N-30D 1 edg8131.txt VARP US GOVERNMENT ALLIANCE --------------------------------------------------- VARIABLE PRODUCTS --------------------------------------------------- SERIES FUND --------------------------------------------------- U.S. GOVERNMENT/ --------------------------------------------------- HIGH GRADE SECURITIES --------------------------------------------------- PORTFOLIO --------------------------------------------------- SEMI-ANNUAL REPORT JUNE 30, 2002 Investment Products Offered --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed --------------------------- U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2002 (unaudited) Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value -------------------------------------------------------------------------------- U.S. GOVERNMENT/AGENCY OBLIGATIONS-62.9% FEDERAL AGENCIES-41.4% Federal Home Loan Mortgage Corp. 5.50%, 9/15/11 ........................ $ 300 $ 303,099 7.00%, 7/15/32 ........................ 3,970 4,111,451 Federal National Mortgage Association 6.00%, 7/25/32 ........................ 4,845 4,832,888 6.50%, 9/01/31 ........................ 926 943,677 6.50%, 11/01/31 ....................... 5,033 5,130,162 6.50%, 11/01/31 ....................... 10 9,854 6.50%, 12/01/31 ....................... 432 440,113 6.50%, 12/01/31 ....................... 287 293,002 6.50%, 12/01/31 ....................... 764 778,853 6.50%, 2/01/32 ........................ 861 877,879 6.50%, 3/01/32 ........................ 644 656,137 6.50%, 4/01/32 ........................ 333 339,503 6.50%, 4/01/32 ........................ 1,758 1,792,489 6.50%, 4/01/32 ........................ 2,515 2,563,847 6.50%, 4/01/32 ........................ 35 35,610 6.50%, 4/01/32 ........................ 2,972 3,029,394 6.50%, 5/01/32 ........................ 7,306 7,447,348 6.50%, 7/25/32 ........................ 1,065 1,085,640 7.00%, 1/01/32 ........................ 763 790,226 7.00%, 2/01/32 ........................ 6,183 6,403,525 7.00%, 4/01/32 ........................ 1,362 1,414,226 7.00%, 7/25/32 ........................ 755 781,900 7.50%, 11/01/29 ....................... 750 787,346 7.50%, 4/01/32 ........................ 3,734 3,918,330 7.50%, 4/01/32 ........................ 1,999 2,098,065 7.50%, 7/25/32 ........................ 395 414,505 Government National Mortgage Association 6.50%, 1/15/29 ........................ 1,610 1,648,384 6.50%, 3/15/29 ........................ 32 32,833 6.50%, 12/15/30 ....................... 509 520,493 6.50%, 11/15/31 ....................... 1,092 1,113,857 6.50%, 1/15/32 ........................ 369 375,912 6.50%, 2/15/32 ........................ 624 636,798 ----------- 55,607,346 ----------- U.S. TREASURY SECURITIES-21.5% U.S. Treasury Bonds 5.375%, 2/15/31 ....................... 6,150 6,022,141 6.625%, 2/15/27 ....................... 300 336,843 U.S. Treasury Notes 3.25%, 5/31/04 ........................ 7,260 7,315,539 3.625%, 7/15/02 ....................... 112 112,333 3.625%, 1/15/08 ....................... 2,537 2,655,935 4.375%, 5/15/07 ....................... 3,515 3,563,331 4.875%, 2/15/12 ....................... 1,270 1,274,763 5.75%, 10/31/02 ....................... 7,450 7,549,458 ----------- 28,830,343 ----------- Total U.S. Government/Agency Obligations (cost $83,544,678) .................... 84,437,689 ----------- CORPORATE DEBT OBLIGATIONS-23.5% AUTOMOTIVE-3.4% Daimler-Chrysler NA Holding Corp. 6.40%, 5/15/06 ........................ 565 587,117 Ford Motor Co. 7.45%, 7/16/31 ........................ 1,485 1,386,218 Ford Motor Credit Co. 6.50%, 1/25/07 ........................ 675 676,275 6.70%, 7/16/04 ........................ 640 659,176 7.25%, 10/25/11 ....................... 100 100,648 General Motors Acceptance Corp. 6.875%, 9/15/11 ....................... 700 696,142 8.00%, 11/01/31 ....................... 455 466,683 ----------- 4,572,259 ----------- BANKING-5.5% Abbey National Capital Trust I 8.963%, 6/30/30 ....................... 530 613,951 Bank One Corp. 7.625%, 10/15/26 ...................... 355 392,011 7.875%, 8/01/10 ....................... 350 397,658 Barclays Bank Plc 8.55%, 6/15/11 (a) .................... 415 478,575 Chase Manhattan Corp. 6.375%, 4/01/08 ....................... 565 594,286 Citicorp 6.375%, 11/15/08 ...................... 625 659,437 Citigroup, Inc. 7.25%, 10/01/10 ....................... 905 986,627 Great Western Financial Trust II 8.206%, 2/01/27 ....................... 455 472,985 J.P. Morgan Chase & Co. 6.75%, 2/01/11 ........................ 945 981,093 Royal Bank of Scotland Group Plc 7.648%, 9/30/31 ....................... 360 377,696 Standard Chartered Bank 8.00%, 5/30/31 (a) .................... 270 284,010 U.S. Bank NA 6.375%, 8/01/11 ....................... 505 525,582 Unicredito Italiano Capital Trust 9.20%, 10/29/49 (a) ................... 575 671,081 ----------- 7,434,992 ----------- BROADCASTING/MEDIA-1.3% AOL Time Warner, Inc. 6.875%, 5/01/12 ....................... 350 323,345 Time Warner Entertainment Co. 8.375%, 3/15/23 ....................... 1,105 1,102,619 8.375%, 7/15/33 ....................... 250 249,437 ----------- 1,675,401 ----------- 1 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value -------------------------------------------------------------------------------- COMMUNICATIONS-2.5% AT&T Corp. 6.50%, 3/15/29 ........................... $ 640 $ 442,933 7.30%, 11/15/11 (a) ...................... 700 582,086 Koninklijke (Royal) KPN NV 8.00%, 10/01/10 .......................... 300 301,824 Sprint Capital Corp. 7.625%, 1/30/11 .......................... 350 278,877 Verizon Wireless, Inc. 2.286%, 12/17/03 (a) ..................... 1,750 1,722,310 ---------- 3,328,030 ---------- COMMUNICATIONS - MOBILE-0.6% AT&T Wireless Services, Inc. 8.125%, 5/01/12 .......................... 360 294,110 8.75%, 3/01/31 ........................... 690 534,259 ---------- 828,369 ---------- ENERGY-1.0% Conoco Funding Co. 5.45%, 10/15/06 .......................... 315 323,002 Conoco, Inc. 6.95%, 4/15/29 ........................... 620 635,568 Devon Financing Corp. 7.875%, 9/30/31 .......................... 370 395,732 ---------- 1,354,302 ---------- FINANCIAL-3.0% General Electric Capital Corp. 6.00%, 6/15/12 ........................... 1,245 1,252,458 Household Finance Corp. 5.875%, 11/01/02 ......................... 1,150 1,163,630 6.50%, 11/15/08 .......................... 500 502,242 Morgan Stanley Dean Witter & Co. 7.25%, 4/01/32 ........................... 300 306,708 National Rural Utilities Cooperative Finance Corp. 7.25%, 3/01/12 ........................... 150 159,858 Washington Mutual Financial Corp. 6.875%, 5/15/11 .......................... 620 652,084 ---------- 4,036,980 ---------- FOOD/BEVERAGE-1.6% General Mills, Inc. 6.00%, 2/15/12 ........................... 325 322,521 Kraft Foods, Inc. 5.625%, 11/01/11 ......................... 790 784,280 Pepsi Bottling Group, Inc. 7.00%, 3/01/29 ........................... 700 747,221 Tyson Foods, Inc. 8.25%, 10/01/11 .......................... 230 254,166 ---------- 2,108,188 ---------- HEALTHCARE-0.2% Bristol-Myers Squibb Co. 4.75%, 10/01/06 .......................... 240 240,853 ---------- PAPER/PACKAGING-0.3% Weyerhaeuser Co. 6.75%, 3/15/12 (a) ....................... 295 306,020 7.375%, 3/15/32 (a) ...................... 125 127,259 ---------- 433,279 ---------- PETROLEUM PRODUCTS-0.6% Amerada Hess Corp. 7.875%, 10/01/29 ......................... 470 515,070 Devon Energy Corp. 7.95%, 4/15/32 ........................... 220 237,357 ---------- 752,427 ---------- PUBLIC UTILITIES - ELECTRIC & GAS-1.8% Cilcorp, Inc. 9.375%, 10/15/29 ......................... 325 372,609 FirstEnergy Corp. 6.45%, 11/15/11 .......................... 330 321,060 KeySpan Corp. 7.25%, 11/15/05 .......................... 290 313,845 Powergen U.S. Funding LLC 4.50%, 10/15/04 .......................... 525 528,673 Progress Energy, Inc. 7.75%, 3/01/31 ........................... 145 156,081 PSEG Energy Holdings, Inc. 8.50%, 6/15/11 ........................... 535 500,287 TECO Energy, Inc. 6.125%, 5/01/07 .......................... 265 273,273 ---------- 2,465,828 ---------- RETAIL-0.6% Target Corp. 5.875%, 3/01/12 .......................... 385 390,066 Wal-Mart Stores, Inc. 6.875%, 8/10/09 .......................... 355 390,513 ---------- 780,579 ---------- SOVEREIGN-0.9% Quebec Province 7.50%, 9/15/29 ........................... 510 586,155 United Mexican States 7.50%, 1/14/12 ........................... 635 627,062 ---------- 1,213,217 ---------- TECHNOLOGY-0.2% Science Applications International Corp. 6.25%, 7/01/12 (a) ....................... 305 297,253 ---------- Total Corporate Debt Obligations (cost $31,444,140) ....................... 31,521,957 ---------- 2 Alliance Variable Products Series Fund ================================================================================ Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- ASSET BACKED SECURITIES-4.8% Citibank Credit Card Issuance Trust, Series 2000-A3 6.875%, 11/16/09 ................... $ 1,995 $ 2,134,011 Citibank Credit Card Issuance Trust, Series 2001-A6 5.65%, 6/16/08 ..................... 860 900,606 Discover Card Master Trust I Series 2000-9A 6.35%, 7/15/08 ..................... 560 599,629 Fleet Credit Card Master Trust II Series 2001-B 5.60%, 12/15/08 .................... 700 730,870 MBNA Credit Card Master Note Trust Series 2001-A1 5.75%, 10/15/08 .................... 1,970 2,065,604 ------------- (cost $6,218,495) .................. 6,430,720 ------------- COMMERCIAL MORTGAGE- BACKED SECURITIES-4.0% Commercial Mortgage Asset Trust Series 1999-C1, Class A3 6.64%, 9/17/10 ..................... 1,095 1,177,782 GE Capital Commercial Mortgage Corp. Series 2002-1A, Class A2 5.994%, 12/10/35 ................... 585 606,060 Morgan Stanley Dean Witter Capital I Series 2002-TOP7, Class A2 5.98%, 1/15/39 ..................... 1,150 1,173,357 Morgan Stanley Dean Witter Capital I Series 2002-HQ, Class A3 6.51%, 4/15/34 ..................... 1,145 1,211,357 Nomura Asset Securities Corp. Series 1998-D6, Class A1B 6.59%, 3/15/30 ..................... 1,070 1,151,320 ------------- (cost $5,130,600) .................. 5,319,876 ------------- SHORT-TERM INVESTMENTS-12.5% U.S. TREASURY SECURITIES-2.6% U.S. Treasury Bills 1.81%, 11/29/02 .................... 2,370 2,352,007 1.83%, 11/29/02 .................... 1,180 1,170,943 ------------- 3,522,950 ------------- TIME DEPOSIT-9.9% State Street Euro Dollar 1.25%, 7/01/02 ..................... 13,284 13,284,000 ------------- Total Short-Term Investments (amortized cost $16,806,950) ....................... 16,806,950 ------------- TOTAL INVESTMENTS-107.7% (cost $143,144,863) ................ 144,517,192 Other assets less liabilities-(7.7%) ................. (10,324,516) ------------- NET ASSETS-100% ....................... $ 134,192,676 ============= -------------------------------------------------------------------------------- (a) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration normally applied to certain qualified buyers. At June 30, 2002, the aggregate market value of these securities amounted to $4,468,594 or 3.3% of net assets. See Notes to Financial Statements. 3 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 (unaudited) Alliance Variable Products Series Fund ================================================================================ ASSETS Investments in securities, at value (cost $143,144,863) .. $ 144,517,192 Cash ..................................................... 695 Interest receivable ...................................... 1,222,836 Receivable for investment securities sold ................ 849,545 ------------- Total assets ............................................. 146,590,268 ------------- LIABILITIES Payable for investment securities purchased .............. 12,188,108 Advisory fee payable ..................................... 64,485 Accrued expenses ......................................... 144,999 ------------- Total liabilities ........................................ 12,397,592 ------------- NET ASSETS .................................................. $ 134,192,676 ============= COMPOSITION OF NET ASSETS Capital stock, at par .................................... $ 11,346 Additional paid-in capital ............................... 132,332,349 Undistributed net investment income ...................... 2,771,736 Accumulated net realized loss on investments ............. (2,295,084) Net unrealized appreciation of investments ............... 1,372,329 ------------- $ 134,192,676 ============= Class A Shares Net assets ............................................... $ 126,996,354 ============= Shares of capital stock outstanding ...................... 10,735,250 ============= Net asset value per share ................................ $ 11.83 ============= Class B Shares Net assets ............................................... $ 7,196,322 ============= Shares of capital stock outstanding ...................... 611,096 ============= Net asset value per share ................................ $ 11.78 ============= -------------------------------------------------------------------------------- See Notes to Financial Statements. 4 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF OPERATIONS Six Months Ended June 30, 2002 (unaudited) Alliance Variable Products Series Fund ================================================================================ INVESTMENT INCOME Interest ................................................................. $ 3,190,377 ----------- EXPENSES Advisory fee ............................................................. 362,192 Distribution fee-Class B ................................................. 8,760 Custodian ................................................................ 52,671 Administrative ........................................................... 36,019 Audit and legal .......................................................... 30,477 Printing ................................................................. 24,978 Directors' fees .......................................................... 1,448 Transfer agency .......................................................... 474 Miscellaneous ............................................................ 4,887 ----------- Total expenses ........................................................... 521,906 ----------- Net investment income .................................................... 2,668,471 ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investment transactions ............................. (649,656) Net change in unrealized appreciation/depreciation of investments ........ 131,374 ----------- Net loss on investments .................................................. (518,282) ----------- NET INCREASE IN NET ASSETS FROM OPERATIONS .................................. $ 2,150,189 ===========
-------------------------------------------------------------------------------- See Notes to Financial Statements. 5 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund ================================================================================
Six Months Ended Year Ended June 30, 2002 December 31, (unaudited) 2001 ================ ============= INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ......................................................... $ 2,668,471 $ 3,934,544 Net realized gain (loss) on investments ....................................... (649,656) 2,253,982 Net change in unrealized appreciation/depreciation of investments ............. 131,374 (565,201) ------------- ------------- Net increase in net assets from operations .................................... 2,150,189 5,623,325 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A ..................................................................... (3,720,955) (3,237,848) Class B ..................................................................... (206,001) (225,880) CAPITAL STOCK TRANSACTIONS Net increase .................................................................. 24,303,672 47,709,135 ------------- ------------- Total increase ................................................................ 22,526,905 49,868,732 NET ASSETS Beginning of period ........................................................... 111,665,771 61,797,039 ------------- ------------- End of period (including undistributed net investment income of $2,771,736 and $4,030,221, respectively) .................................... $ 134,192,676 $ 111,665,771 ============= =============
-------------------------------------------------------------------------------- See Notes to Financial Statements. 6 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) Alliance Variable Products Series Fund ================================================================================ NOTE A: Significant Accounting Policies The U.S. Government/High Grade Securities Portfolio (the "Portfolio") is a series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek high current income consistent with preservation of capital. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers nineteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) or on The Nasdaq Stock Market, Inc., are generally valued at the last reported sales price or if no sale occurred, at the mean of the closing bid and asked price on that day. Readily marketable securities traded in the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the U.S. over-the-counter market, and securities listed on a national securities exchange whose primary market is believed to be over-the-counter (but excluding securities traded on The Nasdaq Stock Market, Inc.) are valued at the mean of the current bid and asked price. U.S. government and fixed income securities which mature in 60 days or less are valued at amortized cost, unless this method does not represent fair value. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by, or in accordance with procedures adopted by, the Board of Directors. Fixed income securities may be valued on the basis of prices obtained from a pricing service when such prices are believed to reflect the fair market value of such securities. 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked price of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates of exchange prevailing when accrued. Net realized gains and losses on foreign currency transactions represent foreign exchange gains and losses from sales and maturities of securities and forward exchange currency contracts, holdings of foreign currencies, exchange gains and losses realized between the trade and settlement dates on investment transactions, and the difference between the amounts of interest, dividends and foreign 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 amortizes premiums and accretes discounts as adjustments to interest income. Investment gains and losses are determined on the identified cost basis. 5. Income and Expenses Expenses attributable to a single portfolio are charged to that portfolio. Expenses of the Fund are charged to each portfolio in proportion to net assets. All income earned 7 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ and expenses incurred by a portfolio with multi-class shares outstanding are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the portfolio represented by the net assets of such class, except that the portfolio's Class B shares bear the distribution fees. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. -------------------------------------------------------------------------------- NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Portfolio pays Alliance Capital Management L.P. (the "Adviser"), an investment advisory fee at an annualized rate of .60% of the Portfolio's average daily net assets. Pursuant to the advisory agreement, the Portfolio paid $36,019 to the Adviser representing the cost of certain legal and accounting services provided to the Portfolio by the Adviser for the six months ended June 30, 2002. Prior to May 1, 2002, the Adviser agreed to waive its fee and to reimburse the additional operating expenses ("Expense Limitation Undertaking") 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. The Adviser terminated the Expense Limitation Undertaking effective May 1, 2002. Any expense waivers or reimbursements are accrued daily and paid monthly. For the six months ended June 30, 2002 there were no such waivers or reimbursements. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $474 for the six months ended June 30, 2002. -------------------------------------------------------------------------------- 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 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. 8 Alliance Variable Products Series Fund ================================================================================ NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2002, were as follows: Purchases: Stocks and debt obligations .......................... $ 18,516,922 U.S. government and agencies ......................... 216,062,202 Sales: Stocks and debt obligations .......................... $ 22,138,701 U.S. government and agencies ......................... 176,770,081 At June 30, 2002, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows: Gross unrealized appreciation ........................ $ 2,214,720 Gross unrealized depreciation ........................ (842,391) ----------- Net unrealized appreciation .......................... $ 1,372,329 =========== Option Transactions For hedging and investment purposes, the Portfolio may purchase and write call options and purchase put options on U.S. securities that are traded on U.S. securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from which written options expire unexercised are recorded by the Portfolio on the expiration date as realized gains from written options. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value. The Portfolio had no transactions in options written for the six months ended June 30, 2002. -------------------------------------------------------------------------------- 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 ..................... $3,463,728 $3,398,012 ---------- ---------- Total taxable distributions ............ 3,463,728 3,398,012 ---------- ---------- Total distributions paid ............... $3,463,728 $3,398,012 ========== ========== 9 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund ================================================================================ As of December 31, 2001, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ........................ $ 4,113,574 ----------- Accumulated earnings ................................. 4,113,574 Accumulated capital and other losses ................. (1,470,902)(a) Unrealized appreciation/(depreciation) ............... 983,076 (b) ----------- Total accumulated earnings/(deficit) ................. $ 3,625,748 =========== (a) On December 31, 2001, the Portfolio had a net capital loss carryforward of $1,470,902 of which $82,323 expires in the year 2006, $192,618 expires in the year 2007 and $1,195,961 expires in the year 2008. 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 Grade Fixed Income Portfolio, may apply. (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. -------------------------------------------------------------------------------- NOTE F: Securities Lending The Portfolio has entered into a securities lending agreement with UBS/PaineWebber, Inc. (the "Lending Agent"). Under the terms of the agreement, the Lending Agent, on behalf of the Portfolio administers the lending of portfolio securities to certain broker-dealers. In return, the Portfolio receives fee income from the lending transactions. All loans are continuously secured by collateral exceeding the value of the securities loaned. All collateral consists of either cash or U.S. Government securities. The Lending Agent invests the cash collateral in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. UBS/Paine Webber will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. As of June 30, 2002, the Portfolio had no securities on loan. For the six months ended June 30, 2002, the Portfolio received no fee income from securities lending transactions. -------------------------------------------------------------------------------- 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. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows.
---------------------------------- ------------------------------------ SHARES AMOUNT ---------------------------------- ------------------------------------ Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2002 December 31, June 30, 2002 December 31, (unaudited) 2001 (unaudited) 2001 ================ ============ ================= ============ Class A Shares sold .......................... 2,408,453 4,442,708 $ 29,119,243 $ 52,882,233 Shares issued in connection with acquisition of Brinson Series Trust High Grade Portfolio .............. -0- 164,778 -0- 1,996,044 Shares issued in connection with acquisition of Brinson Series Trust Strategic Fixed Income Portfolio .. 214,442 -0- 2,308,502 -0- Shares issued in reinvestment of dividends ......................... 314,536 280,819 3,720,954 3,237,848 Shares redeemed ...................... (922,034) (1,147,890) (11,106,740) (13,699,659) ---------- ---------- ------------ ------------ Net increase ......................... 2,015,397 3,740,415 $ 24,041,959 $ 44,416,466 ========== ========== ============ ============ Class B Shares sold .......................... 118,229 476,668 $ 1,412,861 $ 5,646,452 Shares issued in reinvestment of dividends ......................... 17,487 19,659 206,001 225,880 Shares redeemed ...................... (113,541) (218,947) (1,357,149) (2,579,663) ---------- ---------- ------------ ------------ Net increase ......................... 22,175 277,380 $ 261,713 $ 3,292,669 ========== ========== ============ ============
10 Alliance Variable Products Series Fund ================================================================================ 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 six months ended June 30, 2002. -------------------------------------------------------------------------------- NOTE J: Acquisition of Brinson Series Trust High Grade Portfolio On October 26, 2001, the Portfolio acquired all of the assets and liabilities of the Brinson Series Trust High Grade Portfolio pursuant to a plan of reorganization approved by the shareholders of Brinson Series Trust High Grade Portfolio on March 1, 2001. The acquisition was accomplished by a tax-free exchange of 164,778 shares of the Portfolio for 229,628 shares of Brinson Series Trust High Grade Portfolio on October 26, 2001. The aggregate net assets of the Portfolio and Brinson Series Trust High Grade Portfolio immediately before the acquisition were $104,271,650 and $1,996,044 (including $70,905 net unrealized appreciation of investments), respectively. Immediately after the acquisition, the combined net assets of the Portfolio amounted to $106,267,694. -------------------------------------------------------------------------------- NOTE K: Acquisition of Brinson Series Trust Strategic Fixed Income Portfolio On April 5, 2002, the Portfolio acquired all of the assets and liabilities of the Brinson Series Trust Strategic Fixed Income Portfolio pursuant to a plan of reorganization approved by the shareholders of Brinson Series Trust Strategic Fixed Income Portfolio on February 25, 2002. The acquisition was accomplished by a tax-free exchange of 214,442 shares of the Portfolio for 247,070 shares of Brinson Series Trust Strategic Fixed Income Portfolio on April 5, 2002. The aggregate net assets of the Portfolio and Brinson Series Trust Strategic Fixed Income Portfolio immediately before the acquisition were $120,888,612 and $2,581,245 (including $136,372 net unrealized appreciation of investments), respectively. Immediately after the acquisition, the combined net assets of the Portfolio amounted to $123,469,857. 11 U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------------------------------------- CLASS A ------------------------------------------------------------------------------- Six Months Ended Year Ended December 31, June 30, 2002 ======================================================== (unaudited) 2001(a) 2000 1999 1998 1997 ============= ======== ======= ======= ======= ======= Net asset value, beginning of period .. $ 12.00 $ 11.68 $ 11.18 $ 12.27 $ 11.93 $ 11.52 -------- -------- ------- ------- ------- ------- Income From Investment Operations Net investment income (b) ............. .26 .57 .67 .64 .63(c) .68(c) Net realized and unrealized gain (loss) on investment transactions ......... (.06) .33 .52 (.94) .32 .29 -------- -------- ------- ------- ------- ------- Net increase (decrease) in net asset value from operations .............. .20 .90 1.19 (.30) .95 .97 -------- -------- ------- ------- ------- ------- Less: Dividends and Distributions Dividends from net investment income .. (.37) (.58) (.69) (.49) (.55) (.54) Distributions from net realized gain on investments ..................... -0- -0- -0- (.30) (.06) (.02) -------- -------- ------- ------- ------- ------- Total dividends and distributions ..... (.37) (.58) (.69) (.79) (.61) (.56) -------- -------- ------- ------- ------- ------- Net asset value, end of period ........ $ 11.83 $ 12.00 $ 11.68 $ 11.18 $ 12.27 $ 11.93 ======== ======== ======= ======= ======= ======= Total Return Total investment return based on net asset value (d) .................... 1.68% 7.88% 11.08% (2.45)% 8.22% 8.68% Ratios/Supplemental Data Net assets, end of period (000's omitted) .................... $126,997 $104,635 $58,170 $60,504 $58,418 $36,198 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................... .85%(e) .89% .95% .86% .78% .84% Expenses, before waivers and reimbursements ................... .85%(e) .89% .95% .86% .91% .84% Net investment income .............. 4.43%(e) 4.86% 5.95% 5.51% 5.24%(c) 5.89%(c) Portfolio turnover rate ............... 173% 259% 236% 172% 235% 114%
-------------------------------------------------------------------------------- See footnote summary on page 13. 12 Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------------------- CLASS B ------------------------------------------------------------- Six Months June 2, Ended Year Ended December 31, 1999 (f) to June 30, 2002 ======================== December 31, (unaudited) 2001(a) 2000 1999 ========= ========= ========= ========= Net asset value, beginning of period ............................. $ 11.94 $ 11.64 $ 11.16 $ 11.13 --------- --------- --------- --------- Income From Investment Operations Net investment income (b) ........................................ .25 .55 .63 .33 Net realized and unrealized gain (loss) on investment transactions (.06) .31 .53 (.30) --------- --------- --------- --------- Net increase in net asset value from operations .................. .19 .86 1.16 .03 --------- --------- --------- --------- Less: Dividends Dividends from net investment income ............................. (.35) (.56) (.68) -0- --------- --------- --------- --------- Net asset value, end of period ................................... $ 11.78 $ 11.94 $ 11.64 $ 11.16 ========= ========= ========= ========= Total Return Total investment return based on net asset value (d) ............. 1.58% 7.60% 10.84% .27% Ratios/Supplemental Data Net assets, end of period (000's omitted) ........................ $ 7,196 $ 7,031 $ 3,627 $ 1,438 Ratio to average net assets of: Expenses ...................................................... 1.10%(e) 1.14% 1.20% 1.15%(e) Net investment income ......................................... 4.19%(e) 4.61% 5.67% 5.48%(e) Portfolio turnover rate .......................................... 173% 259% 236% 172%
-------------------------------------------------------------------------------- (a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities for 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 $.03 and $.03, increase net realized and unrealized gain on investments per share by $.03 and $.03, and decrease the ratio of net investment income to average net assets from 5.11% to 4.86% and 4.86% to 4.61%, respectively. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (b) Based on average shares outstanding. (c) Net of expenses reimbursed or waived by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total investment return calculated for a period of less than one year is not annualized. (e) Annualized. (f) Commencement of distribution. 13 U.S GOVERNMENT/HIGH GRADE SECURITIES 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) OFFICERS Kathleen A. Corbet, Senior Vice President Alfred L. Harrison, Senior Vice President Andrew S. Adelson, Vice President Andrew Aran, Vice President Bruce K. Aronow, Vice President Edward Baker, Vice President Thomas J. Bardong, Vice President Matthew Bloom, Vice President Mark H. Breedon, Vice President Russell Brody, Vice President Kenneth T. Carty, Vice President Frank Caruso, Vice President John F. Chiodi, Vice President Paul J. DeNoon, Vice President Joseph C. Dona, Vice President Gregory Dube, Vice President Marilyn G. Fedak, Vice President Jane Mack Gould, Vice President David A. Kruth, Vice President Alan E. Levi, Vice President Michael Levy, Vice President Gerald T. Malone, Vice President Andrew Moloff, Vice President Michael Mon, Vice President Daniel Nordby, Vice President Raymond J. Papera, Vice President Douglas J. Peebles, Vice President Jeffrey S. Phlegar, Vice President Daniel G. Pine, Vice President Steven Pisarkiewicz, Vice President Michael J. Reilly, Vice President John Ricciardi, Vice President Paul C. Rissman, Vice President Kevin F. Simms, Vice President Michael A. Snyder, Vice President Annie Tsao, Vice President Jean Van De Walle, Vice President Richard A. Winge, Vice President Sandra Yeager, Vice President Edmund P. Bergan, Jr., Secretary Mark D. Gersten, Treasurer & Chief Financial Officer Thomas Manley, Controller CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 DISTRIBUTOR Alliance Fund Distributors, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT AUDITORS Ernst & Young LLP 5 Times Square New York, NY 10036 LEGAL COUNSEL Seward & Kissel One Battery Park Plaza New York, NY 10004 TRANSFER AGENT Alliance Global Investor Services, Inc. P.O. Box 1520 Secaucus, NJ 07096-1520 Toll-free 1-(800) 221-5672 -------------------------------------------------------------------------------- (1) Member of the Audit Committee. 14 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.)