.125%, 8/31/02 ........................... 1,500 1,535,625
6.25%, 2/15/07 ............................ 4,600 4,854,058
6.50%, 10/15/06 (b) ....................... 250 266,230
6.875%, 5/15/06 ........................... 1,750 1,887,270
7.25%, 5/15/04 ............................ 1,600 1,712,256
7.50%, 2/15/05 ............................ 600 652,968
-----------
Total U.S. Government & Agency
Obligations
(cost $35,259,875) ........................ 35,432,467
-----------
CORPORATE DEBT
OBLIGATIONS - 11.1%
AEROSPACE & DEFENSE - 0.2%
Northrop Grumman Corp.
7.125%, 2/15/11 (c) .......................... 175 173,145
Raytheon Co.
8.20%, 3/01/06 ............................... 100 103,820
-----------
276,965
-----------
AUTOMOTIVE - 0.0%
Federal Mogul Corp.
7.875%, 7/01/10 ............................ 100 15,000
-----------
BANKING - 2.0%
Bank One Corp.
7.875%, 8/01/10 ........................... 150 160,794
BBVA Bancomer Capital Trust
10.50%, 2/16/11 (c) ....................... 150 165,750
Cho Hung Bank Co., Ltd.
11.875%, 4/01/10 (c) ...................... 80 83,144
Citicorp
6.375%, 11/15/08 .......................... 500 494,905
First Massachusetts Bank
7.625%, 6/15/11 ........................... 200 197,907
First Union Capital II
7.95%, 11/15/29 ........................... 150 153,837
First Union National Bank
7.80%, 8/18/10 ............................ 350 375,446
Hanvit Bank
12.75%, 3/01/10 (c) ....................... 200 215,000
HSBC Capital Funding LP
9.547%, 12/31/49 (c)(d) .................. 200 226,429
10.176%, 6/30/30 (c) ...................... 200 247,853
Sanwa Bank, Ltd.
7.40%, 6/15/11 ............................ 400 386,425
3
TOTAL RETURN PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
Principal
Amount
Company (000) U.S. $ Value
--------------------------------------------------------------------------------
Unicredito Italiano Capital Trust
9.20%, 10/05/10 (c) ....................... $ 150 $ 163,119
Zions Financial Corp.
6.95%, 5/15/06 (c) ........................ 150 150,196
-----------
3,020,805
-----------
BROADCASTING/MEDIA - 0.5%
AT&T Corp. - Liberty Media Corp.
8.25%, 2/01/30 ............................ 250 215,492
Clear Channel Communications,
Inc
7.875%, 6/15/05 ........................... 150 157,680
Liberty Media Corp.
7.875%, 7/15/09 ........................... 125 120,050
PRIMEDIA, Inc.
8.875%, 5/15/11 (c) ....................... 200 186,000
-----------
679,222
-----------
BUILDING/REAL ESTATE - 0.1%
Meritage Corp.
9.75%, 6/01/11 (c) ........................ 100 100,000
-----------
CABLE - 0.3%
Charter Communications
Holdings, Inc.
10.00%, 5/15/11 (c) ....................... 200 204,000
Cox Communications, Inc.
7.75%, 11/01/10 ........................... 150 156,903
Shaw Communications, Inc.
8.25%, 4/11/10 ............................ 150 157,902
-----------
518,805
-----------
CHEMICALS - 0.1%
Lyondell Chemical Co.
9.875%, 5/01/07 ........................... 150 149,250
-----------
COMMUNICATIONS - 1.4%
AT&T Canada, Inc.
7.65%, 9/15/06 ............................ 200 197,873
British Telecommunications Plc
1.00%, 12/15/10 ........................... 650 691,614
Global TeleSystems, Inc.
11.00%, 12/01/09 (a)(b) .................. 100 13,136
Paramount Communications, Inc.
7.50%, 7/15/23 ............................ 300 286,851
Qwest Capital Funding, Inc.
7.90%, 8/15/10 ............................ 150 155,216
Sprint Capital Corp.
6.875%, 11/15/28 .......................... 300 255,439
7.625%, 1/30/11 ........................... 300 298,165
Tritel PCS, Inc.
10.375%, 1/15/11 .......................... 150 138,000
-----------
2,036,294
-----------
COMMUNICATIONS - MOBILE - 0.5%
AT&T Wireless Services, Inc.
7.875%, 3/01/11 (c) ....................... 450 451,612
Nextel Communications, Inc.
9.375%, 11/15/09 .......................... 250 198,750
TELUS Corp.
7.50%, 6/01/07 ............................ 150 153,292
-----------
803,654
-----------
ENERGY - 0.4%
Apache Finance PTY, Ltd.
6.50%, 12/15/07 ........................... 250 250,930
Conoco, Inc.
5.90%, 4/15/04 ............................ 150 151,937
Union Pacific Resources
Group, Inc.
7.30%, 4/15/09 ............................ 150 154,348
-----------
557,215
-----------
FINANCIAL - 1.5%
Capital One Bank
6.875%, 2/01/06 ........................... 500 488,575
Ford Motor Credit Co.
6.875%, 2/01/06 ........................... 50 50,704
7.60%, 8/01/05 ............................ 100 104,403
7.875%, 6/15/10 ........................... 100 104,442
Goldman Sachs Group, Inc.
6.65%, 5/15/09 ............................ 200 199,016
Household Finance Corp.
6.50%, 1/24/06 ............................ 75 76,086
7.875%, 3/01/07 ........................... 150 160,363
Lehman Brothers Holdings, Inc.
7.875%, 8/15/10 ........................... 150 158,302
Merrill Lynch & Co., Inc.
6.00%, 2/17/09 ............................ 500 483,148
PXRE Capital Trust I
8.85%, 2/01/27 ............................ 250 171,945
Washington Mutual Finance Corp.
8.25%, 6/15/05 ............................ 250 268,183
-----------
2,265,167
-----------
FOOD/BEVERAGE - 0.3%
Fosters Finance Corp.
6.875%, 6/15/11 (c) ....................... 200 198,542
Kellogg Co.
6.60%, 4/01/11 (c) ........................ 250 244,732
-----------
443,274
-----------
GAMING - 0.1%
Choctaw Resort Development
9.25%, 4/01/09 (c) ........................ 200 205,000
-----------
HEALTH CARE - 0.2%
HCA-The Healthcare Co.
7.875%, 2/01/11 ........................... 150 151,539
Tenet Healthcare Corp.
8.00%, 1/15/05 ............................ 150 154,688
-----------
306,227
-----------
INDUSTRIAL - 0.5%
Continental Cablevision, Inc.
9.00%, 9/01/08 ............................ 300 334,293
Deere & Co.
7.85%, 5/15/10 ............................ 150 160,866
Yosemite Security Trust I
8.25%, 11/15/04 (c) ....................... 200 206,352
-----------
701,511
-----------
4
Alliance Variable Products Series Fund
================================================================================
Principal
Amount
Company (000) U.S. $ Value
--------------------------------------------------------------------------------
INSURANCE - 0.1%
Markel Capital Trust I
8.71%, 1/01/46 ............................ $ 200 $ 157,213
------------
NON-AIR
TRANSPORTATION - 0.7%
CSX Corp.
6.75%, 3/15/11 ............................ 250 245,708
Union Pacific Corp.
6.625%, 2/01/29 ........................... 800 720,462
------------
966,170
------------
PAPER/PACKAGING - 0.4%
Abitibi-Consolidated, Inc.
8.55%, 8/01/10 ............................ 500 525,039
------------
PUBLIC UTILITIES -
ELECTRIC & GAS - 1.2%
Calpine Corp.
8.50%, 2/15/11 ............................ 100 96,500
Dominion Resources Capital Trust III
8.40%, 1/15/31 ............................ 150 154,416
Dominion Resources, Inc.
8.125%, 6/15/10 ........................... 150 161,807
DPL, Inc.
8.25%, 3/01/07 ............................ 500 529,726
Nevada Power Co.
8.25%, 6/01/11 (c) ........................ 200 204,625
Progress Energy, Inc.
7.10%, 3/01/11 ............................ 325 329,721
PSEG Energy Holdings, Inc.
10.00%, 10/01/09 .......................... 150 161,631
Yorkshire Power
8.25%, 2/15/05 (c) ........................ 150 161,146
------------
1,799,572
------------
RETAIL - 0.2%
J.C. Penney Co., Inc.
7.60%, 4/01/07 ............................ 100 93,627
K Mart Funding Corp.
9.44%, 7/01/18 ............................ 150 129,268
Kohl's Corp.
7.25%, 6/01/29 ............................ 150 148,379
------------
371,274
------------
SOVEREIGN - 0.1%
Quebec Province of Canada
7.50%, 9/15/29 ............................ 150 159,193
------------
SUPERMARKET / DRUG - 0.2%
Delhaize America, Inc.
9.00%, 4/15/31 (c) ........................ 250 272,681
------------
TECHNOLOGY - 0.1%
Marconi Corp.
7.75%, 9/15/10 ............................ 100 90,137
Motorola, Inc.
7.625%, 11/15/10 .......................... 25 23,743
------------
113,880
------------
Total Corporate Debt Obligations
(cost $16,327,636) ........................ 16,443,411
------------
PREFERRED STOCK - 0.1%
BOND AND NOTE - 0.1%
Sovereign Real Estate Investor
Trust (c)
(cost $77,880) ............................ 90,000 90,000
------------
YANKEE BOND - 0.1%
Deutsche Bank Capital,
7.872%, 12/29/49 (c)
(cost $100,000) ........................... 100 102,691
------------
SHORT-TERM
INVESTMENT - 3.7%
TIME DEPOSIT - 3.7%
State Street Euro Dollar
3.25%, 7/02/01
(amortized cost
$5,565,000) ............................... 5,565 5,565,000
------------
TOTAL
INVESTMENTS - 100.5%
(cost $139,624,768) ....................... 149,403,154
Other assets less
liabilities - (0.5%) ...................... (773,891)
------------
NET ASSETS - 100% ............................ $148,629,263
============
--------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Securities, or portion thereof, with an aggregate market value of $279,366
have been segregated to collateralize forward exchange currency contracts.
(c) 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
$4,052,017 or 2.73% of net assets.
(d) Variable rate coupon, rate shown as of June 30, 2001.
Glossary:
ADR - American Depositary Receipt.
See Notes to Financial Statements.
5
TOTAL RETURN PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $139,624,768) ....... $149,403,154
Cash .......................................................... 431
Collateral held for securities loaned ......................... 10,073,750
Dividends and interest receivable ............................. 1,113,157
Receivable for investment securities sold ..................... 227,303
Unrealized appreciation of forward exchange currency contracts 708
------------
Total assets .................................................. 160,818,503
------------
LIABILITIES
Payable for investment securities purchased ................... 1,979,554
Payable for collateral received on securities loaned .......... 10,073,750
Advisory fee payable .......................................... 75,887
Accrued expenses .............................................. 60,049
------------
Total liabilities ............................................. 12,189,240
------------
NET ASSETS ....................................................... $148,629,263
============
COMPOSITION OF NET ASSETS
Capital stock, at par ......................................... $ 8,259
Additional paid-in capital .................................... 136,908,731
Undistributed net investment income ........................... 1,435,829
Accumulated net realized gain on investments .................. 497,350
Net unrealized appreciation of investments and foreign currency
denominated assets and liabilities .......................... 9,779,094
------------
$148,629,263
============
Class A Shares
Net assets .................................................... $148,629,263
============
Shares of capital stock outstanding ........................... 8,259,282
============
Net asset value per share ..................................... $ 18.00
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
TOTAL RETURN PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Interest .................................................... $ 1,442,637
Dividends (net of foreign taxes withheld of $10,622) ........ 513,157
-----------
Total investment income ..................................... 1,955,794
-----------
EXPENSES
Advisory fee ................................................ 390,023
Custodian ................................................... 44,008
Administrative .............................................. 31,325
Audit and legal ............................................. 16,903
Printing .................................................... 15,904
Directors' fees ............................................. 490
Transfer agency ............................................. 437
Miscellaneous ............................................... 2,292
-----------
Total expenses .............................................. 501,382
-----------
Net investment income ....................................... 1,454,412
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ................ 1,175,433
Net realized loss on foreign currency transactions .......... (1,007)
Net change in unrealized appreciation/depreciation of:
Investments ............................................... 2,713,798
Foreign currency denominated assets and liabilities ....... 5,409
-----------
Net gain on investments and foreign currency transactions ... 3,893,633
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ..................... $ 5,348,045
===========
--------------------------------------------------------------------------------
See Notes to Financial Statements.
7
TOTAL RETURN 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 IN NET ASSETS FROM OPERATIONS
Net investment income ............................................$ 1,454,412 $ 2,210,946
Net realized gain on investments and
foreign currency transactions 1,174,426 3,318,416
Net change in unrealized appreciation/depreciation
of investments and foreign currency denominated
assets and liabilities ........ 2,719,207 4,102,738
------------- ------------
Net increase in net assets from operations ....................... 5,348,045 9,632,100
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ........................................................ (2,234,141) (1,673,146)
Net realized gain on investments
Class A ........................................................ (3,931,155) (5,117,607)
CAPITAL STOCK TRANSACTIONS
Net increase ..................................................... 58,710,350 12,725,214
------------- ------------
Total increase ................................................... 57,893,099 15,566,561
NET ASSETS
Beginning of period .............................................. 90,736,164 75,169,603
------------- ------------
End of period (including undistributed net investment income of
$1,435,829 and $2,215,558, respectively) .......................$ 148,629,263 $ 90,736,164
============= ============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
8
TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The Total Return Portfolio (the "Portfolio") is a series of Alliance Variable
Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is
to seek to achieve a high return through a combination of current income and
capital appreciation. 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. 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
9
TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
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.
6. 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 interest in the portfolio represented by the net
assets of such class, except that the portfolio's Class B shares bear the
distribution fees.
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 $129,734 reduction
in cost of investments and a corresponding $129,734 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 $22,757, increase net unrealized appreciation
(depreciation) by $21,120, and increase net realized gains (losses) by $1,637.
The statement of changes in net assets and financial highlights for prior
periods have not been restated to reflect the 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 .625% of the Portfolio's average daily net assets.
Pursuant to the advisory agreement, the Portfolio paid $31,325 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2001.
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, the
Portfolio received no such waivers/reimbursements.
Broker commissions paid on investment transactions for the six months ended June
30, 2001 amounted to $130,431, none of which was paid to Sanford C. Bernstein &
Co. LLC, an affiliate of the Adviser.
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
10
Alliance Variable Products Series Fund
================================================================================
accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of the Portfolio's shares.
--------------------------------------------------------------------------------
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 ............................. $80,673,032
U.S. government and agencies ............................ 15,877,908
Sales:
Stocks and debt obligations ............................. $40,434,347
U.S. government and agencies ............................ 3,776,164
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
(excluding foreign currency transactions) are as follows:
Gross unrealized appreciation .......................... $ 12,947,577
Gross unrealized depreciation .......................... (3,169,191)
------------
Net unrealized appreciation ............................ $ 9,778,386
============
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 foreign currency losses of $5,496 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 an outstanding forward exchange currency
contract as follows:
Contract U.S. $ Value on U.S. $
Amount Origination Current Unrealized
(000) Date Value Appreciation
================ ================ ================ ================
Foreign Currency Sale Contract
Euro, settling 7/11/01............ 51 $ 43,918 $ 43,210 $ 708
==========
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.
11
TOTAL RETURN PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
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: Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had loaned securities with a value of
$9,714,304 and received cash collateral of $10,073,750. For the six months ended
June 30, 2001, the Portfolio received fee income $27,192 which is included in
interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: 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.............. 3,254,417 1,071,089 $ 59,415,205 $ 18,551,854
Shares issued in
reinvestment of
dividends and
distributions.......... 339,125 395,732 6,165,296 6,790,753
Shares redeemed.......... (373,511) (724,311) (6,870,151) (12,617,393)
-------------- -------------- -------------- --------------
Net increase............. 3,220,031 742,510 $ 58,710,350 $ 12,725,214
============== ============== ============== ==============
--------------------------------------------------------------------------------
NOTE G: 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.
12
Alliance Variable Products Series Fund
================================================================================
NOTE H: 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.
13
TOTAL RETURN PORTFOLIO
FINANCIAL HIGHLIGHTS
Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
Six Months
Ended
June 30, Year Ended December 31,
2001(a) =============================================================
(unaudited) 2000 1999 1998 1997 1996
=========== ====== ====== ====== ====== ======
Net asset value,
beginning of period $18.01 $17.49 $18.06 $16.92 $14.63 $12.80
------ ------ ------ ------ ------ ------
Income From Investment Operations
Net investment income (b) .21 .48 .44 .41(c) .39(c) .27(c)
Net realized and unrealized gain
on investments and foreign
currency transactions .58 1.63 .70 2.36 2.62 1.66
------ ------ ------ ------ ------ ------
Net increase in net asset value
from operations .79 2.11 1.14 2.77 3.01 1.93
------ ------ ------ ------ ------ ------
Less: Dividends and Distributions
Dividends from net
investment income (.29) (.39) (.36) (.29) (.23) (.07)
Distributions from net
realized gains (.51) (1.20) (1.35) (1.34) (.49) (.03)
------ ------ ------ ------ ------ ------
Total dividends and
distributions (.80) (1.59) (1.71) (1.63) (.72) (.10)
------ ------ ------ ------ ------ ------
Net asset value,
end of period $18.00 $18.01 $17.49 $18.06 $16.92 $14.63
====== ====== ====== ====== ====== ======
Total Return
Total investment return based on
net asset value (d) 4.30% 12.52% 6.53% 16.99% 21.11% 15.17%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) $148,629 $90,736 $75,170 $59,464 $42,920 $25,875
Ratio to average net assets of:
Expenses, net of waivers
and reimbursements .80%(e) .87% .86% .88% .88% .95%
Expenses, before waivers
and reimbursements .80%(e) .87% .86% .95% .88% 1.12%
Net investment income 2.33%(e) 2.77% 2.48% 2.41%(c) 2.46%(c) 2.76%(c)
Portfolio turnover rate 37% 102% 91% 57% 65% 57%
--------------------------------------------------------------------------------
(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 $.02, increase net realized and unrealized
gains and losses per share by $.02, and decrease the ratio of net
investment income to average net assets from 2.58% to 2.33%. Per share,
ratios and supplemental data for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(b) Based on average shares outstanding.
(c) Net of expenses reimbursed or waived by the Adviser.
(d) 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.
(e) Annualized.
14
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.
ALLIANCE
-------------------------------
VARIABLE PRODUCTS
-------------------------------
SERIES FUND
-------------------------------
INTERNATIONAL PORTFOLIO
-------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
INTERNATIONAL PORTFOLIO
TEN LARGEST HOLDINGS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
--------------------------------------------------------------------------------
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
--------------------------------------------------------------------------------
Canon, Inc. $ 2,343,998 3.6%
--------------------------------------------------------------------------------
Takeda Chemical Industries, Ltd. 2,325,395 3.5
--------------------------------------------------------------------------------
BNP Paribas, SA 2,273,776 3.4
--------------------------------------------------------------------------------
Sanofi-Synthelabo, SA 2,255,360 3.4
--------------------------------------------------------------------------------
CGNU Plc 2,152,678 3.3
--------------------------------------------------------------------------------
AstraZeneca Group Plc 2,141,555 3.2
--------------------------------------------------------------------------------
Banco Bilbao Vizcaya Argentaria, SA 2,087,384 3.2
--------------------------------------------------------------------------------
Vodafone Group Plc 2,036,510 3.1
--------------------------------------------------------------------------------
Royal Bank of Scotland Group Plc 2,023,641 3.1
--------------------------------------------------------------------------------
BP Plc 2,006,843 3.0
--------------------------------------------------------------------------------
$ 21,647,140 32.8%
--------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
June 30, 2001 (unaudited)
================================================================================
--------------------------------------------------------------------------------
SECTOR U.S. $ VALUE PERCENT OF NET ASSETS
--------------------------------------------------------------------------------
Basic Industries $ 1,579,184 2.4%
--------------------------------------------------------------------------------
Capital Goods 1,588,044 2.4
--------------------------------------------------------------------------------
Consumer Manufacturing 2,092,070 3.2
--------------------------------------------------------------------------------
Consumer Services 11,173,363 16.9
--------------------------------------------------------------------------------
Consumer Staples 6,923,828 10.5
--------------------------------------------------------------------------------
Energy 3,284,193 5.0
--------------------------------------------------------------------------------
Finance 17,986,154 27.2
--------------------------------------------------------------------------------
Healthcare 7,290,308 11.0
--------------------------------------------------------------------------------
Multi Industry 925,774 1.4
--------------------------------------------------------------------------------
Technology 11,602,240 17.6
--------------------------------------------------------------------------------
Utilities 1,341,087 2.0
--------------------------------------------------------------------------------
Total Investments* 65,786,245 99.6
--------------------------------------------------------------------------------
Cash and receivables, net of liabilities 269,110 0.4
--------------------------------------------------------------------------------
Net Assets $ 66,055,355 100.0%
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
* Excludes short-term obligations.
1
INTERNATIONAL PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
-------------------------------------------------------------
COMMON STOCKS-99.6%
AUSTRALIA-1.1%
News Corp., Ltd. (ADR)......... 20,400 $ 757,860
--------------
FINLAND-2.1%
Nokia AB Corp. ................ 60,900 1,381,591
--------------
FRANCE-15.5%
Alcatel, SA Cl.A............... 30,000 627,960
BNP Paribas, SA................ 26,100 2,273,776
Carrefour, SA.................. 31,100 1,647,230
L' Oreal, SA................... 15,500 1,001,580
LVMH Moet Hennessy
Louis Vuitton............... 6,000 302,540
Orange, SA (a)................. 32,900 267,659
Sanofi-Synthelabo, SA.......... 34,340 2,255,360
STMicroelectronics NV.......... 22,600 785,247
TotalFinaElf, SA Cl.B.......... 7,720 1,082,098
--------------
10,243,450
--------------
GERMANY-1.0%
SAP AG......................... 4,600 638,965
--------------
HONG KONG-4.5%
Cheung Kong Holdings, Ltd. .... 66,000 719,249
China Mobile (Hong Kong),
Ltd. (a).................... 128,000 674,479
Citic Pacific, Ltd. ........... 299,000 925,774
Li & Fung, Ltd. ............... 400,000 656,427
--------------
2,975,929
--------------
IRELAND-2.6%
CRH Plc........................ 99,750 1,696,592
--------------
ITALY-4.1%
Alleanza Assicurazioni......... 182,600 1,928,114
ENI SpA........................ 16,000 195,252
San Paolo - IMI SpA............ 48,000 615,859
--------------
2,739,225
--------------
JAPAN-26.2%
Bank of Fukuoka, Ltd. ......... 181,000 812,766
Banyu Pharmaceutical Co., Ltd. 31,000 567,998
Canon, Inc. ................... 58,000 2,343,998
Hitachi, Ltd. ................. 38,000 373,266
Honda Motor Co., Ltd. ......... 9,000 395,478
Hoya Corp. .................... 18,000 1,140,245
Kao Corp. ..................... 73,000 1,814,610
Keyence Corp. ................. 2,000 396,921
NEC Corp. ..................... 76,000 1,026,862
Nomura Securities Co., Ltd. ... 50,000 958,223
NTT Docomo, Inc. .............. 93 1,618,234
Shin-Etsu Chemical Co., Ltd. .. 43,000 1,579,184
SMC Corp. ..................... 4,000 428,193
Sumitomo Trust & Banking Co.,
Ltd. ....................... 241,000 1,516,999
Takeda Chemical Industries,
Ltd. ....................... 50,000 2,325,395
--------------
17,298,372
--------------
MEXICO-0.2%
Grupo Televisa, SA (ADR) (a)... 3,400 136,034
--------------
NETHERLANDS-2.0%
ASM Lithography Holding
NV (a)...................... 43,400 974,284
United Pan-Europe
Communications NV
Series A (a)................ 135,614 344,778
--------------
1,319,062
--------------
SINGAPORE-0.7%
Flextronics International,
Ltd. (a).................... 17,800 464,758
--------------
SOUTH KOREA-2.6%
Samsung Electronics Co., Ltd. . 6,520 962,584
SK Telecom Co., Ltd. (ADR)..... 45,250 764,725
--------------
1,727,309
--------------
SPAIN-4.0%
Banco Bilbao Vizcaya Argentaria,
SA ......................... 161,200 2,087,384
Telefonica, SA................. 43,000 530,571
--------------
2,617,955
--------------
SWEDEN-3.4%
Atlas Copco AB Series A........ 58,520 1,159,851
Skandia Forsakrings AB......... 116,600 1,072,381
--------------
2,232,232
--------------
SWITZERLAND-0.7%
Credit Suisse Group............ 3,000 493,460
--------------
TAIWAN-0.6%
Taiwan Semiconductor
Manufacturing Co., Ltd. .... 139,776 259,822
(ADR)....................... 7,980 121,216
--------------
381,038
--------------
UNITED KINGDOM-28.3%
AstraZeneca Group Plc.......... 45,900 2,141,555
BP Plc......................... 243,800 2,006,843
British Sky Broadcasting Group
Plc (a)..................... 179,910 1,733,032
Centrica Plc................... 191,000 611,269
CGNU Plc....................... 155,500 2,152,678
Diageo Plc..................... 145,800 1,601,575
Dixons Group Plc............... 184,557 605,594
Logica Plc..................... 8,600 104,521
National Grid Group Plc........ 27,000 199,247
Reuters Group Plc.............. 121,400 1,578,031
Royal Bank of Scotland Group
Plc......................... 91,700 2,023,641
Standard Chartered Plc......... 103,793 1,331,624
Tesco Plc...................... 154,000 556,293
Vodafone Group Plc............. 918,144 2,036,510
--------------
2
Alliance Variable Products Series Fund
================================================================================
U.S. $ Value
-------------------------------------------------------------
18,682,413
--------------
TOTAL INVESTMENTS-99.6%
(cost $73,861,916).......... $ 65,786,245
Other assets less liabilities-0.4% 269,110
--------------
NET ASSETS-100%................ $ 66,055,355
==============
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See Notes to Financial Statements.
3
INTERNATIONAL PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $73,861,916) ....................... $ 65,786,245
Cash ......................................................................... 15,286
Foreign cash, at value (cost $238,097) ....................................... 238,229
Collateral held for securities loaned ........................................ 455,000
Dividends and interest receivable ............................................ 106,360
------------
Total assets ................................................................. 66,601,120
------------
LIABILITIES
Payable for collateral received on securities loaned ......................... 455,000
Advisory fee payable ......................................................... 35,465
Accrued expenses ............................................................. 55,300
------------
Total liabilities ............................................................ 545,765
------------
NET ASSETS ...................................................................... $ 66,055,355
============
COMPOSITION OF NET ASSETS
Capital stock, at par ........................................................ $ 5,353
Additional paid-in capital ................................................... 78,297,404
Undistributed net investment income .......................................... 197,410
Accumulated net realized loss on investments and foreign currency transactions (4,363,338)
Net unrealized depreciation of investments and foreign currency denominated
assets and liabilities .................................................... (8,081,474)
------------
$ 66,055,355
============
Class A Shares
Net assets ................................................................... $ 66,055,355
============
Shares of capital stock outstanding .......................................... 5,352,869
============
Net asset value per share .................................................... $ 12.34
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
INTERNATIONAL PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $76,631) .... $ 556,354
Interest ................................................ 24,075
------------
Total investment income ................................. 580,429
------------
EXPENSES
Advisory fee ............................................ 361,931
Custodian ............................................... 51,488
Audit and legal ......................................... 34,402
Administrative .......................................... 32,781
Printing ................................................ 6,438
Directors' fees ......................................... 799
Transfer agency ......................................... 498
Miscellaneous ........................................... 3,573
------------
Total expenses .......................................... 491,910
Less: expenses waived and reimbursed .................... (148,076)
------------
Net expenses ............................................ 343,834
------------
Net investment income ................................... 236,595
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ............ (4,202,550)
Net realized loss on foreign currency transactions ...... (71,498)
Net change in unrealized appreciation/depreciation of:
Investments .......................................... (9,639,417)
Foreign currency denominated assets and liabilities .. (3,531)
------------
Net loss on investments and foreign currency transactions (13,916,996)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ................. $(13,680,401)
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
INTERNATIONAL 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............................................................ $ 236,595 $ 56,790
Net realized gain (loss) on investments and foreign currency transactions........ (4,274,048) 3,862,846
Net change in unrealized appreciation/depreciation of investments
and foreign currency denominated assets and liabilities....................... (9,642,948) (20,979,631)
----------------- ------------------
Net decrease in net assets from operations....................................... (13,680,401) (17,059,995)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A....................................................................... -0- (105,625)
Net realized gain on investments
Class A....................................................................... (3,933,101) (7,359,954)
CAPITAL STOCK TRANSACTIONS
Net increase..................................................................... 4,678,848 22,145,328
----------------- ------------------
Total decrease................................................................... (12,934,654) (2,380,246)
NET ASSETS
Beginning of period.............................................................. 78,990,009 81,370,255
----------------- ------------------
End of period (including undistributed net investment income of
$197,410 at June 30, 2001).................................................... $ 66,055,355 $ 78,990,009
================= =================
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The International Portfolio (the "Portfolio") is a series of Alliance Variable
Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is
to seek to obtain a total return on its assets from long-term growth of capital
principally through a broad portfolio of marketable securities of established
non-U.S. companies (i.e., companies incorporated outside the U.S.), companies
participating in foreign economies with prospects for growth, and foreign
government securities. 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.
7
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
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 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.
--------------------------------------------------------------------------------
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 1% 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 $148,076.
Brokerage commissions paid on investment transactions for the six months ended
June 30, 2001 amounted to $77,149, none of which was paid to Sanford C.
Bernstein & Co. LLC, an affiliate of the Adviser.
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
8
Alliance Variable Products Series Fund
================================================================================
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 Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of the Portfolio's shares.
--------------------------------------------------------------------------------
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......................... $ 19,435,078
U.S. government and agencies........................ -0-
Sales:
Stocks and debt obligations......................... $ 18,755,483
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
(excluding foreign currency transactions) are as follows:
Gross unrealized appreciation....................... $ 3,489,652
Gross unrealized depreciation....................... (11,565,323)
-----------------
Net unrealized depreciation......................... $ (8,075,671)
=================
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 foreign currency losses of $39,186 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
cur-
9
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
rency contract.
At June 30, 2001, the Portfolio had no outstanding forward exchange currency
contracts.
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 Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had loaned securities with a value of
$433,265 and received cash collateral of $455,000. For the six months ended June
30, 2001, the Portfolio received fee income of $1,152 which is included in
interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: 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............................. 8,809,944 14,724,676 $ 131,083,413 $ 283,890,498
Shares issued in reinvestment of
dividends and distributions.......... 312,999 381,286 3,928,132 7,465,579
Shares redeemed......................... (8,704,736) (13,907,844) (130,332,697) (269,210,749)
----------------- ----------------- ----------------- -----------------
Net increase............................ 418,207 1,198,118 $ 4,678,848 $ 22,145,328
================= ================= ================= =================
10
INTERNATIONAL PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
NOTE G: 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 H: 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.
11
INTERNATIONAL PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------------------------------------
CLASS A
----------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 2001 ======================================================================
(unaudited) 2000 1999 1998 1997 1996
========== ========== ========== ========== ========== ==========
Net asset value, beginning of period .. $ 16.01 $ 21.78 $ 16.17 $ 15.02 $ 14.89 $ 14.07
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations
Net investment income (a)(b) .......... .05 .01 .12 .17 .13 .19
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions .............. (2.92) (4.01) 6.13 1.80 .39 .83
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset
value from operations .............. (2.87) (4.00) 6.25 1.97 .52 1.02
---------- ---------- ---------- ---------- ---------- ----------
Less: Dividends and Distributions
Dividends from net investment income . -0- (.03) (.15) (.33) (.15) (.08)
Distributions from net realized gains . (.80) (1.74) (.49) (.49) (.24) (.12)
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions ..... (.80) (1.77) (.64) (.82) (.39) (.20)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period ........ $ 12.34 $ 16.01 $ 21.78 $ 16.17 $ 15.02 $ 14.89
========== ========== ========== ========== ========== ==========
Total Return
Total investment return based
on net asset value (c) ............. (18.03)% (19.86)% 40.23% 13.02% 3.33% 7.25%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) .................... $ 66,055 $ 78,990 $ 81,370 $ 65,052 $ 60,710 $ 44,324
Ratio to average net assets of:
Expenses, net of waivers
and reimbursements ............... .95%(d) .95% .95% .95% .95% .95%
Expenses, before waivers
and reimbursements ............... 1.36%(d) 1.34% 1.36% 1.37% 1.42% 1.91%
Net investment income (a) .......... .65%(d) .07% .69% 1.08% .87% 1.29%
Portfolio turnover rate ............... 26% 57% 111% 117% 134% 60%
--------------------------------------------------------------------------------
(a) Net of expenses reimbursed or waived by the Adviser.
(b) Based on average shares outstanding.
(c) 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.
(d) Annualized.
12
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
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.
ALLIANCE
-------------------------
VARIABLE PRODUCTS
-------------------------
SERIES FUND
-------------------------
GLOBAL BOND PORTFOLIO
-------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
GLOBAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
CANADA-4.5%
GOVERNMENT OBLIGATIONS-4.5%
Government of Canada
5.00%, 9/01/04 (a) .................... CAD 500 $ 325,155
5.50%, 6/01/10 (a) .................... 3,000 1,921,455
------------
2,246,610
------------
DENMARK-3.2%
GOVERNMENT OBLIGATION-3.2%
Kingdom of Denmark
6.00%, 11/15/09 (a) ................... DKK 13,590 1,619,925
------------
FRANCE-4.6%
GOVERNMENT OBLIGATION-4.6%
Government of France
4.00%, 4/25/09 (a) .................... EUR 2,950 2,330,286
------------
GERMANY-15.7%
GOVERNMENT OBLIGATIONS-15.7%
Federal Republic of Germany
4.00%, 7/04/09 (a) .................... 2,350 1,864,028
5.00%, 2/17/06 (a) .................... 2,500 2,151,887
6.00%, 2/16/06 (a) .................... 4,350 3,879,681
------------
7,895,596
------------
ITALY-5.0%
GOVERNMENT OBLIGATION-5.0%
Republic of Italy
5.00%, 5/01/08 (a) .................... 3,000 2,511,856
------------
JAPAN-5.3%
GOVERNMENT OBLIGATION-5.3%
Government of Japan
1.10%, 3/21/11 (a) .................... JPY 335,000 2,673,607
------------
NETHERLANDS-2.9%
GOVERNMENT OBLIGATION-2.9%
Government of Netherlands
5.50%, 7/15/10 (a) .................... EUR 1,710 1,477,977
------------
SPAIN-8.9%
GOVERNMENT OBLIGATIONS-8.9%
Goverment of Spain
6.00%, 1/31/29 (a) .................... 1,780 1,518,982
7.90%, 2/28/02 (a) .................... 3,415 2,957,009
------------
4,475,991
------------
SWEDEN-3.7%
GOVERNMENT OBLIGATIONS-3.7%
Kingdom of Sweden
5.00%, 1/15/04 (a) .................... SEK 15,000 1,383,294
8.00%, 8/15/07 (a) .................... 4,600 481,873
------------
1,865,167
------------
UNITED KINGDOM-6.2%
GOVERNMENT
OBLIGATION-6.2%
United Kingdom Treasury
6.25%, 11/25/10 (a) ................... GBP 2,090 3,141,434
------------
UNITED STATES-42.6%
FINANCIAL-6.4%
GE Financial Assurance
Holdings
1.60%, 6/20/11 (a) .................... JPY 400,000 3,228,290
------------
GOVERNMENT AND AGENCY OBLIGATIONS-26.9%
Federal National Mortgage
Association
1.75%, 3/26/08 (a) .................... 200,000 1,722,182
U.S. Treasury Bond
6.375%, 8/15/27 (a) ................... US$ 3,095 3,280,700
U.S. Treasury Notes
4.75%, 11/15/08 (a) ................... 3,180 3,069,686
5.00%, 2/15/11 (a) .................... 1,000 970,150
5.50%, 5/15/09 (a) .................... 2,420 2,441,175
5.75%, 8/15/03 (a) .................... 2,000 2,056,860
------------
13,540,753
------------
TIME DEPOSIT-9.3%
State Street Euro Dollar
3.25%, 7/02/01 ........................ 4,706 4,706,000
------------
21,475,043
------------
TOTAL INVESTMENTS-102.6%
(cost $53,080,315) ...................... 51,713,492
Other assets less liabilities-(2.6%) .... (1,294,546)
------------
NET ASSETS-100% ........................ $ 50,418,946
============
--------------------------------------------------------------------------------
(a) Securities, or portion thereof, with an aggregate market value of
$47,007,492 have been segregated to collateralize forward exchange
currency contracts.
See Notes to Financial Statements.
1
GLOBAL BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $53,080,315) ........................... $ 51,713,492
Cash ............................................................................. 257
Foreign cash, at value (cost $124,336) ........................................... 123,318
Receivable for investment securities sold ........................................ 2,001,559
Interest receivable .............................................................. 864,221
Unrealized appreciation of forward exchange currency contracts ................... 18,090
------------
Total assets ..................................................................... 54,720,937
------------
LIABILITIES
Payable for investment securities purchased ...................................... 4,209,935
Advisory fee payable ............................................................. 27,185
Accrued expenses ................................................................. 64,871
------------
Total liabilities ................................................................ 4,301,991
------------
NET ASSETS ......................................................................... $ 50,418,946
------------
COMPOSITION OF NET ASSETS
Capital stock, at par ............................................................ $ 4,825
Additional paid-in capital ....................................................... 53,507,075
Undistributed net investment income .............................................. 147,175
Accumulated net realized loss on investments ..................................... (1,889,337)
Net unrealized depreciation of investments and foreign currency denominated assets
and liabilities ................................................................ (1,350,792)
------------
$ 50,418,946
============
Class A Shares
Net assets ....................................................................... $ 44,981,136
============
Shares of capital stock outstanding .............................................. 4,302,549
============
Net asset value per share ........................................................ $ 10.45
============
Class B Shares
Net assets ....................................................................... $ 5,437,810
============
Shares of capital stock outstanding .............................................. 522,720
============
Net asset value per share ........................................................ $ 10.40
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
2
GLOBAL BOND PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Interest ..................................................... $ 1,121,170
-----------
EXPENSES
Advisory fee ................................................. 172,389
Distribution fee - Class B ................................... 7,255
Custodian .................................................... 51,994
Administrative ............................................... 32,576
Audit and legal .............................................. 12,012
Printing ..................................................... 8,333
Directors' fees .............................................. 721
Transfer agency .............................................. 503
Miscellaneous ................................................ 79
-----------
Total expenses ............................................... 285,862
-----------
Net investment income ........................................ 835,308
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain on investment transactions ................. 167,547
Net realized loss on foreign currency transactions ........... (574,041)
Net change in unrealized appreciation/depreciation of:
Investments ................................................ (2,983,873)
Foreign currency denominated assets and liabilities ........ 56,270
-----------
Net loss on investments and foreign currency transactions .... (3,334,097)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS ..................... $(2,498,789)
===========
--------------------------------------------------------------------------------
See Notes to Financial Statements.
3
GLOBAL BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund
================================================================================
Six Months Ended Year Ended
June 30, 2001 December 31,
(unaudited) 2000
=============== ============
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income .............................................$ 835,308 $ 2,244,856
Net realized loss on investments and foreign currency transactions... (406,494) (4,310,639)
Net change in unrealized appreciation/depreciation of
investments and foreign currency denominated
assets and liabilities ............... (2,927,603) 2,681,054
------------ ------------
Net increase (decrease) in net assets from operations .............. (2,498,789) 615,271
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ........................................................... -0- (1,946,325)
Class B ........................................................... -0- (156,771)
Tax Return of capital
Class A ........................................................... -0- (21,332)
Class B ........................................................... -0- (1,718)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) .............................................(3,551,891) 5,641,805
------------ ------------
Total (decrease) ....................................................(6,050,680) 4,130,930
NET ASSETS
Beginning of period .................................................56,469,626 52,338,696
------------ ------------
End of period (including undistributed net investment income of
$147,175 at June 30, 2001) ......................................$ 50,418,946 $ 56,469,626
============ ============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The Global Bond Portfolio (the "Portfolio") is a series of Alliance Variable
Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is
to seek a high level of return from a combination of current income and capital
appreciation by investing in a globally diversified portfolio of high-quality
debt securities denominated in the U.S. dollar and a range of foreign
currencies. 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. Both classes of
shares have identical voting, dividend, liquidating and other rights, except
that Class B shares bear a distribution expense and have exclusive voting rights
with respect to the Class B distribution plan.
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
5
GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
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 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 $159,128 reduction
in cost of investments and a corresponding $159,128 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 $68,792, increase net unrealized appreciation
(depreciation) by $4,331, and increase net realized gains (losses) by $64,461.
The statement of changes in net assets and financial highlights for prior
periods have not been restated to reflect the 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 .65% of the Portfolio's average daily net assets.
Under a sub-advisory agreement, the Adviser retained AIGAM International Limited
("AIGAM"), an affiliate of American International Group, Inc., as a sub-adviser
to the Portfolio. Effective February 1, 2001, the Adviser and AIGAM agreed to
terminate this sub-advisory agreement. The Adviser now provides the services
formerly provided by AIGAM.
Pursuant to the advisory agreement, the Portfolio paid $32,576 to the Adviser
representing the cost of certain legal and accounting services provided to
the Portfolio by the Adviser for the six months ended June 30, 2001.
Prior to May 1, 2000, 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% and 1.20% of the average daily net assets
for Class A and Class B shares, respectively. Effective May 1, 2000, the Adviser
determined not to extend the expense limitation undertaking of the Portfolio.
Expense waivers/reimbursements, if any, are accrued daily and paid monthly. For
the six months ended June 30, 2001, the Portfolio received no such
waivers/reimbursements.
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
Distribu-
6
Alliance Variable Products Series Fund
================================================================================
tor 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 Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of the Portfolio's shares.
--------------------------------------------------------------------------------
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.................................... $13,821,965
U.S. government and agency obligations......................... 16,803,336
Sales:
Stocks and debt obligations.................................... $15,933,662
U.S. government and agency obligations......................... 19,500,584
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
(excluding foreign currency transactions) are as follows:
Gross unrealized appreciation.................................. $ 396,932
Gross unrealized depreciation.................................. (1,747,724)
-----------
Net unrealized depreciation.................................... $(1,350,792)
===========
At December 31, 2000, for federal income tax purposes, the Portfolio had net
capital loss carryforward of $779,983 of which $254,633 expires in the year 2007
and $525,350 expires in the year 2008.
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 foreign currency losses of $728,966 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.
7
GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
At June 30, 2001, the Portfolio had outstanding forward exchange currency
contracts as follows:
Contract U.S. $ Value on U.S. $ Unrealized
Amount Origination Current Appreciation
(000) Date Value (Depreciation)
========= =============== =========== ==============
Forward Exchange Currency Buy Contract
Canadian Dollar, settling 7/06/01....... 1,000 $ 656,724 $ 658,852 $ 2,128
Forward Exchange Currency Sale Contracts
Canadian Dollar, settling 7/06/01....... 1,000 648,382 658,851 (10,469)
Japanese Yen, settling 8/27/01.......... 728,177 5,890,592 5,876,277 14,315
Swedish Krona, settling 8/01/01......... 5,573 524,485 512,369 12,116
----------
$ 18,090
==========
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: Securities Lending
The Portfolio has entered into a securities lending agreement with
UBS/PaineWebber, Inc. (the"Lending Agent"). Under the terms of the agreement,
the Lending Agent, on behalf of the Portfolio, administers the lending of
portfolio securities to certain broker-dealers. In return, the Portfolio
receives fee income from the lending transactions. All loans are continuously
secured by collateral exceeding the value of the securities loaned. All
collateral consists of either cash or U.S. Government securities. The Lending
Agent invests the cash collateral in an eligible money market vehicle in
accordance with the investment restrictions of the Port folio. UBS/PaineWebber
will indemnify the Portfolio for any loss resulting from a borrower's failure to
return a loaned security when due. As of June 30, 2001, the Portfolio had no
securities on loan. For the six months ended June 30, 2001, the Portfolio
received fee income of $15,550 which is included in interest income in the
accompanying Statement of Operations.
8
Alliance Variable Products Series Fund
================================================================================
NOTE F: Capital Stock
There are 1,000,000,000 shares of $.001 par value capital stock authorized,
divided into two classes, designated Class A and Class B. Each class consists of
500,000,000 authorized shares. 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 .................... 193,931 696,352 $ 2,079,571 $ 7,639,020
Shares issued in reinvestment of
dividends and distributions .. -0- 182,529 -0- 1,967,656
Shares redeemed ................ (484,094) (781,083) (5,204,790) (8,340,456)
-------- -------- ----------- -----------
Net increase (decrease) ........ (290,163) 97,798 $(3,125,219) $ 1,266,220
======== ======== =========== ===========
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 B
Shares sold .................... 36,812 417,310 $ 399,308 $ 4,500,155
Shares issued in reinvestment of
dividends .................... -0- 14,743 -0- 158,489
Shares redeemed ................ (76,941) (26,732) (825,980) (283,059)
-------- -------- ----------- -----------
Net increase (decrease) ........ (40,129) 405,321 $ (426,672) $ 4,375,585
======== ======== =========== ===========
--------------------------------------------------------------------------------
NOTE G: 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 H: 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.
9
GLOBAL BOND PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------
Six Months
Ended
June 30, Year Ended December 31,
2001(a) ===============================================================
(unaudited) 2000 1999 1998 1997 1996
=========== ======== ======== ======== ======== ========
Net asset value,
beginning of period $ 10.96 $ 11.25 $ 12.42 $ 11.10 $ 11.74 $ 12.15
------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net investment
income (b)......... .17 .45(c) .48(c) .49(c) .54(c) .67(c)
Net realized and
unrealized gain
(loss) on investments
and foreign currency
transactions....... (.68) (.32) (1.24) 1.06 (.48) .01
------- ------- ------- ------- ------- -------
Net increase (decrease)
in net asset
value from
operations ....... (.51) .13 (.76) 1.55 .06 .68
------- ------- ------- ------- ------- -------
Less: Dividends and
Distributions
Dividends from net
investment income.. -0- (.42) (.37) (.17) (.57) (.84)
Distributions from net
realized gains..... -0- -0- (.04) (.06) (.13) (.25)
------- ------- ------- ------- ------- -------
Total dividends and
distributions ..... -0- (.42) (.41) (.23) (.70) (1.09)
------- ------- ------- ------- ------- -------
Net asset value,
end of period ..... $ 10.45 $ 10.96 $ 11.25 $ 12.42 $ 11.10 $ 11.74
======= ======= ======= ======= ======= =======
Total Return
Total investment
return based
on net asset
value (d)......... (4.65)% 1.17% (6.11)% 14.12% .67% 6.21%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) .. $44,981 $50,325 $50,569 $34,652 $22,194 $18,117
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements.. .1.05%(e) 1.02% .90% .93% .94% .94%
Expenses, before
waivers and
reimbursements.. .1.05%(e) 1.06% 1.04% 1.17% 1.03% 1.15%
Net investment
income.......... .3.18%(e) 4.13%(c) 4.16%(c) 4.23%(c) 4.81%(c) 5.76%(c)
Portfolio turnover
rate .............. 62% 372% 183% 42% 257% 191%
--------------------------------------------------------------------------------
See footnote summary on page 11.
10
Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------
CLASS B
----------------------------------------------
Six Months
Ended Year July 16,
June 30, Ended 1999(f) to
2001(a) December 31, December 31,
(unaudited) 2000 1999
=========== ============ ============
Net asset value, beginning of period ................. $10.92 $11.23 $10.98
------ ------ ------
Income From Investment Operations
Net investment income (b) ............................ .15 .41(b) .21(c)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ....................................... (.67) (.31) .04
------ ------ ------
Net increase (decrease) in net asset
value from operations .............................. (.52) .10 .25
------ ------ ------
Less: Dividends
Dividends from net investment income ................. -0- (.41) -0-
------ ------ ------
Net asset value, end of period ....................... $10.40 $10.92 $11.23
====== ====== ======
Total Return
Total investment return based on net asset value (d).. (4.76)% .98% 2.18%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ............ $5,438 $6,145 $1,770
Ratio to average net assets of:
Expenses, net of waivers and reimbursements ........ 1.30%(e) 1.31% 1.20%(e)
Expenses, before waivers and reimbursements ........ 1.30%(e) 1.35% 1.34%(e)
Net investment income .............................. 2.87%(e) 3.82%(c) 3.96%(c)(e)
Portfolio turnover rate .............................. 62% 372% 183%
--------------------------------------------------------------------------------
(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. For the six
months ended June 30, 2001, the effect of this change to Class A and Class
B shares was to decrease net investment income per share by $.04 and $.05,
increase net realized and unrealized gains and losses per share by $.04
and $.05, and decrease the ratio of net investment income to average net
assets from 4.04% to 3.18% and 3.79% to 2.87%, resepectively. Per share,
ratios and supplemental data for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(b) Based on average shares outstanding.
(c) Net of expenses reimbursed or waived by the Adviser.
(d) 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.
(e) Annualized.
(f) Commencement of distribution.
11
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.
ALLIANCE
-----------------------------
VARIABLE PRODUCTS
-----------------------------
SERIES FUND
-----------------------------
GROWTH AND INCOME PORTFOLIO
-----------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
GROWTH AND INCOME PORTFOLIO
TEN LARGEST HOLDINGS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
-------------------------------------------------------------------------------
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
-------------------------------------------------------------------------------
Citigroup, Inc. $ 47,556,053 4.2%
-------------------------------------------------------------------------------
Household International, Inc. 43,355,000 3.8
-------------------------------------------------------------------------------
Philip Morris Cos., Inc. 43,137,500 3.8
-------------------------------------------------------------------------------
Tyco International, Ltd. 42,237,500 3.7
-------------------------------------------------------------------------------
AT&T Corp. 41,745,000 3.7
-------------------------------------------------------------------------------
Comcast Corp. Cl.A 41,230,000 3.6
-------------------------------------------------------------------------------
J.P. Morgan Chase & Co. 40,140,000 3.6
-------------------------------------------------------------------------------
Kroger Co. 38,750,000 3.4
-------------------------------------------------------------------------------
Dynegy, Inc. 37,200,000 3.3
-------------------------------------------------------------------------------
Pharmacia Corp. 34,462,500 3.0
-------------------------------------------------------------------------------
$ 409,813,553 36.1%
-------------------------------------------------------------------------------
1
GROWTH AND INCOME PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
-----------------------------------------------------------------------
COMMON STOCKS-95.2%
FINANCE-23.0%
BANKING - MONEY CENTER-3.5%
J.P. Morgan Chase & Co. ............ 900,000 $ 40,140,000
----------------
BANKS - REGIONAL-7.3%
Bank of America Corp. .............. 500,000 30,015,000
Bank One Corp. ..................... 950,000 34,010,000
KeyCorp. ........................... 357,500 9,312,875
National City Corp. ................ 300,000 9,234,000
----------------
82,571,875
----------------
INSURANCE-1.7%
ACE, Ltd. (Bermuda)................. 240,000 9,381,600
Xl Capital, Ltd. Cl.A (Bermuda)..... 125,000 10,262,500
----------------
19,644,100
----------------
MORTGAGE BANKING-1.6%
PMI Group, Inc. .................... 125,000 8,957,500
Washington Mutual, Inc. ............ 250,000 9,387,500
----------------
18,345,000
----------------
MISCELLANEOUS-8.9%
Citigroup, Inc. .................... 900,001 47,556,053
Household International, Inc. ...... 650,000 43,355,000
MBNA Corp. ......................... 300,000 9,885,000
----------------
100,796,053
----------------
261,497,028
----------------
CONSUMER STAPLES-13.4%
BEVERAGES-3.2%
Anheuser-Busch Cos., Inc. .......... 650,000 26,780,000
The Pepsi Bottling Group, Inc. ..... 250,000 10,025,000
----------------
36,805,000
----------------
COSMETICS-2.5%
Avon Products, Inc. ................ 600,000 27,768,000
----------------
HOUSEHOLD PRODUCTS-0.5%
Colgate-Palmolive Co. .............. 100,000 5,899,000
----------------
RETAIL - FOOD & DRUG-3.4%
Kroger Co. (a)...................... 1,550,000 38,750,000
----------------
TOBACCO-3.8%
Philip Morris Cos., Inc. ........... 850,000 43,137,500
----------------
152,359,500
----------------
ENERGY-12.4%
DOMESTIC PRODUCERS-1.5%
Kerr-McGee Corp. ................... 255,000 16,898,850
----------------
INTERNATIONAL-4.3%
BP Plc (ADR) (United Kingdom)....... 600,000 29,910,000
Chevron Corp. ...................... 110,000 9,955,000
Exxon Mobil Corp. .................. 100,000 8,735,000
----------------
48,600,000
----------------
OIL SERVICE-3.3%
Baker Hughes, Inc. ................. 400,000 13,400,000
Noble Drilling Corp. (a)............ 375,000 12,281,250
Transocean Sedco Forex, Inc. ....... 290,000 11,962,500
----------------
37,643,750
----------------
MISCELLANEOUS-3.3%
Dynegy, Inc. ....................... 800,000 37,200,000
----------------
140,342,600
----------------
HEALTH CARE-9.0%
DRUGS-3.0%
Pharmacia Corp. .................... 750,000 34,462,500
----------------
MEDICAL PRODUCTS-2.6%
Abbott Laboratories................. 175,000 8,401,750
Guidant Corp. (a)................... 85,000 3,060,000
Johnson & Johnson................... 365,000 18,250,000
----------------
29,711,750
----------------
MEDICAL SERVICES-3.4%
IMS Health, Inc. ................... 300,000 8,550,000
Tenet Healthcare Corp. ............. 575,000 29,664,250
----------------
38,214,250
----------------
102,388,500
----------------
CONSUMER SERVICES-8.9%
AIRLINES-2.7%
AMR Corp. .......................... 500,000 18,065,000
Continental Airlines,
Inc. Cl.B (a).................... 250,000 12,312,500
----------------
30,377,500
----------------
BROADCASTING & CABLE-4.4%
AT&T Corp.- Liberty Media
Group Cl.A (a)................... 500,000 8,745,000
Comcast Corp. Cl.A (a).............. 950,000 41,230,000
----------------
49,975,000
----------------
ENTERTAINMENT & LEISURE-1.1%
Royal Caribbean Cruises,
Ltd. ............................ 200,000 4,422,000
The Walt Disney Co. ................ 300,000 8,667,000
----------------
13,089,000
----------------
RETAIL - GENERAL MERCHANDISE-0.7%
Limited, Inc. ...................... 450,000 7,434,000
----------------
100,875,500
----------------
2
Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
-----------------------------------------------------------------------
UTILITIES-8.4%
ELECTRIC & GAS UTILITIES-2.5%
AES Corp. (a)....................... 186,300 $ 8,020,215
Duke Power Energy Corp. ............ 115,000 4,486,150
FirstEnergy Corp. .................. 275,000 8,844,000
FPL Group, Inc. .................... 125,000 7,526,250
----------------
28,876,615
----------------
TELEPHONE UTILITIES-5.9%
AT&T Corp. ......................... 1,500,000 33,000,000
BellSouth Corp. .................... 200,000 8,054,000
SBC Communications, Inc. ........... 500,000 20,030,000
Sprint Corp. (FON Group)............ 150,000 3,204,000
WorldCom, Inc. ..................... 175,000 2,485,000
WorldCom, Inc. - MCI Group (a)...... 7,000 112,700
----------------
66,885,700
----------------
95,762,315
----------------
TECHNOLOGY-8.0%
COMPUTER SERVICES-1.8%
Electronic Data Systems Corp. ...... 125,000 7,812,500
First Data Corp. ................... 200,000 12,850,000
----------------
20,662,500
----------------
CONTRACT MANUFACTURING-2.8%
Flextronics International,
Ltd. (Singapore) (a)............. 550,000 14,360,500
Sanmina Corp. (a)................... 500,000 11,705,000
Solectron Corp. (a)................. 300,000 5,490,000
----------------
31,555,500
----------------
SEMI-CONDUCTOR COMPONENTS-2.7%
Fairchild Semiconductor Corp. (a)... 250,000 5,750,000
Micron Technology, Inc. (a)......... 600,000 24,660,000
----------------
30,410,000
----------------
SOFTWARE-0.7%
Amdocs, Ltd. (Guernsey) (a)......... 160,000 8,616,000
----------------
91,244,000
----------------
Shares or
Principal
Amount
Company (000) U.S. $ Value
-----------------------------------------------------------------------
MULTI-INDUSTRY COMPANIES-5.0%
Honeywell International, Inc. ...... 425,000 $ 14,870,750
Tyco International, Ltd. ........... 775,000 42,237,500
----------------
57,108,250
----------------
CAPITAL GOODS-3.5%
MISCELLANEOUS-3.5%
General Electric Co. ............... 200,000 9,750,000
United Technologies Corp. .......... 400,000 29,304,000
----------------
39,054,000
----------------
BASIC INDUSTRY-2.7%
CHEMICALS-2.3%
E.I. du Pont de Nemours & Co. ...... 200,000 9,648,000
Eastman Chemical Co. ............... 75,000 3,572,250
Lyondell Chemical Co. .............. 550,000 8,459,000
Solutia, Inc. ...................... 350,000 4,462,500
----------------
26,141,750
----------------
MINING & METALS-0.4%
Alcoa, Inc. ........................ 125,000 4,925,000
----------------
31,066,750
----------------
TRANSPORTATION-0.9%
RAILROAD-0.9%
Union Pacific Corp. ................ 175,000 9,609,250
----------------
Total Common Stocks
(cost $983,879,061).............. 1,081,307,693
SHORT-TERM
INVESTMENT-6.3%
TIME DEPOSIT-6.3%
State Street Euro Dollar
3.25%, 7/02/01
(amortized cost
$71,513,000)..................... $71,513 71,513,000
----------------
TOTAL INVESTMENTS-101.5%
(cost $1,055,392,061)............ 1,152,820,693
Other assets less
liabilities-(1.5%)............... (16,835,169)
----------------
NET ASSETS-100%..................... $ 1,135,985,524
================
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary
ADR - American Depositary Receipt.
See Notes to Financial Statements.
3
GROWTH AND INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $1,055,392,061) .. $1,152,820,693
Cash ....................................................... 757
Collateral held for securities loaned ...................... 3,300,000
Receivable for investment securities sold .................. 1,955,401
Dividends and interest receivable .......................... 1,079,043
--------------
Total assets ............................................... 1,159,155,894
--------------
LIABILITIES
Payable for investment securities purchased ................ 19,050,714
Payable for collateral received on securities loaned ....... 3,300,000
Advisory fee payable ....................................... 562,594
Accrued expenses ........................................... 257,062
--------------
Total liabilities .......................................... 23,170,370
--------------
NET ASSETS .................................................... $1,135,985,524
==============
COMPOSITION OF NET ASSETS
Capital stock, at par ...................................... $ 48,796
Additional paid-in capital ................................. 1,012,604,189
Undistributed net investment income ........................ 3,557,345
Accumulated net realized gain on investments ............... 22,346,561
Net unrealized appreciation of investments ................. 97,428,633
--------------
$1,135,985,524
==============
Class A Shares
Net assets ................................................. $ 682,942,550
==============
Shares of capital stock outstanding ........................ 29,276,455
==============
Net asset value per share .................................. $ 23.33
==============
Class B Shares
Net assets ................................................. $ 453,042,974
==============
Shares of capital stock outstanding ........................ 19,519,836
==============
Net asset value per share .................................. $ 23.21
==============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
GROWTH AND INCOME PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $120,031) ........... $ 5,866,080
Interest ........................................................ 1,193,343
-----------
Total investment income ......................................... 7,059,423
===========
EXPENSES
Advisory fee .................................................... 2,849,318
Distribution fee--Class B ....................................... 343,188
Custodian ....................................................... 65,107
Audit and legal ................................................. 51,204
Printing ........................................................ 45,610
Administrative .................................................. 32,942
Directors' fees ................................................. 793
Transfer agency ................................................. 462
Miscellaneous ................................................... 6,158
-----------
Total expenses .................................................. 3,394,782
-----------
Net investment income ........................................... 3,664,641
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions .................... 26,895,660
Net change in unrealized appreciation/depreciation of investments 16,816,984
-----------
Net gain on investments ......................................... 43,712,644
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ......................... $47,377,285
===========
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
GROWTH AND INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund
================================================================================
Six Months Ended Year Ended
June 30, 2001 December 31,
(unaudited) 2000
================ ================
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income...........................................$ 3,664,641 $ 5,902,644
Net realized gain on investments................................... 26,895,660 40,225,201
Net change in unrealized appreciation/
depreciation of investments.... 16,816,984 32,102,078
-------------- --------------
Net increase in net assets from operations......................... 47,377,285 78,229,923
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A..........................................................(3,814,813) (3,288,670)
Class B......................................................... (2,140,696) (113,881)
Net realized gain on investments
Class A.........................................................(28,040,271) (34,576,976)
Class B.........................................................(16,582,158) (1,241,725)
CAPITAL STOCK TRANSACTIONS
Net increase..................................................... 390,900,157 179,121,730
-------------- --------------
Total increase................................................... 387,699,504 218,130,401
NET ASSETS
Beginning of period.............................................. 748,286,020 530,155,619
-------------- --------------
End of period (including undistributed net investment income of
$3,557,345 and $5,848,213, respectively)....................... $1,135,985,524 $ 748,286,020
============== ==============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENT
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The Growth and Income Portfolio (the "Portfolio") is a series of Alliance
Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment
objective is to seek reasonable current income and reasonable opportunity for
appreciation through investments primarily in dividend-paying, common stocks of
good quality. 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. Both classes of
shares have identical voting, dividend, liquidating and other rights, except
that Class B shares bear a distribution expense and have exclusive voting rights
with respect to the Class B distribution plan.
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
7
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENT
(continued) Alliance Variable Products Series Fund
================================================================================
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 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.
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 .625% of the Portfolio's average daily net assets.
Pursuant to the advisory agreement, the Portfolio paid $32,942 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2001.
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% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2001, the Portfolio received no such
waivers/reimbursements.
Broker Commissions paid on investment transactions for the six months ended June
30, 2001 amounted to $1,346,685, of which $13,475 was paid to Sanford C.
Bernstein & Co. LLC, an affiliate of the Adviser.
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 Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of the Portfolio's shares.
8
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.................................. $ 712,007,879
U.S. government and agencies................................. -0-
Sales:
Stocks and debt obligations.................................. $ 381,935,239
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............................... $ 133,232,357
Gross unrealized depreciation............................... (35,803,725)
--------------
Net unrealized appreciation................................. $ 97,428,632
==============
Capital 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 $78,326 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 no outstanding forward exchange currency
contracts.
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
9
GROWTH AND INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENT
(continued) Alliance Variable Products Series Fund
================================================================================
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: Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had loaned securities with a value of
$3,225,000 and received cash collateral of $3,300,000. For the six months ended
June 30, 2001, the Portfolio received fee income of $1,762 which is included in
the interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: Capital Stock
There are 1,000,000,000 shares of $.001 par value capital stock authorized,
divided into two classes, designated Class A and Class B shares. Each class
consists of 500,000,000 authorized shares. 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......................5,660,453 9,993,773 $ 134,651,474 $ 221,532,935
Shares issued in reinvestment of
dividends and distributions....1,347,508 1,690,431 31,855,085 37,865,646
Shares redeemed..................(3,496,025) (9,888,538) (83,360,569) (218,923,844)
-------------- -------------- -------------- --------------
Net increase..................... 3,511,936 1,795,666 $ 83,145,990 $ 40,474,737
============== ============== ============== ==============
Class B
Shares sold..................... 12,601,873 6,504,279 $ 299,974,811 $ 145,161,481
Shares issued in reinvestment of
dividends and distributions.... 796,040 60,654 18,722,853 1,355,605
Shares redeemed................... (458,352) (351,966) (10,943,497) (7,870,093)
-------------- -------------- -------------- --------------
Net increase.....................12,939,561 6,212,967 $ 307,754,167 $ 138,646,993
============== ============== ============== ==============
--------------------------------------------------------------------------------
NOTE G: 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.
10
Alliance Variable Products Series Fund
================================================================================
NOTE H: 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.
11
GROWTH AND INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 2001 ====================================================================
(unaudited) 2000 1999 1998 1997 1996
=========== =========== =========== =========== =========== ===========
Net asset value,
beginning of
period $ 23.15 $ 21.79 $ 21.84 $ 19.93 $ 16.40 $ 15.79
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net investment
income (a) ....... .10 .22 .16 .22 .21(b) .24(b)
Net realized and
unrealized gain
on investment
transactions ..... 1.23 2.75 2.25 3.81 4.39 3.18
----------- ----------- ----------- ----------- ----------- -----------
Net increase in
net asset value
from operations .. 1.33 2.97 2.41 4.03 4.60 3.42
----------- ----------- ----------- ----------- ----------- -----------
Less: Dividends and
Distributions
Dividends from net
investment income (.14) (.14) (.18) (.16) (.13) (.25)
Distributions from
net realized gains (1.01) (1.47) (2.28) (1.96) (.94) (2.56)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends
and distributions (1.15) (1.61) (2.46) (2.12) (1.07) (2.81)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of period ... $ 23.33 $ 23.15 $ 21.79 $ 21.84 $ 19.93 $ 16.40
=========== =========== =========== =========== =========== ===========
Total Return
Total investment
return based
on net asset
value (c) ...... 5.66% 13.89% 11.37% 20.89% 28.80% 24.09%
Ratios/Supplemental Data
Net assets,
end of period
(000's omitted) .. $ 682,943 $ 596,547 $ 522,163 $381,614 $250,202 $ 126,729
Ratio to average net
assets of:
Expenses, net of
waivers and
reimbursements . .67%(d) .69% .71% .73% .72% .82%
Expenses, before
waivers and
reimbursements. .67%(d) .69% .71% .73% .72% .82%
Net investment
income ....... .87%(d) 1.01% .75% 1.07% 1.16%(b) 1.58%(b)
Portfolio turnover
rate ................... 43% 74% 46% 79% 86% 87%
--------------------------------------------------------------------------------
See footnote summary on page 15.
12
Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------
CLASS B
---------------------------------------------
Six Months Year June 1, 1999(e)
Ended Ended to
June 30, 2001 December 31, December 31,
(unaudited) 2000 1999
=========== =========== ===========
Net asset value, beginning of period ........... $ 23.06 $ 21.76 $ 21.37
----------- ----------- -----------
Income From Investment Operations
Net investment income (a) ...................... .07 .18 .07
Net realized and unrealized gain
on investment transactions 1.22 2.73 .32
----------- ----------- -----------
Net increase in net asset value
from operations ............................. 1.29 2.91 .39
----------- ----------- -----------
Less: Dividends and Distributions
Dividends from net investment income ........... (.13) (.14) -0-
Distributions from net realized gains .......... (1.01) (1.47) -0-
----------- ----------- -----------
Total dividends and distributions .............. (1.14) (1.61) -0-
----------- ----------- -----------
Net asset value, end of period ................. $ 23.21 $ 23.06 $ 21.76
=========== =========== ===========
Total Return
Total investment return based on net
asset value (c) .............................. 5.52% 13.59% 1.83%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ...... $ 453,043 $ 151,739 $ 7,993
Ratio to average net assets of:
Expenses .................................... .92%(d) .95% .97%(d)
Net investment income ....................... .64%(d) .85% .55%(d)
Portfolio turnover rate ........................ 43% 74% 46%
--------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) 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.
(d) Annualized.
(e) Commencement of distribution.
13
Alliance Variable Products Series Fund
================================================================================
BOARD OF DIRECTORS
Ruth Block (1)
David H. Dievler (1)
John H. Dobkin (1)
BOARD OF DIRECTORS
John D. Carifa, Chairman and President
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
Matthew Bloom, Vice President
Thomas J. Borders, 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
14
ALLIANCE
-----------------------------
VARIABLE PRODUCTS
-----------------------------
SERIES FUND
-----------------------------
GROWTH PORTFOLIO
-----------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
GROWTH PORTFOLIO
TEN LARGEST HOLDINGS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
--------------------------------------------------------------------------------
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
--------------------------------------------------------------------------------
Citigroup, Inc. $ 22,874,278 6.5%
--------------------------------------------------------------------------------
AT&T Corp. - Liberty Media Group Cl.A 19,569,499 5.6
--------------------------------------------------------------------------------
Tyco International, Ltd. 17,278,898 4.9
--------------------------------------------------------------------------------
Kohl's Corp. 12,338,991 3.5
--------------------------------------------------------------------------------
Pfizer, Inc. 12,015,000 3.4
--------------------------------------------------------------------------------
Flextronics International, Ltd. 11,582,396 3.3
--------------------------------------------------------------------------------
American International Group, Inc. 11,443,934 3.3
--------------------------------------------------------------------------------
AOL Time Warner, Inc. 11,209,500 3.2
--------------------------------------------------------------------------------
IMS Health, Inc. 10,376,850 2.9
--------------------------------------------------------------------------------
Solectron Corp. 9,325,680 2.7
--------------------------------------------------------------------------------
$ 138,015,026 39.3%
--------------------------------------------------------------------------------
1
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
-------------------------------------------------------------
COMMON STOCKS-98.3%
TECHNOLOGY-21.8%
COMMUNICATION EQUIPMENT-4.8%
Cisco Systems, Inc. (a)........ 442,300 $ 8,049,860
Juniper Networks, Inc. (a)..... 93,200 2,898,520
Nokia Corp. (ADR) (Finland).... 179,000 3,945,160
Research In Motion, Ltd.
(Canada) (a)................ 25,000 806,250
TyCom, Ltd. (Bermuda) (a)...... 65,000 1,118,000
--------------
16,817,790
--------------
CONTRACT MANUFACTURING-8.2%
Celestica, Inc. ............... 34,000 1,751,000
Flextronics International, Ltd.
(Singapore) (a)............. 443,600 11,582,396
Sanmina Corp. (a).............. 259,800 6,081,918
Solectron Corp. (a)............ 509,600 9,325,680
--------------
28,740,994
--------------
SEMI-CONDUCTOR COMPONENTS-1.8%
Altera Corp. (a)............... 150,900 4,376,100
Applied Micro Circuits
Corp. (a)................... 118,400 2,036,480
--------------
6,412,580
--------------
SOFTWARE-6.0%
Amdocs, Ltd. (Guernsey) (a).... 141,300 7,609,005
BEA Systems, Inc. (a).......... 114,000 3,500,940
Mercury Interactive Corp. (a).. 34,000 2,036,600
VERITAS Software Corp. (a)..... 116,000 7,717,480
--------------
20,864,025
--------------
TELECOMMUNICATIONS-0.0%
Intermedia Communications, Inc. 539 8,031
--------------
MISCELLANEOUS-1.0%
Thermo Electron Corp. (a)...... 165,000 3,633,300
--------------
76,476,720
--------------
FINANCE-21.3%
BANKING-MONEY CENTER-2.1%
J. P. Morgan Chase & Co. ...... 168,410 7,511,086
--------------
BANKING-REGIONAL-2.5%
Bank One Corp. ................ 243,000 8,699,400
--------------
BROKERAGE & MONEY
MANAGEMENT-1.1%
Legg Mason, Inc. .............. 75,000 3,732,000
--------------
INSURANCE-5.4%
AFLAC, Inc. ................... 244,600 7,702,454
American International Group,
Inc. ....................... 133,069 11,443,934
--------------
19,146,388
--------------
MISCELLANEOUS-10.2%
Ambac Financial Group, Inc. ... 91,000 5,296,200
Citigroup, Inc. ............... 432,897 22,874,278
MBNA Corp. .................... 233,975 7,709,476
--------------
35,879,954
--------------
74,968,828
--------------
HEALTH CARE-21.1%
DRUGS-10.0%
Allergan, Inc. ................ 55,000 4,702,500
American Home Products Corp. .. 98,500 5,756,340
Forest Laboratories, Inc. (a).. 59,000 4,189,000
Pfizer, Inc. .................. 300,000 12,015,000
Pharmacia Corp. ............... 115,400 5,302,630
Schering-Plough Corp. ......... 90,000 3,261,600
--------------
35,227,070
--------------
MEDICAL PRODUCTS-3.2%
Medtronic, Inc. ............... 115,000 5,291,150
Stryker Corp. ................. 110,000 6,033,500
--------------
11,324,650
--------------
MEDICAL SERVICES-7.9%
Cardinal Health, Inc. ......... 119,300 8,231,700
Health Management Associates,
Inc. Cl.A (a)............... 430,000 9,047,200
IMS Health, Inc. .............. 364,100 10,376,850
--------------
27,655,750
--------------
74,207,470
--------------
CONSUMER SERVICES-17.8%
AIRLINES-0.5%
Southwest Airlines Co. ........ 105,300 1,946,997
--------------
BROADCASTING & CABLE-9.4%
AOL Time Warner, Inc. (a)...... 211,500 11,209,500
AT&T Corp.-Liberty Media
Group Cl.A (a).............. 758,056 13,258,399
Comcast Corp. Cl.A (a)......... 197,000 8,549,800
--------------
33,017,699
--------------
CELLULAR COMMUNICATIONS-1.8%
AT&T Wireless Group (a)........ 386,000 6,311,100
--------------
ENTERTAINMENT & LEISURE-2.6%
Harley-Davidson, Inc. ......... 192,400 9,058,192
--------------
RETAIL-GENERAL MERCHANDISE-3.5%
Kohl's Corp. (a)............... 196,700 12,338,991
--------------
62,672,979
--------------
MULTI-INDUSTRY COMPANIES-6.5%
Danaher Corp. ................. 100,800 5,644,800
Tyco International, Ltd. ...... 317,044 17,278,898
--------------
22,923,698
--------------
2
GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
-------------------------------------------------------------
CONSUMER STAPLES-2.4%
RETAIL-FOOD & DRUG-2.4%
CVS Corp. ..................... 46,600 $ 1,798,760
Kroger Co. (a)................. 259,000 6,475,000
--------------
8,273,760
--------------
UTILITIES-2.1%
ELECTRIC & GAS UTILITY-2.1%
AES Corp. (a).................. 172,500 7,426,125
--------------
CAPITAL GOODS-2.0%
ENGINEERING & CONSTRUCTION-0.6%
Jacobs Engineering Group,
Inc. (a).................... 30,000 1,956,900
--------------
MISCELLANEOUS-1.4%
General Electric Co. .......... 102,800 5,011,500
--------------
6,968,400
--------------
ENERGY-2.0%
OIL SERVICE-2.0%
Baker Hughes, Inc. ............ 92,000 3,082,000
Transocean Sedco Forex, Inc. .. 37,000 1,526,250
Weatherford International, Inc. 49,000 2,352,000
--------------
6,960,250
--------------
Shares or
Principal
Amount
Company (000) U.S. $ Value
-------------------------------------------------------------
TRANSPORTATION-1.3%
AIR FREIGHT-1.3%
United Parcel Service,
Inc. Cl.B................... 80,000 $ 4,624,000
--------------
Total Common Stocks
(cost $336,116,683)......... 345,502,230
--------------
SHORT-TERM INVESTMENTS-1.5%
TIME DEPOSIT-0.1%
State Street Euro Dollar
3.25%, 7/02/01.............. $ 209 209,000
--------------
U.S. GOVERNMENT AGENCY-1.4%
Federal National Mortgage
Association
3.94%, 7/02/01.............. 5,000 4,999,453
--------------
Total Short-Term Investments
(amortized cost
$5,208,453)................. 5,208,453
--------------
TOTAL INVESTMENTS-99.8%
(cost $341,325,136)............ 350,710,683
Other assets
less liabilities-0.2%....... 726,217
--------------
NET ASSETS-100%................ $ 351,436,900
==============
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary:
ADR - American Depositary Receipt.
See Notes to Financial Statements.
3
GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $341,325,136) ... $ 350,710,683
Cash ...................................................... 73,857
Collateral held for securities loaned ..................... 3,156,000
Receivable for investment securities sold ................. 900,971
Dividends and interest receivable ......................... 93,559
-------------
Total assets .............................................. 354,935,070
-------------
LIABILITIES
Payable for collateral received on securities loaned ...... 3,156,000
Advisory fee payable ...................................... 218,853
Accrued expenses .......................................... 123,317
-------------
Total liabilities ......................................... 3,498,170
-------------
NET ASSETS ................................................... $ 351,436,900
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ..................................... $ 19,379
Additional paid-in capital ................................ 388,843,392
Accumulated net investment loss ........................... (457,298)
Accumulated net realized loss on investments .............. (46,354,120)
Net unrealized appreciation of investments ................ 9,385,547
-------------
$ 351,436,900
=============
Class A Shares
Net assets ................................................ $ 270,352,880
=============
Shares of capital stock outstanding ....................... 14,888,808
=============
Net asset value per share ................................. $ 18.16
=============
Class B Shares
Net assets ................................................ $ 81,084,020
=============
Shares of capital stock outstanding ....................... 4,489,698
=============
Net asset value per share ................................. $ 18.06
=============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $11,253) ....... $ 915,851
Interest ................................................... 137,778
------------
Total investment income .................................... 1,053,629
------------
EXPENSES
Advisory fee ............................................... 1,388,709
Distribution fee-Class B ................................... 82,583
Custodian .................................................. 80,512
Audit and legal ............................................ 30,595
Printing ................................................... 25,104
Administrative ............................................. 24,351
Directors' fees ............................................ 724
Transfer agency ............................................ 487
------------
Total expenses ............................................. 1,633,065
------------
Net investment loss ........................................ (579,436)
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investment transactions ............... (25,577,390)
Net realized loss on foreign currency transactions ......... (285,595)
Net change in unrealized appreciation/depreciation of:
Investments ............................................. (38,705,195)
Foreign currency denominated assets and liabilities ..... (40,342)
------------
Net loss on investments and foreign currency transactions .. (64,608,522)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS .................... $(65,187,958)
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund
================================================================================
Six Months Ended Year Ended
June 30, 2001 December 31,
(unaudited) 2000
=================== ==================
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income (loss)..............................$ (579,436) $ 1,140,973
Net realized gain (loss) on investments and
foreign currency transactions........ (25,862,985) 30,450,409
Net change in unrealized appreciation/depreciation
of investments and foreign currency
denominated assets and liabilities...........................(38,745,537) (118,842,392)
----------------- -----------------
Net decrease in net assets from operations......... (65,187,958) (87,251,010)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A......................................... (773,424) (301,829)
Class B.......................................................(154,946) (5,174)
Net realized gain on investments
Class A....................................................(39,844,242) (43,806,324)
Class B....................................................(11,138,060) (1,270,971)
CAPITAL STOCK TRANSACTIONS
Net increase...................................................56,743,804 82,693,317
----------------- -----------------
Total decrease................................................(60,354,826) (49,941,991)
NET ASSETS
Beginning of period............................................411,791,726 461,733,717
----------------- -----------------
End of period (including undistributed net
investment income of $1,050,508 at December 31, 2000)...$ 351,436,900 $ 411,791,726
================= =================
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The Growth Portfolio (the "Portfolio") is a series of Alliance Variable Products
Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek
to provide long-term growth of capital. Current income is incidental to the
Portfolio's objective. 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. Both
classes of shares have identical voting, dividend, liquidating and other rights,
except that Class B shares bear a distribution expense and have exclusive voting
rights with respect to the Class B distribution plan.
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
7
GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
shares outstanding are borne on a pro-rata basis by each outstanding class of
shares, based on the proportionate 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.
--------------------------------------------------------------------------------
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.
Pursuant to the advisory agreement, the Portfolio paid $24,351 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2001.
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% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2001, the Portfolio received no such
waivers/reimbursements.
Brokerage commissions paid on investment transactions for the six months ended
June 30, 2001, amounted to $673,094, of which $26,461 was paid to Sanford C.
Bernstein & Co. LLC, an affiliate of the Adviser.
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 Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the
distribution of the Portfolio's shares.
8
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................................ $ 284,720,458
U.S. government and agencies............................... -0-
Sales:
Stocks and debt obligations................................ $ 255,329,104
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
(excluding foreign currency transactions) are as follows:
Gross unrealized appreciation.............................. $ 55,823,800
Gross unrealized depreciation.............................. (46,438,253)
-----------------
Net unrealized appreciation................................ $ 9,385,547
=================
Capital 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 $16,969,730 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 no outstanding forward exchange currency
contracts.
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
9
GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
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: Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had loaned securities with a value of
$3,034,940 and received cash collateral of $3,156,000. For the six months ended
June 30, 2001, the Portfolio received fee income of $1,511 which is included in
interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: Capital Stock
There are 1,000,000,000 shares of $.001 par value capital stock authorized,
divided into two classes, designated Class A and Class B shares. Each class
consists of 500,000,000 authorized shares. 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............. 494,904 2,744,844 $ 11,999,949 $ 84,455,094
Shares issued in
reinvestment of
dividends and
distributions......... 2,189,632 1,426,064 40,617,667 44,108,153
Shares redeemed......... (2,047,482) (3,496,829) (45,337,106) (103,805,556)
----------------- ----------------- ----------------- -----------------
Net increase............ 637,054 674,079 $ 7,280,510 $ 24,757,691
================= ================= ================= =================
Class B
Shares sold............. 2,212,668 2,100,467 $ 49,016,423 $ 60,743,129
Shares issued in
reinvestment of
dividends and
distributions........ 612,087 41,366 11,293,005 1,276,146
Shares redeemed......... (500,666) (146,376) (10,846,134) (4,083,649)
----------------- ----------------- ----------------- -----------------
Net increase............ 2,324,089 1,995,457 $ 49,463,294 $ 57,935,626
================= ================= ================= =================
--------------------------------------------------------------------------------
NOTE G: 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.
10
Alliance Variable Products Series Fund
================================================================================
NOTE H: 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.
11
GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 2001 ====================================================================
(unaudited) 2000 1999 1998 1997 1996
=========== =========== =========== =========== =========== ===========
Net asset value,
beginning of period .. $ 25.10 $ 33.59 $ 27.25 $ 22.42 $ 17.92 $ 14.23
----------- ----------- ----------- ----------- ----------- -----------
Income From Investment
Operations
Net investment
income (loss) (a) ...... (.03) .08 .03 .10 .07 .06(b)
Net realized and unrealized
gain (loss) on investments
and foreign currency
transactions ............ (3.76) (5.36) 8.73 6.19 5.18 3.95
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net asset
value from operations ... (3.79) (5.28) 8.76 6.29 5.25 4.01
----------- ----------- ----------- ----------- ----------- -----------
Less: Dividends and
Distributions
Dividends from net
investment income ....... (.06) (.02) (.09) (.06) (.03) (.04)
Distributions from
net realized gains .... (3.09) (3.19) (2.33) (1.40) (.72) (.28)
----------- ----------- ----------- ----------- ----------- -----------
Total dividends
and distributions ..... (3.15) (3.21) (2.42) (1.46) (.75) (.32)
----------- ----------- ----------- ----------- ----------- -----------
Net asset value,
end of period ......... $ 18.16 $ 25.10 $ 33.59 $ 27.25 $ 22.42 $ 17.92
=========== =========== =========== =========== =========== ===========
Total Return
Total investment
return based on net
asset value (c) ....... (15.36)% (17.51)% 34.47% 28.73% 30.02% 28.49%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ....... $ 270,353 $ 357,664 $ 456,027 $ 328,681 $ 235,875 $ 138,688
Ratio to average net assets of:
Expenses, net of waivers
and reimbursements ... .84%(d) .81% .84% .87% .84% .93%
Expenses, before waivers
and reimbursements ... .84%(d) .81% .84% .87% .84% .93%
Net investment income (loss) (.26)%(d) .26% .12% .43% .37% .35%(b)
Portfolio turnover rate ... 69% 58% 54% 62% 62% 98%
--------------------------------------------------------------------------------
See footnote summary on page 13.
12
Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------
CLASS B
-------------------------------------------------
Six Months Year June 1, 1999(e)
Ended Ended to
June 30, 2001 December 31, December 31,
(unaudited) 2000 1999
============= ============ ============
Net asset value, beginning of period ......................... $ 24.99 $ 33.54 $ 26.83
---------- ---------- ----------
Income From Investment Operations
Net investment income (loss) (a) ............................. (.06) .04 (.03)
Net realized and unrealized gain (loss) on
investment and foreign currency
transactions .............................................. (3.74) (5.39) 6.74
---------- ---------- ----------
Net increase (decrease) in net asset value from operations ... (3.80) (5.35) 6.71
---------- ---------- ----------
Less: Dividends and Distributions
Dividends from net investment income ......................... (.04) (.01) -0-
Distributions from net realized gains ........................ (3.09) (3.19) -0-
---------- ---------- ----------
Total dividends and distributions ............................ (3.13) (3.20) -0-
---------- ----------
Net asset value, end of period ............................... $ 18.06 $ 24.99 $ 33.54
========== ========== ==========
Total Return
Total investment return based on net asset value (c) ......... (15.46)% (17.75)% 25.01%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) .................... $ 81,084 $ 54,127 $ 5,707
Ratio to average net assets of:
Expenses .................................................. 1.09%(d) 1.08% 1.12%(d)
Net investment income (loss) .............................. (.54)%(d) .13% (.20)%(d)
Portfolio turnover rate ...................................... 69% 58% 54%
--------------------------------------------------------------------------------
(a) Based on average shares outstanding.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) 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.
(d) Annualized.
(e) Commencement of distribution.
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
Matthew Bloom, Vice President
Thomas J. Borders, 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
ALLIANCE
---------------------
VARIABLE PRODUCTS
---------------------
SERIES FUND
---------------------
U.S. GOVERNMENT/
---------------------
HIGH GRADE SECURITIES
---------------------
PORTFOLIO
---------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
U.S. GOVERNMENT/AGENCY
OBLIGATIONS-63.7%
FEDERAL AGENCIES-46.1%
Federal Home Loan Mortgage
Corporation
5.25%, 2/15/04 ........................ $2,500 $ 2,519,925
6.00%, 6/15/11 ........................ 450 443,529
Federal National Mortgage
Association
6.00%, 12/15/05 ....................... 3,480 3,549,043
6.00%, 3/01/29 ........................ 1,188 1,144,338
6.00%, 3/01/29 ........................ 1,024 985,811
6.00%, 6/01/29 ........................ 27 26,346
6.00%, 4/01/31 ........................ 150 143,649
6.00%, 7/25/31 ........................ 750 719,767
6.50%, 2/01/16 ........................ 3,346 3,354,424
6.50%, 7/25/16 ........................ 725 726,813
6.50%, 7/01/30 ........................ 1,446 1,424,746
6.50%, 4/01/31 ........................ 199 196,009
6.50%, 7/25/31 ........................ 3,595 3,537,696
6.63%, 10/15/07 ....................... 2,330 2,433,755
6.75%, 8/15/02 ........................ 1,130 1,161,606
7.00%, 2/01/12 ........................ 1,226 1,249,806
7.00%, 2/01/15 ........................ 1,635 1,662,672
7.00%, 12/01/15 ....................... 334 340,039
7.50%, 6/01/31 ........................ 6,458 6,588,994
Government National Mortgage
Association
6.50%, 1/15/29 ........................ 2,133 2,111,133
-----------
34,320,101
-----------
U.S. TREASURY
SECURITIES-17.6%
U.S. Treasury Bonds
5.375%, 2/15/31 ....................... 500 473,750
8.125%, 8/15/19 ....................... 2,820 3,511,323
8.75%, 11/15/08 ....................... 980 1,069,582
12.00%, 8/15/13 ....................... 840 1,162,484
U.S. Treasury Notes
4.625%, 5/15/06 ....................... 2,715 2,677,669
5.75%, 8/15/03 ........................ 1,810 1,861,458
6.50%, 5/31/02 ........................ 2,300 2,353,912
-----------
13,110,178
-----------
Total U.S. Government/Agency
Obligations
(cost $46,944,770) .................... 47,430,279
-----------
CORPORATE DEBT
OBLIGATIONS-30.4%
AUTOMOTIVE-0.9%
Daimler-Chrysler NA Holding Corp.
6.40%, 5/15/06 ........................ 710 704,864
-----------
BANKING-6.3%
Bank One Corp.
7.625%, 10/15/26 ...................... 205 212,072
7.875%, 8/01/10 ....................... 400 428,785
Barclays Bank Plc
8.55%, 9/29/49 (a) .................... 415 448,782
Chase Manhattan Corp.
6.375%, 4/01/08 ....................... 345 341,277
Citicorp
6.375%, 11/15/08 ...................... 350 346,434
Citigroup, Inc.
7.25%, 10/01/10 ....................... 450 467,122
Great Western Financial Trust II
8.206%, 2/01/27 ....................... 700 691,164
Sanwa Bank, Ltd.
7.40%, 6/15/11 ........................ 260 251,176
St. George Bank, Ltd.
7.15%, 10/15/05 (a) ................... 500 512,676
Standard Chartered Bank
8.00%, 5/30/31 ........................ 260 264,134
Unicredito Italiano Capital Trust
9.20%, 10/29/49 (a) ................... 575 625,289
Wachovia Corp.
6.375%, 4/15/03 ....................... 75 76,816
-----------
4,665,727
-----------
BROADCASTING/MEDIA-2.0%
AT&T Corp.- Liberty
Media Group
8.25%, 2/01/30 ........................ 155 133,605
Time Warner Entertainment Co.
8.375%, 3/15/23 ....................... 425 462,583
8.375%, 7/15/33 ....................... 850 926,725
-----------
1,522,913
-----------
COMMUNICATIONS-3.2%
British Telecommunications Plc
8.875%, 12/15/30 ...................... 650 711,217
Qwest Capital Funding, Inc.
7.90%, 8/15/10 ........................ 1,000 1,034,774
Sprint Capital Corp.
7.625%, 1/30/11 ....................... 200 198,776
WorldCom, Inc.
8.25%, 5/15/31 ........................ 460 452,428
-----------
2,397,195
-----------
COMMUNICATIONS-
MOBILE-0.6%
AT&T Wireless Services Inc.
8.75%, 3/01/31 (a) .................... 430 447,949
-----------
ENERGY-0.8%
Amerada Hess Corp.
7.875%, 10/01/29 ...................... 280 296,797
The Williams Companies, Inc.
7.50%, 1/15/31 (a) .................... 335 314,895
-----------
611,692
-----------
1
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
ENTERTAINMENT &
LEISURE-1.7%
The Walt Disney Co.
4.875%, 7/02/04 .......................... $1,250 $ 1,228,964
-----------
FINANCIAL-7.5%
Associates Corp. N.A
5.75%, 11/01/03 .......................... 575 580,035
Household Finance Corp.
5.875%, 11/01/02 ......................... 1,150 1,164,789
Lehman Brothers Holdings, Inc.
7.875%, 8/15/10 .......................... 575 606,823
Merrill Lynch & Co., Inc.
5.35%, 6/15/04 ........................... 1,800 1,803,798
Morgan Stanley Dean Witter
& Co.
6.10%, 4/15/06 ........................... 675 675,112
Washington Mutual Financial
Corp.
6.875%, 5/15/11 .......................... 725 723,583
-----------
5,554,140
-----------
FOOD/BEVERAGE-0.9%
Pepsi Bottling Group, Inc.
7.00%, 3/01/29 ........................... 700 702,125
-----------
INDUSTRIAL-0.9%
Tyco International Group S.A.
6.375%, 2/15/06 .......................... 630 636,325
-----------
NON-AIR
TRANSPORTATION-0.4%
Union Pacific Corp.
6.625%, 2/01/29 .......................... 350 315,202
-----------
PUBLIC UTILITIES-
ELECTRIC & GAS-2.5%
Cilcorp, Inc.
9.375%, 10/15/29 ......................... 325 359,042
KeySpan Corp.
7.25%, 11/15/05 .......................... 275 288,108
Progress Energy, Inc.
7.75%, 3/01/31 ........................... 140 144,930
PSEG Energy Holdings, Inc.
8.50%, 6/15/11 (a) ....................... 710 705,378
TXU Corp.
6.375%, 6/15/06 .......................... 200 197,813
6.375%, 1/01/08 .......................... 165 158,340
-----------
1,853,611
-----------
RETAIL-0.7%
Wal-Mart Stores, Inc.
6.875%, 8/10/09 .......................... 500 518,010
-----------
SOVEREIGN-1.2%
Quebec Province
7.50%, 9/15/29 ........................... 250 265,323
State of Qatar
9.75%, 6/15/30 (a) ....................... 180 205,369
United Mexican States
8.375%, 1/14/11 .......................... 445 449,005
-----------
919,697
-----------
SUPRANATIONALS-0.8%
International Bank For
Reconstruction &
Development
5.00%, 3/28/06 ........................... 600 586,073
-----------
Total Corporate Debt
Obligations
(cost $22,236,197) ....................... 22,664,487
-----------
ASSET BACKED
SECURITIES-5.8%
Citibank Credit Card
Issuance Trust
Series 2000-A3
6.875%, 11/15/09 ......................... 1,475 1,526,964
Citibank Credit Card
Master Trust I
Series 1997-6A
6.323%, 8/15/06 .......................... 875 739,104
Discover Card
Master Trust I
Series 1999-6A
6.85%, 7/17/07 ........................... 735 765,774
Discover Card
Master Trust I
Series 2000-9A
6.35%, 7/15/08 ........................... 560 572,381
Fleet Credit Card
Master Trust II
Series 2001-B
5.60%, 12/15/08 .......................... 700 690,816
-----------
(cost $4,273,491) ........................ 4,295,039
-----------
COMMERCIAL
MORTGAGE BACKED
SECURITIES-1.5%
Bear Stearns Commercial
Mortgage
Securities Inc.
6.48%, 4/15/11 ........................... 725 715,807
GS Mortgage Securities
Corp. II
6.624%, 5/03/11 .......................... 410 405,646
-----------
(cost $1,138,885) ........................ 1,121,453
-----------
2
Alliance Variable Products Series Fund
================================================================================
Principal
Amount
(000) U.S. $ Value
--------------------------------------------------------------------------------
SHORT-TERM
INVESTMENT-3.0%
TIME DEPOSIT-3.0%
State Street Euro Dollar
3.25%, 7/02/01
(amortized cost
$2,239,000) .................................. $2,239 $ 2,239,000
-----------
TOTAL
INVESTMENTS-104.4%
(cost $76,832,343) ........................... 77,750,258
Other assets less liabilities-(4.4%) ............ (3,300,029)
-----------
NET ASSETS-100% ................................. $74,450,229
===========
--------------------------------------------------------------------------------
(a) 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
$3,260,338 or 4.4% of net assets.
See Notes to Financial Statements.
3
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $76,832,343) .... $ 77,750,258
Cash ...................................................... 932
Receivable for investment securities sold ................. 1,654,187
Interest receivable ....................................... 887,143
------------
Total assets .............................................. 80,292,520
------------
LIABILITIES
Payable for investment securities purchased ............... 5,750,173
Advisory fee payable ...................................... 36,170
Accrued expenses .......................................... 55,948
------------
Total liabilities ......................................... 5,842,291
------------
NET ASSETS ................................................... $ 74,450,229
============
COMPOSITION OF NET ASSETS
Capital stock, at par ..................................... $ 6,497
Additional paid-in capital ................................ 74,313,644
Undistributed net investment income ....................... 1,716,639
Accumulated net realized loss on investments .............. (2,504,466)
Net unrealized appreciation of investments ................ 917,915
------------
$ 74,450,229
============
Class A Shares
Net assets ................................................ $ 69,639,796
============
Shares of capital stock outstanding ....................... 6,075,944
============
Net asset value per share ................................. $ 11.46
============
Class B Shares
Net assets ................................................ $ 4,810,433
============
Shares of capital stock outstanding ....................... 421,316
============
Net asset value per share ................................. $ 11.42
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
4
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001 (unaudited)
Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Interest ........................................................... $ 2,049,086
-----------
EXPENSES
Advisory fee ....................................................... 203,396
Distribution fee - Class B ......................................... 5,471
Custodian .......................................................... 40,587
Administrative ..................................................... 34,474
Audit and legal .................................................... 16,246
Printing ........................................................... 8,183
Directors' fees .................................................... 960
Transfer agency .................................................... 518
Miscellaneous ...................................................... 527
-----------
Total expenses ..................................................... 310,362
-----------
Net investment income .............................................. 1,738,724
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions ....................... 974,873
Net change in unrealized appreciation/depreciation of investments .. (790,297)
-----------
Net gain on investments ............................................ 184,576
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS ............................ $ 1,923,300
===========
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
U.S. GOVERNMENT/HIGH GRADE SECURITIES 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 .............................................. $ 1,738,724 $ 3,465,389
Net realized gain (loss) on investments ............................ 974,873 (1,416,162)
Net change in unrealized appreciation/depreciation of investments .. (790,297) 4,129,962
------------ ------------
Net increase in net assets from operations ......................... 1,923,300 6,179,189
DIVIDENDS TO SHAREHOLDERS FROM:
Net investment income
Class A .......................................................... (3,237,848) (3,308,824)
Class B .......................................................... (225,880) (89,188)
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) ............................................ 14,193,618 (2,925,641)
------------ ------------
Total increase (decrease) .......................................... 12,653,190 (144,464)
NET ASSETS
Beginning of period ................................................ 61,797,039 61,941,503
------------ ------------
End of period (including undistributed net investment income of
$1,716,639 and $3,441,643, respectively) ......................... $ 74,450,229 $ 61,797,039
============ ============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The U.S. Government/High Grade Securities Portfolio (the "Portfolio") is a
series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The
Portfolio's investment objective is to seek high current income consistent with
preservation of capital. 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. Both
classes of shares have identical voting, dividend, liquidating and other rights,
except that Class B shares bear a distribution expense and have exclusive voting
rights with respect to the Class B distribution plan.
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
7
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
shares outstanding are borne on a pro-rata basis by each outstanding class of
shares, based on the proportionate 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 $51,917 reduction
in cost of investments and a corresponding $51,917 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 $53,312, increase net unrealized appreciation
(depreciation) by $24,768, and increase net realized gains (losses) by $28,544.
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 .60% of the Portfolio's average daily net assets.
Pursuant to the advisory agreement, the Portfolio paid $34,474 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the six months ended June 30, 2001.
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% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2001, the Portfolio received no such
waivers/reimbursements.
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.
8
Alliance Variable Products Series Fund
================================================================================
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.
--------------------------------------------------------------------------------
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 ........................... $21,284,069
U.S. government and agencies .......................... 73,887,949
Sales:
Stocks and debt obligations ........................... $ 8,090,633
U.S. government and agencies .......................... 69,108,041
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 ......................... $ 1,159,934
Gross unrealized depreciation ......................... (242,019)
-----------
Net unrealized appreciation ........................... $ 917,915
===========
At December 31, 2000, for federal income tax purposes, the Portfolio had a net
capital loss carryforward of $3,445,130 of which $1,546,295 expires in the year
2007, and $1,898,835 expires in the year 2008.
Capital 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 $7,336 during the fiscal year.
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.
9
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
NOTE E: Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had no securities on loan. For the six
months ended June 30, 2001, the Portfolio received fee income of $2,840 which is
included in interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: Capital Stock
There are 1,000,000,000 shares of $.001 par value capital stock authorized,
divided into two classes, designated Class A and Class B. Each class consists of
500,000,000 authorized shares. 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 ........................ 1,199,021 666,409 $ 14,218,826 $ 7,513,963
Shares issued in reinvestment of
dividends ....................... 280,819 305,524 3,237,848 3,308,824
Shares redeemed .................... (383,334) (1,406,462) (4,562,654) (15,772,586)
---------- ---------- ------------ ------------
Net increase (decrease) ............ 1,096,506 (434,529) $ 12,894,020 $ (4,949,799)
========== ========== ============ ============
Class B
Shares sold ........................ 219,763 255,354 $ 2,594,993 $ 2,849,180
Shares issued in reinvestment of
dividends ....................... 19,659 8,258 225,880 89,188
Shares redeemed .................... (129,647) (80,914) (1,521,275) (914,210)
---------- ---------- ------------ ------------
Net increase ....................... 109,775 182,698 $ 1,299,598 $ 2,024,158
========== ========== ============ ============
--------------------------------------------------------------------------------
NOTE G: 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 H: Bank Borrowing
A number of open-end mutual funds managed by the Adviser, including the
Portfolio, participate in a $750 million revolving credit facility (the
"Facility") intended to provide short-term financing if necessary, subject to
certain restrictions in connection with abnormal redemption activity. Commitment
fees related to the Facility are paid by the participating funds and are
included in the miscellaneous expenses in the statement of operations. The
Portfolio did not utilize the Facility during the six months ended June 30,
2001.
10
U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------------------------------
CLASS A
-------------------------------------------------------------------------------
Six Months
Ended Year Ended December 31,
June 30, 2001 (a) =========================================================
(unaudited) 2000 1999 1998 1997 1996
================= ======= ======= ======= ======= =======
Net asset value, beginning of period ..$ 11.68 $ 11.18 $ 12.27 $ 11.93 $ 11.52 $ 11.66
------- ------- ------- ------- ------- -------
Income From Investment Operations
Net investment income (b) ................30 .67 .64 .63(c) .68(c) .66(c)
Net realized and unrealized gain (loss)
on investment transactions ............ .06 .52 (.94) .32 .29 (.39)
------- ------- ------- ------- ------- -------
Net increase (decrease) in net asset
value from operations ................. .36 1.19 (.30) .95 .97 .27
------- ------- ------- ------- ------- -------
Less: Dividends and Distributions
Dividends from net investment income ... (.58) (.69) (.49) (.55) (.54) (.28)
Distributions from net realized gains .... -0- -0- (.30) (.06) (.02) (.13)
------- ------- ------- ------- ------- -------
Total dividends and distributions ....... (.58) (.69) (.79) (.61) (.56) (.41)
------- ------- ------- ------- ------- -------
Net asset value, end of period ....... $ 11.46 $ 11.68 $ 11.18 $ 12.27 $ 11.93 $ 11.52
======= ======= ======= ======= ======= =======
Total Return
Total investment return based on
net asset value (d) .................. 3.02% 11.08% (2.45)% 8.22% 8.68% 2.55%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ................ $69,640 $58,170 $60,504 $58,418 $36,198 $29,150
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements .............. .90%(e) .95% .86% .78% .84% .92%
Expenses, before waivers and
reimbursements .................... .90%(e) .95% .86% .91% .84% .98%
Net investment income ..............5.14%(e) 5.95% 5.51% 5.24%(c) 5.89%(c) 5.87%(c)
Portfolio turnover rate ................117% 236% 172% 235% 114% 137%
--------------------------------------------------------------------------------
See footnote summary on page 12.
11
Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------
CLASS B
------------------------------------------------
Six Months Year June 2,
Ended Ended 1999 (f) to
June 30, 2001 (a) December 31, December 31,
(unaudited) 2000 1999
================= ============ ============
Net asset value, beginning of period .....................$11.64 $11.16 $11.13
------ ------ ------
Income From Investment Operations
Net investment income (b) ................................. .29 .63 .33
Net realized and unrealized gain (loss)
on investment transactions .............................. .05 .53 (.30)
------ ------ ------
Net increase in net asset value from operations ..............34 1.16 .03
------ ------ ------
Less: Dividends
Dividends from net investment income ...................... (.56) (.68) -0-
------ ------ ------
Net asset value, end of period .......................... $11.42 $11.64 $11.16
====== ====== ======
Total Return
Total investment return based on net asset value (d) ..... 2.92% 10.84% .27%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) ............... $4,810 $3,627 $1,438
Ratio to average net assets of:
Expenses ............................................. 1.15%(e) 1.20% 1.15%(e)
Net investment income ................................ 4.90%(e) 5.67% 5.48%(e)
Portfolio turnover rate .................................. 117% 236% 172%
--------------------------------------------------------------------------------
(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. For the six
months ended June 30, 2001, the effect of this change to Class A and Class
B shares was to decrease net investment income per share by $.02 and $.02,
increase net realized and unrealized gains and losses per share by $.02
and $.02, and decrease the ratio of net investment income to average net
assets from 5.46% to 5.14% and 5.21% to 4.90%, respectively. Per share,
ratios and supplemental data for periods prior to January 1, 2001 have not
been restated to reflect this change in presentation.
(b) Based on average shares outstanding.
(c) Net of expenses reimbursed or waived by the Adviser.
(d) 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.
(e) Annualized.
(f) Commencement of distribution.
12
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.
13
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
ALLIANCE
-------------------------
VARIABLE PRODUCTS
-------------------------
SERIES FUND
-------------------------
QUASAR PORTFOLIO
-------------------------
SEMI-ANNUAL REPORT
JUNE 30, 2001
Investment Products Offered
---------------------------
> Are Not FDIC Insured
> May Lose Value
> Are Not Bank Guaranteed
---------------------------
QUASAR PORTFOLIO
TEN LARGEST HOLDINGS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
================================================================================
COMPANY U.S. $ VALUE PERCENT OF NET ASSETS
--------------------------------------------------------------------------------
CIMA Labs, Inc. $ 5,526,400 2.4%
--------------------------------------------------------------------------------
SICOR, Inc. 3,525,060 1.5
--------------------------------------------------------------------------------
Iron Mountain, Inc. 3,403,356 1.5
--------------------------------------------------------------------------------
Trimeris, Inc. 3,199,473 1.4
--------------------------------------------------------------------------------
Biosite Diagnostics, Inc. 3,189,760 1.4
--------------------------------------------------------------------------------
Retek, Inc. 3,168,834 1.4
--------------------------------------------------------------------------------
Noven Pharmaceuticals, Inc. 3,116,400 1.4
--------------------------------------------------------------------------------
Insight Enterprises, Inc. 2,824,850 1.2
--------------------------------------------------------------------------------
Advent Software, Inc. 2,819,400 1.2
--------------------------------------------------------------------------------
Medicis Pharmaceutical Corp. Cl.A 2,787,800 1.2
--------------------------------------------------------------------------------
$33,561,333 14.6%
--------------------------------------------------------------------------------
1
QUASAR PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
COMMON STOCKS-98.6%
TECHNOLOGY-25.7%
COMMUNICATION EQUIPMENT-1.4%
Digital Lightwave, Inc. (a) .................. 35,800 $ 1,323,168
New Focus, Inc. (a) .......................... 93,600 772,200
Stanford Microdevices, Inc. (a) .............. 66,300 1,043,562
-----------
3,138,930
-----------
COMPUTER PERIPHERALS-1.2%
Advanced Energy Industries, Inc. (a) ......... 31,700 1,308,259
Pericom Semiconductor Corp. (a) .............. 92,500 1,454,100
-----------
2,762,359
-----------
COMPUTER SERVICES-1.6%
Netegrity, Inc. (a) .......................... 56,800 1,704,000
PEC Solutions, Inc. (a) ...................... 85,400 1,887,340
-----------
3,591,340
-----------
CONTRACT MANUFACTURING-3.0%
DDi Corp. (a) ................................ 138,700 2,774,000
Plexus Corp. (a) ............................. 39,800 1,313,400
Semtech Corp. (a) ............................ 92,500 2,775,000
-----------
6,862,400
-----------
INTERNET MEDIA-0.4%
EarthLink, Inc. (a) .......................... 66,300 934,830
-----------
NETWORKING SOFTWARE-1.2%
Stratos Lightwave, Inc. (a) .................. 109,700 1,426,100
Ulticom, Inc. (a) ............................ 39,100 1,321,580
-----------
2,747,680
-----------
SEMI-CONDUCTOR CAPITAL EQUIPMENT-1.9%
Credence Systems Corp. (a) ................... 48,800 1,182,912
MKS Instruments, Inc. (a) .................... 51,700 1,488,960
Varian Semiconductor Equipment Associates,
Inc. (a) .................................. 40,200 1,688,400
-----------
4,360,272
-----------
SEMI-CONDUCTOR COMPONENTS-6.4%
Alpha Industries, Inc. (a) ................... 68,300 2,018,265
ANADIGICS, Inc (a) ........................... 73,500 1,690,500
ASAT Holdings, Ltd. (ADR) (Hong Kong) (a) .... 152,000 694,640
Brooks Automation, Inc. (a) .................. 25,300 1,166,330
Elantec Semiconductor, Inc. (a) .............. 66,900 2,260,551
Intersil Holding Corp. (a) ................... 68,200 2,482,480
IXYS Corp. (a) ............................... 58,500 912,600
Micrel, Inc. (a) ............................. 56,600 1,867,800
Multilink Technology Corp. (a) ............... 36,700 524,810
Virata Corp. (a) ............................. 102,600 1,215,810
-----------
14,833,786
-----------
SOFTWARE-5.5%
Actuate Corp. (a) ............................ 136,700 $ 1,305,485
Advent Software, Inc. (a) .................... 44,400 2,819,400
Informatica Corp. (a) ........................ 120,700 2,095,352
MatrixOne, Inc. (a) .......................... 74,900 1,736,931
NetIQ Corp. (a) .............................. 50,200 1,570,758
Retek, Inc. (a) .............................. 66,100 3,168,834
-----------
12,696,760
-----------
MISCELLANEOUS-3.1%
Aeroflex, Inc. (a) ........................... 130,500 1,370,250
Amphenol Corp. Cl.A (a) ...................... 50,500 2,022,525
Exar Corp. (a) ............................... 97,100 1,918,696
Power-One, Inc. (a) .......................... 71,100 1,183,104
Precise Software Solutions, Ltd. (Israel) (a). 23,400 718,380
-----------
7,212,955
-----------
59,141,312
-----------
HEALTH CARE-23.8%
BIOTECHNOLOGY-6.0%
CV Therapeutics, Inc. (a) .................... 34,900 1,989,300
Matrix Pharmaceutical, Inc. (a) .............. 146,400 1,526,952
OSI Pharmaceuticals, Inc. (a) ................ 41,700 2,193,003
The Medicines Co. (a) ........................ 77,700 1,592,073
Titan Pharmaceuticals, Inc. (a) .............. 70,500 2,115,705
Trimeris, Inc. (a) ........................... 63,900 3,199,473
United Therapeutics Corp. (a) ................ 86,100 1,149,435
-----------
13,765,941
-----------
DRUGS-8.5%
CIMA Labs, Inc. (a) .......................... 70,400 5,526,400
D & K Healthcare Resources, Inc. ............. 4,100 151,085
ICN Pharmaceuticals, Inc. .................... 68,300 2,166,476
InterMune, Inc. (a) .......................... 67,200 2,393,664
Medicis Pharmaceutical Corp. Cl.A (a) ........ 52,600 2,787,800
Noven Pharmaceuticals, Inc. (a) .............. 79,500 3,116,400
SICOR, Inc. (a) .............................. 152,600 3,525,060
-----------
19,666,885
-----------
MEDICAL PRODUCTS-4.8%
Aksys, Ltd. (a) .............................. 108,700 1,129,393
Align Technology, Inc. (a) ................... 9,000 70,560
Biosite Diagnostics, Inc. (a) ................ 71,200 3,189,760
Cytyc Corp. (a) .............................. 95,600 2,203,580
DUSA Pharmaceuticals, Inc. (a) ............... 92,800 1,325,184
Fisher Scientific International, Inc. (a) .... 72,100 2,090,900
INAMED Corp. (a) ............................. 41,500 1,099,750
-----------
11,109,127
-----------
2
Alliance Variable Products Series Fund
================================================================================
Company Shares U.S. $ Value
--------------------------------------------------------------------------------
MEDICAL SERVICES-3.6%
LifePoint Hospitals, Inc. (a) ................ 32,200 $1,425,816
Priority Healthcare Corp. Cl.B (a) ........... 68,500 1,937,180
Universal Health Services, Inc. Cl.B (a) ..... 52,900 2,406,950
US Oncology, Inc. (a) ........................ 94,300 838,327
Ventiv Health, Inc. (a) ...................... 80,200 1,655,328
-----------
8,263,601
-----------
MISCELLANEOUS-0.9%
Albany Molecular Research, Inc. (a) .......... 50,000 1,900,500
Argonaut Technologies, Inc. (a) .............. 24,100 125,320
-----------
2,025,820
-----------
54,831,374
-----------
CONSUMER SERVICES-21.7%
ADVERTISING-0.3%
Getty Images, Inc. (a) ....................... 25,400 667,004
-----------
BROADCASTING & CABLE-2.9%
ADVO, Inc. (a) ............................... 17,900 611,285
Hispanic Broadcasting Corp. (a) .............. 42,000 1,204,980
Insight Communications Co., Inc. Cl.A (a) .... 16,600 415,000
Mediacom Communications Corp. Cl.A (a) ....... 78,000 1,092,000
Sirius Satellite Radio, Inc. (a) ............. 77,200 873,132
ValueVision International, Inc. Cl.A (a) ..... 73,000 1,587,750
XM Satellite Radio Holdings, Inc. Cl.A (a) ... 62,800 1,017,360
-----------
6,801,507
-----------
ENTERTAINMENT & LEISURE-3.4%
Activision, Inc. (a) ......................... 62,300 2,445,275
FMC Technologies, Inc. (a) ................... 51,200 1,057,280
Hot Topic, Inc. (a) .......................... 55,200 1,716,720
Penton Media, Inc. ........................... 45,800 801,500
Take-Two Interactive Software, Inc. (a) ...... 92,200 1,710,310
-----------
7,731,085
-----------
PRINTING & PUBLISHING-1.2%
Barnes & Noble, Inc. (a) ..................... 69,100 2,719,085
-----------
RETAIL-GENERAL MERCHANDISE-5.0%
American Eagle Outfitters, Inc. (a) .......... 60,350 2,126,734
Freds, Inc. Cl.A ............................. 62,375 1,606,156
Galyan's Trading, Inc. (a) ................... 70,800 1,444,320
MSC Industrial Direct Co., Inc. Cl.A (a) ..... 145,600 2,533,440
THQ, Inc. (a) ................................ 43,300 2,581,979
Ultimate Electronics, Inc. (a) ............... 41,700 1,351,914
-----------
11,644,543
-----------
MISCELLANEOUS-8.9%
Alliance Data Systems Corp. (a) .............. 19,900 $ 298,500
Career Education Corp. (a) .................. 32,000 1,916,800
ChoicePoint, Inc. (a) ........................ 31,898 1,341,311
Copart, Inc. (a) ............................. 55,300 1,617,525
Edison Schools, Inc. Cl.A (a) ................ 46,000 1,050,640
Insight Enterprises, Inc. (a) ................ 115,300 2,824,850
Iron Mountain, Inc. (a) ...................... 75,900 3,403,356
Optimal Robotics Corp. (Canada) (a) .......... 58,300 2,215,400
ScanSource, Inc. (a) ......................... 30,800 1,460,536
Smartforce Public Limited Co.
(ADR) (Ireland) (a) ....................... 22,700 799,721
Watson Wyatt & Co. Holdings Cl.A (a) ......... 50,400 1,178,352
West Corp. (a) ............................... 110,000 2,421,100
-----------
20,528,091
-----------
50,091,315
-----------
FINANCE-7.8%
BANKING-MONEY CENTER-1.1%
UCBH Holdings, Inc. .......................... 81,500 2,473,525
-----------
BANKS-REGIONAL-0.6%
Greater Bay Bancorp ....................... 53,800 1,343,924
-----------
BROKERAGE & MONEY MANAGEMENT-0.9%
Southwest Bancorporation of Texas, Inc. (a) .. 72,800 2,199,288
-----------
INSURANCE-4.3%
Arthur J. Gallagher & Co. .................... 93,600 2,433,600
Reinsurance Group of America, Inc. ........... 63,900 2,421,810
RenaissanceRe Holdings, Ltd. (Bermuda) ....... 34,300 2,541,630
StanCorp Financial Group, Inc. ............... 52,900 2,506,931
-----------
9,903,971
-----------
MISCELLANEOUS-0.9%
Investors Financial Services Corp. ........... 19,300 1,293,100
Radian Group, Inc. ........................... 16,800 679,560
-----------
1,972,660
-----------
17,893,368
-----------
ENERGY-6.3%
DOMESTIC PRODUCERS-0.9%
Newfield Exploration Co. (a) ................. 66,400 2,128,784
-----------
OIL SERVICE-2.3%
Patterson-UTI Energy, Inc. (a) ............... 72,000 1,286,640
Spinnaker Exploration Co. (a) ................ 56,900 2,268,034
W-H Energy Services, Inc. (a) ................ 95,700 1,818,300
-----------
5,372,974
-----------
3
QUASAR PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued) Alliance Variable Products Series Fund
===============================================================================
Company Shares U.S. $ Value
-------------------------------------------------------------------------------
PIPELINES-1.7%
Cal Dive International, Inc. (a) .......... 89,800 $ 2,209,080
Hydril Co. (a) ............................ 71,400 1,625,778
------------
3,834,858
------------
MISCELLANEOUS-1.4%
Peabody Energy Corp. (a) .................. 41,500 1,359,125
Stone Energy Corp. (a) .................... 41,100 1,820,730
------------
3,179,855
------------
14,516,471
------------
CAPITAL GOODS-6.0%
ELECTRICAL EQUIPMENT-2.5%
Active Power, Inc. (a) .................... 50,900 849,012
C&D Technologies, Inc. .................... 56,200 1,742,200
Cabot Microelectronics Corp. (a) .......... 17,300 1,072,600
L-3 Communications Holding, Inc. (a) ...... 28,300 2,159,290
------------
5,823,102
------------
ENGINEERING & CONSTRUCTION-0.6%
Insituform Technologies, Inc. Cl.A (a) .... 34,800 1,270,200
------------
POLLUTION CONTROL-1.0%
Tetra Tech, Inc. (a) ...................... 85,600 2,328,320
------------
MISCELLANEOUS-1.9%
Dal-Tile International, Inc. (a) .......... 146,800 2,723,140
Toll Brothers, Inc. (a) ................... 43,400 1,706,054
------------
4,429,194
------------
13,850,816
------------
TRANSPORTATION-2.4%
AIR FREIGHT-0.4%
Expeditors International of
Washington, Inc. ....................... 13,800 827,986
------------
TRUCKING-1.2%
Swift Transportation Co., Inc. (a) ........ 140,600 2,707,956
------------
MISCELLANEOUS-0.8%
Tower Automotive, Inc. (a) ................ 186,500 1,911,625
------------
5,447,567
------------
Shares or
Principal
Amount
Company (000) U.S. $ Value
--------------------------------------------------------------------------------
BASIC INDUSTRY-1.9%
CHEMICALS-1.0%
OM Group, Inc. ............................ 40,600 $ 2,283,750
------------
PAPER & FOREST PRODUCTS-0.9%
Pactiv Corp. (a) .......................... 165,700 2,220,380
------------
4,504,130
------------
CONSUMER STAPLES-1.9%
FOOD-1.0%
Performance Food Group Co. (a) ............ 81,800 2,253,590
------------
RETAIL-FOOD & DRUG-0.9%
Duane Reade, Inc. (a) ..................... 64,900 2,109,250
------------
4,362,840
------------
UTILITIES-1.1%
MISCELLANEOUS-1.1%
FLAG Telecom Holdings, Ltd. (Bermuda) (a) . 104,200 529,336
GT Group Telecom, Inc. Cl.B (a) ........... 103,200 619,200
Rural Cellular Corp. Cl.A (a) ............. 30,600 1,386,180
------------
2,534,716
------------
Total Common Stocks (cost $217,225,796) ... 227,173,909
------------
SHORT-TERM INVESTMENT-2.4%
TIME DEPOSIT-2.4%
State Street Euro Dollar
3.25%, 7/02/01 (amortized cost
$5,659,000) ............................ $ 5,659 5,659,000
------------
TOTAL INVESTMENTS-101.0%
(cost $222,884,796) .................... 232,832,909
Other assets less liabilities-(1.0%) ...... (2,349,326)
------------
NET ASSETS-100% ........................... $230,483,583
============
--------------------------------------------------------------------------------
(a) Non-income producing security.
Glossary of Terms:
ADR - American Depositary Receipts.
See Notes to Financial Statements.
4
QUASAR PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
ASSETS
Investments in securities, at value (cost $222,884,796) ... $ 232,832,909
Cash ...................................................... 13
Collateral held for securities loaned ..................... 9,563,000
Receivable for investment securities sold ................. 846,887
Dividends and interest receivable ......................... 23,204
Deferred organization expenses ............................ 767
-------------
Total assets .............................................. $ 243,266,780
=============
LIABILITIES
Payable for collateral received on securities loaned ...... 9,563,000
Payable for investment securities purchased ............... 3,020,542
Advisory fee payable ...................................... 137,742
Accrued expenses .......................................... 61,913
-------------
Total liabilities ......................................... 12,783,197
-------------
NET ASSETS ................................................... $ 230,483,583
=============
COMPOSITION OF NET ASSETS
Capital stock, at par ..................................... $ 20,771
Additional paid-in capital ................................ 242,104,638
Undistributed net investment loss ......................... (689,772)
Accumulated net realized loss on investments .............. (20,900,167)
Net unrealized appreciation of investments ................ 9,948,113
-------------
$ 230,483,583
=============
Class A Shares
Net assets ................................................ $ 225,451,767
=============
Shares of capital stock outstanding ....................... 20,316,572
=============
Net asset value per share ................................. $ 11.10
=============
Class B Shares
Net assets ................................................ $ 5,031,816
=============
Shares of capital stock outstanding ....................... 454,580
=============
Net asset value per share ................................. $ 11.07
=============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
5
QUASAR PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2001
(unaudited) Alliance Variable Products Series Fund
================================================================================
INVESTMENT INCOME
Interest .................................................. $ 178,888
Dividends ................................................. 140,700
------------
Total investment income ................................... 319,588
------------
EXPENSES
Advisory fee .............................................. 1,060,195
Distribution fee - Class B ................................ 2,175
Custodian ................................................. 66,442
Administrative ............................................ 32,781
Audit and legal ........................................... 25,290
Printing .................................................. 9,557
Transfer agency ........................................... 4,391
Amortization of organization expenses ..................... 2,534
Directors' fees ........................................... 724
Miscellaneous ............................................. 268
------------
Total expenses ............................................ 1,204,357
Less: expenses waived and reimbursed ...................... (194,997)
------------
Net expenses .............................................. 1,009,360
------------
Net investment loss ....................................... (689,772)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investment transactions .............. (19,040,200)
Net change in unrealized appreciation/depreciation
of investments .......................................... 11,902,221
------------
Net loss on investments ................................... (7,137,979)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS ................... $ (7,827,751)
============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
6
QUASAR 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 loss .................................................. $ (689,772) $ (885,381)
Net realized gain (loss) investments ................................. (19,040,200) 7,938,018
Net change in unrealized appreciation/depreciation of investments .... 11,902,221 (16,400,536)
------------- -------------
Net decrease in net assets from operations ........................... (7,827,751) (9,347,899)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A ............................................................ -0- (657,364)
Net realized gain on investments
Class A ............................................................ (6,864,432) (4,601,546)
Class B ............................................................ (177,131) -0-
CAPITAL STOCK TRANSACTIONS
Net increase ......................................................... 12,678,794 77,669,578
------------- -------------
Total increase (decrease) ............................................ (2,190,520) 63,062,769
NET ASSETS
Beginning of period .................................................. 232,674,103 169,611,334
------------- -------------
End of period ........................................................ $ 230,483,583 $ 232,674,103
============= =============
--------------------------------------------------------------------------------
See Notes to Financial Statements.
7
QUASAR PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2001 (unaudited) Alliance Variable Products Series Fund
================================================================================
NOTE A: Significant Accounting Policies
The Quasar Portfolio (the "Portfolio") is a series of Alliance Variable Products
Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek
growth of capital by pursuing aggressive investment policies. Current income is
incidental to the Portfolio's objective. 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. Both classes of shares have identical voting, dividend, liquidating and
other rights, except that Class B shares bear a distribution expense and have
exclusive voting rights with respect to the Class B distribution plan.
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. Organization Expenses
Organization expenses of $26,098 have been deferred and are being amortized on a
straight line basis through August 2001.
4. 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.
5. 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.
8
Alliance Variable Products Series Fund
================================================================================
6. 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 interest in the portfolio represented by the net
assets of such class, except that the portfolio's Class B shares bear the
distribution fees.
7. 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.
--------------------------------------------------------------------------------
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 1% 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% and 1.20% of the
average daily net assets for Class A and Class B shares, respectively. Expense
waivers/reimbursements, if any, are accrued daily and paid monthly. For the six
months ended June 30, 2001, such waivers/reimbursements amounted to $194,997.
Brokerage commissions paid on investment transactions for the six months ended
June 30, 2001 amounted to $214,430, none of which was paid to Sanford C.
Bernstein & Co. LLC, an affiliate of the Adviser.
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 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 Portfolio 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
QUASAR 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 ............................ $138,786,344
U.S. government and agencies ........................... -0-
Sales:
Stocks and debt obligations ............................ $134,159,250
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 .......................... $ 30,272,126
Gross unrealized depreciation .......................... (20,324,013)
------------
Net unrealized appreciation ............................ $ 9,948,113
============
Capital 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 $771,525 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 no outstanding forward exchange currency
contracts.
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
10
Alliance Variable Products Series Fund
================================================================================
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: Securities Lending
The Portfolio has entered into a securities lending agreement with UBS/Paine
Webber, Inc. (the "Lending Agent"). Under the terms of the agreement, the
Lending Agent, on behalf of the Portfolio, administers the lending of portfolio
securities to certain broker-dealers. In return, the Portfolio receives fee
income from the lending transactions. All loans are continuously secured by
collateral exceeding the value of the securities loaned. All collateral consists
of either cash or U.S. Government securities. The Lending Agent invests the cash
collateral in an eligible money market vehicle in accordance with the investment
restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio or
any loss resulting from a borrower's failure to return a loaned security when
due. As of June 30, 2001, the Portfolio had loaned securities with a value of
$9,148,643 and received cash collateral of $9,563,000. For the six months ended
June 30, 2001, the Portfolio received fee income of $24,294 which is included in
interest income in the accompanying Statement of Operations.
--------------------------------------------------------------------------------
NOTE F: Capital Stock
There are 1,000,000,000 shares of $.001 par value capital stock authorized,
divided into two classes, designated Class A and Class B shares. Each class
consists of 500,000,000 authorized shares. 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....................... 17,174,341 54,680,516 $ 189,688,357 $ 696,227,537
Shares issued in reinvestment of
dividends and distributions.... 627,462 417,374 6,864,432 5,258,910
Shares redeemed................... (17,101,779) (48,523,546) (188,609,562) (624,279,001)
-------------- -------------- -------------- --------------
Net increase...................... 700,024 6,574,344 $ 7,943,227 $ 77,207,446
============== ============== ============== ==============
Six Months Ended August 11, 2000* to Six Months Ended August 11, 2000* to
June 30, 2001 December 31, June 30, 2001 December 31,
(unaudited) 2000 (unaudited) 2000
================ =================== ================ ===================
Class B
Shares sold....................... 495,568 37,317 $ 5,525,569 $ 468,643
Shares issued in reinvestment of
distributions..................... 16,236 -0- 177,131 -0-
Shares redeemed................... (94,017) (524) (967,133) (6,511)
-------------- -------------- -------------- --------------
Net increase...................... 417,787 36,793 $ 4,735,567 $ 462,132
============== ============== ============== ==============
--------------------------------------------------------------------------------
* Commencement of distribution.
11
QUASAR PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued) Alliance Variable Products Series Fund
================================================================================
NOTE G: 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 H: 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
QUASAR PORTFOLIO
FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
--------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------
Six Months August 5,
Ended Year Ended December 31, 1996(a) to
June 30, 2001 =================================================== December 31,
(unaudited) 2000 1999 1998 1997 1996
============= ========= ========= ========= ========= ============
Net asset value, beginning of period ... $ 11.84 $ 13.00 $ 11.14 $ 12.61 $ 10.64 $ 10.00
--------- --------- --------- --------- --------- ---------
Income From Investment Operations
Net investment income (loss) (b)(c) .... (.03) (.06) .08 .07 .02 .04
Net realized and unrealized gain
(loss) on investment
transactions ........................ (.36) (.71) 1.82 (.49) 1.96 .60
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in net asset
value from operations ............... (.39) (.77) 1.90 (.42) 1.98 .64
--------- --------- --------- --------- --------- ---------
Less: Dividends and Distributions
Dividends from net investment income ... -0- (.05) (.04) (.01) (.01) -0-
Distributions from net realized gains .. (.35) (.34) -0- (1.04) -0- -0-
--------- --------- --------- --------- --------- ---------
Total dividends and distributions ...... (.35) (.39) (.04) (1.05) (.01) -0-
--------- --------- --------- --------- --------- ---------
Net asset value, end of period ......... $ 11.10 $ 11.84 $ 13.00 $ 11.14 $ 12.61 $ 10.64
========= ========= ========= ========= ========= =========
Total Return
Total investment return based
on net asset value (d) .............. (3.25)% (6.09)% 17.08% (4.49)% 18.60% 6.40%
Ratios/Supplemental Data
Net assets, end of period
(000's omitted) ..................... $ 225,452 $ 232,239 $ 169,611 $ 90,870 $ 59,277 $ 8,842
Ratio to average net assets of:
Expenses, net of waivers
and reimbursements ................ .95%(e) .95% .95% .95% .95% .95%(e)
Expenses, before waivers
and reimbursements ................ 1.13%(e) 1.14% 1.19% 1.30% 1.37% 4.44%(e)
Net investment income (loss) (c) .... (.65)%(e) (.46)% .72% .55% .17% .93%(e)
Portfolio turnover rate ................ 62% 178% 110% 107% 210% 40%
--------------------------------------------------------------------------------
See footnote summary on page 14.
13
QUASAR PORTFOLIO
FINANCIAL HIGHLIGHTS
(continued) Alliance Variable Products Series Fund
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------
CLASS B
-------------------------------
Six Months August 11,
Ended 2000(f) to
June 30, 2001 December 31,
(unaudited) 2000
============= =============
Net asset value, beginning of period ............... $ 11.82 $ 13.00
------- -------
Income From Investment Operations
Net investment loss (b)(c) ......................... (.04) (.03)
Net realized and unrealized loss on
investment transactions ......................... (.36) (1.15)
------- -------
Net decrease in net asset value from operations .... (.40) (1.18)
------- -------
Less: Distributions
Dividends from net investment income ............... -0- -0-
Distributions from net realized gains .............. (.35) -0-
------- -------
Total distributions ................................ (.35) -0-
------- -------
Net asset value, end of period ..................... $ 11.07 $ 11.82
======= =======
Total Return
Total investment return based on net asset value (d) (3.34)% (8.16)%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) .......... $ 5,032 $ 435
Ratios to average net assets of:
Expenses, net of waivers and reimbursements (e) . 1.20% 1.20%
Expenses, before waivers and reimbursements (e) . 1.39% 1.41%
Net investment loss (c) (e) ..................... (.89)% (.69)%
Portfolio turnover rate ............................ 62% 178%
--------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Net of expenses reimbursed or waived by the Adviser.
(d) 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.
(e) Annualized.
(f) Commencement of distribution.
14
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
Jack F. Chiodi, Vice President
Paul J. DeNoon, Vice President
Joseph C. Dona, Vice President
Gregory Dube, Vice President
Marilyn G. Fedak, Vice President
E. 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.
BRINSON SERIES
TRUST
BALANCED
PORTFOLIO
JUNE 30, 2001
SEMIANNUAL REPORT
BRINSON SERIES TRUST -- BALANCED PORTFOLIO SEMIANNUAL REPORT
August 15, 2001
Dear Contract Owner,
We present you with the semiannual report for Brinson Series Trust--Balanced
Portfolio for the six months ended June 30, 2001.
MARKET REVIEW
[GRAPHIC]
The six months ended June 30, 2001 saw a steady downward adjustment in the
expected earnings for many sectors. A record number of U.S. companies issued
profit warnings, a pattern often repeated in the rest of the world. High
inventory levels, coupled with falling demand for many technology products,
forced companies to reduce their production, write off inventories and lay off
employees. Adding to the market's downward momentum was the rapid and violent
adjustment of investor expectations to the new environment. The decelerating
U.S. economy has negatively impacted other world markets -- export-oriented
companies that relied on strong U.S. demand have suffered. The slowdown in
capital spending resulted in weak corporate earnings and sluggish economic
growth. For the six months ended June 30, 2001, the S&P 500 Index fell 6.70%.
The Nasdaq Composite, especially hard-hit by shifting values among technology
stocks, retreated 12.53% during the six-month period.
The bond market fared somewhat better as investors turned away from the
volatility of the equity markets in search of stability. The overall U.S. bond
market, as measured by the Lehman Brothers Aggregate Bond Index, returned 3.62%
for the six months ended June 30, 2001. The corporate bond sector, as measured
by the Lehman Brothers U.S. Credit Index, returned 5.02%, and three-month
Treasurys advanced 2.13% for the reporting period.
In an effort to reinvigorate the economy, the Federal Reserve (the "Fed") began
a series of rate cuts early in the calendar year, making a surprise 50 basis
point (one basis point equals 1/100 of one percent) decrease in the Federal
Funds rate on January 3, 2001. Five more rate cuts followed through June for a
total 2.75% decrease, dropping the rate to 3.75% at the period-end from 6.50% at
year-end 2000. Although the rate of unemployment claims was rising at the end of
the semiannual period and real GDP (gross domestic product) for the second
quarter is expected to be negligible, the economy seems to have neared bottom
without encountering a recession.
1
PORTFOLIO REVIEW
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 6/30/01
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION+
BALANCED PORTFOLIO (CLASS H) 5.32% 8.71% 11.63% 10.68% 10.11%
BALANCED PORTFOLIO (CLASS I) 5.26 8.43 N/A N/A 4.61
S&P 500 INDEX -6.70 -14.83 14.48 15.10 15.29
LB GOV'T/CORP. BOND INDEX 3.51 11.13 7.38 7.93 8.50
90-DAY U.S. T-BILL 2.13 5.26 5.10 4.70 5.38
+ Inception: since commencement of issuance on June 1, 1988 for Class H
shares and August 17, 1999 for Class I shares. Index performance is shown
as of nearest month end of inception of oldest share class: May 31, 1988.
The investment return and the principal value of an investment will
fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Returns for periods of less than one
year are not annualized. Past performance is no guarantee of future
performance. Figures assume reinvestment of all dividends and capital
gains distributions, if any, at net asset value on the ex-dividend dates
and do not include sales charges. In addition, for the fiscal year ended
December 31, 1999, and the period from January 1 through February 29,
2000, the Portfolio's investment manager voluntarily waived payment of
certain fees on Class I shares. Without this waiver performance would have
been lower. Performance relates to the Portfolio and does not reflect
separate account charges applicable to variable annuity contracts.
PORTFOLIO HIGHLIGHTS
For the six months ending June 30, 2001, the Portfolio's Class H shares returned
5.32%, considerably outperforming the S&P 500 with its loss for the period of
6.70%. The contributors to our solid performance during the period were diverse
and include financial services stocks benefiting from lower interest rates, such
as Household International (2.0%)+ (consumer lending) and the PMI Group (0.5%)+
(mortgage insurance). Also, stable consumer companies like Avon (1.2%)+ and
healthcare companies like Tenet Healthcare (1.6%)+ continued to make strong
performance contributions. Recently, energy and high quality stable consumer
companies have been added to the equity component of the Portfolio at the
expense of technology. Technology was reduced in May after having been increased
in March and April.
+ Weightings represent percentages of net assets as of June 30, 2001. The
Portfolio is actively managed and its holdings will vary over time.
2
PORTFOLIO STATISTICS
ASSET ALLOCATION+ 6/30/01 12/31/00
--------------------------------------------------------------------------------
Equities 49.2% 58.7%
Bonds 49.3 42.6
Cash and Equivalents 1.5 0.0
Liabilities in Excess of Other Assets 0.0 -1.3
--------------------------------------------------------------------------------
Total 100.0% 100.0%
PORTFOLIO CHARACTERISTICS+ 6/30/01 12/31/00
--------------------------------------------------------------------------------
Net Assets (mm) $ 14.9 $ 15.7
Number of Securities 114 113
--------------------------------------------------------------------------------
TOP FIVE EQUITY SECTORS+ 6/30/01 12/31/00
--------------------------------------------------------------------------------
Financial Services 12.4% Financial Services 15.3%
Consumer Noncyclicals 6.9 Technology 8.8
Technology 4.4 Energy 4.0
Capital Goods 4.2 Utilities 3.6
Energy 3.8 Healthcare 2.6
--------------------------------------------------------------------------------
Total 31.7% Total 34.3%
TOP TEN EQUITY HOLDINGS+ 6/30/01 12/31/00
--------------------------------------------------------------------------------
Citigroup 2.1% Tyco International 2.7%
Household International 2.0 J.P. Morgan 2.4
Tyco International 2.0 Household International 2.4
Philip Morris 2.0 Kroger 2.3
J.P. Morgan Chase & Co 2.0 United Technologies 2.3
Comcast 1.8 Citigroup 2.2
Kroger 1.8 BP Amoco 2.1
Dynegy 1.6 First Data 2.0
AT&T 1.6 Comcast 1.9
Bank One 1.6 BankAmerica 1.8
--------------------------------------------------------------------------------
Total 18.5% Total 22.1%
+ Weightings represent percentages of net assets as of the dates indicated.
The Portfolio is actively managed and its composition will vary over time.
3
PROPOSED MERGER ANNOUNCEMENT
The Portfolio's board of trustees has approved the submission to its
shareholders of an Agreement and Plan of Acquisition and Termination under which
the Portfolio would transfer substantially all of its assets and stated
liabilities to Total Return Portfolio, a series of Alliance Variable Products
Series Fund, Inc. ("Total Return Portfolio"). If the Portfolio's shareholders
approve the proposed merger, shareholders will receive like shares of Total
Return Portfolio in exchange for their Portfolio shares and the Portfolio will
cease operations. The merger is expected to be a tax-free reorganization, which
means that the Portfolio's shareholders will not realize any gain or loss on
their receipt of shares in the merger and neither the Portfolio nor the Total
Return Portfolio will realize any gain or loss. Proxy solicitation materials
that will be mailed to the Portfolio's shareholders will provide more
information about the proposed merger. As of the date hereof, it is expected
that these materials will be mailed on or about September 4, 2001. Investors may
continue to buy, sell and exchange Portfolio shares as described in the current
prospectus prior to the shareholder meeting. If the merger proposal is approved,
the Portfolio expects to close to new purchases and exchange purchases
approximately five business days prior to the date on which the merger is to be
effected.
OUTLOOK
Though well reduced from recent highs, overall market valuation continues to
remain full as measured against historical valuations. We believe these
valuations can be supported as inflation remains low, if profit trends can
resume normal historical patterns.
With foreign economic activity weakening and overseas monetary policy responding
less energetically than our own Fed, we believe the fundamental environment will
remain challenging deep into the coming months. We remain comfortable owning a
high quality portfolio of conservative corporate issues. We believe the
Portfolio is well positioned against the risk of continued difficulties in
corporate growth and profits for the overall market.
Our ultimate objective in managing your investments is to help you successfully
meet your financial goals. We thank you for your continued support and welcome
any comments or questions you may have.
Sincerely,
/s/ Brian M. Storms
BRIAN M. STORMS
President and
Chief Executive Officer
Brinson Advisors, Inc.
This letter is intended to assist shareholders in understanding how the
Portfolio performed during the six months ended June 30, 2001, and reflects our
views at the time of its writing. Of course, these views may change in response
to changing circumstances.
4
PORTFOLIO OF INVESTMENTS JUNE 30, 2001 (UNAUDITED))
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS--49.19%
AIRLINES--1.70%
3,250 AMR Corp. $117,423
2,750 Continental Airlines, Inc.* 135,437
--------
252,860
--------
APPAREL, RETAIL--0.39%
3,500 Limited, Inc. 57,820
--------
BANKS--6.39%
6,500 Bank One Corp. 232,700
3,500 BankAmerica Corp. 210,105
6,500 J.P.Morgan Chase & Co. 289,900
3,000 KeyCorp. 78,150
2,400 National City Corp. 73,872
1,750 Washington Mutual, Inc. 65,712
--------
950,439
--------
CHEMICALS--1.89%
1,250 E.I. du Pont de Nemours & Co. 60,300
750 Eastman Chemical Co. 35,723
1,750 Kerr-McGee Corp. 115,972
4,500 Lyondell Petrochemical Co. 69,210
--------
281,205
--------
COMPUTER SOFTWARE--0.40%
1,100 Amdocs Ltd.* 59,235
--------
DEFENSE & AEROSPACE--0.71%
3,000 Honeywell International, Inc. 104,970
--------
DRUGS & MEDICINE--1.55%
5,000 Pharmacia Corp. 229,750
--------
ELECTRIC UTILITIES--3.16%
1,400 AES Corp.* 60,270
5,250 Dynegy, Inc. 244,125
1,750 FirstEnergy Corp. 56,280
750 FPL Group, Inc. 45,157
1,300 General Electric Co. 63,375
--------
469,207
--------
ELECTRICAL EQUIPMENT--1.54%
4,250 Flextronics International Ltd.* 110,967
3,500 Sanmina Corp.* 81,935
2,000 Solectron Corp.* 36,600
--------
229,502
--------
ENERGY RESERVES & PRODUCTION--0.87%
700 Chevron Corp. 63,350
750 Exxon Mobil Corp. 65,513
--------
128,863
--------
ENTERTAINMENT--0.61%
1,500 Royal Caribbean Cruises Ltd. $ 33,165
2,000 Walt Disney Co. 57,780
--------
90,945
--------
FINANCIAL SERVICES--4.60%
6,000 Citigroup, Inc. 317,040
4,500 Household International, Inc. 300,150
2,000 MBNA Corp. 65,900
--------
683,090
--------
FOOD RETAIL--3.35%
4,250 Anheuser-Busch Cos., Inc. 175,100
10,500 Kroger Co.* 262,500
1,500 Pepsi Bottling Group, Inc. 60,150
--------
497,750
--------
HOUSEHOLD PRODUCTS--1.54%
4,000 Avon Products, Inc. 185,120
750 Colgate-Palmolive Co. 44,243
--------
229,363
--------
INDUSTRIAL PARTS--1.48%
3,000 United Technologies Corp. 219,780
--------
INDUSTRIAL SERVICES & SUPPLIES--2.02%
5,500 Tyco International Ltd. 299,750
--------
INFORMATION & COMPUTER SERVICES--1.33%
1,000 Electronic Data Systems Corp. 62,500
1,000 First Data Corp. 64,250
2,500 IMS Health, Inc. 71,250
--------
198,000
--------
INSURANCE--1.41%
1,750 ACE Ltd. 68,408
1,000 PMI Group, Inc. 71,660
850 XL Capital Ltd. 69,785
--------
209,853
--------
LONG DISTANCE & PHONE COMPANIES--3.01%
10,750 AT&T Corp. 236,500
1,500 BellSouth Corp. 60,405
3,000 SBC Communications, Inc. 120,180
2,000 WorldCom, Inc. 28,400
80 WorldCom, Inc.--MCI Group* 1,288
--------
446,773
--------
5
NUMBER OF
SHARES VALUE
--------- -----
COMMON STOCKS--(CONCLUDED)
MEDIA--2.27%
3,750 AT&T Liberty Media Corp.* $ 65,587
6,250 Comcast Corp.* 271,250
----------
336,837
----------
MEDICAL PRODUCTS--0.96%
500 Guidant Corp.* 18,000
2,500 Johnson & Johnson 125,000
----------
143,000
----------
MEDICAL PROVIDERS--1.25%
3,600 Tenet Healthcare Corp. 185,724
----------
METALS & MINING--0.26%
1,000 Alcoa, Inc. 39,400
----------
OIL REFINING--1.43%
4,250 BP Amoco PLC, ADR $ 211,863
----------
OIL SERVICES--1.54%
2,500 Baker Hughes, Inc. 83,750
2,250 Noble Drilling Corp.* 73,687
1,750 Transocean Sedco Forex, Inc. 72,188
----------
229,625
----------
RAILROADS--0.46%
1,250 Union Pacific Corp. 68,638
----------
SEMICONDUCTOR--1.11%
4,000 Micron Technology, Inc.* 164,400
----------
TOBACCO--1.96%
5,750 Philip Morris Cos., Inc. 291,812
----------
Total Common Stocks (cost--$6,840,324) 7,310,454
----------
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES
--------- --------- --------
CORPORATE BONDS--27.82%
BANKS--2.08%
$ 50 Bank One Corp. 08/01/10 7.875% 53,511
50 Barclays Bank PLC+ 09/29/49 8.550 53,960
100 Capital One Bank 02/01/06 6.875 97,621
50 First Union National Bank 08/18/10 7.800 53,547
50 Zions Financial Corp.+ 05/15/11 6.950 50,004
-------
308,643
-------
CABLE--0.68%
100 Telecommunications, Inc. 05/01/03 6.375 101,547
-------
DEFENSE & AEROSPACE--0.68%
50 Northrop Grumman Corp. 02/15/11 7.125 49,410
50 Raytheon Co. 03/01/06 8.200 51,860
-------
101,270
-------
ELECTRIC UTILITIES--1.38%
50 Dominion Resources Capital Trust III 01/15/31 8.400 51,301
50 DPL, Inc. 03/01/07 8.250 52,913
25 Mission Energy Holding Co.+ 07/15/08 13.500 24,482
75 Progress Energy, Inc. 03/01/11 7.100 75,958
-------
204,654
-------
ELECTRICAL EQUIPMENT--0.64%
100 Motorola, Inc. 11/15/10 7.625 94,721
-------
ENERGY SOURCES--0.36%
50 PSEG Energy Holdings 10/01/09 10.000 53,801
-------
6
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- --------------- --------
CORPORATE BONDS--(CONTINUED)
FINANCIAL SERVICES--4.14%
$ 50 Citigroup, Inc. 10/01/10 7.250% $ 52,011
200 Ford Motor Credit Co. 01/14/03 to 02/01/06 6.000 to 6.875 202,563
115 Heller Financial, Inc. 06/15/05 8.000 122,666
160 HSBC Capital Funding LP+ 06/30/10 to 06/30/30 9.547 to 10.176@ 187,120
50 Qwest Capital Funding, Inc. 08/15/10 7.900 51,655
--------
616,015
--------
FOOD RETAIL--0.69%
50 Delhaize America, Inc.+ 04/15/31 9.000 54,387
50 Kellogg Co.+ 04/01/11 6.600 48,860
--------
103,247
--------
FOREST PRODUCTS,PAPER--0.18%
25 Abitibi Consolidated, Inc. 08/01/05 8.300 26,294
--------
INSURANCE--3.39%
140 American Re Corp. 12/15/26 7.450 143,305
125 Hartford Financial Services Group, Inc. 11/01/08 6.375 122,975
100 Loews Corp. 12/15/06 6.750 99,680
150 Lumbermen's Mutual Casualty Co.+ 07/01/26 9.150 138,168
--------
504,128
--------
LONG DISTANCE & PHONE COMPANIES--3.40%
50 AT&T Wireless Services+ 03/01/11 7.875 50,095
50 British Telecommunications PLC 12/15/10 8.125 53,097
75 Sprint Capital Corp. 01/30/11 to 11/15/28 6.875 to 7.625 67,260
50 Tritel PCS, Inc. 01/15/11 10.375 45,750
210 U.S.West Capital Funding, Inc. 07/15/08 6.375 200,589
85 WorldCom, Inc. 05/15/06 8.000 88,116
--------
504,907
--------
MEDIA--2.18%
75 AT&T Liberty Media Corp. 07/15/09 to 02/01/30 7.875 to 8.250 66,968
50 Cox Communications, Inc. 11/01/10 7.750 52,214
60 News America Holdings, Inc. 10/17/96 8.250 56,787
140 Time Warner, Inc. 06/15/05 7.750 147,372
--------
323,341
--------
MEDICAL PROVIDERS--1.04%
100 HCA--The Healthcare Co. 09/01/10 to 02/01/11 7.875 to 8.750 103,502
50 Tenet Healthcare Corp. 01/15/05 8.000 51,313
--------
154,815
--------
MOTOR VEHICLES--0.10%
100 Federal-Mogul Corp. 07/01/10 7.875 14,500
--------
7
PRINCIPAL
AMOUNT MATURITY INTEREST
(000) DATES RATES VALUE
--------- -------------------- -------------- -----------
CORPORATE BONDS--(CONCLUDED)
REAL PROPERTY--0.25%
$ 35 EOP Operating LP 03/15/06 8.375% $ 37,188
-----------
SECURITIES & ASSET MANAGEMENT--3.38%
140 FMR Corp.+ 06/15/29 7.570 146,437
145 Lehman Brothers Holdings, Inc. 04/01/04 6.625 148,148
200 Morgan Stanley Dean Witter & Co. 01/20/04 to 06/15/05 5.625 to 7.750 208,414
-----------
502,999
-----------
TELECOMMUNICATIONS--SERVICES--0.34%
50 TELUS Corp. 06/01/07 7.500 51,037
-----------
TOBACCO--0.61%
90 Philip Morris Cos., Inc. 01/15/27 7.750 90,006
-----------
YANKEE--2.30%
66 Abbey National Capital 12/29/49 8.963 73,810
100 Household International Netherlands BV 12/01/03 6.200 100,686
170 Imperial Tobacco Overseas BV 04/01/09 7.125 167,087
-----------
341,583
-----------
Total Corporate Bonds (cost--$4,117,103) 4,134,696
-----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS--21.47%
2,025 Federal National Mortgage Association 08/15/02 to 12/15/05 6.000 to 6.750 2,070,201
420 U.S. Treasury Bonds 08/15/19 to 02/15/31 5.375 to 8.125 429,977
675 U.S. Treasury Notes 08/15/03 to 08/15/10 5.750 690,951
-----------
Total U.S. Government and Agency Obligations (cost--$3,185,850) 3,191,129
-----------
REPURCHASE AGREEMENT--1.55%
230 Repurchase Agreement dated 06/29/01 with State
Street Bank and Trust Co., collateralized by
$239,000 U.S. Treasury Bills, 3.310% due 12/27/01
(value--$234,818); proceeds: $230,075 (cost--$230,000) 07/02/01 3.930 230,000
-----------
Total Investments (cost--$14,373,277)--100.03% 14,866,279
Liabilities in excess of other assets--(0.03)% (4,009)
-----------
Net Assets--100.00% $14,862,270
===========
----------
* Non-income producing security.
+ Security 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 instiitutional buyers.
@ Variable rate security--interest rates shown are current rates as of June
30, 2001.
ADR American Depository Receipt.
See accompanying notes to financial statements
8
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 2001 (UNAUDITED)
ASSETS
Investments in securities, at value (cost--$14,373,277) $14,866,279
Cash 114
Receivable for investments sold 101,291
Dividends and interest receivable 133,156
Other assets 2,336
-----------
Total assets 15,103,176
-----------
LIABILITIES
Payable for investments purchased 202,340
Payable to affiliates 9,643
Accrued expenses and other liabilities 28,923
-----------
Total liabilities 240,906
-----------
NET ASSETS
Beneficial interest shares--$0.001 par value (unlimited amount authorized) 13,569,081
Undistributed net investment income 212,365
Accumulated net realized gains from investment transactions 587,822
Net unrealized appreciation of investments 493,002
-----------
Net assets $14,862,270
===========
CLASS H
Net assets $13,187,503
-----------
Shares outstanding 1,503,154
-----------
Net asset value, offering price and redemption value per share $8.77
=====
CLASS I
Net assets $ 1,674,767
-----------
Shares outstanding 191,475
-----------
Net asset value, offering price and redemption value per share $8.75
=====
See accompanying notes to financial statements
9
STATEMENT OF OPERATIONS
FOR THE SIX
MONTHS ENDED
JUNE 30, 2001
(UNAUDITED)
-------------
INVESTMENT INCOME:
Interest $ 247,491
Dividends (net of foreign withholding taxes of $425) 50,732
---------
298,223
---------
EXPENSES:
Investment management and administration 56,922
Professional fees 10,860
Reports and notices to shareholders 5,430
Custody and accounting 4,554
Trustees' fees 3,750
Distribution fees--Class I 2,109
Transfer agency and related services fees 1,500
Other expenses 904
---------
86,029
Less: Fee waivers from investment manager (194)
---------
Net expenses 85,835
---------
Net investment income 212,388
---------
REALIZED AND UNREALIZED GAINS (LOSSES) FROM INVESTMENT ACTIVITIES:
Net realized gains from investment transactions 629,831
Net change in unrealized appreciation/depreciation of investments (31,502)
---------
NET REALIZED AND UNREALIZED GAINS FROM INVESTMENT ACTIVITIES 598,329
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 810,717
=========
See accompanying notes to financial statements
10
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX
MONTHS ENDED FOR THE
JUNE 30, 2001 YEAR ENDED
(UNAUDITED) DECEMBER 31, 2000
------------- -----------------
FROM OPERATIONS:
Net investment income $ 212,388 $ 380,365
Net realized gains from:
Investment transactions 629,831 1,983,235
Futures -- 281,287
Net change in unrealized appreciation/depreciation of:
Investments (31,502) (2,736,313)
Futures -- 875
------------ ------------
Net increase (decrease) in net assets resulting from operations 810,717 (90,551)
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income--Class H (338,240) (450,001)
Net investment income--Class I (39,565) (17,152)
Net realized gains from investment transactions--Class H (1,834,017) (2,610,343)
Net realized gains from investment transactions--Class I (230,367) (99,494)
------------ ------------
Total dividends and distributions to shareholders (2,442,189) (3,176,990)
------------ ------------
FROM BENEFICIAL INTEREST TRANSACTIONS:
Net proceeds from the sale of shares 349,423 2,521,757
Cost of shares repurchased (1,957,922) (8,785,563)
Proceeds from dividends reinvested 2,442,189 3,176,990
------------ ------------
Net increase (decrease) in net assets from beneficial interest transactions 833,690 (3,086,816)
------------ ------------
Net decrease in net assets (797,782) (6,354,357)
NET ASSETS:
Beginning of period 15,660,052 22,014,409
------------ ------------
End of period (including undistributed net investment income of $212,365 and
$377,782,respectively) $ 14,862,270 $ 15,660,052
============ ============
See accompanying notes to financial statements
11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Brinson Series Trust-Balanced Portfolio (the "Portfolio") is a diversified
portfolio of Brinson Series Trust (the "Fund"), which is organized under
Massachusetts law pursuant to an Amended and Restated Declaration of Trust dated
February 11, 1998, as amended, and is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund operates as a series company
currently offering thirteen portfolios. Shares of the Portfolio are offered to
insurance company separate accounts which fund certain variable contracts.
Currently, the Portfolio offers Class H and Class I shares. Each class
represents interests in the same assets of the Portfolio, and the classes are
identical except for differences in their distribution charges. Both classes
have equal voting privileges except that Class I has exclusive voting rights
with respect to its distribution plan. Class H has no distribution plan.
The Fund accounts separately for the assets, liabilities and operations
for each portfolio. Expenses directly attributable to each portfolio are charged
to that portfolio's operations; expenses which are applicable to all portfolios
are allocated among them on a pro rata basis.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Fund's
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates. The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS--The Portfolio calculates its net asset value
based on the current market value for its portfolio securities. The Portfolio
normally obtains market values for its securities from independent pricing
sources. Independent pricing sources may use reported last sale prices, current
market quotations or valuations from computerized "matrix" systems that derive
values based on comparable securities. Securities traded in the over-the-counter
("OTC") market and listed on The Nasdaq Stock Market, Inc. ("Nasdaq") normally
are valued at the last sale price on Nasdaq prior to valuation. Other OTC
securities are valued at the last bid price available prior to valuation.
Securities which are listed on U.S. and foreign stock exchanges normally are
valued at the last sale price on the day the securities are valued or, lacking
any sales on such day, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated as the primary market by Brinson Advisors, Inc.
("Brinson Advisors", formerly known as Mitchell Hutchins Asset Management Inc.),
the investment manager and administrator of the Portfolio, or by Alliance
Capital Management L.P. ("Alliance Capital") the Portfolio's sub-advisor.
Brinson Advisors is an indirect wholly owned asset management subsidiary of UBS
AG, an internationally diversified organization with headquarters in Zurich,
Switzerland and operations in many areas of the financial services industry. If
a market value is not available from an independent pricing source for a
particular security, that security is valued at fair value as determined in good
faith by or under the direction of the Fund's board of trustees (the "Board").
The amortized cost method of valuation, which approximates market value,
generally is used to value short-term debt instruments with sixty days or less
remaining to maturity, unless the Board determines that this does not represent
fair value.
REPURCHASE AGREEMENTS--The Portfolio's custodian takes possession of the
collateral pledged for investments in repurchase agreements. The underlying
collateral is valued daily on a mark-to-market basis to ensure that the value,
including accrued interest, is at least equal to the repurchase price. In the
event of default of the obligation to
12
repurchase, the Portfolio has the right to liquidate the collateral and apply
the proceeds in satisfaction of the obligation. Under certain circumstances, in
the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral may be subject to legal
proceedings. The Portfolio may participate in joint repurchase agreement
transactions with other funds managed by, advised or sub-advised Brinson
Advisors.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME--Investment transactions are
recorded on the trade date. Realized gains and losses from investment
transactions are calculated using the identified cost method. Dividend income is
recorded on the ex-dividend date ("ex-date"). Interest income is recorded on an
accrual basis. Premiums are amortized and discounts are accreted as adjustments
to interest income and the identified cost of investments.
Income, expenses (excluding class-specific expenses) and
realized/unrealized gains/losses are allocated proportionately to each class of
shares based upon the relative net asset value of outstanding shares (or the
value of dividend-eligible shares, as appropriate) of each class at the
beginning of the day (after adjusting for current capital share activity of the
respective classes). Class-specific expenses are charged directly to the
applicable class of shares.
FUTURES CONTRACTS--Upon entering into a financial futures contract, the
Portfolio is required to pledge to a broker an amount of cash and/or U.S.
Government securities equal to a certain percentage of the contract amount. This
amount is known as the "initial margin." Subsequent payments, known as
"variation margin", are made or received by the Portfolio each day, depending on
the daily fluctuations in the value of the underlying financial futures
contracts. Such variation margin is recorded for financial statement purposes on
a daily basis as unrealized gain or loss until the financial futures contract is
closed, at which time the net gain or loss is reclassified to realized.
Using financial futures contracts involves various market risks. The
maximum amount at risk from the purchase of a futures contract is the contract
value. The Portfolio may use financial futures contracts for hedging or to
manage the average duration of the Portfolio's portfolio. However, imperfect
correlations between futures contracts and the portfolio securities being
hedged, or market disruptions, do not normally permit full control of these
risks at all times.
DIVIDENDS AND DISTRIBUTIONS--Dividends and distributions to shareholders
are recorded on the ex-date. The amount of dividends and distributions are
determined in accordance with federal income tax regulations, which may differ
from accounting principles generally accepted in the United States. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their federal tax-basis
treatment; temporary differences do not require reclassification.
CONCENTRATION OF RISK
The ability of the issuers of the debt securities held by the Portfolio to
meet their obligations may be affected by economic and political developments
particular to a specific industry, country or region.
INVESTMENT MANAGER AND ADMINISTRATOR
The Board has approved an investment management and administration
contract between the Fund and Brinson Advisors ("Management Contract") under
which Brinson Advisors serves as investment manager and administrator of the
Portfolio. In accordance with the Management Contract, the Portfolio pays
Brinson Advisors an investment management and administration fee, which is
accrued daily and paid monthly, at an annual rate of 0.75% of the Portfolio's
average daily net assets.
Brinson Advisors has entered into a sub-advisory contract ("Alliance
Capital Contract") with Alliance Capital, dated March 1, 2001, pursuant to which
Alliance Capital serves as investment sub-advisor for the Portfolio. Under the
Alliance
13
Capital Contract, Brinson Advisors (not the Portfolio) is obligated to pay
Alliance Capital a fee, accrued daily and paid monthly at the annual rate of
0.375% of the Portfolio's average daily net assets.
At June 30, 2001, the Portfolio owed Brinson Advisors $9,296 in
investment management and administration fees. Brinson Advisors waived a portion
of its investment management and administration fees in connection with the
Portfolio's investment of cash collateral from securities lending transactions
in the Brinson Private Money Market Fund LLC. For the six months ended June 30,
2001, Brinson Advisors waived $194 of its management and administration fees.
For the six months ended June 30, 2001, the Portfolio paid $78 in
brokerage commissions to UBS PaineWebber Inc. ("UBS PaineWebber(SM)*"), an
indirect wholly owned subsidiary of UBS AG, or any other affiliated
broker-dealers for transactions executed on behalf of the Portfolio.
DISTRIBUTION PLAN
Class I shares are offered to insurance company separate accounts where
the related insurance companies receive payments for their services in
connection with the distribution of the Portfolio's Class I shares. Under the
plan of distribution, the Portfolio pays Brinson Advisors a monthly distribution
fee at the annual rate of 0.25% of the average daily net assets of Class I
shares. Brinson Advisors pays the entire distribution fee to the insurance
companies. At June 30, 2001, the Portfolio owed Brinson Advisors $347 in
distribution fees.
SECURITIES LENDING
The Portfolio may lend securities up to 33 1/3% of its total assets to
qualified broker-dealers and institutional investors. The loans are secured at
all times by cash or U.S. government securities in an amount at least equal to
the market value of the securities loaned, plus accrued interest and dividends,
determined on a daily basis and adjusted accordingly. The Portfolio will regain
record ownership of loaned securities to exercise certain beneficial rights;
however, the Portfolio may bear the risk of delay in recovery of, or even loss
of rights in, the securities loaned should the borrower fail financially. The
Portfolio receives compensation, which is included in interest income, for
lending its securities from interest earned on the cash, cash equivalents or
U.S. government securities held as collateral, net of fee rebates paid to the
borrower plus reasonable administrative and custody fees. For the six months
ended June 30, 2001, the Portfolio earned $769 for lending its securities, net
of rebates, fees and expenses, and UBS PaineWebber earned $2,219 in
compensation from the Fund as the Portfolio's lending agent. At June 30, 2001,
the Portfolio did not have any securities out on loan. UBS PaineWebber also has
been approved as a borrower under the Portfolio's securities lending program.
BANK LINE OF CREDIT
The Portfolio may participate with other funds managed, advised or
sub-advised by Brinson Advisors in a $200 million committed credit facility
("Facility") to be utilized for temporary financing until the settlement of
sales or purchases of portfolio securities, the repurchase or redemption of
shares of the Portfolio at the request of shareholders and other temporary or
emergency purposes. In connection therewith, the Portfolio has agreed to pay a
commitment fee, pro rata, based on the relative asset size of the funds in the
Facility. Interest is charged to the Portfolio at rates based on prevailing
market rates in effect at the time of borrowing. For the six months ended June
30, 2001, the Portfolio did not borrow under the Facility.
----------
* UBS PaineWebber is a service mark of UBS AG.
14
INVESTMENTS IN SECURITIES
For federal income tax purposes, the cost of securities owned at June 30,
2001 was substantially the same as the cost of securities for financial
statement purposes.
At June 30, 2001, the components of net unrealized appreciation of
investments were as follows:
Gross appreciation (investments having an excess of value over cost) $ 863,560
Gross depreciation (investments having an excess of cost over value) (370,558)
---------
Net unrealized appreciation of investments $ 493,002
=========
For the six months ended June 30, 2001, total aggregate purchases and
sales of portfolio securities, excluding short-term securities, were $6,931,056
and $8,753,832, respectively.
FEDERAL TAX STATUS
The Portfolio intends to distribute all of its taxable income and to
comply with the other requirements of the Internal Revenue Code applicable to
regulated investment companies. Accordingly, no provision for federal income
taxes is required. In addition, by distributing during each calendar year,
substantially all of its net investment income, capital gains and certain other
amounts, if any, the Portfolio intends not to be subject to a Federal excise
tax.
SHARES OF BENEFICIAL INTEREST
There is an unlimited amount of $0.001 par value shares of beneficial
interest authorized. Transactions in shares of beneficial interest were as
follows:
CLASS H CLASS I
SIX MONTHS ENDED ------------------------ ----------------------
JUNE 30,2001: SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
Shares sold 40,261 $ 344,983 432 $ 4,440
Shares repurchased (197,333) (1,823,012) (14,422) (134,910)
Dividends reinvested 257,376 2,172,257 32,059 269,932
-------- ----------- ------- ----------
Net increase 100,304 $ 694,228 18,069 $ 139,462
======== =========== ======= ==========
YEAR ENDED
DECEMBER 31,2000:
Shares sold 68,699 $ 681,314 184,080 $1,840,443
Shares repurchased (797,617) (8,056,649) (73,216) (728,914)
Dividends reinvested 309,125 3,060,344 11,782 116,646
-------- ----------- ------- ----------
Net increase (decrease) (419,793) $(4,314,991) 122,646 $1,228,175
======== =========== ======= ==========
15
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
CLASS H
-----------------------------------------------------------------
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, 2001 --------------------------------------------------
(UNAUDITED) 2000++ 1999 1998 1997 1996#
------------- ------- ------- ------- ------- -------
Net asset value,beginning of period $ 9.94 $ 11.75 $ 11.54 $ 11.33 $ 10.95 $ 10.70
------- ------- ------- ------- ------- -------
Net investment income 0.13@ 0.28 0.26 0.28 0.28 0.29
Net realized and unrealized gains (losses) from investments
and futures 0.33@ (0.25) (0.05) 1.61 2.44 1.49
------- ------- ------- ------- ------- -------
Net increase from investment operations 0.46 0.03 0.21 1.89 2.72 1.78
------- ------- ------- ------- ------- -------
Dividends from net investment income (0.25) (0.27) -- (0.27) (0.28) (0.28)
Distributions from net realized gains from investment
transactions (1.38) (1.57) (0.00)+++ (1.41) (2.06) (1.25)
------- ------- ------- ------- ------- -------
Total dividends and distributions to shareholders (1.63) (1.84) (0.00) (1.68) (2.34) (1.53)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 8.77 $ 9.94 $ 11.75 $ 11.54 $ 11.33 $ 10.95
======= ======= ======= ======= ======= =======
Total investment return (1) 5.32% 0.34% 1.82% 16.81% 24.86% 16.82%
======= ======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets, end of period (000's) $13,187 $13,941 $21,418 $28,549 $28,211 $29,224
Expenses to average net assets, before waiver from manager 1.11%* 1.34% 1.25% 0.97% 1.19% 1.24%
Expenses to average net assets, after waiver from manager 1.10%* 1.34% 1.25% 0.97% 1.19% 1.24%
Net investment income to average net assets, before waiver
from manager 2.82%* 2.12% 1.81% 2.08% 2.06% 2.29%
Net investment income to average net assets, after waiver
from manager 2.83%* 2.12% 1.81% 2.08% 2.06% 2.29%
Portfolio turnover 46% 185% 206% 177% 169% 235%
----------
+ Commencement of issuance of shares.
@ Calculated using average monthly shares outstanding for the period.
# Prior to the close of business on January 26, 1996, the Balanced Portfolio
was known as the Asset Allocation Portfolio.
+++ The Portfolio made a distribution of less than $0.005 during the year
ended December 31, 1999.
* Annualized.
++ Alliance Capital Management L.P. has served as the Portfolio's sub-advisor
since October 10, 2000. Prior to that date, Brinson Advisors, Inc. managed
the Portfolio's investments.
(1) Total investment return is calculated assuming a $10,000 investment on
the first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the ex-dividend dates and a
sale at net asset value on the last day of each period reported. The
figures do not include additional contract level charges; results would be
lower if such charges were included. Total investment return for periods
of less than one year has not been annualized.
16
CLASS I
-----------------------------------------------
FOR THE PERIOD
FOR THE SIX FOR THE AUGUST 17, 1999+
MONTHS ENDED YEAR ENDED THROUGH
JUNE 30, 2001 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2000++ 1999
------------- ------------ ----------------
Net asset value,beginning of period $ 9.91 $11.75 $11.37
------ ------ ------
Net investment income 0.11@ 0.25 0.04
Net realized and unrealized gains (losses) from investments
and futures 0.35@ (0.25) 0.34
------ ------ ------
Net increase from investment operations 0.46 0.00 0.38
------ ------ ------
Dividends from net investment income (0.24) (0.27) --
Distributions from net realized gains from investment
transactions (1.38) (1.57) (0.00)+++
------ ------ ------
Total dividends and distributions to shareholders (1.62) (1.84) (0.00)
------ ------ ------
Net asset value, end of period $ 8.75 $ 9.91 $11.75
====== ====== ======
Total investment return (1) 5.26% 0.04% 3.34%
====== ====== ======
Ratios/Supplemental data:
Net assets, end of period (000's) $1,675 $1,719 $ 596
Expenses to average net assets, before waiver from manager 1.35%* 1.57% 1.82%*
Expenses to average net assets, after waiver from manager 1.35%* 1.54% 1.57%*
Net investment income to average net assets, before waiver
from manager 2.58%* 1.98% 1.14%*
Net investment income to average net assets, after waiver
from manager 2.58%* 2.01% 1.39%*
Portfolio turnover 46% 185% 206%
----------
+ Commencement of issuance of shares.
@ Calculated using average monthly shares outstanding for the period.
# Prior to the close of business on January 26, 1996, the Balanced Portfolio
was known as the Asset Allocation Portfolio.
+++ The Portfolio made a distribution of less than $0.005 during the year
ended December 31, 1999.
* Annualized.
++ Alliance Capital Management L.P. has served as the Portfolio's sub-advisor
since October 10, 2000. Prior to that date, Brinson Advisors, Inc. managed
the Portfolio's investments.
(1) Total investment return is calculated assuming a $10,000 investment on
the first day of each period reported, reinvestment of all dividends and
distributions, if any, at net asset value on the ex-dividend dates and a
sale at net asset value on the last day of each period reported. The
figures do not include additional contract level charges; results would be
lower if such charges were included. Total investment return for periods
of less than one year has not been annualized.
17
SHAREHOLDER INFORMATION (UNAUDITED)
At a Special Meeting of Shareholders held on March 1, 2001, the
shareholders of the Fund approved the following proposals, as indicated below:
SHARES SHARES VOTED SHARES
PROPOSAL 1 VOTED FOR AGAINST ABSTAIN
--------- ------------ -------
TO APPROVE OR DISAPPROVE A NEW INVESTMENT MANAGEMENT AND ADMINISTRATION
CONTRACT BETWEEN BRINSON SERIES TRUST ("TRUST") AND BRINSON ADVISORS, INC
("BRINSON ADVISORS") (FORMERLY MITCHELL HUTCHINS ASSET MANAGEMENT INC.)
WITH RESPECT TO BALANCED PORTFOLIO ("FUND") 1,165,231 0 357,790
SHARES SHARES VOTED SHARES
PROPOSAL 2 VOTED FOR AGAINST ABSTAIN
--------- ------------ -------
TO APPROVE OR DISAPPROVE A NEW SUB-ADVISORY CONTRACT BETWEEN
BRINSON ADVISORS AND ALLIANCE CAPITAL MANAGEMENT L.P. WITH RESPECT
TO THE FUND 1,165,231 0 357,790
SHARES SHARES VOTED SHARES
PROPOSAL 2 VOTED FOR AGAINST ABSTAIN
--------- ------------ -------
TO APPROVE OR DISAPPROVE A POLICY TO PERMIT BRINSON ADVISORS AND
THE TRUST'S BOARD OF TRUSTEES TO APPOINT AND REPLACE SUB-ADVISORS
FOR THE FUND AND TO ENTER INTO AND AMEND THEIR SUB-ADVISORY CONTRACTS
WITHOUT FURTHER SHAREHOLDER APPROVAL 1,050,322 114,902 357,797
18
THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM THE RECORDS OF THE
PORTFOLIO WITHOUT EXAMINATION BY INDEPENDENT AUDITORS WHO DO NOT EXPRESS AN
OPINION THEREON.
BRINSON ADVISORS
(C)2001 Brinson Advisors, Inc.
All Rights Reserved
BRINSON SERIES
TRUST
GLOBAL EQUITY
PORTFOLIO
JUNE 30, 2001
SEMIANNUAL REPORT
BRINSON SERIES TRUST -- GLOBAL EQUITY PORTFOLIO SEMIANNUAL REPORT
August 15, 2001
Dear Contract Owner,
We present you with the semiannual report for Brinson Series Trust -- Global
Equity Portfolio for the six months ended June 30, 2001.
MARKET REVIEW
[GRAPHIC]
During the six months ended June 30, 2001, there were remarkable similarities in
the performance of most global markets. Most markets lost value, as concerns
about the possibility of a global recession dominated investor sentiment. During
the period, the MSCI World Index declined 10.50%, the MSCI EAFE Index was down
14.75% and the NIKKEI lost 5.92%.
In the United States, a slowdown in capital spending led to weak corporate
earnings and sluggish economic growth. In this environment, the Federal Reserve
Board (the "Fed") trimmed interest rates six times, for a total decrease of
2.75%, in an effort to stimulate economic growth. While the Fed's actions
sparked intermittent short-term rallies, the stock market could not overcome the
fact that many companies could offer little guidance as to when their businesses
might begin to pick up. As a result, many stocks struggled; and growth stocks,
particularly those in the technology sector, suffered the most. The poor showing
in the technology sector is reflected in the 12.53% decline of the Nasdaq
Composite Index for the period. The S&P 500 Index, an indicator of broad stock
market performance, declined 6.70% for the same period.
With the globalization of most industries, Europe was not immune to the slowdown
in the United States. In Europe, the TMT sector -- technology, media and
telecommunications -- was particularly hard hit. While the European markets
showed some relative strength early in the semiannual period, corporate earnings
forecasts began to deteriorate by period-end. As a result, stocks on many
European exchanges declined.
Japan continued to be affected by a slowing economy, a banking sector that is
mired in bad debt and weak product demand from its trading partners around the
world. While select Japanese companies performed well, the broad market
declined.
The emerging markets of Latin America and Asia faced a number of obstacles. Many
of these countries, particularly in Asia, are highly dependent on the United
States, Europe and Japan as markets for their goods and services. As economic
growth declined in these large industrial regions, many emerging market
countries saw their exports shrink. Fewer exports led to lower earnings, and
ultimately, to lower stock prices. Debt problems and political concerns were
also factors in the performance of the emerging markets. Bad loan problems in
Argentina and Turkey and political issues in Indonesia and the Philippines
contributed to an uncertain investment environment.
1
PORTFOLIO REVIEW
AVERAGE ANNUAL TOTAL RETURNS, PERIODS ENDED 6/30/01
6 MONTHS 1 YEAR 5 YEARS 10 YEARS INCEPTION*