-----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, ANEc/+UHTK+vRvVwBhGrLA1/7a5AU0AdmBWLeOV7LbDlkRHZZzQogpQ158aMbasF gB/Yg99Zo3tGC1Rp+MZ4Xg== 0000936772-02-000143.txt : 20020415 0000936772-02-000143.hdr.sgml : 20020415 ACCESSION NUMBER: 0000936772-02-000143 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020307 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: 02569156 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 edg7541.txt VARP HIGH YIELD ALLIANCE ---------------------------------------------- VARIABLE PRODUCTS ---------------------------------------------- SERIES FUND ---------------------------------------------- HIGH YIELD PORTFOLIO ---------------------------------------------- ANNUAL REPORT DECEMBER 31, 2001 Investment Products Offered --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed --------------------------- HIGH YIELD 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 High--Yield Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2001. INVESTMENT OBJECTIVES The Portfolio seeks the highest level of current income available without assuming undue risk by investing principally in high-yielding fixed-income securities. As a secondary objective, the Portfolio seeks capital appreciation. The Portfolio invests a substantial portion of its assets in higher-yielding, higher-risk, fixed-income securities (commonly known as "junk bonds") that are rated below investment grade and are considered to have predominantly speculative characteristics. INVESTMENT RESULTS Listed below are the Portfolio's average annual total returns for the one-year and since inception periods ended December 31, 2001 1 Year 3.04% Since Inception (10/97) -1.29% 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 12-month period ended December 31, 2001, the Portfolio returned 3.04%, placing the Portfolio in the top 20%, relative to its peer group, as measured by the Lipper Variable Annuity Product High Yield Average. The Lipper peer average for the 12-month period returned -2.90%. The Portfolio, however, underperformed the Credit Suisse First Boston High Yield (CSFBHY) Index, which returned 5.80%. Typical of most portfolios measured by Lipper, the Portfolio had a larger percentage of telecommunications bonds and a lower percentage of small, less liquid issuers than the CSFBHY Index. In 2001, telecommunications bonds underperformed the less liquid bonds, resulting in the majority of the difference between the average portfolio and the index. In addition, the Portfolio generally invests in issues that are $150 million in size. As reported by the index, top performers for 2001 were small size issues ($100 million or less), returning 13.44%, followed by issues of $100 to $200 million, returning 11.37% and issues over $200 million, returning 1.04%. During the reporting period, the Portfolio's overweight position in single B-rated securities and underweighted position in BB-rated securities detracted from performance. Double B-rated securities outperformed B-rated securities by 370 basis points for the year as concerns about the economy led investors to prefer higher quality issuers. At year-end, single B-rated securities represented 47% of the Portfolio versus 42 % for the index. BB-rated and CCC-rated securities represented 18% and 5% of the Portfolio versus 36% and 15% for the index, respectively. The remainder of the Portfolio was held in investment grade securities and cash. The decision to overweight the cable and wireless telecommunications sectors contributed positively to performance. The forecast for increased demand and industry consolidation was validated in October with the announced acquisition of two high yield companies. AT&T Wireless, an investment grade rated company, acquired Telecorp PCS, Inc. and Tritel PCS, Inc. The Portfolio was underweighted in the technology and aerospace sectors, which also contributed positively to performance. MARKET REVIEW For the 12-month period ended December 31, 2001, the high yield sector returned 5.80%, as measured by the CSFBHY Index. Weakness in the equity markets and the troubled telecommunications sector dampened overall returns throughout the year. Investors reacted to the September 11 attacks by selling high yield securities. The default rate--running at 8% annualized for the first half of 2001 and likely to approach 10% for the year--is quite high, reflecting the low financial flexibility of highly leveraged companies. The best performing industries for the 12-month period included food & drug at 34.06%, retail at 28.54% and food/tobacco at 24.56%. The telecommunications, aerospace and wireless communications sectors were the worst performers, returning -37.57%, -7.32% and 0.08%, respectively. For 2001, with 303 new issues coming to market, the new issue market totaled $87 billion, which more than doubled 2000's total of $41.6 billion. Inflows to high yield mutual funds totaled $7.1 billion. 1 HIGH YIELD PORTFOLIO Alliance Variable Products Series Fund ================================================================================ INVESTMENT OUTLOOK A combination of low interest rates, declining oil prices and fiscal stimulus in 2001 has provided the setting for an economic recovery in the first half of 2002. The U.S. Federal Reserve aggressively lowered interest rates 475 basis points from 6.50% to 1.75% in 2001. However, the latest anticipated package of economic recovery measures failed to pass Congress on December 20, 2001, leaving Congress to adjourn for the year without enacting legislation. We expect U.S. interest rates to begin rising in the second half of the year, particularly in the front end of the yield curve (shorter maturities) as the economy recovers. The high yield sector should perform well as the economy recovers. Within the high yield sector, we expect single B-rated securities to outperform double B-rated debt. High default rates should moderate as the economy rebounds. Given our forecast for an improving economy, we expect to move more aggressively into cyclical issuers in sectors such as broadcasting, automotive and packaging once the recovery becomes more visible. We expect to remain involved in the domestic cable and wireless telecommunications sectors given the positive potential for consolidations in these industries. We will continue to manage a well-diversified Portfolio in terms of issuers and industries with single B-rated securities remaining the largest component of the Portfolio. We appreciate your investment in Alliance High Yield Portfolio and look forward to reporting further investment progress in the coming period. Sincerely, /s/ Gregory Dube Gregory Dube Vice President and Portfolio Manager 2 HIGH YIELD PORTFOLIO Alliance Variable Products Series Fund ================================================================================ PERFORMANCE UPDATE High Yield Portfolio Credit Suisse First Boston High Yield Index [The following table was depicted as a line chart in the printed material.] Credit Suisse First Boston High Yield Index: $10,588 High Yield Portfolio: $9,472 High Yield Portfolio CS First Boston High Yield Index - ------------------------------------------------------------------------------- 10/31/97* $10,000 $10,000 12/31/97 $10,330 $10,163 12/31/98 $ 9,949 $10,222 12/31/99 $ 9,692 $10,557 12/31/00 $ 9,193 $10,007 12/31/01 $ 9,472 $10,588 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. Credit Suisse First Boston High Yield Index (CSFBHY) is an unmanaged, trader-priced portfolio constructed to mirror the high yield debt market. - -------------------------------------------------------------------------------- * Since closest month-end after Portfolio inception. Inception date for the Portfolio is 10/27/97 3 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2001 Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- CORPORATE DEBT OBLIGATIONS-70.9% AEROSPACE/DEFENSE-0.5% Sequa Corp. 9.00%, 8/01/09 ............................. $ 160 $ 152,000 ---------- AIR TRANSPORTATION-0.6% Dunlop Standard Aero Holdings 11.875%, 5/15/09 ........................... 125 126,875 US Airways, Inc. 10.375%, 3/01/13 ........................... 85 54,557 ---------- 181,432 ---------- AUTOMOTIVE-1.2% Collins & Aikman Products 10.75%, 12/31/11 (a) ....................... 105 106,050 11.50%, 4/15/06 ............................ 105 102,900 Dura Operating Corp. 9.00%, 5/01/09 ............................. 160 151,200 ---------- 360,150 ---------- BANKING-0.8% Cho Hung Bank Co., Ltd. 11.875%, 4/01/10 (a) ....................... 150 164,250 Hanvit Bank 12.75%, 3/01/10 (a) ........................ 70 78,225 ---------- 242,475 ---------- BROADCASTING/MEDIA-3.6% Allbritton Communications Co. 8.875%, 2/01/08 ............................ 120 123,600 Fox Family Worldwide, Inc. 10.25%, 11/01/07 (b) ....................... 150 150,562 9.25%, 11/01/07 ............................ 500 537,500 Mediacom Broadband LLC 11.00%, 7/15/13 (a) ........................ 125 137,813 Paxson Communications Corp. 10.75%, 7/15/08 (a) ........................ 105 110,644 Sinclair Broadcast Group, Inc. 8.75%, 12/15/11 (a) ........................ 75 75,563 ---------- 1,135,682 ---------- BUILDING/REAL ESTATE-2.7% D.R. Horton, Inc. 8.00%, 2/01/09 ............................. 165 164,175 LNR Property Corp. 10.50%, 1/15/09 ............................ 370 376,475 Meritage Corp. 9.75%, 6/01/11 (a) ......................... 120 124,350 Schuler Homes, Inc. 10.50%, 7/15/11 (a) ........................ 180 188,550 ---------- 853,550 ---------- CABLE-7.3% Adelphia Communications Corp. 10.25%, 6/15/11 ............................ 150 150,375 10.875%, 10/01/10 .......................... 130 133,412 Charter Communications Holdings LLC 9.625%, 11/15/09 (a) ....................... 60 61,050 10.00%, 5/15/11 (a) ........................ 300 306,750 10.75%, 10/01/09 ........................... 575 609,500 11.75%, 5/15/11 (b) ........................ 445 275,900 EchoStar DBS Corp. 9.25%, 2/01/06 ............................. 300 307,500 9.375%, 2/01/09 ............................ 280 289,800 Innova S. de R.L. 12.875%, 4/01/07 ........................... 130 123,825 United Pan-Europe Communications NV Series B 14.50%, 7/15/08 ............................ 265 39,750 ---------- 2,297,862 ---------- CHEMICALS-3.5% Avecia Group Plc 11.00%, 7/01/09 ............................ 315 302,400 Compass Minerals Group, Inc. 10.00%, 8/15/11 (a) ........................ 40 41,800 Ferro Corp. 9.125%, 1/01/09 ............................ 85 87,509 Georgia Gulf Corp. 10.375%, 11/01/07 .......................... 175 183,750 Huntsman ICI Chemicals LLC 10.125%, 7/01/09 ........................... 355 342,575 OM Group, Inc. 9.25%, 12/15/11 (a) ........................ 130 131,300 ---------- 1,089,334 ---------- COMMUNICATIONS-1.1% Tritel PCS, Inc. 12.75%, 5/15/09 (b) ........................ 140 119,700 10.375%, 1/15/11 (a) ....................... 190 218,500 ---------- 338,200 ---------- COMMUNICATIONS - FIXED-0.2% McLeod Usa, Inc. 11.375%, 1/01/09 ........................... 50 11,500 Time Warner Telecom, Inc. 10.125%, 2/01/11 ........................... 80 64,600 ---------- 76,100 ---------- COMMUNICATIONS - MOBILE-9.7% American Cellular Corp. 9.50%, 10/15/09 (a) ........................ 220 214,500 Dobson/Sygnet Communications 12.25%, 12/15/08 ........................... 250 268,750 Iridium Capital Corp. LLC 14.00%, 7/15/05 (c) ........................ 550 27,500 Microcell Telecommunications, Inc. 14.00%, 6/01/06 ............................ 260 222,950 4 Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Nextel Communications, Inc. 9.95%, 2/15/08 (b) ......................... $ 280 $ 193,200 10.65%, 9/15/07 (b) ........................ 120 92,100 5.25%, 1/15/10 ............................. 200 121,750 9.375%, 11/15/09 ........................... 290 229,825 Nextel International, Inc. 12.75%, 8/01/10 ............................ 80 6,800 Nextel Partners, Inc. 11.00%, 3/15/10 ............................ 135 109,688 12.50%, 11/15/09 (a) ....................... 160 140,800 Rogers Wireless Communications, Inc. 9.625%, 5/01/11 (a) ........................ 60 62,100 TeleCorp PCS, Inc. 10.625%, 7/15/10 ........................... 250 291,250 11.625%, 4/15/09 (b) ....................... 405 354,375 Triton PCS, Inc. 8.75%, 11/15/11 (a) ........................ 155 155,000 11.00%, 5/01/08 (b) ........................ 220 200,200 Voicestream Wireless Co. 10.375%, 11/15/09 .......................... 292 332,880 ---------- 3,023,668 ---------- CONGLOMERATES-0.1% Netia Holdings BV 11.25%, 11/01/07 (b) (c) ................... 125 20,625 ---------- CONSUMER MANUFACTURING-0.7% Pennzoil-Quaker State Co. 10.00%, 11/01/08 (a) ....................... 115 120,175 Playtex Products, Inc. 9.375%, 6/01/11 (a) ........................ 85 90,100 ---------- 210,275 ---------- CORPORATE-1.3% Lyondell Chemical Co. 9.50%, 12/15/08 (a) ........................ 50 49,500 9.625%, 5/01/07 ............................ 100 101,250 10.875%, 5/01/09 ........................... 270 250,425 ---------- 401,175 ---------- ENERGY-2.6% Chesapeake Energy Corp. 8.125%, 4/01/11 (a) ........................ 125 121,875 Dresser, Inc. 9.375%, 4/15/11 (a) ........................ 60 61,500 EOTT Energy Partners LP 11.00%, 10/01/09 ........................... 115 114,425 Grey Wolf, Inc. 8.875%, 7/01/07 ............................ 60 58,800 Lone Star Technologies, Inc. 9.00%, 6/01/11 (a) ......................... 105 88,725 PG&E National Energy Group 10.375%, 5/16/11 (a) ....................... 180 190,135 Pride International, Inc. 9.375%, 5/01/07 ............................ 60 63,450 Range Resources Corp. 8.75%, 1/15/07 (a) ......................... 65 62,075 Tesoro Petroleum Corp. 9.625%, 11/01/08 (a) ....................... 65 67,762 ---------- 828,747 ---------- ENTERTAINMENT & LEISURE-1.1% Six Flags, Inc. 9.50%, 2/01/09 (a) ......................... 175 176,969 9.75%, 6/15/07 ............................. 100 102,000 10.00%, 4/01/08 (b) ........................ 85 72,887 ---------- 351,856 ---------- FINANCIAL-2.2% Conseco, Inc. 8.75%, 2/09/04 ............................. 155 72,075 Finova Group, Inc. 7.50%, 11/15/09 ............................ 430 182,750 Intrawest Corp. 10.50%, 2/01/10 ............................ 225 226,406 iStar Financial, Inc. 8.75%, 8/15/08 ............................. 180 180,348 Markel Capital Trust I 8.71%, 1/01/46 ............................. 65 42,003 ---------- 703,582 ---------- FOOD/BEVERAGE-0.3% Del Monte Corp. 9.25%, 5/15/11 (a) ......................... 50 52,250 DIMON, Inc. 9.625%, 10/15/11 (a) ....................... 35 36,225 ---------- 88,475 ---------- GAMING-3.8% Argosy Gaming Co. 9.00%, 9/01/11 ............................. 70 73,500 Boyd's Gaming Corp. 9.25%, 8/01/09 (a) ......................... 145 148,625 Mandalay Resort Group 10.25%, 8/01/07 ............................ 195 203,287 MGM Mirage, Inc. 8.375%, 2/01/11 ............................ 175 173,688 Mohegan Tribal Gaming Authority 8.375%, 7/01/11 (a) ........................ 115 119,025 Park Place Entertainment Corp. 9.375%, 2/15/07 ............................ 300 314,250 Sun International Hotels, Ltd. 8.875%, 8/15/11 (a) ........................ 170 161,075 ---------- 1,193,450 ---------- HEALTHCARE-3.3% Concentra Operating Corp. 13.00%, 8/15/09 ............................ 215 231,125 HCA-The Healthcare Co. 7.875%, 2/01/11 ............................ 305 312,625 Iasis Healthcare Corp. 13.00%, 10/15/09 ........................... 245 265,825 5 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- Triad Hospitals, Inc. 8.75%, 5/01/09 (a) ......................... $ 65 $ 68,088 11.00%, 5/15/09 ............................ 70 77,000 Vanguard Health Systems, Inc. 9.75%, 8/01/11 (a) ......................... 60 63,300 ---------- 1,017,963 ---------- HOME FURNISHINGS-0.3% Sealy Mattress Co. 9.875%, 12/15/07 (a) ....................... 80 80,400 ---------- HOTEL/LODGING-2.6% Extended Stay America, Inc. 9.875%, 6/15/11 (a) ........................ 135 140,063 Felcor Lodging LP 8.50%, 6/01/11 (a) ......................... 35 33,775 9.50%, 9/15/08 (a) ......................... 115 115,862 Host Marriott LP 9.25%, 10/01/07 ............................ 190 190,238 9.50%, 1/15/07 (a) ......................... 165 166,031 Meristar Hospitality 10.50%, 6/15/09 (a) ........................ 75 75,375 Vail Resorts, Inc. 8.75%, 5/15/09 (a) ......................... 95 92,625 ---------- 813,969 ---------- INDUSTRIAL-3.6% Airgas, Inc. 9.125%, 10/01/11 (a) ....................... 60 63,600 Amtrol, Inc. 10.625%, 12/31/06 .......................... 145 118,175 Applied Extrusion Technologies, Inc. 10.75%, 7/01/11 (a) ........................ 180 192,600 Flowserve Corp. 12.25%, 8/15/10 ............................ 120 134,400 LIN Holdings Co. 10.00%, 3/01/08 ............................ 285 178,125 Resolution Performance Products LLC 13.50%, 11/15/10 (a) ....................... 30 32,850 13.50%, 11/15/10 ........................... 100 109,500 Russell-Stanley Holdings, Inc. 9.00%, 11/30/08 (c)(e) ..................... 67 39,999 Russell-Stanley Holdings, Inc. (c) ......................... 10,000 -0- Service Corp. International 6.00%, 12/15/05 ............................ 105 91,875 6.30%, 3/15/03 ............................. 10 9,650 6.50%, 3/15/08 ............................. 55 47,025 7.70%, 4/15/09 ............................. 125 110,625 ---------- 1,128,424 ---------- MINING & METALS-0.5% Commonwealth Industries, Inc. 10.75%, 10/01/06 ........................... 5 5,000 Republic Technologies International 13.75%, 7/15/09 (c) ........................ 500 35,000 warrants, expiring 7/15/09 (a)(d) ............................. 500 5 United States Steel LLC 10.75%, 8/01/08 (a) ........................ 125 117,500 ---------- 157,505 ---------- PAPER/PACKAGING-3.2% Doman Industries, Ltd. 12.00%, 7/01/04 ............................ 65 58,175 Owens-Illinois, Inc. 7.80%, 5/15/18 ............................. 85 73,950 7.85%, 5/15/04 ............................. 85 82,875 Plastipak Holdings, Inc. 10.75%, 9/01/11 (a) ........................ 180 189,900 Pliant Corp. warrants, expiring 6/01/10 (a)(d) ............................. 50 88 Riverwood International Corp. 10.625%, 8/01/07 ........................... 150 156,750 Stone Container Corp. 9.25%, 2/01/08 (a) ......................... 70 74,200 9.75%, 2/01/11 (a) ......................... 335 357,612 ---------- 993,550 ---------- PETROLEUM PRODUCTS-0.5% Frontier Oil Corp. 11.75%, 11/15/09 ........................... 150 159,750 ---------- PUBLIC UTILITIES - ELECTRIC & GAS-4.5% AES Corp. 8.875%, 2/15/11 ............................ 95 77,900 9.375%, 9/15/10 (a) ........................ 215 194,575 Calpine Canada Energy Finance 8.50%, 5/01/08 ............................. 515 471,587 Calpine Corp. 8.625%, 8/15/10 ............................ 75 68,230 CMS Energy Corp. 8.50%, 4/15/11 ............................. 90 90,083 Mission Energy Holding Co. 13.50%, 7/15/08 (a) ........................ 170 186,150 PSEG Energy Holdings, Inc. 10.00%, 10/01/09 ........................... 200 214,257 South Point Energy Center LLC 9.825%, 5/30/19 (a) ........................ 115 100,050 ---------- 1,402,832 ---------- RETAIL-1.6% Advance Stores Co., Inc. 10.25%, 4/15/08 (a) ........................ 135 137,025 Jostens, Inc. 12.75%, 5/01/10 ............................ 185 204,425 warrants, expiring 5/01/10 (a)(d) ............................. 200 4,050 Rite Aid Corp. 11.25%, 7/01/08 (a) ........................ 170 167,450 ---------- 512,950 ---------- 6 Alliance Variable Products Series Fund ================================================================================ Shares or Principal Amount (000) U.S. $ Value - -------------------------------------------------------------------------------- SERVICES-5.4% Allied Waste North America, Inc. 8.50%, 12/01/08 (a) ........................ $ 150 $ 150,000 8.875%, 4/01/08 (a) ........................ 180 186,300 10.00%, 8/01/09 ............................ 635 657,225 Avis Rent a Car, Inc. 11.00%, 5/01/09 ............................ 250 266,250 Intertek Finance Plc 10.25%, 11/01/06 ........................... 65 65,325 Iron Mountain, Inc. 8.625%, 4/01/13 ............................ 135 141,075 Loewen Group W. I 11.00%, 1/30/09 ............................ 80 81,200 12.25%, 1/30/12 ............................ 80 87,000 Stewart Enterprises, Inc. 10.75%, 7/01/08 (a) ........................ 50 54,750 ----------- 1,689,125 ----------- SUPERMARKET/DRUG-0.6% Fleming Cos., Inc. 10.50%, 12/01/04 ........................... 120 119,100 Ingles Markets, Inc. 8.875%, 12/01/11 (a) ....................... 80 79,000 ----------- 198,100 ----------- TECHNOLOGY-1.5% Fairchild Semiconductor Corp. 10.125%, 3/15/07 ........................... 225 231,750 10.50%, 2/01/09 ............................ 100 106,750 Filtronic Plc 10.00%, 12/01/05 ........................... 160 144,800 ----------- 483,300 ----------- Total Corporate Debt Obligations (cost $23,376,015) ......................... 22,186,506 ----------- PREFERRED STOCKS-4.4% CABLE-1.9% CSC Holdings, Inc. (e) ........................ 5,727 605,630 ----------- COMMUNICATIONS - FIXED-0.9% Global Crossing Holdings, Ltd. 10.50%, 6/01/02 (e) ........................ 5,263 6,578 Intermedia Communication 13.50%, 3/31/09 (e) ........................ 258 267,835 ----------- 274,413 ----------- COMMUNICATIONS - MOBILE-0.8% Nextel Communications, Inc. 11.125%, 2/15/03 (e) ....................... 482 245,820 ----------- FINANCIAL-0.8% Sinclair Broadcast Group, Inc. 11.625% (e) ................................ 250 25,188 Sovereign Real Estate Investor Trust 12.00%, 8/29/49 (a)(e) ..................... 215 213,387 ----------- 238,575 ----------- Total Preferred Stocks (cost $1,911,527) .......................... 1,364,438 ----------- SOVEREIGN DEBT OBLIGATIONS-1.2% Russian Federation 5.00%, 3/31/30 (b) ......................... 250 145,312 United Mexican States 11.375%, 9/15/16 (a) ....................... 190 233,510 ----------- Total Sovereign Debt Obligations (cost $363,043) ............................ 378,822 ----------- SHORT-TERM INVESTMENT-21.7% TIME DEPOSIT-21.7% State Street Euro Dollar 1.25%, 1/02/02 (cost $6,792,000) .......................... 6,792 6,792,000 ----------- TOTAL INVESTMENTS-98.2% (cost $32,442,585) ......................... 30,721,766 Other assets less liabilities-1.8% ........................... 561,614 ----------- NET ASSETS-100% ............................... $31,283,380 =========== - -------------------------------------------------------------------------------- (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 December 31, 2001, the aggregate market value of these securities amounted to $7,433,382 or 23.8% of net assets. (b) 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. (c) Security is in default and is non-income producing. (d) Non-income producing security. (e) PIK (Paid-in-kind) preferred quarterly stock payments. See Notes to Financial Statements. 7 HIGH-YIELD PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2001 Alliance Variable Products Series Fund ================================================================================ ASSETS Investments in securities, at value (cost $32,442,585) ..... $ 30,721,766 Cash ....................................................... 64,028 Dividend and interest receivable ........................... 575,964 Receivable for capital stock sold .......................... 124,890 Receivable for investment securities sold .................. 26,963 ------------ Total assets ............................................... 31,513,611 ------------ LIABILITIES Payable for investment securities purchased ................ 167,925 Advisory fee payable ....................................... 8,521 Accrued expenses ........................................... 53,785 ------------ Total liabilities .......................................... 230,231 ------------ NET ASSETS .................................................... $ 31,283,380 ============ COMPOSITION OF NET ASSETS Capital stock, at par ...................................... $ 4,168 Additional paid-in capital ................................. 43,605,080 Undistributed net investment income ........................ 2,123,305 Accumulated net realized loss on investment and foreign currency transactions ........................ (12,728,354) Net unrealized depreciation of investments ................. (1,720,819) ------------ $ 31,283,380 ============ Class A Shares Net assets ................................................. $ 31,283,380 ============ Shares of capital stock outstanding ........................ 4,168,178 ============ Net asset value per share .................................. $ 7.51 ============ - -------------------------------------------------------------------------------- See Notes to Financial Statements 8 HIGH-YIELD PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2001 Alliance Variable Products Series Fund ================================================================================ INVESTMENT INCOME Interest ................................................... $ 2,322,699 Dividends .................................................. 101,009 ------------ Total investment income .................................... 2,423,708 ------------ EXPENSES Advisory fee ............................................... 201,314 Custodian .................................................. 84,864 Administrative ............................................. 69,000 Audit and legal ............................................ 25,987 Printing ................................................... 17,894 Directors' fees ............................................ 1,433 Transfer agency ............................................ 946 Miscellaneous .............................................. 3,236 ------------ Total expenses ............................................. 404,674 Less: expenses waived and reimbursed (see Note B) .......... (149,676) ------------ Net expenses ............................................... 254,998 ------------ Net investment income ...................................... 2,168,710 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized loss on investment transactions ............... (2,876,188) Net realized loss on foreign currency transactions ......... (760) Net change in unrealized appreciation/depreciation of investments ........................................... 1,321,559 ------------ Net loss on investment and foreign currency transactions ... (1,555,389) ------------ NET INCREASE IN NET ASSETS FROM OPERATIONS .................... $ 613,321 ============ - -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 HIGH-YIELD 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 ............................................... $ 2,168,710 $ 2,030,394 Net realized loss on investment and foreign currency transactions ... (2,876,948) (1,507,434) Net change in unrealized appreciation/depreciation of investments ... 1,321,559 (1,719,323) ------------- ------------- Net increase (decrease) in net assets from operations ............... 613,321 (1,196,363) DIVIDENDS TO SHAREHOLDERS FROM: Net investment income Class A ........................................................... (2,037,954) (2,056,687) CAPITAL STOCK TRANSACTIONS Net increase ........................................................ 10,375,324 1,018,904 ------------- ------------- Total increase (decrease) ........................................... 8,950,691 (2,234,146) NET ASSETS Beginning of period ................................................. 22,332,689 24,566,835 ------------- ------------- End of period (including undistributed net investment income of $2,123,305 and $1,985,751, respectively) .......................... $ 31,283,380 $ 22,332,689 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2001 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 December 31, 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 ex change 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 in vestments 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 trans actions 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 11 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) 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. 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, and net increase in accumulated net realized loss on investment and foreign currency transactions and a corresponding increase in additional paid-in capital. This reclassification had no effect on net assets. 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 $9,821 reduction in cost of investments and a corresponding $9,821 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 $17,517, decrease net unrealized depreciation of investments by $3,388, and decrease net realized loss on investment transactions by $14,129. The statement of changes in net assets and financial highlights for prior periods have not been re stated 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. Pursuant to the advisory agreement, the Portfolio paid $69,000 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 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 year ended December 31, 2001, such waivers/reimbursements amounted to $149,676. 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 $946 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 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 12 Alliance Variable Products Series Fund ================================================================================ 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 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 year ended December 31, 2001, were as follows: Purchases: Stocks and debt obligations ............................ $ 27,368,698 U.S. government and agencies ........................... -0- Sales: Stocks and debt obligations ............................ $ 20,984,442 U.S. government and agencies ........................... -0- At December 31, 2001, the cost of investments for federal income tax purposes was $32,487,306. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows: Gross unrealized appreciation .......................... $ 1,015,684 Gross unrealized depreciation .......................... (2,781,224) ------------ Net unrealized depreciation ............................ $ (1,765,540) ============ 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 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 13 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ 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 ....................... $2,037,954 $2,056,687 ---------- ---------- Total taxable distributions .............. 2,037,954 2,056,687 ---------- ---------- Total distributions paid ................. $2,037,954 $2,056,687 ========== ========== As of December 31, 2001, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income .......................... $ 2,136,514 ------------ Accumulated earnings ................................... 2,136,514 Accumulated capital and other losses ................... (12,696,842)(a) Unrealized appreciation/(depreciation) ................. (1,765,540)(b) ------------ Total accumulated earnings/(deficit) ................... $(12,325,868) ============ (a) On December 31, 2001, the Portfolio had a net capital loss carryforward of $12,662,655 of which $63,971 expires in the year 2006, $3,933,459 expires in the year 2007, $5,774,960 expires in the year 2008, and $2,890,265 expires in the year 2009. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Based on certain provisions in the Internal Revenue Code, various limitations regarding the future utilization of these carryforwards, brought forward as a result of the Portfolio's merger with Brinson Series Trust High Income Portfolio, may apply. 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 $34,187. (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 the difference between book and tax amortization methods for premium and market discount. 14 Alliance Variable Products Series Fund ================================================================================ 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 ------------------------------ ------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2001 2000 2001 2000 ============= ============= ============= ============= Class A Shares sold ........................ 1,898,761 576,169 $ 14,804,355 $ 4,989,359 Shares issued in connection with acquisition of Brinson Series Trust High Income Portfolio ........... 82,390 -0- 604,121 -0- Shares issued in reinvestment of dividends ....................... 268,152 250,510 2,037,954 2,056,687 Shares redeemed .................... (903,663) (691,158) (7,071,106) (6,027,142) ------------- ------------- ------------- ------------- Net increase ....................... 1,345,640 135,521 $ 10,375,324 $ 1,018,904 ============= ============= ============= =============
- -------------------------------------------------------------------------------- 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 year ended December 31, 2001. - -------------------------------------------------------------------------------- NOTE I: Acquisition of Brinson Series Trust High Income Portfolio On October 26, 2001, the Portfolio acquired all of the assets and liabilities, of the Brinson Series Trust High Income Portfolio pursuant to a plan of reorganization approved by the shareholders of Brinson Series Trust High Income Portfolio on March 1, 2001. The acquisition was accomplished by a tax-free exchange of 82,390 shares of the Portfolio for 79,463 shares of Brinson Series Trust High Income Portfolio on October 26, 2001. The aggregate net assets of the Portfolio and Brinson Series Trust High Income Portfolio immediately before the acquisition were $28,122,652 and $604,121 (including $2,248 net unrealized depreciation of investments), respectively. Immediately after the acquisition, the combined net assets of the Portfolio amounted to $28,726,773. 15 HIGH-YIELD PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund - -------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
----------------------------------------------------------------------- CLASS A ----------------------------------------------------------------------- October 27, Year Ended December 31, 1997 (b) to ------------------------------------------------------- December 31, 2001 (a) 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) ........................ .63 .74 .91 1.03 .13 Net realized and unrealized gain (loss) on investment and foreign currency transactions .. (.38) (1.18) (1.16) (1.41) .20 ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net asset value from operations ............................ .25 (.44) (.25) (.38) .33 ---------- ---------- ---------- ---------- ---------- Less: Dividends Dividends from net investment income ................ (.65) (.79) (.55) (.01) -0- ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ...................... $ 7.51 $ 7.91 $ 9.14 $ 9.94 $ 10.33 ========== ========== ========== ========== ========== Total Return Total investment return based on net asset value (e) .............................. 3.04% (5.15)% (2.58)% (3.69)% 3.30% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........... $ 31,283 $ 22,333 $ 24,567 $ 16,910 $ 1,141 Ratio to average net assets of: Expenses, net of waivers and reimbursements ...... .95% .95% .95% .95% .95%(f) Expenses, before waivers and reimbursements ...... 1.51% 1.42% 1.40% 1.80% 8.26%(f) Net investment income (c) ........................ 8.08% 8.68% 9.72% 9.77% 7.28%(f) Portfolio turnover rate ............................. 95% 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 for financial statement reporting purposes only. For the year ended December 31, 2001, the effect of this change was to decrease net investment income by less than $.01 per share, decrease net realized and unrealized loss on investments by less than $.01 per share and decrease the ratio of net investment income to average net assets from 8.14% to 8.08%. 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. 16 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Alliance Variable Products Series Fund ================================================================================ To the Shareholders and Board of Directors High Yield Portfolio Alliance Variable Products Series Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the High Yield 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 High Yield 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 17 HIGH YIELD 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. 18 HIGH YIELD 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. 19 HIGH YIELD 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. 20 HIGH YIELD PORTFOLIO Alliance Variable Products Series Fund ================================================================================ Officer Information Certain information concerning the Fund's officers is set forth below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND AGE WITH FUND DURING 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. Gregory Dube, 47 Vice President Senior Vice President and Head of the Global High Yield Group of ACMC with which he has been associated since 1998. Prior thereto, he was a member of Lazard Freres' Fixed Income Group since prior to 1997. Michael A. Snyder, 39 Vice President Senior Vice President of ACMC since May, 2001. Prior thereto he was a Managing Director in the high yield asset management group at Donaldson, Lufkin & Jenrette Corporation from 1998 to 2001, and a Managing Director at Bear Stearns & Co. from 1997 to 1998. 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 Senior Vice President of AGIS, with which he has been Chief Financial Officer 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. 21 -----END PRIVACY-ENHANCED MESSAGE-----