-----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, Al6Ci8wHYXl3nXAAQK+7zVBMUfHgBiwwO3Pf6lVFdKcofmCPgZEwKqvmFc1WyLys WMC+gHj/cXxLKFz8QnSQRw== 0000936772-03-000067.txt : 20030220 0000936772-03-000067.hdr.sgml : 20030220 20030220151026 ACCESSION NUMBER: 0000936772-03-000067 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030220 EFFECTIVENESS DATE: 20030220 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: 03574255 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 edg8795.txt ALLIANCE ----------------------- VARIABLE PRODUCTS ----------------------- SERIES FUND ----------------------- WORLDWIDE PRIVATIZATION ----------------------- PORTFOLIO ----------------------- ANNUAL REPORT DECEMBER 31, 2002 Investment Products Offered --------------------------- > Are Not FDIC Insured > May Lose Value > Are Not Bank Guaranteed --------------------------- WORLDWIDE PRIVATIZATION PORTFOLIO Alliance Variable Products Series Fund ================================================================================ LETTER TO INVESTORS January 21, 2003 Dear Investor: The following is an update of Alliance Variable Products Series Fund Alliance Worldwide Privatization Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2002. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks long-term capital appreciation. The Portfolio invests principally in equity securities of companies that are undergoing, or have undergone, privatization. The Portfolio also invests in securities of companies Alliance believes will benefit from privatizations. - -------------------------------------------------------------------------------- INVESTMENT RESULTS Periods Ended December 31, 2002 Total Returns Since 1 Year 5 Years Inception* ====== ======= ========= Alliance Worldwide Privatization -4.19% 1.44% 5.67% Portfolio MSCI World Index (minus -15.51% -2.44% 0.87% the U.S.) 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. Total return does not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio 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. * The Portfolio's inception date is 9/23/94. The Morgan Stanley Capital International (MSCI) World Index (minus the U.S.) is an unmanaged, market capitalization-weighted index that measures the performance of stock markets in 21 countries outside the United States. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including Alliance Worldwide Privatization Portfolio. - -------------------------------------------------------------------------------- The Portfolio, which returned -4.19% over the annual reporting period ended December 31, 2002, strongly outperformed its benchmark, the MSCI World Index (minus the U.S.), which returned -15.51% over the same time period. The Portfolio's outperformance was primarily a result of strong stock selection. Stock selection added to relative outperformance across all investment regions, including both the developed and emerging markets. Stock picks within European utilities, Eastern European financials and global resources were among the principal drivers of the Portfolio's outperformance, while the Portfolio's health care holdings proved weak. Asset allocation made a modest positive contribution to the Portfolio's strong relative returns, with overweight positions in the Eastern Europe, Middle East and Africa region notably contributing to the Portfolio's outperformance. The Portfolio's relative underweight position in Asia ex-Japan somewhat negatively impacted performance by offsetting strong returns. MARKET REVIEW Equity markets were highly volatile over the review period as a difficult combination of a weak global economy, declines in corporate profits with repeated profit warnings, corporate scandals and several major bankruptcies hit equity prices. Risk aversion rose sharply during the period and investors shifted assets into alternative havens, such as government bonds, intensifying the downward pressure on the markets. While companies attempted to restructure from the often excessive investments of previous years, cost cutting initiatives were of limited success in the face of stagnant revenues and limited pricing power. Geopolitical unrest further exacerbated the negative sentiment with continued violence in the Middle East, the prospect of war against Iraq and the ever present threat of terrorist attacks. There was extreme divergence of returns at the country level. For example, Germany was a key laggard as economic stagnation took hold. Germany was down 33.2% as measured by the MSCI Index series. On the other hand, Japan's relative performance was aided by anticipation of structural reform, with the MSCI Japan Index down 10.3%. Despite debt crises and subsequent economic, currency and equity price collapses in both Turkey and Argentina, the overall emerging markets group outperformed its developed peers for the third consecutive year. The superior relative returns of emerging markets were a result of more visible economic growth prospects, as well as attractive equity market valuations. Eastern Europe performed notably well as the positive forces of convergence increased due to the rising probability of entry into the European Union. Resource-backed countries 1 WORLDWIDE PRIVATIZATION PORTFOLIO Alliance Variable Products Series Fund ================================================================================ such as South Africa and Russia were also market leaders. Throughout the year, the business and investment climate was difficult across all sectors. Companies operating in the more defensive sectors, including consumer staples, energy and utilities, struggled to generate positive absolute returns. The legacy of the bubble years continued to bite within the technology, media and telecommunications sectors, and these groups witnessed the steepest declines. Technology companies, in particular, saw revenues collapse and experienced a sequence of downward earnings revisions. Telecommunication stocks were the victims of balance sheet weakness amidst declining demand for telecommunications services, although a series of refinancing initiatives did lend them some support during the latter part of the period. Health care stocks were not immune from the market woes and suffered from government price cuts, increased use of generic products and lower FDA approval rates. Financials performed poorly as fears of slower loan growth, security market exposure and credit risk hit the banks and solvency concerns impacted insurance companies. The level of privatization activity among equities was dictated by the weak market environment. As a result, deal-flow remained at depressed levels. Privatization did, however, make up a sizeable proportion of the overall quantity of initial public offerings (IPO). This was most apparent in Asia where China was yet again at the forefront of privatization as several large state-owned enterprises were listed. INVESTMENT OUTLOOK Global equity markets continue to face a variety of difficult uncertainties. The key issues remain the scale and recovery potential of the global economy and its subsequent impact on the business cycle and corporate profitability. The state of the U.S. economy will be of primary importance to this, however we have a moderately optimistic outlook. We are hopeful that measures taken by the U.S. authorities will act to stimulate corporate investment spending and maintain the health of the U.S. consumer. Outside the U.S., the European Central Bank's recent reduction in interest rates is a move away from its historically restrictive monetary policy and should provide a welcome boost to the region's stagnate economies. Japan remains stuck in a deflationary rut, and the government continues to lack the resolve necessary to implement structural reforms. Deflation will likely continue and growth will be stifled unless the government can overcome its inertia. One of the major issues of concern is the possibility of a war against Iraq. While most commentators expect a brief conflict and a subsequent rally in equity prices, it is worth cautioning that a protracted war could almost certainly cause turmoil on world stock markets, see oil prices spike and hamper global economic growth. The threat of terrorism remains another area of uncertainty. On a brighter note, equity valuations are, in our opinion, at attractive levels despite sizeable downgrades in earnings. Indeed a recent increase in merger and acquisition activity has lent support to equity prices and perhaps signals that the corporate sector also believes valuations are attractive. We anticipate the pace of privatization activity to accelerate as the global economic outlook improves. The established trend of privatization transactions broadening across new industry sectors is expected to persist. We also expect a number of countries that have previously not participated in the privatization process to do so, thus offering the Portfolio a wealth of future exciting investment opportunities. The recent growth in public sector budget deficits is also likely to provide a new impetus for privatization activity and public sector outsourcing as governments seek to raise funds in their struggle to control public finances. We continue to focus the Portfolio on companies with superior growth potential and strong management teams in the belief that such companies will generate higher long-term investment returns. We continue to emphasize diversification in the Portfolio, as the success of privatization gives us access to investment opportunities in new countries and an expanding number of industries. We appreciate your investment in Alliance Worldwide Privatization Portfolio and look forward to reporting further investment progress in the coming period. Sincerely, /s/ Edward D. Baker, III Edward D. Baker, III Vice President and Portfolio Manager 2 WORLDWIDE PRIVATIZATION PORTFOLIO Alliance Variable Products Series Fund ================================================================================ PERFORMANCE UPDATE ALLIANCE WORLDWIDE PRIVATIZATION PORTFOLIO GROWTH OF A $10,000 INVESTMENT 9/30/94* - 12/31/02 [THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL.] Alliance Worldwide Privatization Portfolio: $15,787 MSCI World Index (minus the U.S.): $11,689 Alliance Worldwide MSCI World Index Privatization Portfolio (minus the U.S.) - -------------------------------------------------------------------------------- 9/30/94* $10,000 $10,000 12/31/94 $10,100 $10,764 12/31/95 $11,198 $12,030 12/31/96 $13,271 $12,896 12/31/97 $14,697 $13,226 12/31/98 $16,289 $15,754 12/31/99 $25,872 $20,207 12/31/00 $19,924 $17,548 12/31/01 $16,477 $13,835 12/31/02 $15,787 $11,689 Past performance is no guarantee of future results. This chart illustrates the total value of an assumed $10,000 investment in the Portfolio (from 9/30/94* to 12/31/02) as compared to the performance of an appropriate broad-based index. The Morgan Stanley Capital International (MSCI) World Index (minus the U.S.) is an unmanaged, market capitalization-weighted index that measures the performance of stock markets in 21 countries outside the United States. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including Alliance Worldwide Privatization Portfolio. - -------------------------------------------------------------------------------- * Since closest month-end after Portfolio's inception date of 9/23/94. 3 WORLDWIDE PRIVATIZATION PORTFOLIO TEN LARGEST HOLDINGS December 31, 2002 Alliance Variable Products Series Fund ================================================================================ - -------------------------------------------------------------------------------- COMPANY U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Japan Tobacco, Inc. $ 1,042,977 3.4% - -------------------------------------------------------------------------------- Vodafone Group Plc 950,476 3.1 - -------------------------------------------------------------------------------- BNP Paribas, SA 929,701 3.0 - -------------------------------------------------------------------------------- National Grid Group Plc 910,295 3.0 - -------------------------------------------------------------------------------- East Japan Railway Co. 907,604 3.0 - -------------------------------------------------------------------------------- Nomura Securities Co., Ltd. 853,688 2.8 - -------------------------------------------------------------------------------- ENI SpA 763,981 2.4 - -------------------------------------------------------------------------------- Sanofi-Synthelabo, SA 742,631 2.4 - -------------------------------------------------------------------------------- Grupo Financiero Banorte, SA de CV Cl.B 731,718 2.4 - -------------------------------------------------------------------------------- Fubon Financial Holding Co., Ltd. 713,019 2.3 ----------- ---- - -------------------------------------------------------------------------------- $ 8,546,090 27.8% - -------------------------------------------------------------------------------- SECTOR DIVERSIFICATION December 31, 2002 - -------------------------------------------------------------------------------- SECTOR U.S. $ VALUE PERCENT OF NET ASSETS - -------------------------------------------------------------------------------- Aerospace & Defense $ 72,631 0.2% - -------------------------------------------------------------------------------- Basic Industries 1,325,813 4.3 - -------------------------------------------------------------------------------- Consumer Services 5,658,121 18.4 - -------------------------------------------------------------------------------- Consumer Staples 1,308,754 4.3 - -------------------------------------------------------------------------------- Energy 3,883,991 12.6 - -------------------------------------------------------------------------------- Finance 6,926,705 22.5 - -------------------------------------------------------------------------------- Healthcare 2,106,500 6.9 - -------------------------------------------------------------------------------- Multi Industry 112,540 0.4 - -------------------------------------------------------------------------------- Technology 1,605,871 5.2 - -------------------------------------------------------------------------------- Transportation 2,282,069 7.4 - -------------------------------------------------------------------------------- Utilities 5,135,272 16.7 ----------- ---- - -------------------------------------------------------------------------------- Total Investments 30,418,267 98.9 - -------------------------------------------------------------------------------- Cash and receivables, net of liabilities 326,819 1.1 ----------- ---- - -------------------------------------------------------------------------------- Net Assets $30,745,086 100.0% - -------------------------------------------------------------------------------- 4 WORLDWIDE PRIVATIZATION PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2002 Alliance Variable Products Series Fund ================================================================================ Company Shares U.S. $ Value - -------------------------------------------------------------------------------- COMMON & PREFERRED STOCKS-98.9% AUSTRALIA-1.3% CSL, Ltd. .................................. 33,800 $ 410,853 ----------- AUSTRIA-1.8% Flughafen Wien AG .......................... 3,607 121,045 Telekom Austria AG (a) ..................... 41,404 419,007 ----------- 540,052 ----------- BRAZIL-3.4% Brasil Telecom Participacoes, SA (ADR) ................................ 3,500 88,375 Companhia Paranaense de Energia-Copel (ADR) ..................... 12,000 33,720 Companhia Siderurgica National, SA (ADR) ...................... 1,000 14,340 Companhia Vale do Rio Doce (a)(b) .................................. 2,360 0 ADR ..................................... 3,000 82,500 ADR ..................................... 8,200 237,062 Empresa Brasileira de Aeronautica, SA (Embraer) (ADR) ................................... 4,568 72,631 Gerdau Siderurg, SA pfd .................... 10,228,288 99,683 Gerdau, SA (ADR) ........................... 10,000 89,000 Itausa-Investimentos Itau, SA pfd. ................................. 110,947 58,921 Petroleo Brasileiro, SA (ADR) ................................... 21,000 281,400 ----------- 1,057,632 ----------- CHILE-0.1% Enersis, SA (ADR) (a) ...................... 6,000 24,540 ----------- CZECH REPUBLIC-0.8% Komercni Banka AS .......................... 3,650 253,384 ----------- EGYPT-1.6% Eastern Company for Tobacco & Cigarettes .................... 21,974 265,776 Egyptian Co. for Mobile Services ................................ 32,618 217,688 ----------- 483,464 ----------- FINLAND-1.7% Fortum Oyj ................................. 35,551 233,014 Sampo Oyj .................................. 25,161 191,301 TietoEnator Oyj ............................ 7,747 105,616 ----------- 529,931 ----------- FRANCE-8.7% BNP Paribas, SA ............................ 22,831 929,701 Dassault Systemes, SA ...................... 8,200 176,630 Sanofi-Synthelabo, SA ...................... 12,157 742,631 Societe Television Francaise 1 ............................. 12,750 340,424 STMicroelectronics NV ...................... 14,973 293,317 TotalFinaElf, SA ........................... 1,295 184,833 ----------- 2,667,536 ----------- GERMANY-3.6% Deutsche Lufthansa AG (a) .................. 12,086 111,283 Deutsche Post AG ........................... 46,318 485,737 Fraport AG ................................. 20,862 371,925 Rhoen-Klinikum AG .......................... 4,211 136,898 ----------- 1,105,843 ----------- GHANA-0.6% Ashanti Goldfields Co., Ltd. (GDR) (a) ............................... 33,900 198,315 ----------- GREECE-1.8% Greek Organization of Football Prognostics ............................. 27,900 293,757 Public Power Corp. ......................... 19,930 275,470 ----------- 569,227 ----------- HONG KONG-0.9% China Petroleum & Chemical Co. Cl.H ................................ 1,645,000 276,327 ----------- HUNGARY-1.9% Gedeon Richter Rt. ......................... 2,460 162,432 OTP Bank Rt ................................ 44,252 434,846 ----------- 597,278 ----------- INDIA-0.4% Punjab National Bank, Ltd. (a) ................................ 82,300 125,123 ----------- ITALY-5.0% Acegas SpA ................................. 31,700 151,924 Enel SpA ................................... 34,022 176,967 ENI SpA .................................... 48,086 763,981 Telecom Italia SpA ......................... 56,859 431,110 ----------- 1,523,982 ----------- JAPAN-15.4% East Japan Railway Co. ..................... 183 907,604 Japan Airlines System Corp. (a) ............................... 72,000 153,385 Japan Tobacco, Inc. ........................ 156 1,042,977 Mitsubishi Tokyo Financial Group, Inc. ............................. 99 537,681 Nippon Telegraph & Telephone, Corp. ................................... 125 453,646 Nomura Securities Co., Ltd. ................ 76,000 853,688 NTT Docomo, Inc. ........................... 327 603,006 West Japan Railway Co. ..................... 51 180,793 ----------- 4,732,780 ----------- LUXEMBOURG-1.4% Tenaris, SA (ADR) (a) ...................... 22,746 437,178 ----------- MEXICO-5.3% America Movil, SA de CV Series L (ADR) .......................... 13,800 198,168 Grupo Aeroportuario del Sureste, SA de CV Series B (ADR) ................ 6,000 70,500 5 WORLDWIDE PRIVATIZATION PORTFOLIO PORTFOLIO OF INVESTMENTS (continued) Alliance Variable Products Series Fund ================================================================================ Company Shares U.S. $ Value - -------------------------------------------------------------------------------- Grupo Financiero Banorte, SA de CV Cl.B .............................. 299,000 $ 731,718 Grupo Financiero BBVA Bancomer, SA de CV (a) .................. 229,600 174,293 Telefonos de Mexico, SA Cl.L (ADR) .............................. 14,000 447,720 ----------- 1,622,399 ----------- NETHERLANDS-1.3% ING Groep NV ............................... 23,400 396,069 ----------- NORWAY-0.8% Telenor AS ................................. 65,600 250,674 ----------- PEOPLES REPUBLIC OF CHINA-2.2% Beijing Capital International Airport Co., Ltd. ....................... 1,344,000 301,594 China Unicom, Ltd. (b) ..................... 168,000 114,175 CNOOC, Ltd. ................................ 191,000 249,816 ----------- 665,585 ----------- PERU-0.4% Explosivos, SA Cl.C (b) .................... 197,226 112,540 ----------- POLAND-1.6% Bank Pekao, SA ............................. 9,632 237,718 Polski Koncern Naftowy, SA (GDR) ................................... 26,900 247,480 ----------- 485,198 ----------- RUSSIA-2.3% AO VimpelCom (ADR) (a) ..................... 6,200 198,462 Mobile Telesystems (ADR) ................... 5,000 185,700 YUKOS (ADR) ................................ 2,400 338,231 ----------- 722,393 ----------- SINGAPORE-0.9% DBS Group Holdings, Ltd. ................... 44,172 280,110 ----------- SOUTH AFRICA-1.7% Iscor, Ltd. ................................ 99,600 246,750 MTN Group, Ltd. (a) ........................ 189,000 269,922 ----------- 516,672 ----------- SOUTH KOREA-6.2% Kookmin Bank (a) ........................... 14,000 495,763 ADR (a) ................................. 11,635 411,297 POSCO ...................................... 3,600 358,164 SK Telecom Co., Ltd. (a) ................... 1,010 195,009 ADR (a) ................................. 21,100 450,485 ----------- 1,910,718 ----------- SPAIN-2.2% Amadeus Global Travel Distribution, SA ........................ 30,713 126,580 Iberia Lineas Aereas de Espana, SA .............................. 97,318 142,880 Indra Sistemas, SA ......................... 24,084 163,665 Telefonica, SA ............................. 26,207 234,432 ----------- 667,557 ----------- SWEDEN-1.4% Eniro AB ................................... 66,287 419,345 ----------- SWITZERLAND-0.2% Unique Zurich Airport (a) .................. 2,420 75,237 ----------- TAIWAN-3.2% Fubon Financial Holding Co., Ltd. ............................... 895,149 713,019 Taiwan Semiconductor Co. ................... 218,020 268,042 ----------- 981,061 ----------- THAILAND-1.4% PTT Public Company, Ltd. ................... 252,500 247,965 Ratchaburi Electricity Generating Holding Public Co., Ltd. ............................... 426,600 168,069 ----------- 416,034 ----------- TURKEY-1.0% Dogan Yayin Holding AS (a) ................ 139,497,222 203,784 Turkiye Garanti Bankasi AS ................. 78,809,135 102,072 ----------- 305,856 ----------- UNITED KINGDOM-13.0% BP Plc (ADR) ............................... 68,656 471,843 British Sky Broadcast Group Plc (a) ................................. 37,458 385,245 BT Group Plc ............................... 96,469 302,770 Capita Group Plc ........................... 64,834 258,267 Centrica Plc ............................... 111,000 305,499 Mersey Docks & Harbor Co. .................. 25,520 190,273 mm02 Plc (a) ............................... 302,422 215,386 National Grid Group Plc .................... 123,894 910,295 Vodafone Group Plc ......................... 521,449 950,476 ----------- 3,990,054 ----------- UNITED STATES-3.4% Affiliated Computer Services, Inc. Cl.A (a) ........................... 7,600 400,140 deCODE GENETICS, Inc. (a) ................................ 32,500 60,125 Pharmacia Corp. ............................ 14,200 593,560 ----------- 1,053,825 ----------- 6 Alliance Variable Products Series Fund ================================================================================ Company Shares U.S. $ Value - -------------------------------------------------------------------------------- VENEZUELA-0.0% Compania Anonima Nacional Telefonos de Venezuela Cl.D (ADR) ................................... 1,071 $ 13,495 ----------- TOTAL INVESTMENTS-98.9% (cost $31,984,565) ...................... $30,418,267 Other assets less liabilities (c)-1.1% .................... 326,819 ----------- NET ASSETS-100% ............................ $30,745,086 =========== - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Illiquid security valued at fair value (see Note A). (c) Includes cash collateral received of $726,500 for securities on loan as of December 31, 2002 (see Note F). The lending agent invested the cash in a short-term investment as follows: Current Yield Shares Value ----------- ------------ ------------ UBS Private Money Market Fund, LLC 1.46% 726,500 $726,500 Glossary of Terms: ADR - American Depositary Receipt GDR - Global Depositary Receipt See Notes to Financial Statements. 7 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2002 Alliance Variable Products Series Fund ================================================================================ ASSETS Investments in securities, at value (cost $31,984,565) ... $ 30,418,267(a) Cash ..................................................... 179,576 Foreign cash, at value (cost $4,404) ..................... 4,441 Collateral held for securities loaned .................... 726,500 Receivable for capital stock sold ........................ 149,191 Receivable for investments sold .......................... 99,287 Dividends receivable ..................................... 70,401 ------------ Total assets ............................................. 31,647,663 ------------ LIABILITIES Payable for collateral received on securities loaned ..... 726,500 Payable for capital stock redeemed ....................... 122,583 Advisory fee payable ..................................... 26,035 Accrued expenses ......................................... 27,459 ------------ Total liabilities ........................................ 902,577 ------------ NET ASSETS .................................................. $ 30,745,086 ============ COMPOSITION OF NET ASSETS Capital stock, at par .................................... $ 2,678 Additional paid-in capital ............................... 41,491,417 Undistributed net investment income ...................... 348,292 Accumulated net realized loss on investment and foreign currency transactions .................................. (9,536,766) Net unrealized depreciation of investments and foreign currency denominated assets and liabilities ............ (1,560,535) ------------ $ 30,745,086 ============ Class A Shares Net assets ............................................... $ 27,135,910 ============ Shares of capital stock outstanding ...................... 2,362,940 ============ Net asset value per share ................................ $ 11.48 ============ Class B Shares Net assets ............................................... $ 3,609,176 ============ Shares of capital stock outstanding ...................... 314,597 ============ Net asset value per share ................................ $ 11.47 ============ - -------------------------------------------------------------------------------- (a) Includes securities on loan with a value of $706,042 (see Note F). See Notes to Financial Statements. 8 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2002 Alliance Variable Products Series Fund ================================================================================ INVESTMENT INCOME Dividends (net of foreign taxes withheld of $70,936) ..... $ 733,802 Interest ................................................. 18,839 ------------ Total investment income .................................. 752,641 ------------ EXPENSES Advisory fee ............................................. 351,396 Distribution fee--Class B ................................ 5,685 Custodian ................................................ 207,544 Administrative ........................................... 69,000 Audit and legal .......................................... 33,693 Printing ................................................. 21,814 Directors' fees and expenses ............................. 2,016 Transfer agency .......................................... 947 Miscellaneous ............................................ 9,233 ------------ Total expenses ........................................... 701,328 Less: expenses waived and reimbursed (see Note B) ........ (154,889) ------------ Net expenses ............................................. 546,439 ------------ Net investment income .................................... 206,202 ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized gain (loss) on: Investment transactions ................................ (5,220,708) Foreign currency transactions .......................... 176,924 Net change in unrealized appreciation/depreciation of: Investments ............................................ 3,354,508 Foreign currency denominated assets and liabilities .... 5,764 ------------ Net loss on investment and foreign currency transactions . (1,683,512) ------------ NET DECREASE IN NET ASSETS FROM OPERATIONS .................. $ (1,477,310) ============ - -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 WORLDWIDE PRIVATIZATION PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Alliance Variable Products Series Fund ================================================================================
Year Ended Year Ended December 31, December 31, 2002 2001 ============= ============= INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ........................................... $ 206,202 $ 684,568 Net realized loss on investment and foreign currency transactions (5,043,784) (4,305,732) Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities ....... 3,360,272 (5,713,342) ------------- ------------- Net decrease in net assets from operations ...................... (1,477,310) (9,334,506) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A ....................................................... (588,448) (98,462) Class B ....................................................... (45,450) (1,045) Net realized gain on investment transactions Class A ....................................................... -0- (2,642,078) Class B ....................................................... -0- (32,360) CAPITAL STOCK TRANSACTIONS Net decrease .................................................... (5,646,881) (5,807,379) ------------- ------------- Total decrease .................................................. (7,758,089) (17,915,830) NET ASSETS Beginning of period ............................................. 38,503,175 56,419,005 ------------- ------------- End of period (including undistributed net investment income of $348,292 and $599,065, respectively) .......................... $ 30,745,086 $ 38,503,175 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 10 WORLDWIDE PRIVATIZATION PORTFOLIO NOTES TO FINANCIAL STATEMENTS December 31, 2002 Alliance Variable Products Series Fund ================================================================================ NOTE A: Significant Accounting Policies The Worldwide Privatization Portfolio (the "Portfolio") is a series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek long-term capital appreciation. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers nineteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) or on The Nasdaq Stock Market, Inc. are generally valued at the last reported sales price or if no sale occurred, at the mean of the closing bid and asked prices on that day. Readily marketable securities traded in the over-the-counter market, securities listed on a foreign securities exchange whose operations are similar to the U.S. over-the-counter market, and securities listed on a national securities exchange whose primary market is believed to be over-the-counter (but excluding securities traded on The Nasdaq Stock Market, Inc.), are valued at the mean of the current bid and asked prices. U.S. government and fixed income securities which mature in 60 days or less are valued at amortized cost, unless this method does not represent fair value. Securities for which current market quotations are not readily available are valued at their fair value as determined in good faith by, or in accordance with procedures adopted by, the Board of Directors. Fixed income securities may be valued on the basis of prices obtained from a pricing service when such prices are believed to reflect the fair market value of such securities. 2. Currency Translation Assets and liabilities denominated in foreign currencies and commitments under forward exchange currency contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of portfolio investments are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued. Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments and foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions and the difference between the amounts of dividends, interest and foreign withholding taxes 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 outstanding class of shares, based on the proportionate 11 WORLDWIDE PRIVATIZATION 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, resulted in a net increase in undistributed net investment income and an increase in accumulated net realized loss on investment transactions. This reclassification had no effect on net assets. - -------------------------------------------------------------------------------- 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 annual rate of 1% of the Portfolio's average daily net assets. Such fee is accrued daily and paid monthly. 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 year ended December 31, 2002, the Adviser waived fees in the amount of $85,889. Pursuant to the terms of the investment advisory agreement, the Portfolio has agreed to reimburse the Adviser for the cost of providing the Portfolio with certain legal and accounting services. For the year ended December 31, 2002, the Adviser voluntarily waived such reimbursement in the amount of $69,000. Brokerage commissions paid on investment transactions for the year ended December 31, 2002, amounted to $90,266, none of which was paid to Sanford C. Bernstein & Co. LLC, an affiliate of the Adviser. The Portfolio compensates Alliance Global Investor Services, Inc., a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation amounted to $947 for the year ended December 31, 2002. - -------------------------------------------------------------------------------- NOTE C: Distribution Plan The Portfolio has adopted a Distribution Plan (the "Plan") for Class B shares pursuant to Rule 12B-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50 of 1% 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 limits payments under the Plan to ..25 of 1% 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 Class B 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 Securities and Exchange Commission as being of the "compensation" variety. In the event that the Plan is terminated or not continued, no distribution and servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor. The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio's shares. 12 Alliance Variable Products Series Fund ================================================================================ NOTE D: Investment Transactions Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2002, were as follows: Purchases: Stocks and debt obligations .............................. $15,369,524 U.S. government and agencies ............................. -0- Sales: Stocks and debt obligations .............................. $19,387,228 U.S. government and agencies ............................. -0- At December 31, 2002, the cost of investments for federal income tax purposes was $32,029,914. Accordingly, gross unrealized appreciation and unrealized depreciation (excluding foreign currency transactions) are as follows: Gross unrealized appreciation .......................... $ 4,119,162 Gross unrealized depreciation .......................... (5,730,809) ----------- Net unrealized depreciation ............................ $(1,611,647) =========== 1. Forward Exchange Currency Contracts The Portfolio may enter into forward exchange currency contracts to hedge its exposure to changes in foreign currency exchange rates on its 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 on 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 net realized gain or loss on 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 a value at least 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, 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 and foreign currencies 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- 13 WORLDWIDE PRIVATIZATION 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 year ended December 31, 2002. - -------------------------------------------------------------------------------- NOTE E: Distributions to Shareholders The tax character of distributions paid during the fiscal years ended December 31, 2002 and December 31, 2001 were as follows: 2002 2001 ========== ========== Distributions paid from: Ordinary income ................................. $ 633,898 $ 179,389 Net long-term capital gains ..................... -0- 2,594,556 ---------- ---------- Total taxable distributions ........................ 633,898 2,773,945 ---------- ---------- Total distributions paid ........................... $ 633,898 $2,773,945 ========== ========== As of December 31, 2002, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income .......................... $ 359,438 Accumulated capital and other losses ................... (9,502,563)(a) Unrealized appreciation/(depreciation) ................. (1,605,884)(b) ------------ Total accumulated earnings/(deficit) ................... $(10,749,009) ============ (a) On December 31, 2002, the Portfolio had a net capital loss carryforward of $9,448,895 of which $2,142,659 will expire in the year 2009 and $7,306,236 will expire in the year 2010. To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. 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, 2002, the Portfolio deferred to January 1, 2003, post October capital losses and post October currency losses of $42,522 and $11,146 respectively. (b) The difference between book-basis and tax-basis unrealized appreciation/ (depreciation) is attributable primarily to the tax deferral of losses on wash sales. - -------------------------------------------------------------------------------- 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 or it retains a portion of interest on the investment of any cash received as collateral. The Portfolio also continues to receive dividends or interest on the securities loaned. Unrealized gain or loss in the value of the securities loaned that may occur during the term of the loan will be reflected in the accounts of the Portfolio. 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 received in an eligible money market vehicle in accordance with the investment restrictions of the Portfolio. The Lending Agent will indemnify the Portfolio for any loss resulting from a borrower's failure to return a loaned security when due. As of December 31, 2002, the Portfolio had loaned securities with a value of $706,042 and received cash collateral of $726,500, which was invested in a money market fund as included in the footnotes to the accompanying portfolio of investments. For the year ended December 31, 2002, the Portfolio earned fee income of $7,738 which is included in interest income in the accompanying statement of operations. 14 Alliance Variable Products Series Fund ================================================================================ NOTE G: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows:
------------------------------ ------------------------------ Shares Amount ------------------------------ ------------------------------ Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2002 2001 2002 2001 ============= ============= ============= ============= Class A Shares sold .................... 790,248 720,843 $ 9,494,636 $ 9,069,883 Shares issued in reinvestment of dividends and distributions . 46,702 203,455 588,448 2,740,540 Shares redeemed ................ (1,544,281) (1,446,325) (18,479,919) (18,468,744) ------------- ------------- ------------- ------------- Net decrease ................... (707,331) (522,027) $ (8,396,835) $ (6,658,321) ============= ============= ============= ============= Class B Shares sold .................... 620,207 2,000,183 $ 7,300,125 $ 24,741,691 Shares issued in reinvestment of dividends and distributions . 3,613 2,482 45,450 33,405 Shares redeemed ................ (398,989) (1,928,134) (4,595,621) (23,924,154) ------------- ------------- ------------- ------------- Net increase ................... 224,831 74,531 $ 2,749,954 $ 850,942 ============= ============= ============= =============
- -------------------------------------------------------------------------------- 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: Joint Credit Facility 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, 2002. 15 WORLDWIDE PRIVATIZATION PORTFOLIO FINANCIAL HIGHLIGHTS Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
------------------------------------------------------- Class A ------------------------------------------------------- Year Ended December 31, ======================================================= 2002 2001 2000 1999 1998 ======= ======= ======= ======= ======= Net asset value, beginning of period .... $ 12.18 $ 15.64 $ 21.74 $ 14.81 $ 14.20 ------- ------- ------- ------- ------- Income From Investment Operations Net investment income (a)(b) ............ .07 .20 .05 .15 .26 Net realized and unrealized gain (loss) on investment and foreign currency transactions ................ (.56) (2.82) (4.81) 8.00 1.29 ------- ------- ------- ------- ------- Net increase (decrease) in net asset value from operations ................ (.49) (2.62) (4.76) 8.15 1.55 ------- ------- ------- ------- ------- Less: Dividends and Distributions Dividends from net investment income ............................... (.21) (.03) (.12) (.31) (.20) Distributions from net realized gain on investment transactions ........... -0- (.81) (1.22) (.91) (.74) ------- ------- ------- ------- ------- Total dividends and distributions ....... (.21) (.84) (1.34) (1.22) (.94) ------- ------- ------- ------- ------- Net asset value, end of period .......... $ 11.48 $ 12.18 $ 15.64 $ 21.74 $ 14.81 ======= ======= ======= ======= ======= Total Return Total investment return based on net asset value (c) ...................... (4.19)% (17.29)% (23.00)% 58.83% 10.83% Ratios/Supplemental Data Net assets, end of period (000's omitted) $27,136 $37,411 $56,181 $64,059 $46,268 Ratio to average net assets of: Expenses, net of waivers and reimbursements ..................... 1.54% .95% .95% .95% .95% Expenses, before waivers and reimbursements ..................... 1.98% 1.65% 1.43% 1.46% 1.70% Net investment income (a) ............ .61% 1.50% .29% .93% 1.74% Portfolio turnover rate ................. 46% 35% 65% 54% 92%
- -------------------------------------------------------------------------------- See footnote summary on page 17. 16 Alliance Variable Products Series Fund ================================================================================ Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
---------------------------------------------- CLASS B ---------------------------------------------- July 5, 2000(d) Year Ended December 31, to ======================== December 31, 2002 2001 2000 ====== ====== =============== Net asset value, beginning of period .......................... $12.17 $15.62 $19.09 ------ ------ ------ Income From Investment Operations Net investment income (loss) (a)(b) ........................... .03 .10 (.04) Net realized and unrealized loss on investment and foreign currency transactions ...................................... (.53) (2.71) (3.43) ------ ------ ------ Net decrease in net asset value from operations ............... (.50) (2.61) (3.47) ------ ------ ------ Less: Dividends and Distributions Dividends from net investment income .......................... (.20) (.03) -0- Distributions from net realized gain on investment transactions -0- (.81) -0- ------ ------ ------ Total dividends and distributions ............................. (.20) (.84) -0- ------ ------ ------ Net asset value, end of period ................................ $11.47 $12.17 $15.62 ====== ====== ====== Total Return Total investment return based on net asset value (c) .......... (4.26)% (17.28)% (18.43)% Ratios/Supplemental Data Net assets, end of period (000's omitted) ..................... $3,609 $1,092 $ 238 Ratio to average net assets of: Expenses, net of waivers and reimbursements ................ 1.79% 1.19% 1.20%(e) Expenses, before waivers and reimbursements ................ 2.23% 1.93% 1.80%(e) Net investment income (loss) (a) ........................... .28% .80% (.26)%(e) Portfolio turnover rate ....................................... 46% 35% 65%
- -------------------------------------------------------------------------------- (a) Net of expenses reimbursed or waived by the Adviser. (b) Based on average shares outstanding. (c) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total Return does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. (d) Commencement of distribution. (e) Annualized. 17 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Alliance Variable Products Series Fund ================================================================================ To the Shareholders and Board of Directors Worldwide Privatization Portfolio Alliance Variable Products Series Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Worldwide Privatization Portfolio (the "Portfolio"), (one of the portfolios constituting the Alliance Variable Products Series Fund, Inc.) as of December 31, 2002, 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, 2002, 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 Worldwide Privatization Portfolio of the Alliance Variable Products Series Fund, Inc. at December 31, 2002, 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 3, 2003 TAX INFORMATION (unaudited) ================================================================================ The Portfolio intends to make an election under the Internal Revenue Code Section 853 to pass through foreign taxes paid by the Portfolio to its shareholders. The total amount of foreign taxes that may be passed through to shareholders for the fiscal year ended December 31, 2002 is $70,936. The foreign source income for information reporting purposes is $804,738. Shareholders should not use the above information to prepare their tax returns. The information necessary to complete your income tax returns will be included with your Form 1099-DIV which will be sent to you separately in January 2003. 18 WORLDWIDE PRIVATIZATION 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 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. 19 WORLDWIDE PRIVATIZATION 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, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS ADDRESS, OCCUPATION(S) OVERSEEN BY HELD BY (YEARS OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - ------------------------------------------------------------------------------------------------------------------------ INTERESTED DIRECTOR John D. Carifa,** 57 President, Chief Operating Officer and 114 None 1345 Avenue of the Americas a Director of Alliance Capital Management New York, NY 10105 Corporation ("ACMC"), with which he has (13) been associated since prior to 1998. DISINTERESTED DIRECTORS Ruth Block, #+, 72 Formerly an Executive Vice President and 93 None P.O. Box 4623 Chief Insurance Officer of The Equitable Stamford, CT 06903 Life Assurance Society of the United States; (11) Chairman and Chief Executive Officer of Evlico; formerly a Director of Avon, BP Amoco Corporation (oil and gas), Ecolab Incorporated (specialty chemicals), Tandem Financial Group, and Donaldson Lufkin & Jenrette Securities Corporation. David H. Dievler, #+, 73 Independent consultant. Until December 98 None P.O. Box 167 1994 he was Senior Vice President of ACMC Spring Lake, NJ 07762 responsible for mutual fund administration. (13) Prior to joining ACMC in 1984 he was Chief Financial Officer of Eberstadt Asset Management since 1968. Prior to that he was a Senior Manager at Price Waterhouse & Co. Member of American Institute of Certified Public Accountants since 1953. John H. Dobkin, #+, 60 Consultant. He was formerly a Senior Advisor 94 None P.O. Box 12 from June 1999 - June 2000 and President Annandale, NY 12504 of Historic Hudson Valley (December 1989 - (11) May 1999). Previously, Director of the National Academy of Design and during 1988-92, he was Director and Chairman of the Audit Committee of ACMC. William H. Foulk, Jr., #+, 70 Investment adviser and an independent 110 None Suite 100 consultant. He was formerly Senior 2 Sound View Drive Manager of Barrett Associates, Inc., a Greenwich, CT 06830 registered investment adviser, with which (13) he had been associated since prior to 1998. He was formerly Deputy Comptroller of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings.
20 WORLDWIDE PRIVATIZATION PORTFOLIO Alliance Variable Products Series Fund ================================================================================
PORTFOLIOS IN FUND OTHER NAME, AGE OF DIRECTOR, PRINCIPAL COMPLEX DIRECTORSHIPS ADDRESS, OCCUPATION(S) OVERSEEN BY HELD BY (YEARS OF SERVICE*) DURING PAST 5 YEARS DIRECTOR DIRECTOR - --------------------------------------------------------------------------------------------------------------------------- DISINTERESTED DIRECTORS (continued) Clifford L. Michel, #+, 63 Senior Counsel of the law firm of Cahill 93 Placer Dome Inc. 15 St. Bernard's Road Gordon & Reindel since February 2001 Gladstone, NJ 07934 and a partner of that firm for more than (11) twenty-five years prior thereto. He is President and Chief Executive Officer of Wenonah Development Company (investments) and a Director of Placer Dome Inc. (mining). Donald J. Robinson, #+, 68 Senior Counsel to the law firm of Orrick, 92 None 98 Hell's Peak Road Herrington & Sutcliffe since prior to 1998. Weston, VT 05161 Formerly a senior partner and a member (7) of the Executive Committee of that firm. He was also a member and Chairman of the Municipal Securities Rulemaking Board and Trustee of the Museum of the City of New York.
- -------------------------------------------------------------------------------- * There is no stated term of office for the 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. 21 WORLDWIDE PRIVATIZATION PORTFOLIO Alliance Variable Products Series Fund ================================================================================ Officer Information Certain information concerning the Fund's Officers is listed below.
NAME, ADDRESS* POSITION(S) HELD PRINCIPAL OCCUPATION AND AGE WITH FUND DURING PAST 5 YEARS** - ------------------------------------------------------------------------------------------------------------------------------------ John D. Carifa, 57 Chairman & President See biography above. Edward D. Baker, III, 52 Vice President Senior Vice President and Chief Investment Officer - Emerging Markets of ACMC, with which he has been associated since prior to 1998. Edmund P. Bergan, Jr., 52 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 1998. Mark D. Gersten, 52 Treasurer and Chief Senior Vice President of AGIS and Vice President of AFD, with which he Financial Officer has been associated since prior to 1998. Thomas R. Manley, 51 Controller Vice President of ACMC, with which he has been associated since prior to 1998.
- -------------------------------------------------------------------------------- * The address for each of the Fund's Officers is 1345 Avenue of the Americas, New York, NY 10105. ** ACMC, AFD, 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. 22 (This page left intentionally blank.) (This page left intentionally blank.) (This page left intentionally blank.) -----END PRIVACY-ENHANCED MESSAGE-----