N-30D 1 edg8136.txt VARP HIGH YIELD ALLIANCE -------------------------- VARIABLE PRODUCTS -------------------------- SERIES FUND -------------------------- HIGH-YIELD PORTFOLIO -------------------------- SEMI-ANNUAL REPORT JUNE 30, 2002 INVESTMENT PRODUCTS OFFERED --------------------------- o ARE NOT FDIC INSURED o MAY LOSE VALUE o ARE NOT BANK GUARANTEED --------------------------- HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2002 (unaudited) Alliance Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- CORPORATE DEBT OBLIGATIONS-74.0% AEROSPACE/DEFENSE-0.9% Sequa Corp. 9.00%, 8/01/09 $160 $ 161,600 Transdigm, Inc. 10.375%, 12/01/08 35 36,050 10.375%, 12/01/08 (a) 80 82,400 ------------ 280,050 AIR TRANSPORTATION-0.4% Dunlop Standard Aero Holdings 11.875%, 5/15/09 125 132,500 AUTOMOTIVE-2.0% ArvinMeritor, Inc. 8.75%, 3/01/12 100 107,362 Collins & Aikman Products 10.75%, 12/31/11 (a) 105 106,050 Dana Corp. 10.125%, 3/15/10 (a) 120 123,000 Dura Operating Corp. 9.00%, 5/01/09 160 156,000 Stoneridge, Inc. 11.50%, 5/01/12 (a) 75 76,125 United Auto Group, Inc. 9.625%, 3/15/12 (a) 75 75,750 ------------ 644,287 BANKING-1.1% Cho Hung Bank Co., Ltd. 11.875%, 4/01/10 (a) 240 275,597 Hanvit Bank 12.75%, 3/01/10 (a) 70 82,337 ------------ 357,934 BROADCASTING/MEDIA-4.5% Allbritton Communications Co. 8.875%, 2/01/08 120 124,200 American Media Operations, Inc. 10.25%, 5/01/09 110 116,050 Corus Entertainment, Inc. 8.75%, 3/01/12 (a) 75 75,375 Fox Family Worldwide, Inc. 9.25%, 11/01/07 500 531,250 10.25%, 11/01/07 136 145,401 Mediacom Broadband LLC 11.00%, 7/15/13 125 117,500 Paxson Communications Corp. 10.75%, 7/15/08 105 101,325 Sinclair Broadcast Group, Inc. 8.00%, 3/15/12 (a) 100 99,000 8.75%, 12/15/11 (a) 75 75,375 Time Warner Telecom, Inc. 10.125%, 2/01/11 185 87,875 ------------ 1,473,351 BUILDING/REAL ESTATE-3.0% Associated Materials, Inc. 9.75%, 4/15/12 (a) 35 $36,050 Beazer Homes USA, Inc. 8.375%, 4/15/12 (a) 110 111,650 D.R. Horton, Inc. 8.00%, 2/01/09 95 95,000 10.50%, 4/01/05 40 42,700 LNR Property Corp. 10.50%, 1/15/09 370 379,250 Meritage Corp. 9.75%, 6/01/11 120 125,100 Schuler Homes, Inc. 10.50%, 7/15/11 180 193,500 ------------ 983,250 CABLE-6.5% Adelphia Communications Corp. 10.875%, 10/01/10 (c) 545 218,000 Charter Communications Holdings LLC 12.125%, 1/15/12 (a) 790 256,750 9.625%, 11/15/09 (a) 60 40,200 9.625%, 11/15/09 (a) 35 23,450 10.00%, 5/15/11 105 71,400 10.75%, 10/01/09 575 406,812 11.75%, 5/15/11 (b) 785 274,750 CSC Holdings, Inc. 7.625%, 7/15/18 100 73,373 EchoStar DBS Corp. 9.25%, 2/01/06 300 277,500 9.375%, 2/01/09 280 260,400 Innova S. de R.L. 12.875%, 4/01/07 300 234,750 ------------ 2,137,385 CHEMICALS-4.3% Avecia Group Plc 11.00%, 7/01/09 280 280,000 Equistar Chemicals LP 10.125%, 9/01/08 130 124,800 Ferro Corp. 9.125%, 1/01/09 85 91,447 Georgia Gulf Corp. 10.375%, 11/01/07 175 188,125 Huntsman ICI Chemicals LLC 10.125%, 7/01/09 355 319,500 Lyondell Chemical Co. 9.50%, 12/15/08 50 46,750 9.625%, 5/01/07 40 38,300 10.875%, 5/01/09 370 329,300 ------------ 1,418,222 1 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- COMMUNICATIONS-FIXED-0.9% Intermedia Communications, Inc. 11.25%, 7/15/07 (b) $ 65 $ 20,475 Qwest Capital Funding, Inc. 7.25%, 2/15/11 455 257,075 ------------ 277,550 COMMUNICATIONS-MOBILE-5.0% American Cellular Corp. 9.50%, 10/15/09 220 40,700 Dobson/Sygnet Communications 12.25%, 12/15/08 320 193,600 Iridium Capital Corp. LLC 14.00%, 7/15/05 (c) 550 33,000 Microcell Telecommunications, Inc. 14.00%, 6/01/06 260 22,100 Nextel Communications, Inc. 5.25%, 1/15/10 200 83,750 9.375%, 11/15/09 100 51,000 9.95%, 2/15/08 280 135,100 10.65%, 9/15/07 (b) 225 123,187 Nextel Partners, Inc. 11.00%, 3/15/10 135 54,338 12.50%, 11/15/09 (a) 105 44,625 Price Communications Wireless, Inc. 9.125%, 12/15/06 165 172,631 PTC International Finance II, SA 11.25%, 12/01/09 200 210,000 Rural Cellular Corp. 9.75%, 1/15/10 (a) 230 111,550 TeleCorp PCS, Inc. 10.625%, 7/15/10 113 106,220 Tritel PCS, Inc. 10.375%, 1/15/11 104 95,160 Triton PCS, Inc. 8.75%, 11/15/11 65 40,300 11.00%, 5/01/08 185 115,625 ------------ 1,632,886 CONGLOMERATES-0.1% Netia Holdings BV 11.25%, 11/01/07 (b)(c) 125 20,625 CONSUMER MANUFACTURING-1.4% Collins & Aikman Floor Cover 9.75%, 2/15/10 (a) 80 82,000 Johnsondiversey, Inc. 9.625%, 5/15/12 (a) 55 57,750 Pennzoil-Quaker State Co. 10.00%, 11/01/08 (a) 115 135,269 Playtex Products, Inc. 9.375%, 6/01/11 115 122,475 Remington Products Co. LLC 11.00%, 5/15/06 85 65,450 ------------ 462,944 ENERGY-2.0% Grey Wolf, Inc. 8.875%, 7/01/07 60 61,800 Petrobras International Finance Co. 9.125%, 2/01/07 (a) 115 89,987 PG&E National Energy Group 10.375%, 5/16/11 215 219,680 Pride International, Inc. 9.375%, 5/01/07 60 62,850 Range Resources Corp. 8.75%, 1/15/07 (a) 65 66,300 Tesoro Petroleum Corp. 9.625%, 11/01/08 65 60,450 9.625%, 4/01/12 (a) 110 101,200 ------------ 662,267 ENTERTAINMENT & LEISURE-2.2% Regal Cinemas, Inc. 9.375%, 2/01/12 (a) 65 67,600 Royal Caribbean Cruises, Ltd. 8.75%, 2/02/11 270 254,245 Six Flags, Inc. 9.50%, 2/01/09 (a) 175 179,375 9.75%, 6/15/07 130 133,900 10.00%, 4/01/08 (b) 85 83,300 ------------ 718,420 FINANCIAL-3.1% Fairfax Financial Holdings, Ltd. 7.375%, 4/15/18 55 36,242 7.75%, 7/15/37 50 31,056 8.25%, 10/01/15 30 20,578 Finova Group, Inc. 7.50%, 11/15/09 225 75,375 Intrawest Corp. 10.50%, 2/01/10 225 235,125 iStar Financial, Inc. 8.75%, 8/15/08 130 129,073 Markel Capital Trust I 8.71%, 1/01/46 210 172,973 PXRE Capital Trust I 8.85%, 2/01/27 175 131,250 Western Financial Bank 9.625%, 5/15/12 125 125,000 Williams Scotsman, Inc. 9.875%, 6/01/07 (a) 55 52,800 ------------ 1,009,472 2 Alliance Variable Products Series Fund _______________________________________________________________________________ Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- FOOD/BEVERAGE-0.4% B&G Foods, Inc. 9.625%, 8/01/07 (a) $ 35 $ 36,050 Del Monte Corp. 9.25%, 5/15/11 50 52,250 DIMON, Inc. 9.625%, 10/15/11 35 36,838 ------------ 125,138 GAMING-4.6% Argosy Gaming Co. 9.00%, 9/01/11 50 51,563 Boyd's Gaming Corp. 9.25%, 8/01/09 145 155,150 Harrahs Operating Co., Inc. 7.875%, 12/15/05 80 82,400 Mandalay Resort Group 10.25%, 8/01/07 195 205,481 MGM Mirage, Inc. 8.375%, 2/01/11 175 176,750 Mohegan Tribal Gaming Authority 8.375%, 7/01/11 (a) 165 169,331 8.75%, 1/01/09 60 62,475 Park Place Entertainment Corp. 7.875%, 3/15/10 (a) 90 89,775 9.375%, 2/15/07 300 314,250 Sun International Hotels, Ltd. 8.875%, 8/15/11 (a) 170 174,462 8.875%, 8/15/11 (a) 35 35,919 ------------ 1,517,556 HEALTHCARE-4.3% Advanced Medical Optics, Inc. 9.25%, 7/15/10 (a) 50 49,250 Concentra Operating Corp. 13.00%, 8/15/09 215 244,025 Extendicare Health Services, Inc. 9.50%, 7/01/10 (a) 50 50,125 Hanger Orthopedic Group, Inc. 10.375%, 2/15/09 (a) 55 57,475 HCA-The Healthcare Co. 7.875%, 2/01/11 265 285,851 Iasis Healthcare Corp. 13.00%, 10/15/09 255 269,025 PacifiCare Health Systems, Inc. 10.75%, 6/01/09 (a) 160 164,600 Rotech Healthcare, Inc. 9.50%, 4/01/12 (a) 75 76,875 Triad Hospitals, Inc. 8.75%, 5/01/09 65 68,250 11.00%, 5/15/09 70 77,350 Vanguard Health Systems, Inc. 9.75%, 8/01/11 60 62,850 ------------ 1,405,676 HOME FURNISHINGS-0.4% Sealy Mattress Co. 9.875%, 12/15/07 140 141,400 HOTEL/LODGING-3.8% Extended Stay America, Inc. 9.875%, 6/15/11 245 251,125 Felcor Lodging LP 8.50%, 6/01/11 35 34,475 9.50%, 9/15/08 115 117,300 Host Marriott LP 9.25%, 10/01/07 340 343,400 9.50%, 1/15/07 (a) 165 167,269 Meristar Hospitality 9.125%, 1/15/11 (a) 145 139,200 10.50%, 6/15/09 (a) 75 76,125 Vail Resorts, Inc. 8.75%, 5/15/09 95 95,475 ------------ 1,224,369 INDUSTRIAL-4.5% Airgas, Inc. 9.125%, 10/01/11 60 63,600 Amtrol, Inc. 10.625%, 12/31/06 145 116,000 Applied Extrusion Technologies, Inc. 10.75%, 7/01/11 180 162,900 Flowserve Corp. 12.25%, 8/15/10 120 136,200 H&E Equipment Services, Inc. 11.125%, 6/15/12 (a) 90 87,300 LIN Holdings Co. 10.00%, 3/01/08 (b) 335 309,875 NMHG Holding Co. 10.00%, 5/15/09 (a) 45 45,675 Resolution Performance Products LLC 13.50%, 11/15/10 130 146,250 Russell-Stanley Holdings, Inc.(a) 10,000 0 9.00%, 11/30/08 (a) (e) 70 52,457 Service Corp. International 6.00%, 12/15/05 105 96,600 6.30%, 3/15/03 10 9,950 6.50%, 3/15/08 55 49,225 7.70%, 4/15/09 125 118,125 TriMas Corp. 9.875%, 6/15/12 (a) 70 70,700 ------------ 1,464,857 3 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund _______________________________________________________________________________ Shares or Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- MINING & METALS-1.0% Commonwealth Industries, Inc. 10.75%, 10/01/06 $ 5 $ 5,050 Earle M. Jorgensen Co. 9.75%, 6/01/12 (a) 105 105,000 Steel Dynamics, Inc. 9.50%, 3/15/09 (a) 80 84,800 United States Steel LLC 10.75%, 8/01/08 (a) 125 130,625 ------------ 325,475 PAPER/PACKAGING-4.1% Doman Industries, Ltd. 12.00%, 7/01/04 65 60,125 Owens-Brockway Glass Container 8.875%, 2/15/09 (a) 240 241,200 Owens-Illinois, Inc. 7.80%, 5/15/18 85 71,400 7.85%, 5/15/04 85 82,237 Plastipak Holdings, Inc. 10.75%, 9/01/11 (a) 180 198,450 Pliant Corp. warrants, expiring 6/01/10 (a)(d) 50 513 Riverwood International Corp. 10.625%, 8/01/07 150 158,625 Sealed Air Corp. 8.75%, 7/01/08 (a) 190 196,345 Stone Container Corp. 9.25%, 2/01/08 70 74,025 9.75%, 2/01/11 250 268,750 ------------ 1,351,670 PETROLEUM PRODUCTS-0.5% Frontier Oil Corp. 11.75%, 11/15/09 150 160,125 PUBLIC UTILITIES-ELECTRIC & GAS-1.2% AES Corp. 8.875%, 2/15/11 80 50,000 9.375%, 9/15/10 245 160,475 Mission Energy Holding Co. 13.50%, 7/15/08 170 171,700 ------------ 382,175 RETAIL-1.9% Advance Stores Co., Inc. 10.25%, 4/15/08 105 110,775 Jostens, Inc. 12.75%, 5/01/10 275 309,375 warrants, expiring 5/01/10 (a)(d) 200 3,050 Rite Aid Corp. 11.25%, 7/01/08 240 188,400 ------------ 611,600 SERVICES-7.1% Alderwoods Group, Inc. 11.00%, 1/02/07 80 80,800 12.25%, 1/02/09 145 150,075 Allied Waste North America, Inc. 8.50%, 12/01/08 150 145,500 8.875%, 4/01/08 180 177,300 10.00%, 8/01/09 875 864,132 Avis Rent a Car, Inc. 11.00%, 5/01/09 250 273,750 Coinmach Corp. 9.00%, 2/01/10 (a) 75 76,500 Corrections Corp. of America 9.875%, 5/01/09 (a) 50 51,750 Intertek Finance Plc 10.25%, 11/01/06 200 211,200 Iron Mountain, Inc. 8.625%, 4/01/13 235 241,463 Stewart Enterprises, Inc. 10.75%, 7/01/08 50 55,500 ------------ 2,327,970 SUPERMARKET/DRUG-0.8% Fleming Cos., Inc. 9.875%, 5/01/12 (a) 180 171,000 10.625%, 7/31/07 10 9,850 Roundy's, Inc. 8.875%, 6/15/12 (a) 55 55,138 Stater Bros. Holdings, Inc. 10.75%, 8/15/06 20 20,700 ------------ 256,688 TECHNOLOGY-2.0% Fairchild Semiconductor Corp. 10.125%, 3/15/07 225 237,517 10.50%, 2/01/09 100 107,000 Filtronic Plc 10.00%, 12/01/05 245 226,625 ON Semiconductor Corp. 12.00%, 5/15/08 (a) 90 81,000 ------------ 652,142 Total Corporate Debt Obligations (cost $27,012,442) 24,157,984 SOVEREIGN DEBT OBLIGATIONS-3.1% Russian Federation 5.00%, 3/31/30 255 177,544 5.00%, 3/31/30 (a) 250 174,062 United Mexican States 11.375%, 9/15/16 540 665,550 (cost $974,814) 1,017,156 4 HIGH-YIELD PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund _______________________________________________________________________________ Shares or Principal Amount (000) U.S. $ Value ------------------------------------------------------------------------------- PREFERRED STOCKS-2.9% CABLE-1.5% CSC Holdings, Inc. 11.125%, 4/01/08 5,727 $ 367,960 11.75%, 10/01/07 1,500 100,875 ------------ 468,835 CHEMICALS-0.1% Avecia Group Plc 16.00%, 7/01/10 (e) 1,600 38,000 COMMUNICATIONS-FIXED-0.2% Broadwing Communications, Inc. 12.50%, 8/15/09 280 42,700 Global Crossing Holdings, Ltd. 10.50%, 6/01/02 (c) 5,262 0 Intermedia Communications, Inc. 13.50%, 3/31/09 (e) 343 17,150 ------------ 59,850 COMMUNICATIONS-MOBILE-0.3% Nextel Communications, Inc. 11.125%, 2/15/03 (e) 383 99,580 FINANCIAL-0.8% Sinclair Broadcast Group, Inc. 11.625% 250 26,031 Sovereign Real Estate Investor Trust 12.00%, 8/29/49 (a) 215 240,263 ------------ 266,294 Total Preferred Stocks (cost $2,225,268) 932,559 SHORT-TERM INVESTMENT-17.6% TIME DEPOSIT-17.6% State Street Euro Dollar 1.25%, 7/01/02 (cost $5,733,000) $5,733 5,733,000 TOTAL INVESTMENTS-97.6% (cost $35,945,524) 31,840,699 Other assets less liabilities-2.4% 792,663 NET ASSETS-100% $32,633,362 (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 $5,879,849 or 18.0% 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. 5 HIGH-YIELD PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 (unaudited) Alliance Variable Products Series Fund _______________________________________________________________________________ ASSETS Investments in securities, at value (cost $35,945,524) $ 31,840,699 Cash 766 Dividends and interest receivable 737,719 Receivable for investment securities sold 87,445 Other assets 16,380 Total assets 32,683,009 LIABILITIES Advisory fee payable 21,002 Accrued expenses 28,645 Total liabilities 49,647 NET ASSETS $ 32,633,362 COMPOSITION OF NET ASSETS Capital stock, at par $ 5,013 Additional paid-in capital 49,747,747 Undistributed net investment income 1,225,871 Accumulated net realized loss on investment and foreign currency transactions (14,240,444) Net unrealized depreciation of investments (4,104,825) $ 32,633,362 Class A Shares Net assets $ 32,633,362 Shares of capital stock outstanding 5,012,724 Net asset value per share $ 6.51 See Notes to Financial Statements. 6 HIGH-YIELD PORTFOLIO STATEMENT OF OPERATIONS Six Months Ended June 30, 2002 (unaudited) Alliance Variable Products Series Fund _______________________________________________________________________________ INVESTMENT INCOME Interest $ 1,337,520 Dividends 56,095 Total investment income 1,393,615 EXPENSES Advisory fee 125,080 Custodian 46,740 Administrative 34,500 Audit and legal 6,132 Printing 3,003 Directors' fees 900 Transfer agency 452 Miscellaneous 5,802 Total expenses 222,609 Less: expenses waived and reimbursed (see Note B) (57,429) Net expenses 165,180 Net investment income 1,228,435 REALIZED AND UNREALIZED LOSS ON INVESTMENT TRANSACTIONS Net realized loss on investment transactions (1,512,090) Net change in unrealized appreciation/depreciation of investments (2,384,006) Net loss on investment transactions (3,896,096) NET DECREASE IN NET ASSETS FROM OPERATIONS $(2,667,661) See Notes to Financial Statements. 7 HIGH-YIELD 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 $ 1,228,435 $ 2,168,710 Net realized loss on investment transactions (1,512,090) (2,876,948) Net change in unrealized appreciation/ depreciation of investments (2,384,006) 1,321,559 Net increase (decrease) in net assets from operations (2,667,661) 613,321 DIVIDENDS TO SHAREHOLDERS FROM Net investment income Class A (2,125,869) (2,037,954) CAPITAL STOCK TRANSACTIONS Net increase 6,143,512 10,375,324 Total increase 1,349,982 8,950,691 NET ASSETS Beginning of period 31,283,380 22,332,689 End of period (including undistributed net investment income of $1,225,871 and $2,123,305, respectively) $32,633,362 $ 31,283,380 See Notes to Financial Statements. 8 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS June 30, 2002 (unaudited) Alliance Variable Products Series Fund _______________________________________________________________________________ NOTE A: Significant Accounting Policies The High-Yield Portfolio (the "Portfolio") is a series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to earn the highest level of current income without assuming undue risk by investing principally in high-yielding, fixed-income securities rated Baa or lower by Moody's or BBB or lower by S&P Duff &Phelps or Fitch or, if unrated of comparable quantity. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers nineteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. As of June 30, 2002, the Portfolio had only Class A shares outstanding. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) or on The Nasdaq Stock Market, Inc., are generally valued at the last reported sales price or if no sale occurred, at the mean of the closing bid and asked price on that day. Readily marketable securities traded in the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the U.S. over-the-counter market, and securities listed on a national securities exchange whose primary market is believed to be over-the-counter (but excluding securities traded on The Nasdaq Stock Market, Inc.) are valued at the mean of the current bid and asked price. U.S. government and fixed income securities which mature in 60 days or less are valued at amortized cost, unless this method does not represent fair value. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by, or in accordance with procedures adopted by, the Board of Directors. Fixed income securities may be valued on the basis of prices obtained from a pricing service when such prices are believed to reflect the fair market value of such securities. 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked price of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at rates of exchange prevailing when accrued. Net realized gains and losses on foreign currency transactions represent foreign exchange gains and losses from sales and maturities of securities and forward exchange currency contracts, holdings of foreign currencies, exchange gains and losses realized between the trade and settlement dates on investment transactions, and the difference between the amounts of interest, dividends and foreign 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 and expenses incurred by a portfolio, with multi-class shares outstanding, are borne on a pro-rata basis by each 9 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund _______________________________________________________________________________ outstanding class of shares, based on the proportionate interest in the portfolio represented by the net assets of such class, except that the portfolio's Class B shares bear the distribution fees. 6. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. NOTE B: Advisory Fee and Other Transactions with Affiliates Under the terms of an investment advisory agreement, the Portfolio pays Alliance Capital Management L.P. (the "Adviser"), an investment advisory fee at an annualized rate of .75% of the Portfolio's average daily net assets. Pursuant to the advisory agreement, the Portfolio paid $34,500 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% of the average daily net assets for Class A shares. 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, the Adviser waived fees in the amount of $34,500 and reimbursed additional expenses in the amount of $22,929. 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 $452 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. 10 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 $ 12,945,229 U.S. government and agencies -0- Sales: Stocks and debt obligations $ 6,958,985 U.S. government and agencies -0- 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 $ 866,389 Gross unrealized depreciation (4,971,214) Net unrealized depreciation $ (4,104,825) 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts to hedge exposure to changes in foreign currency exchange rates on foreign portfolio holdings, to hedge certain firm purchase and sales commitments denominated in foreign currencies and for investment purposes. A forward exchange currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The Portfolio may enter into contracts to deliver or receive foreign currency it will receive from or require for its normal investment activities. It may also use contracts in a manner intended to protect foreign currency denominated securities from declines in value due to unfavorable exchange rate movements. The gain or loss arising from the difference between the original contracts and the closing of such contracts is included in realized gains or losses from foreign currency transactions. Fluctuations in the value of forward exchange currency contracts are recorded for financial reporting purposes as unrealized gains or losses by the Portfolio. The Portfolio's custodian will place and maintain cash not available for investment or other liquid assets in a separate account of the Portfolio having an approximate value equal to the aggregate amount of the portfolio's commitments under forward exchange currency contracts entered into with respect to position hedges. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. The face or contract amount, in U.S. dollars, reflects the total exposure the Portfolio has in that particular currency contract. At June 30, 2002, the Portfolio had no outstanding forward exchange currency contracts. 2. Option Transactions For hedging and investment purposes, the Portfolio may purchase and write call options and purchase put options on U.S. securities that are traded on U.S. securities exchanges and over-the-counter markets. The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of premium and change in market value should the counterparty not perform under the contract. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid. When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from which written options expire unexercised are recorded by the Portfolio on the expiration date as realized gains from written options. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. In writ- 11 HIGH-YIELD PORTFOLIO NOTES TO FINANCIAL STATEMENTS (continued) Alliance Variable Products Series Fund _______________________________________________________________________________ ing 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 $ 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. 12 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 --------------------------- ------------------------------ Six Months Ended Year Ended Six Months Ended Year Ended June 30, 2002 December 31, June 30, 2002 December 31, (unaudited) 2001 (unaudited) 2001 ------------ ------------ -------------- -------------- Shares sold 928,062 1,898,761 $ 6,914,017 $ 14,804,355 Shares issued in connection with acquisition of Brinson Series Trust High Income Portfolio -0- 82,390 -0- 604,121 Shares issued in reinvestment of dividends 309,442 268,152 2,125,869 2,037,954 Shares redeemed (392,958) (903,663) (2,896,374) (7,071,106) Net increase 844,546 1,345,640 $ 6,143,512 $ 10,375,324 NOTE G: Concentration of Risk Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. NOTE H: Bank Borrowing A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $750 million revolving credit facility (the "Facility") intended to provide short-term financing if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in the miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2002. 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. 13 HIGH-YIELD PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund _______________________________________________________________________________ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A ----------------------------------------------------------------------------- Six Months October 27, Ended Year Ended December 31, 1997 (b) to June 30, 2002 -------------------------------------------------- December 31, (unaudited) 2001 (a) 2000 1999 1998 1997 ----------- ----------- ----------- ----------- ----------- ----------- Net asset value, beginning of period $ 7.51 $ 7.91 $ 9.14 $ 9.94 $ 10.33 $ 10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (c)(d) .27 .63 .74 .91 1.03 .13 Net realized and unrealized gain (loss) on investment and foreign currency transactions (.81) (.38) (1.18) (1.16) (1.41) .20 Net increase (decrease) in net asset value from operations (.54) .25 (.44) (.25) (.38) .33 LESS: DIVIDENDS Dividends from net investment income (.46) (.65) (.79) (.55) (.01) -0- Net asset value, end of period $ 6.51 $ 7.51 $ 7.91 $ 9.14 $ 9.94 $ 10.33 TOTAL RETURN Total investment return based on net asset value (e) (7.57)% 3.04% (5.15)% (2.58)% (3.69)% 3.30% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's omitted) $32,633 $31,283 $22,333 $24,567 $16,910 $1,141 Ratio to average net assets of: Expenses, net of waivers and reimbursements .99%(f) .95% .95% .95% .95% .95%(f) Expenses, before waivers and reimbursements 1.33%(f) 1.51% 1.42% 1.40% 1.80% 8.26%(f) Net investment income (c) 7.37%(f) 8.08% 8.68% 9.72% 9.77% 7.28%(f) Portfolio turnover rate 26% 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. 14 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) 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. 15