-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H8mxqjwqsw59q4q8yWld4sEAQk+2ovECMgMmrYDqexxC6pP8lKnB69u6m0LoBa5V kO5WEA5PLMFlnC06qtn2/A== 0000936772-02-000140.txt : 20020415 0000936772-02-000140.hdr.sgml : 20020415 ACCESSION NUMBER: 0000936772-02-000140 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLIANCE VARIABLE PRODUCTS SERIES FUND INC CENTRAL INDEX KEY: 0000825316 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05398 FILM NUMBER: 02568170 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-30D 1 edg7545.txt ALLIANCE VARP TOTAL RETURN ALLIANCE ------------------------------------------------------- VARIABLE PRODUCTS ------------------------------------------------------- SERIES FUND ------------------------------------------------------- TOTAL RETURN PORTFOLIO ------------------------------------------------------- ANNUAL REPORT DECEMBER 31, 2001 Investment Products Offered --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed --------------------------- TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================ LETTER TO INVESTORS February 12, 2002 Dear Investor: We are pleased to provide you with an update of Alliance Variable Products Series Fund--Alliance Total Return Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2001. INVESTMENT OBJECTIVE The Portfolio seeks to achieve a high return through a combination of current income and capital appreciation. The Portfolio primarily invests in U.S. Government and agency obligations, bonds, 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) and common stocks. INVESTMENT RESULTS Listed below are the Portfolio's average annual total returns for the one-year, five-year and since inception periods ended December 31, 2001. 1 Year 2.27% 5 Years 11.67% Since Inception (12/92) 11.24% 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. For the year ended December 31, 2001, the Portfolio had a total return of 2.27%, compared to its benchmark, a 60%/40% blend of the S&P 500 Stock Index and the Lehman Brothers Government/Credit Bond Index, which returned -3.73%. Additionally, the Portfolio outperformed the S&P 500 Stock Index, which returned - -11.88% for the same 12-month period. Against the backdrop of another difficult year for the broad equity market, the Portfolio's allocation to bonds and the execution of our relative value equity investment process continued to serve shareholders well. MARKET COMMENTARY After a difficult year 2000, major U.S. equity performance barometers again moved lower in 2001. Despite aggressive easing by the Federal Reserve, investor expectations for economic recovery forced bond yields higher during the fourth quarter of 2001. Ironically, Fed Funds ended the year at a decade-low 1.75%. Ten-year Treasury yields rose 47 basis points to 5.04%, resulting in a yield curve steepening. With the collapse of Enron and the decoupling of Argentina, short-term volatility spiked during the quarter. However, robust capital market returns during the months of October and November have inspired investor hope that formidable pro-growth monetary and fiscal policy initiatives will achieve their desired effect to stabilize and stimulate U.S. economic activity. Indeed, we expect the character of news flow to improve as economic conditions respond to policy initiatives and become less severe. However, given year-end positive market momentum, our valuation work is suggesting that the stock prices of companies expected to benefit from economic recovery might be already fairly valued. With our valuation framework arguing for a more conservative stance, we have dutifully responded. As always, as the opportunity set reshapes itself in the equity market, we are prepared to adjust the Portfolio accordingly. During 2001, the Portfolio benefited handsomely from distressed and out of favor technology stock investments made earlier in the year, and again in the wake of September 11. Solid performance from stable company investments also added to shareholder gains. Lower interest rates underpinned solid performance from our investments in financial services stocks. Given the extremely hostile backdrop of the overall market, there were many investments that hurt Portfolio performance. Generally, economically and energy sensitive investments were significant detractors to Portfolio performance in 2001. The Portfolio maintained a relatively large exposure to energy stocks throughout the year, approximating between 12% and 15% of the Portfolio on average. Our value work suggests that many stocks in the sector are quite attractive on a longer-term basis. Our investments in economically sensitive stocks also cost the Portfolio performance this year with notably disappointing results coming from our airline, chemical, and modest gaming exposures. Fortunately, the good outweighed the bad and overall Portfolio performance was quite good versus its peer group and benchmark. MARKET OUTLOOK We anticipate a first quarter 2002 rebound in the U.S. economy, reflecting inventory replenishment following near-record fourth quarter 2001 inventory reductions. Accommodative fiscal and monetary policies will likely make a difference in 2002. Overall, the housing sector has remained strong. Low interest rates have made 1 TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================ financing more affordable, and strong demographic trends support solid demand for housing units. While unemployment will continue to rise, it should moderate by mid-year. We are positioning the Portfolio to benefit from the expected improvement in U.S. economic growth. Corporate securities stand to gain the most from a pick-up in economic activity and a renewal of investor confidence. The market is still pricing corporates cheaply, relative to Treasuries, with the average corporate bond only yielding 165 basis points more than Treasuries (as of December 31, 2001)--a high spread level by historical measures, despite significant narrowing in recent weeks. Accordingly, we are modestly increasing our corporate investments at the expense of Treasuries and agencies. Most of the elements that supported strong corporate returns in 2001 are still in place as we enter 2002, namely low nominal rates, a steep yield curve and substantial market liquidity. In 2001, these factors allowed investment-grade companies to issue, at record volume, more than $600 billion in the face of economic softness and weakening earnings. In 2002, new issue supply should moderate as corporations rein in capital expenditures and modest economic recovery ensues. A drop-off in corporate supply--particularly as Treasury supply rises--would allow spreads to narrow even further. We expect to increase our holdings of cyclicals as signs of economic recovery become more visible. We are favoring telecommunications and bank stocks, both investment-grade corporate sectors, as we enter 2002. The telecommunications sector offers attractive spreads and good value, given the relatively high quality and stable business profiles of most telecommunications credits. Debt reduction is a priority for investment-grade telecommunications stocks, and with capital spending expected to be down between 15% and 20% from 2001, credit profiles across the industry should stabilize or improve. For banks, low short-term borrowing rates and high longer-term lending rates--the result of Fed easing and a steep yield curve--continue to support revenues. Within the bank sector, we favor the tier-one capital securities of European banks with superior asset quality and strong profitability. We appreciate your investment in Alliance Total Return Portfolio and look forward to reporting further investment progress in the coming period. Sincerely, /s/ Paul Rissman Paul Rissman Vice President and Portfolio Manager /s/ Frank Caruso Frank Caruso Vice President and Portfolio Manager /s/ Andrew Aran Andrew Aran Vice President and Portfolio Manager 2 TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================ PERFORMANCE UPDATE 60% S&P 500/40% LB Gov't/Credit Bond Index: $26,311 Total Return Portfolio: $26,116 (The following table was depicted as a mountain chart in the printed material.) Composite Total Return Portfolio (60/40 S&P500 / LBG/CB) - ------------------------------------------------------------------------------- 12/31/92* $10,000 $10,000 12/31/93 $10,970 $11,045 12/31/94 $10,557 $10,976 12/31/95 $13,055 $14,311 12/31/96 $15,036 $16,571 12/31/97 $18,210 $20,857 12/31/98 $21,304 $25,718 12/31/99 $22,695 $29,662 12/31/00 $25,536 $28,258 12/31/01 $26,116 $26,311 *Since Inception: 12/28/92 Past performance is no guarantee of future results. This chart illustrates the total value of an assumed $10,000 investment in the Portfolio as compared to the performance of an appropriate broad-based index for the time frames indicated for the Portfolio. Performance results for the 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. The Standard and Poor's 500 Stock Index (S&P 500) includes 500 stocks and is a common measure of the performance of the overall U.S. stock market. The Lehman Brothers Government/Credit Bond Index (LB Gov't/Credit Bond) represents a combination of the two indices. The Lehman Brothers Government Bond Index is composed of the Treasury Bond and Agency Bond Indices, the 1-3 Year Government Index and the 20-Year Treasury Index. The Lehman Brothers Credit Bond Index includes all publicly issued, fixed-rate, non-convertible investment grade corporate debt; the index is composed of both U.S. and Brady bonds. - -------------------------------------------------------------------------------- * Month-end closest to Portfolio inception. Inception date for the Portfolio is 12/28/92. 3 TOTAL RETURN PORTFOLIO TEN LARGEST HOLDINGS December 31, 2001 Alliance Variable Products Series Fund ================================================================================ - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- U.S. Treasury Notes $ 32,046,387 17.4% - -------------------------------------------------------------------------------- Federal National Mortgage Assoc. 6,984,918 3.8 - -------------------------------------------------------------------------------- U.S. Treasury Bonds 5,623,637 3.0 - -------------------------------------------------------------------------------- Citigroup, Inc. 5,101,671 2.8 - -------------------------------------------------------------------------------- Philip Morris Cos., Inc. 4,678,573 2.5 - -------------------------------------------------------------------------------- Tyco International, Ltd. 4,417,500 2.4 - -------------------------------------------------------------------------------- J.P. Morgan Chase & Co. 4,089,375 2.2 - -------------------------------------------------------------------------------- Bank One Corp. 3,988,896 2.2 - -------------------------------------------------------------------------------- Household International, Inc. 3,766,100 2.0 - -------------------------------------------------------------------------------- AT&T Corp. 3,701,606 2.0 ------------- ---- - -------------------------------------------------------------------------------- $ 74,398,663 40.3% - -------------------------------------------------------------------------------- 4 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2001 Alliance Variable Products Series Fund ================================================================================ Company Shares U.S. $ Value - ------------------------------------------------------------- COMMON STOCKS-57.4% FINANCE-15.6% BANKING - MONEY CENTERS-2.2% J.P. Morgan Chase & Co. ....... 112,500 $ 4,089,375 -------------- BANKS - REGIONAL-5.1% Bank of America Corp. ......... 51,650 3,251,367 Bank One Corp. ................ 96,500 3,768,325 KeyCorp. ...................... 70,000 1,703,800 National City Corp. ........... 22,500 657,900 -------------- 9,381,392 -------------- INSURANCE-1.4% ACE, Ltd. ..................... 15,000 602,250 American International Group, Inc. ....................... 25,500 2,024,700 -------------- 2,626,950 -------------- MORTGAGE BANKING-1.6% PMI Group, Inc. ............... 14,150 948,192 Washington Mutual, Inc. ....... 62,000 2,027,400 -------------- 2,975,592 -------------- MISCELLANEOUS-5.3% Citigroup, Inc. ............... 100,000 5,048,000 Household International, Inc. . 65,000 3,766,100 MBNA Corp. .................... 26,750 941,600 -------------- 9,755,700 -------------- 28,829,009 -------------- ENERGY-8.1% DOMESTIC INTEGRATED-0.5% Phillips Petroleum Co. ........ 15,000 903,900 -------------- DOMESTIC PRODUCERS-1.4% Apache Corp. .................. 11,660 581,601 Devon Energy Corp. ............ 12,500 483,125 Kerr-McGee Corp. .............. 28,000 1,534,400 -------------- 2,599,126 -------------- INTERNATIONAL-2.0% BP Plc (ADR) (United Kingdom)............ 65,000 3,023,150 Exxon Mobil Corp. ............. 16,250 638,625 -------------- 3,661,775 -------------- OIL SERVICE-2.5% Baker Hughes, Inc. ............ 20,000 729,400 Noble Drilling Corp. (a)....... 55,000 1,872,200 Transocean Sedco Forex, Inc. .. 58,750 1,986,925 -------------- 4,588,525 -------------- MISCELLANEOUS-1.7% Dynegy, Inc. .................. 125,000 3,187,500 -------------- 14,940,826 -------------- CONSUMER STAPLES-7.5% BEVERAGES-1.5% Anheuser Busch Cos., Inc. ..... 61,000 2,757,810 -------------- COSMETICS-1.5% Avon Products, Inc. ........... 60,000 2,790,000 -------------- HOUSEHOLD PRODUCTS-0.9% The Procter & Gamble Co. ...... 20,000 1,582,600 -------------- RETAIL-FOOD & DRUG-1.1% Kroger Co. (a)................. 100,080 2,088,670 -------------- TOBACCO-2.5% Philip Morris Cos., Inc. ...... 100,000 4,585,000 -------------- 13,804,080 -------------- HEALTH CARE-7.2% DRUGS-3.4% American Home Products Corp. .. 32,500 1,994,200 Merck & Co., Inc. ............. 12,500 735,000 Pharmacia Corp. ............... 37,500 1,599,375 Schering-Plough Corp. ......... 55,000 1,969,550 -------------- 6,298,125 -------------- MEDICAL PRODUCTS-0.9% Abbott Laboratories............ 31,000 1,728,250 -------------- MEDICAL SERVICES-2.9% Cardinal Health, Inc. ......... 20,000 1,293,200 HCA, Inc. ..................... 35,000 1,348,900 IMS Health, Inc. .............. 35,000 682,850 Tenet Healthcare Corp. (a)..... 34,000 1,996,480 -------------- 5,321,430 -------------- 13,347,805 -------------- UTILITIES-6.8% ELECTRIC & GAS UTILITIES-3.6% AES Corp. (a).................. 21,250 347,437 Alliant Energy Corp. .......... 10,700 324,852 Ameren Corp. .................. 25,000 1,057,500 American Electric Power Co., Inc. ....................... 23,000 1,001,190 Constellation Energy Group..... 38,000 1,008,900 Duke Energy Corp. ............. 27,500 1,079,650 FirstEnergy Corp. ............. 26,500 926,970 FPL Group, Inc. ............... 15,000 846,000 -------------- 6,592,499 -------------- TELEPHONE UTILITIES-3.2% AT&T Corp. .................... 159,500 2,893,330 BellSouth Corp. ............... 20,000 763,000 SBC Communications, Inc. ...... 50,000 1,958,500 WorldCom, Inc. ................ 27,200 382,976 -------------- 5,997,806 -------------- 12,590,305 -------------- TECHNOLOGY-3.1% COMPUTER SERVICES-0.4% Electronic Data Systems Corp. ...................... 10,500 719,775 -------------- 5 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------- CONTRACT MANUFACTURING-1.8% Flextronics International, Ltd. (Singapore) (a)............. 58,500 $ 1,403,415 Sanmina Corp. (a).............. 75,000 1,492,500 Solectron Corp. (a)............ 49,000 552,720 -------------- 3,448,635 -------------- SEMI-CONDUCTOR COMPONENTS-0.9% Micron Technology, Inc. (a).... 52,390 1,624,090 -------------- 5,792,500 -------------- MULTI-INDUSTRY COMPANIES-2.9% Honeywell International, Inc. . 27,500 930,050 Tyco International, Ltd. ...... 75,000 4,417,500 -------------- 5,347,550 -------------- CAPITAL GOODS-2.1% MISCELLANEOUS-2.1% General Electric Co. .......... 50,000 2,004,000 United Technologies Corp. ..... 28,500 1,841,955 -------------- 3,845,955 -------------- CONSUMER SERVICES-1.9% BROADCASTING & CABLE-1.6% Comcast Corp. Cl.A (a)......... 65,000 2,340,000 Liberty Media Corp. Cl.A, (a).. 40,000 560,000 -------------- 2,900,000 -------------- CELLULAR COMMUNICATIONS-0.3% AT&T Wireless Services, Inc. (a).................... 44,488 639,293 -------------- 3,539,293 -------------- BASIC INDUSTRIES-1.1% CHEMICALS-1.1% E.I. du Pont de Nemours & Co. ...................... 17,500 743,925 Eastman Chemical Co. .......... 7,750 302,405 Lyondell Chemical Co. ......... 54,500 780,985 Solutia, Inc. ................. 20,000 280,400 -------------- 2,107,715 -------------- TRANSPORTATION-1.1% RAILROAD-1.1% Union Pacific Corp. ........... 34,000 1,938,000 -------------- Total Common Stocks (cost $100,079,685)......... 106,083,038 -------------- U.S. GOVERNMENT & AGENCY OBLIGATIONS-24.2% Federal National Mortgage Assoc. 5.50%, 3/15/11.............. 2,500 2,455,850 6.00%, 12/15/05............. 2,000 2,101,880 6.625%, 10/15/07............ 2,250 2,427,188 U.S. Treasury Bonds 5.375%, 2/15/31............. 500 492,735 6.25%, 8/15/23.............. 1,400 1,481,158 6.875%, 8/15/25............. 1,650 1,881,511 8.125%, 8/15/19............. 1,365 1,723,531 8.125%, 8/15/21............. 35 44,702 U.S. Treasury Notes 3.50%, 11/15/06............. 1,500 1,445,625 3.50%, 1/15/11.............. 3,063 3,053,742 4.625%, 5/15/06............. 7,125 7,221,829 5.00%, 2/15/11.............. 7,000 6,973,750 5.00%, 8/15/11.............. 2,125 2,118,348 5.625%, 5/15/08............. 800 838,128 5.75%, 8/15/03.............. 50 52,367 5.75%, 8/15/10.............. 1,350 1,416,231 6.25%, 2/15/07.............. 4,600 4,965,838 6.50%, 10/15/06............. 250 271,875 6.875%, 5/15/06............. 2,750 3,025,000 7.50%, 2/15/05.............. 600 663,654 -------------- Total U.S. Government & Agency Obligations (cost $44,192,782).......... 44,654,942 -------------- CORPORATE DEBT OBLIGATIONS-13.4% AEROSPACE/DEFENSE-0.2% Northrop Grumman Corp. 7.125%, 2/15/11............. 225 233,550 Raytheon Co. 8.20%, 3/01/06.............. 150 162,732 -------------- 396,282 -------------- AUTOMOTIVE-0.0% Federal Mogul Corp. 7.875%, 7/01/10 (b)......... 200 28,000 -------------- BANKING-2.1% Abbey National Capital Trust I 8.963%, 12/29/49............ 66 74,793 Bank One Corp. 7.875%, 8/01/10............. 200 220,571 Barclays Bank Plc 8.55%, 9/29/49 (c).......... 50 55,830 Citicorp 6.375%, 11/15/08............ 500 508,482 Citigroup, Inc. 7.25%, 10/01/10............. 50 53,671 Development Bank of Singapore 7.125%, 5/15/11 (c)......... 500 515,178 First Massachusetts Bank 7.625%, 6/15/11............. 200 209,352 First Union Capital II 7.95%, 11/15/29............. 150 154,395 First Union National Bank 7.80%, 8/18/10.............. 400 439,855 FMR Corp. 7.57%, 6/15/29 (c).......... 140 151,237 HSBC Capital Funding LP 10.176%, 6/30/30 (c)(d)..... 560 708,031 6 Alliance Variable Products Series Fund ================================================================================ Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------- Sanwa Bank, Ltd. 7.40%, 6/15/11.............. $ 400 $ 373,747 Unicredito Italiano Capital Trust 9.20%, 10/05/10 (c)......... 250 278,531 Zions Financial Corp. 6.95%, 5/15/06 (c).......... 200 203,441 -------------- 3,947,114 -------------- BROADCASTING/MEDIA-0.4% AT&T Corp. - Liberty Media Corp. 8.25%, 2/01/30.............. 300 284,512 Clear Channel Communications, Inc. 7.875%, 6/15/05............. 150 159,086 Liberty Media Corp. 7.875%, 7/15/09 (c)......... 150 153,873 News America Holdings, Inc. 8.25%, 10/17/96............. 60 56,885 Time Warner, Inc. 7.75%, 6/15/05.............. 140 150,798 -------------- 805,154 -------------- BUILDING/REAL ESTATE-0.1% EOP Operating LP 8.375%, 3/15/06............. 35 37,784 Meritage Corp. 9.75%, 6/01/11.............. 100 103,625 -------------- 141,409 -------------- CABLE-0.4% Charter Communications Holdings, Inc. 10.00%, 5/15/11............. 200 204,500 Cox Communications, Inc. 7.75%, 11/01/10............. 200 213,908 Shaw Communications, Inc. 8.25%, 4/11/10.............. 150 160,605 TCI Communications, Inc. 6.375%, 5/01/03............. 100 102,792 -------------- 681,805 -------------- COMMUNICATIONS-1.9% AT&T Canada, Inc. 7.65%, 9/15/06.............. 400 261,205 AT&T Corp. 8.00%, 11/15/31 (c)......... 250 262,559 British Telecommunications Plc 8.125%, 12/15/10............ 700 776,322 Paramount Communications, Inc. 7.50%, 7/15/23.............. 300 297,166 Qwest Capital Funding, Inc. 6.375%, 7/15/08............. 210 198,274 7.90%, 8/15/10.............. 200 203,783 Singapore Telecommunications Ltd. 7.375%, 12/01/31 (c)........ 250 255,568 Sprint Capital Corp. 6.875%, 11/15/28............ 350 322,596 7.625%, 1/30/11............. 325 341,923 WorldCom, Inc.-WorldCom Group 8.00%, 5/15/06 ............. 85 90,564 8.25%, 5/15/31 ............. 400 424,031 -------------- 3,433,991 -------------- COMMUNICATIONS-MOBILE-0.6% AT&T Wireless Services, Inc. 7.875%, 3/01/11 (c)......... 500 535,382 PanAmSat Corp. 6.125%, 1/15/05............. 250 226,630 TELUS Corp. 7.50%, 6/01/07.............. 200 210,707 Tritel PCS, Inc. 10.375%, 1/15/11............ 200 230,000 -------------- 1,202,719 -------------- ENERGY-0.4% Apache Finance PTY, Ltd. 6.50%, 12/15/07............. 250 257,602 Conoco, Inc. 5.90%, 4/15/04.............. 150 155,865 Pemex Project Funding Master Trust 9.125%, 10/13/10............ 150 159,375 Union Pacific Resources Group, Inc. 7.30%, 4/15/09.............. 150 156,061 Yosemite Security Trust I 8.25%, 11/15/04 (c)......... 50 9,375 -------------- 738,278 -------------- FINANCIAL-1.6% American Re Corp. Cl.B 7.45%, 12/15/26............. 140 146,153 Cho Hung Bank Co., Ltd. 11.875%, 4/01/10 (c)........ 80 87,600 Ford Motor Credit Co. 6.00%, 1/14/03 ............. 150 152,924 7.875%, 6/15/10 ............ 100 101,571 Goldman Sachs Group, Inc. 6.65%, 5/15/09.............. 200 204,233 Heller Financial, Inc. 8.00%, 6/15/05.............. 115 127,290 Household Finance Corp. 6.375%, 10/15/11 ........... 400 387,697 6.50%, 1/24/06 ............. 75 76,939 7.875%, 3/01/07 ............ 150 161,349 Household Netherlands BV 6.20%, 12/01/03............. 100 103,859 Lehman Brothers Holdings, Inc. 6.625%, 4/01/04 ............ 145 153,156 7.875%, 8/15/10 ............ 150 162,034 Markel Capital Trust I 8.71%, 1/01/46.............. 200 129,240 7 TOTAL RETURN PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------- Merrill Lynch & Co., Inc. 6.00%, 2/17/09.............. $ 500 $ 498,621 Morgan Stanley Dean Witter & Co. 5.625%, 1/20/04............. 75 77,670 7.75%, 6/15/05.............. 125 136,626 PXRE Capital Trust I 8.85%, 2/01/27.............. 250 130,810 The Hartford Financial Services, Inc. 6.375%, 11/01/08............ 125 126,750 -------------- 2,964,522 -------------- FOOD/BEVERAGE-0.5% Fosters Finance Corp. 6.875%, 6/15/11 (c)......... 200 206,180 Kellogg Co. Cl.B 6.60%, 4/01/11.............. 300 308,856 Phillip Morris Cos., Inc. 7.75%, 1/15/27.............. 90 93,573 Ralston Purina Co. 8.625%, 2/15/22............. 300 375,801 -------------- 984,410 -------------- HEALTHCARE-0.1% HCA-The Healthcare Co. 7.875%, 2/01/11............. 200 205,000 8.75%, 9/01/10.............. 50 54,250 -------------- 259,250 -------------- INDUSTRIAL-0.3% Continental Cablevision, Inc. 9.00%, 9/01/08.............. 300 340,241 Deere & Co. 7.85%, 5/15/10.............. 150 163,694 -------------- 503,935 -------------- INSURANCE-0.7% Loews Corp. 6.75%, 12/15/06............. 100 101,932 Lumbermens Mutual Casualty 9.15%, 7/01/26 (c).......... 150 139,158 SunAmerica, Inc. 8.125%, 4/28/23............. 1,000 1,120,908 -------------- 1,361,998 -------------- NON-AIR TRANSPORTATION-0.6% CSX Corp. 6.75%, 3/15/11.............. 250 254,410 Union Pacific Corp. 6.625%, 2/01/29............. 800 771,577 -------------- 1,025,987 -------------- PAPER/PACKAGING-0.2% Abitibi-Consolidated, Inc. 8.30%, 8/01/05.............. 25 26,590 Domtar, Inc. 7.875%, 10/15/11............ 250 260,461 -------------- 287,051 -------------- PETROLEUM PRODUCTS-0.2% Canadian Natural Resources, Ltd. 6.70%, 7/15/11.............. 300 291,741 -------------- PUBLIC UTILITIES - ELECTRIC & GAS-1.8% Calpine Corp. 8.50%, 2/15/11.............. 200 174,000 Dominion Resources Capital Trust III 8.40%, 1/15/31.............. 200 210,322 Dominion Resources, Inc. 8.125%, 6/15/10............. 150 165,532 DPL, Inc. 8.25%, 3/01/07.............. 550 593,794 Elwood Energy LLC 8.159%, 7/05/26 (b)......... 250 234,537 FirstEnergy Corp. Series C 7.375%, 11/15/31............ 500 489,587 FPL Energy Virginia Funding Corp. 7.52%, 6/30/19 (c).......... 300 303,433 Mission Energy Holding Co. 13.50%, 7/15/08 (c)......... 100 109,500 Nevada Power Co. 8.25%, 6/01/11 (c).......... 200 212,686 Progress Energy, Inc. 7.10%, 3/01/11.............. 400 416,419 PSEG Energy Holdings, Inc. 10.00%, 10/01/09............ 200 214,257 Yorkshire Power 8.25%, 2/15/05 (c).......... 150 165,085 -------------- 3,289,152 -------------- PUBLIC UTILITIES-TELEPHONE-0.3% Bell Atlantic New Jersey, Inc. 8.00%, 6/01/22.............. 500 532,261 -------------- RETAIL-0.3% J.C. Penney Co., Inc. 7.60%, 4/01/07.............. 100 98,104 K Mart Funding Corp. 9.44%, 7/01/18.............. 150 102,352 Kohl's Corp. 7.25%, 6/01/29.............. 150 158,519 Toys R Us, Inc. 7.625%, 8/01/11 (c)......... 250 241,888 -------------- 600,863 -------------- SOVEREIGN-0.1% Quebec Province of Canada 7.50%, 9/15/29.............. 150 167,834 -------------- SUPERMARKET/DRUG-0.2% Delhaize America, Inc. 9.00%, 4/15/31 (c).......... 300 360,644 -------------- 8 Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount Company (000) U.S. $ Value - ------------------------------------------------------------- MUNICIPAL OBLIGATION-0.4% Dallas-Fort Worth Texas International 7.07%, 11/01/24............. $ 400 $ 409,956 Nextel Communications, Inc. 9.375%, 11/15/09............ 350 277,375 -------------- 687,331 -------------- Total Corporate Debt Obligations (cost $24,278,048).......... 24,691,731 -------------- PREFERRED STOCK-0.1% FINANCIAL-0.1% Sovereign Real Estate Investor Trust (b) (cost $77,881).............. 90,000 89,325 -------------- YANKEE BONDS-0.1% YANKEE BONDS-0.1% Imperial Tobacco Overseas BV 7.125%, 4/01/09 (cost $169,583)............. $ 170 $ 175,226 -------------- SHORT-TERM INVESTMENT-4.9% TIME DEPOSIT-4.9% State Street Euro Dollar 1.25%, 1/02/02 (cost $9,127,000)........... 9,127 9,127,000 -------------- TOTAL INVESTMENTS-100.1% (cost $177,924,979)......... 184,821,262 Other assets less liabilities-(0.1%).......... (152,778) -------------- NET ASSETS-100%................ $ 184,668,484 ============== - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Security is in default and is non-income producing. (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 December 31, 2001, the aggregate market value of these securities amounted to $5,279,041 or 2.9% of net assets. (d) Variable rate coupon, rate shown as of December 31, 2001. Glossary: ADR - American Depositary Receipt See Notes to Financial Statements. 9 TOTAL RETURN PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Alliance Variable Products Series Fund ================================================================================ ASSETS Investments in securities, at value (cost $177,924,979)............. $ 184,821,262(a) Cash................................................................ 931 Collateral held for securities loaned............................... 13,346,550 Dividends and interest receivable................................... 1,259,195 Receivable for capital stock sold................................... 240,197 -------------- Total assets........................................................ 199,668,135 -------------- LIABILITIES Payable for collateral received on securities loaned................ 13,346,550 Payable for investment securities purchased......................... 1,449,700 Advisory fee payable................................................ 95,740 Payable for capital stock redeemed.................................. 14,747 Accrued expenses.................................................... 92,914 -------------- Total liabilities................................................... 14,999,651 -------------- NET ASSETS............................................................. $ 184,668,484 ============== COMPOSITION OF NET ASSETS Capital stock, at par............................................... $ 10,462 Additional paid-in capital.......................................... 175,638,318 Undistributed net investment income................................. 3,559,572 Accumulated net realized loss on investments........................ (1,436,151) Net unrealized appreciation of investments.......................... 6,896,283 ============== $ 184,668,484 ============== Class A Shares Net assets.......................................................... $ 183,098,442 ============== Shares of capital stock outstanding................................. 10,372,782 ============== Net asset value per share........................................... $ 17.65 ============== Class B Shares Net assets.......................................................... $ 1,570,042 ============== Shares of capital stock outstanding................................. 88,954 ============== Net asset value per share........................................... $ 17.65 ==============
- -------------------------------------------------------------------------------- (a) Includes securities on loan with a value of $12,684,494 (see Note F). See Notes to Financial Statements. 10 TOTAL RETURN PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2001 Alliance Variable Products Series Fund ================================================================================ INVESTMENT INCOME Interest................................................................... $ 3,425,621 Dividends (net of foreign taxes withheld of $14,316)....................... 1,290,081 ------------- Total investment income.................................................... 4,715,702 ------------- EXPENSES Advisory fee............................................................... 897,414 Distribution fees--Class B.................................................. 692 Custodian.................................................................. 94,701 Administrative............................................................. 69,336 Audit and legal............................................................ 35,699 Printing................................................................... 19,838 Directors' fees............................................................ 1,220 Transfer agency............................................................ 962 Miscellaneous.............................................................. 5,423 ------------- Total expenses............................................................. 1,125,285 ------------- Net investment income...................................................... 3,590,417 ------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized loss on investment transactions............................... (589,600) Net realized loss on foreign currency transactions......................... (9,824) Net change in unrealized appreciation/depreciation of investments.......... (353,682) ------------- Net loss on investment and foreign currency transactions................... (953,106) ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS.................................... $ 2,637,311 =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 TOTAL RETURN PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund ================================================================================
Year Ended Year Ended December 31, December 31, 2001 2000 ================= ================= INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income............................................................ $ 3,590,417 $ 2,210,946 Net realized gain (loss) on investment and foreign currency transactions......... (599,424) 3,318,416 Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities....................... (353,682) 4,102,738 ----------------- ----------------- Net increase in net assets from operations....................................... 2,637,311 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....................................................................... (3,254,079) (5,117,607) Distributions in excess of net realized gain on investments Class A....................................................................... (677,076) -0- CAPITAL STOCK TRANSACTIONS Net increase..................................................................... 97,460,305 12,725,214 ----------------- ----------------- Total increase................................................................... 93,932,320 15,566,561 NET ASSETS Beginning of period.............................................................. 90,736,164 75,169,603 ----------------- ----------------- End of period (including undistributed net investment income of $3,559,572 and $2,215,558, respectively)...................................... $ 184,668,484 $ 90,736,164 ================= =================
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2001 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. 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 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. 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. 13 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ 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. During the current fiscal year, permanent differences, primarily due to foreign currency transactions, merger transactions and recognition of bond premium, resulted in a net increase in undistributed net investment income, a net increase in accumulated net realized loss on investments and a corresponding increase in additional paid-in capital. This reclassification had no effect on net assets. 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 has 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 $84,357 reduction in cost of investments and a corresponding $84,357 increase in net unrealized appreciation/depreciation, based on investments owned by the Portfolio on January 1, 2001. The effect of this change for the year ended December 31, 2001, was to decrease net investment income by $163,137, increase net unrealized appreciation of investments by $81,218, and increase net realized loss on investment transactions by $81,919. 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 $69,336 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the year ended December 31, 2001. During the year ended December 31, 2001, the Adviser agreed to waive its fee and to reimburse 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 year ended December 31, 2001, the Portfolio received no such waivers/reimbursements. Broker commissions paid on investment transactions for the year ended December 31, 2001 amounted to $259,491, none of which was paid to Sanford C. Bernstein & Co. LLC, an affiliate of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc. (formerly Alliance Fund 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 $962 for the year ended December 31, 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 and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Dis- 14 Alliance Variable Products Series Fund ================================================================================ tributor 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 and servicing 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 year ended December 31, 2001, were as follows: Purchases: Stocks and debt obligations.................................. $ 136,857,864 U.S. government and agencies................................. 35,900,454 Sales: Stocks and debt obligations.................................. $ 84,537,229 U.S. government and agencies................................. 12,589,833 At December 31, 2001, the cost of investments for federal income tax purposes was $179,353,066. Accordingly, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Gross unrealized appreciation................................ $ 12,377,172 Gross unrealized depreciation................................ (6,908,976) -------------- Net unrealized appreciation.................................. $ 5,468,196 ============== 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 December 31, 2001, the Portfolio had no outstanding forward exchange currency contract. 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 15 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ 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 year ended December 31, 2001. - -------------------------------------------------------------------------------- NOTE E: Distributions to Shareholders The tax character of distributions paid during the fiscal year ended December 31, 2001 and December 31, 2000 were as follows:
2001 2000 ================= ================= Distributions paid from: Ordinary income............................ $ 2,257,494 $ 2,799,958 Net long-term capital gains................ 3,907,802 3,990,795 ----------------- ----------------- Total taxable distributions................... 6,165,296 6,790,753 ----------------- ----------------- Total distributions paid...................... $ 6,165,296 $ 6,790,753 ================= =================
As of December 31, 2001, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ..................................... $ 4,996,552 Undistributed long-term capital gains.............................. 840,055 ----------------- Accumulated Earnings............................................... 5,836,607 Accumulated capital and other losses............................... (2,285,099)(a) Unrealized appreciation/(depreciation)............................. 5,468,196)(b) ----------------- Total accumulated earnings/(deficit)............................... $ 9,019,704 =================
(a) Net capital losses incurred after October 31, and within the taxable year are deemed to arise on the first business day of the Portfolio's next taxable year. For the year ended December 31, 2001, the Portfolio deferred to January 1, 2002, post October capital losses of $2,285,099. (b) The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and tax amortization methods for premium and market discount. - -------------------------------------------------------------------------------- NOTE F: 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 December 31, 2001, the Portfolio had loaned securities with a value of $12,684,494 and received cash collateral of $13,346,550. For the year ended December 31, 2001, the Portfolio received fee income $39,634 which is included in interest income in the accompanying statement of operations. 16 Alliance Variable Products Series Fund ================================================================================ NOTE G: 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 --------------------------------------- --------------------------------------- Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ================= ================= ================= ================= Class A Shares sold............................. 5,276,804 1,071,089 $ 94,753,113 $ 18,551,854 Shares issued in reinvestment of dividends and distributions.......... 339,125 395,732 6,165,296 6,790,753 Shares issued on connection with the acquisition of Brinson Series Trust Balanced Portfolio............. 704,488 -0- 12,369,676 -0- Shares redeemed......................... (986,886) (724,311) (17,390,546) (12,617,393) ----------------- ----------------- ----------------- ----------------- Net increase............................ 5,333,531 742,510 $ 95,897,539 $ 12,725,214 ================= ================= ================= ================= --------------------------------------- --------------------------------------- SHARES AMOUNT --------------------------------------- --------------------------------------- October 26, 2001* October 26, 2001* to December 31, to December 31, 2001 2001 ================= ================= Class B Shares sold............................. 1,114 $ 19,680 Shares issued on connection with the acquisition of Brinson Series Trust Balanced Portfolio............. 90,728 1,593,583 Shares redeemed......................... (2,888) (50,497) ----------------- ----------------- Net increase............................ 88,954 $ 1,562,766 ================= =================
- -------------------------------------------------------------------------------- NOTE H: 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 I: 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 year ended December 31, 2001. - -------------------------------------------------------------------------------- * Commencement of distribution. 17 TOTAL RETURN PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ NOTE J: Acquisition of Brinson Series Trust Balanced Portfolio On October 26, 2001, the Portfolio acquired all the assets and liabilities, of the Brinson Series Trust Balanced Portfolio pursuant to a plan of reorganization approved by the shareholders of Brinson Series Trust Balanced Portfolio on March 1, 2001. The acquisition was accomplished by a tax-free exchange of 795,216 shares of the Portfolio for 1,750,377 shares of Brinson Series Trust Balanced Portfolio on October 26, 2001. The aggregate net assets of the Portfolio and Brinson Series Trust Balanced Portfolio immediately before the acquisition were $159,038,305 and $13,963,259 (including $105,721 net unrealized appreciation of investments), respectively. Immediately after the acquisition the combined net assets of the Portfolio amounted to $173,001,564. 18 TOTAL RETURN PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
-------------------------------------------------------------------------- CLASS A -------------------------------------------------------------------------- Year Ended December 31, -------------------------------------------------------------------------- 2001(a) 2000 1999 1998 1997 =========== =========== =========== =========== =========== Net asset value, beginning of period .............. $ 18.01 $ 17.49 $ 18.06 $ 16.92 $ 14.63 ----------- ----------- ----------- ----------- ----------- Income From Investment Operations Net investment income (b) ......................... .44 .48 .44 .41 (c) .39(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions .......................... (.01) 1.63 .70 2.36 2.62 ----------- ----------- ----------- ----------- ----------- Net increase in net asset value from operations ................................ .43 2.11 1.14 2.77 3.01 ----------- ----------- ----------- ----------- ----------- Less: Dividends and Distributions Dividends from net investment income .............. (.28) (.39) (.36) (.29) (.23) Distributions from net realized gain on investments (.42) (1.20) (1.35) (1.34) (.49) Distributions in excess of net realized gain on investments ................................. (.09) -0- -0- -0- -0- ----------- ----------- ----------- ----------- ----------- Total dividends and distributions ................. (.79) (1.59) (1.71) (1.63) (.72) ----------- ----------- ----------- ----------- ----------- Net asset value, end of period .................... $ 17.65 $ 18.01 $ 17.49 $ 18.06 $ 16.92 =========== =========== =========== =========== =========== Total Return Total investment return based on net asset value (d) ............................ 2.27% 12.52% 6.53% 16.99% 21.11% Ratios/Supplemental Data Net assets, end of period (000's omitted) ......... $ 183,098 $ 90,736 $ 75,170 $ 59,464 $ 42,920 Ratio to average net assets of: Expenses, net of waivers and reimbursements ........................... .78% .87% .86% .88% .88% Expenses, before waivers and reimbursements ........................... .78% .87% .86% .95% .88% Net investment income .......................... 2.50% 2.77% 2.48% 2.41%(c) 2.46%(c) Portfolio turnover rate ........................... 71% 102% 91% 57% 65%
- -------------------------------------------------------------------------------- See footnote summary on page 20. 19 TOTAL RETURN PORTFOLIO FINANCIAL HIGHLIGHTS (continued) Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------- CLASS B ------------- October 26, 2001(a)(e) to December 31, 2001 ============= Net asset value, beginning of period................................................ $ 17.56 ------- Income From Investment Operations Net investment income (b)........................................................... .06 Net realized and unrealized gain on investment and foreign currency transactions.... .03 ------- Net increase in net asset value from operations..................................... .09 ------- Net asset value, end of period...................................................... $ 17.65 ======= Total Return Total investment return based on net asset value (d)................................ .51% Ratios/Supplemental Data Net assets, end of period (000's omitted)........................................... $ 1,570 Ratio to average net assets of: Expenses......................................................................... 1.00%(f) Net investment income............................................................ 1.80%(f) Portfolio turnover rate............................................................. 71%
- -------------------------------------------------------------------------------- (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 financial statement reporting purposes only. For the year ended December 31, 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 gain (loss) on investments per share by $.02 and $.02, and decrease the ratio of net investment income to average net assets from 2.61% to 2.50% for Class A and from 2.41% to 1.80% for Class B. 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) Commencement of distribution. (f) Annualized. 20 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Alliance Variable Products Series Fund ================================================================================ To the Shareholders and Board of Directors Total Return Portfolio Alliance Variable Products Series Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Total Return Portfolio (the "Portfolio"), (one of the portfolios constituting the Alliance Variable Products Series Fund, Inc.) as of December 31, 2001, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 2001, by correspondence with the custodian and others. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Total Return Portfolio of the Alliance Variable Products Series Fund, Inc. at December 31, 2001, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the indicated periods, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP New York, New York February 12, 2002 FEDERAL INCOME TAX INFORMATION (unaudited) ================================================================================ The Portfolio hereby designated $3,907,802 as long-term capital gain distributions during the taxable year ended December 31, 2001. 21 TOTAL RETURN PORTFOLIO 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) 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. 22 TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================ MANAGEMENT OF THE FUND Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below.
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS AGE OF DIRECTOR OCCUPATION(S) OVERSEEN BY HELD BY (YEARS OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTOR John D. Carifa,** 56, President, Chief Operating Officer and 113 None 1345 Avenue of the Americas, a Director of ACMC, with which he has New York, NY 10105 (12) been associated since prior to 1997. DISINTERESTED DIRECTORS Ruth Block,#+ 71, Formerly an Executive Vice President and 88 Ecolab Incorp.; P.O. Box 4623, the Chief Insurance Officer of the Equitable BP Amoco Corp. Stamford, CT 06903 (10) Life Assurance Society of the United States; Chairman and Chief Executive Officer of Evlico; a Director of Avon, Tandem Financial Group and Donaldson, Lufkin & Jenrette Securities Corporation. She is currently a Director of Ecolab Incorporated (specialty chemicals) and BP Amoco Corporation (oil and gas). David H. Dievler,#+ 72, Independent consultant. Until December 1994, 94 None P.O. Box 167, Senior Vice President of ACMC responsible Spring Lake, New Jersey for mutual fund administration. Prior to joining 07762 (12) ACMC in 1984, Chief Financial Officer of Eberstadt Asset Management since 1968. Prior to that, Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin,#+ 59, Consultant. Currently, President of the Board 91 None P.O. Box 12, of Save Venice, Inc. (preservation organization). Annandale, New York Formerly a Senior Advisor from June 1999- 12504 (10) June 2000 and President from December 1989- May 1999 of Historic Hudson Valley (historic preservation). Previously, Director of the National Academy of Design. During 1988-92, Director and Chairman of the Audit Committee of ACMC.
- -------------------------------------------------------------------------------- * There is no stated term of office for the Fund's Directors. ** Mr. Carifa is an "interested director", as defined in the 1940 Act, due to his position as President and Chief Operating Officer of ACMC, the Fund's investment adviser. # Member of the Audit Committee. + Member of the Nominating Committee. 23 TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================
PORTFOLIOS IN FUND OTHER NAME, ADDRESS, PRINCIPAL COMPLEX DIRECTORSHIPS AGE OF DIRECTOR OCCUPATION(S) OVERSEEN BY HELD BY (YEARS OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ---------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) William H. Foulk, Jr.,#+ 69, Investment Adviser and an independent 110 None Room 100, consultant. Formerly Senior Manager of 2 Greenwich Plaza, Barrett Associates, Inc., a registered Greenwich, Connecticut investment adviser, with which he had been 06830 (12) associated since prior to 1997. Formerly Deputy Comptroller of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. Clifford L. Michel,#+ 62, Senior Counsel of the law firm of Cahill 91 Placer Dome, Inc. St. Bernard's Road, Gordon & Reindel, with which he has been Gladstone, New Jersey associated since prior to 1997. President 07934 (10) and Chief Executive Officer of Wenonah Development Company (investments) and a Director of Placer Dome, Inc. (mining) Donald J. Robinson,#+ 67, Senior Counsel of the law firm of Orrick, 103 None 98 Hell's Peak Road, Herrington & Sutcliffe LLP since January 1997. Weston, Vermont 05161 (6) Formerly a senior partner and a member of the Executive Committee of that firm. Member of the Municipal Securities Rulemaking Board and a Trustee of the Museum of the City of New York.
- -------------------------------------------------------------------------------- * There is no stated term of office for the Fund's Directors. # Member of the Audit Committee. + Member of the Nominating Committee. 24 TOTAL RETURN PORTFOLIO Alliance Variable Products Series Fund ================================================================================ Officer Information Certain information concerning the Fund's officers is set forth below.
NAME, PRINCIPAL ADDRESS,* POSITION(S) OCCUPATION DURING AND AGE HELD WITH FUND PAST 5 YEARS** - ----------------------------------------------------------------------------------------------------------------- John D. Carifa, 56 Chairman & President See biography above. Kathleen A. Corbet, 42 Senior Vice President Executive Vice President of ACMC, with which she has been associated since prior to 1997. Alfred L. Harrison, 64 Senior Vice President Vice Chairman of ACMC, with which he has been associated since prior to 1997. Wayne D. Lyski, 60 Senior Vice President Executive Vice President of ACMC, with which he has been associated with since prior to 1997. Andrew Aran, 44 Vice President Senior Vice President of ACMC, with which he has been associated since prior to 1997. Frank Caruso, 45 Vice President Senior Vice President of Shields/ACMC, with which he has been associated since prior to 1997. Paul C. Rissman, 45 Vice President Senior Vice President of ACMC, with which he has been associated since prior to 1997. Edmund P. Bergan, Jr., 51 Secretary Senior Vice President and the General Counsel of Alliance Fund Distributors, Inc. (AFD) and Alliance Global Investor Services Inc. ("AGIS"), with which he has been associated since prior to 1997. Mark D. Gersten, 51 Treasurer and Chief Senior Vice President of AGIS, with which he Financial Officer has been associated since prior to 1997. Thomas R. Manley, 50 Controller Vice President of ACMC, with which he has been associated since prior to 1997.
- -------------------------------------------------------------------------------- * The address for each of the Fund's officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AFD, ACL, and AGIS are affiliates of the Fund. The Fund's Statement of Additional Information (SAI) has additional information about the Fund's Directors and Officers and is available without charge upon request. Contact your financial representative or Alliance Capital at 800-227-4618 for a free prospectus or SAI. 25 -----END PRIVACY-ENHANCED MESSAGE-----