-----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, NnYireu7i+GLDGOKO4y77/NgtHOB3QPDjFTDIqw2kqodBzAflUdUHNeHgAOyT/Lk 1Xvzq8srKBEb9h7gvcTEcQ== 0000936772-03-000072.txt : 20030221 0000936772-03-000072.hdr.sgml : 20030221 20030220202008 ACCESSION NUMBER: 0000936772-03-000072 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030221 EFFECTIVENESS DATE: 20030221 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: 03574999 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 edg8793.txt Alliance Variable Products Series Fund Total Return Portfolio Annual Report December 31, 2002 Investment Products Offered < Are Not FDIC Insured < May Lose Value < Are Not Bank Guaranteed Total Return Portfolio Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Letter To Investors January 16, 2003 Dear Investor: The following is an update of Alliance Variable Products Series Fund Alliance Total Return Portfolio (the "Portfolio") for the annual reporting period ended December 31, 2002. INVESTMENT OBJECTIVE AND POLICIES The Portfolio seeks to achieve a high return through a combination of current income and capital appreciation. The Portfolio primarily invests in U.S. Government and agency obligations, bonds, fixed income senior securities (including short- and long-term debt securities and preferred stocks to the extent their value is attributable to their fixed income characteristics) and common stocks. INVESTMENT RESULTS Periods Ended December 31, 2002 Total Returns Since 1 Year 5 Years Inception* ========= ========== ============ Alliance Total Return Portfolio -10.58% 5.10% 8.84% 60% S&P 500 Stock Index/ 40% LB Gov't/ Credit Bond Index -10.40% 2.30% 7.74% 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 12/28/92. The 60% S&P 500 S&P Stock Index/40% LB Government/Credit Bond Index represents a 60%/40% blend of both indices. The unmanaged Standard and Poor's (S&P) 500 Stock Index includes 500 stocks and is a common measure of the performance of the overall U.S. stock market. The Lehman Brothers Government/Credit Bond Index represents a combination of two indices. The Lehman Brothers Government Bond Index is composed of the Treasury Bond and Agency Bond Indices, the 1- 3 Year Government Index and the 20-Year Treasury Index. The Lehman Brothers Credit Bond Index includes all publicly issued fixed-rate, non-convertible investment grade corporate debt; the index is composed of both U.S. and Brady bonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including Alliance Total Return Portfolio. Over the 12-month period ended December 31, 2002, the Portfolio slightly underperformed its benchmark, returning -10.58% as compared to the 60% Standard & Poor's (S&P) 500 Stock Index/40% Lehman Brothers Government/Credit Bond Index's return of -10.40%. The Portfolio's relative underperformance was a result of two of its large holdings, Tyco International and Dynegy. These companies became embroiled in the loud and violent corporate governance/liquidity debate that occurred in 2002, and their stocks suffered significant declines. These two holdings alone shaved about 600 basis points off of the Portfolio's full year performance, the worst of which was confined to the first half of the year. The Portfolio began the year positioned rather defensively -- with large holdings in consumer staples and health care -- as our valuation work indicated that several of the more economically sensitive areas of the market (such as technology or industrials) were a bit ahead of themselves on a price basis. Over the course of the year, we noted changes in relative valuations and acted accordingly. As more defensive stocks began to look expensive, we trimmed positions and added to earnings variable companies, such as technology, as price declines seemed to overshoot on the downside. As such, we ended the year with overweight positions in the health care and technology sectors and an underweight position in the utilities sector. MARKET REVIEW AND OUTLOOK Overall, 2002 was a volatile year. After recovering from the lingering aftershocks of September 11th during the first quarter, a wave of corporate scandals and highly publicized bankruptcies sent shivers down the market's spine in the second quarter. Any stock with a hint of trouble was quickly disposed of, regardless of price, as investors sought safety at the expense of rich valuations. As corporate malfeasance faded from the headlines toward the end of the third quarter, volatility died down a bit and equity values recovered into the fourth quarter. Unfortunately, however, December saw renewed war rhetoric take center stage and, with escalating tensions in Iraq on investors' minds, the market ended the year on a sour note. The S&P 500 Stock Index delivered its third year of double-digit losses. With all the bad that came in 2002, there are still some shreds of good to be found that may portend a brighter 2003. A huge refinancing boom put dollars in the pockets of consumers and helped to heal some overstretched personal balance sheets. An intense focus on corporate governance and accounting practices has set the stage for cleaner, more meaningful earnings statements, as well as 1 Total Return Portfolio Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- more accountable and stronger boards of directors. Several liquidity crises and bankruptcies led to a reassessment of corporate debt structures and the much needed repair of corporate balance sheets. While painful to endure, each of these actions was needed and should pave the way for a somewhat smoother ride in 2003. We look toward continued modest gross domestic product (GDP) gains in 2003, although we expect the mix of GDP growth to be a bit different, with corporations contributing more of the gains as opposed to the consumer. Low inventory levels, pent up demand and sufficient liquidity would seem to set the stage for a corporate spending recovery and, thus we have maintained our out-sized exposure to those companies most leveraged to a resurgence of capital spending. As always, we will diligently watch for any shifts in relative attractiveness within the market sectors and position the Portfolio accordingly. We appreciate your investment in Alliance Total Return Portfolio and look forward to reporting further investment progress in the coming period. Sincerely, /s/ Frank Caruso Frank Caruso Vice President and Portfolio Manager /s/ Andrew Aran Andrew Aran Vice President and Portfolio Manager 2 Total Return Portfolio Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Performance Update ALLIANCE TOTAL RETURN PORTFOLIO GROWTH OF A $10,000 INVESTMENT 12/31/92*-12/31/02 Alliance Total Return Portfolio: $23,353 60% S&P 500 Stock Index/40% LB Gov't/Credit Bond Index: $21,082 [THE FOLLOWING TABLE WAS DEPICTED AS A MOUNTAIN CHART IN THE PRINTED MATERIAL] Alliance Total Return Portfolio 60% S&P 500 Stock Index/40% LB Gov't/Credit Bond Index - ------------------------------------------------------------------------------------------------------------- 12/31/92* 10000 10000 12/31/93 10970 10867 12/31/94 10556 10620 12/31/95 13055 13596 12/31/96 15036 15381 12/31/97 18210 18816 12/31/98 21303 22630 12/31/99 22695 25017 12/31/00 25536 24620 12/31/01 26116 23529 12/31/02 23353 21082
Past performance is no guarantee of future results. This chart illustrates the total value of an assumed $10,000 investment in the Portfolio (from 12/31/92* to 12/31/02) as compared to the performance of an appropriate broad-based index. The 60% S&P 500 S&P Stock Index/40% LB Government/Credit Bond Index represents a 60%/40% blend of both indices. The unmanaged Standard and Poor's (S&P) 500 Stock Index includes 500 stocks and is a common measure of the performance of the overall U.S. stock market. The Lehman Brothers Government/Credit Bond Index represents a combination of two indices. The Lehman Brothers Government Bond Index is composed of the Treasury Bond and Agency Bond Indices, the 1-3 Year Government Index and the 20-Year Treasury Index. The Lehman Brothers Credit Bond Index includes all publicly issued fixed-rate, non-convertible investment grade corporate debt; the index is composed of both U.S. and Brady bonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including Alliance Total Return Portfolio. - -------------------------------------------------------------------------------- * Since closest month-end after Portfolio's inception date of 12/28/92. 3 Total Return Portfolio Ten Largest Holdings December 31, 2002 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- ================================================================================ COMPANY U.S. $ VALUE PERCENT OF NET ASSETS ================================================================================ U.S. Treasury Notes $33,399,677 19.1% U.S. Treasury Bonds 6,227,280 3.6 Federal National Mortgage Assoc. 4,777,351 2.7 Citigroup, Inc. 4,456,317 2.5 Union Package Corp. 4,071,720 2.3 J.P. Morgan Chase & Co. 3,864,000 2.2 Bank of America Corp. 3,401,973 1.9 Philip Morris Cos., Inc. 2,835,082 1.6 Wyeth 2,718,980 1.6 Pfizer, Inc. 2,705,445 1.6 ----------- ---- $68,457,825 39.1% 4 Total Return Portfolio Portfolio Of Investments December 31, 2002 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- COMMON STOCKS-49.5% FINANCE-14.6% BANKING - MONEY CENTERS-2.2% J.P. Morgan Chase & Co. .................... 161,000 $ 3,864,000 ----------- BANKS - REGIONAL-3.2% Bank of America Corp. ...................... 48,900 3,401,973 Bank One Corp. ............................. 60,000 2,193,000 ----------- 5,594,973 ----------- BROKERAGE & MONEY MANAGEMENT-1.6% Merrill Lynch & Co., Inc. .................. 51,800 1,965,810 Morgan Stanley ............................. 22,000 878,240 ----------- 2,844,050 ----------- INSURANCE-2.3% ACE, Ltd. (Bermuda) ........................ 46,000 1,349,640 American International Group, Inc. ..................................... 46,000 2,661,100 ----------- 4,010,740 ----------- MORTGAGE BANKING-2.1% Fannie Mae ................................. 27,000 1,736,910 Federal Home Loan Mortgage Corp. .................................... 15,000 885,750 The PMI Group, Inc. ........................ 13,600 408,544 Washington Mutual, Inc. .................... 21,000 725,130 ----------- 3,756,334 ----------- MISCELLANEOUS-3.2% Citigroup, Inc. ............................ 117,500 4,134,825 MBNA Corp. ................................. 72,525 1,379,425 ----------- 5,514,250 ----------- 25,584,347 ----------- HEALTH CARE-7.1% DRUGS-4.3% Pfizer, Inc. ............................... 88,500 2,705,445 Schering-Plough Corp. ...................... 99,000 2,197,800 Wyeth ...................................... 72,700 2,718,980 ----------- 7,622,225 ----------- MEDICAL SERVICES-2.8% Cardinal Health, Inc. ...................... 19,700 1,166,043 HCA Healthcare Corp. ....................... 32,500 1,348,750 Tenet Healthcare Corp. (a) ................. 55,500 910,200 WellPoint Health Networks (a) ............................. 20,000 1,423,200 ----------- 4,848,193 ----------- 12,470,418 ----------- TECHNOLOGY-6.0% COMMUNICATION EQUIPMENT-1.0% Juniper Networks, Inc. (a) ................. 210,500 1,431,400 Lucent Technologies, Inc. (a) .............. 332,000 418,320 ----------- 1,849,720 ----------- COMPUTER HARDWARE/ STORAGE-0.6% Hewlett-Packard Co. ........................ 58,000 1,006,880 ----------- COMPUTER SERVICES-1.1% First Data Corp. ........................... 53,000 1,876,730 ----------- CONTRACT MANUFACTURING-0.5% Flextronics International, Ltd. (Singapore) (a) .......................... 38,050 311,630 Solectron Corp. (a) ........................ 175,000 621,250 ----------- 932,880 ----------- SEMI-CONDUCTOR COMPONENTS-2.3% Altera Corp. (a) ........................... 102,000 1,258,680 Intersil Corp. Cl.A, (a) ................... 30,500 425,170 Marvell Technology Group, Ltd. (Bermuda) (a) ....................... 46,000 867,560 Maxim Integrated Products .................. 26,500 875,560 Micron Technology, Inc. (a) ................ 55,000 535,700 ----------- 3,962,670 ----------- SOFTWARE-0.5% VERITAS Software Corp. (a) ................. 60,000 937,200 ----------- 10,566,080 ----------- ENERGY-5.6% DOMESTIC INTEGRATED-0.4% Occidental Petroleum Corp. ................. 28,000 796,600 ----------- DOMESTIC PRODUCERS-0.9% Kerr-McGee Corp. ........................... 35,000 1,550,500 ----------- INTERNATIONAL-2.7% BP Plc (ADR) (United Kingdom) ......................... 34,500 1,402,425 ChevronTexaco Corp. ........................ 23,500 1,562,280 Exxon Mobil Corp. .......................... 50,000 1,747,000 ----------- 4,711,705 ----------- OIL SERVICE-0.2% GlobalSantaFe Corp. ........................ 12,500 304,000 ----------- MISCELLANEOUS-1.4% Conocophillips ............................. 50,100 2,424,339 ----------- 9,787,144 ----------- CONSUMER SERVICES-4.0% BROADCASTING & CABLE-3.1% AOL Time Warner (a) ........................ 40,000 524,000 Comcast Corp. Cl.A (a) ..................... 69,050 1,627,509 Special Cl.A (a) ........................... 38,500 868,560 Cox Communications, Inc. Cl.A (a) ................................. 30,500 866,200 Viacom, Inc. Cl.B (a) ...................... 37,100 1,512,196 ----------- 5,398,465 ----------- 5 Total Return Portfolio Portfolio Of Investments (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Company Shares U.S. $ Value - -------------------------------------------------------------------------------- ENTERTAINMENT & LEISURE-0.9% Carnival Corp. ............................. 62,000 $ 1,546,900 ----------- 6,945,365 ----------- UTILITIES-3.6% ELECTRIC & GAS UTILITIES-1.6% Ameren Corp. ............................... 18,500 769,045 Constellation Energy Group ................. 38,000 1,057,160 Entergy Corp. .............................. 21,000 957,390 ----------- 2,783,595 ----------- TELEPHONE UTILITIES-2.0% AT&T Corp. ................................. 60,000 1,566,600 SBC Communications, Inc. ................... 40,000 1,084,400 Sprint Corp. ............................... 56,000 810,880 ----------- 3,461,880 ----------- 6,245,475 ----------- CONSUMER STAPLES-3.0% BEVERAGES-0.4% Anheuser Busch Cos., Inc. .................. 15,500 750,200 ----------- COSMETICS-0.7% Avon Products, Inc. ........................ 24,590 1,324,663 ----------- RETAIL - FOOD & DRUG-0.3% Kroger Co. (a) ............................. 32,000 494,400 ----------- TOBACCO-1.6% Philip Morris Cos., Inc. ................... 67,500 2,735,775 ----------- 5,305,038 ----------- TRANSPORTATION-2.2% RAILROAD-2.2% Burlington Northern Santa Fe Corp. .................................... 27,500 715,275 Union Pacific Corp. ........................ 53,300 3,191,071 ----------- 3,906,346 ----------- CAPITAL GOODS-1.6% ELECTRICAL EQUIPMENT-0.5% Johnson Controls, Inc. ..................... 10,900 873,853 ----------- MISCELLANEOUS-1.1% United Technologies Corp. .................. 30,500 1,889,170 ----------- 2,763,023 ----------- BASIC INDUSTRIES-0.9% CHEMICALS-0.9% E.I. du Pont de Nemours & Co. .................................... 22,500 954,000 Lyondell Chemical Co. ...................... 54,500 688,880 ----------- 1,642,880 ----------- MULTI-INDUSTRY COMPANIES-0.6% Tyco International, Ltd. ................... 58,300 995,764 ----------- Shares or Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- AEROSPACE & DEFENSE-0.3% AEROSPACE-0.3% Goodrich Corp. ............................. 25,500 $ 467,160 ----------- Total Common Stocks (cost $96,503,621) ....................... 86,679,040 ----------- U.S. GOVERNMENT & AGENCY OBLIGATIONS-25.4% Federal National Mortgage Assoc. 5.00%, 1/15/07 ......................... $ 2,000 2,169,900 6.625%, 10/15/07 ....................... 2,250 2,607,451 U.S. Treasury Bonds 5.375%, 2/15/31 ........................ 715 779,685 6.25%, 8/15/23 ......................... 1,400 1,645,220 6.875%, 8/15/25 ........................ 1,650 2,087,445 8.125%, 8/15/21 ........................ 35 49,265 11.25%, 2/15/15 ........................ 1,000 1,665,665 U.S. Treasury Notes 3.50%, 1/15/11 ......................... 3,125 3,431,032 3.625%, 1/15/08 ........................ 898 985,257 4.625%, 5/15/06 ........................ 7,125 7,686,657 5.00%, 2/15/11 ......................... 4,000 4,396,252 5.625%, 5/15/08 ........................ 5,800 6,582,095 5.75%, 8/15/03 ......................... 50 51,412 5.75%, 8/15/10 ......................... 1,000 1,150,079 6.25%, 2/15/07 ......................... 4,600 5,279,043 6.875%, 5/15/06 ........................ 2,750 3,164,865 7.50%, 2/15/05 ......................... 600 672,985 ----------- Total U.S. Government & Agency Obligations (cost $40,632,606) ....................... 44,404,308 ----------- CORPORATE DEBT OBLIGATIONS-17.1% AEROSPACE/DEFENSE-0.2% Northrop Grumman Corp. 7.125%, 2/15/11 .......................... 225 256,135 Raytheon Co. 8.20%, 3/01/06 ........................... 150 168,647 ----------- 424,782 ----------- BANKING-2.7% Abbey National Capital Trust I Plc 8.963%, 12/29/49 ......................... 66 82,114 Bank One Corp. 7.875%, 8/01/10 .......................... 200 240,054 Barclays Bank Plc 8.55%, 9/29/49 (b) ....................... 50 61,149 Citicorp 6.375%, 11/15/08 ......................... 500 560,194 Citigroup, Inc. 5.625%, 8/27/12 .......................... 250 263,361 7.25%, 10/01/10 .......................... 50 58,131 Development Bank of Singapore 7.125%, 5/15/11 (b) ...................... 500 564,532 6 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- First Massachusetts Bank 7.625%, 6/15/11 .......................... $ 200 $ 232,783 First Union Capital II 7.95%, 11/15/29 .......................... 150 176,192 First Union National Bank 7.80%, 8/18/10 ........................... 400 483,617 FMR Corp. 7.57%, 6/15/29 (b) ....................... 140 168,845 HSBC Capital Funding LP 10.176%, 12/31/49 (b)(c) ................. 560 788,454 Sanwa Bank, Ltd. 7.40%, 6/15/11 ........................... 400 394,843 US Bancorp 7.50%, 6/01/26 ........................... 400 473,876 Zions Financial Corp. 6.95%, 5/15/06 ........................... 200 213,086 ----------- 4,761,231 ----------- BROADCASTING/ MEDIA-0.5% AT&T Corp. - Liberty Media Corp. 8.25%, 2/01/30 ..................... 250 263,811 Clear Channel Communications, Inc. 7.875%, 6/15/05 .......................... 150 164,333 Liberty Media Corp. 7.875%, 7/15/09 .......................... 150 162,927 News America Holdings, Inc. 8.25%, 10/17/96 .......................... 60 59,519 Time Warner, Inc. 7.75%, 6/15/05 ........................... 140 149,264 ----------- 799,854 ----------- BUILDING/ REAL ESTATE-0.3% Beazer Homes USA, Inc. 8.375%, 4/15/12 .......................... 100 103,500 CRH America, Inc. 6.95%, 3/15/12 ........................... 250 280,553 EOP Operating LP 8.375%, 3/15/06 .......................... 35 39,369 Meritage Corp. 9.75%, 6/01/11 ........................... 100 105,000 ----------- 528,422 ----------- CABLE-0.2% Charter Communications Holdings, Inc. 10.00%, 5/15/11 .......................... 200 90,000 10.00%, 4/01/09 .......................... 100 45,000 Cox Communications, Inc. 7.75%, 11/01/10 .......................... 200 228,132 ----------- 363,132 ----------- CHEMICALS-0.2% Praxair, Inc. 6.375%, 4/01/12 .......................... 250 279,967 ----------- COMMUNICATIONS-2.0% AT&T Corp. 7.80%, 11/15/11 (b) ...................... 100 109,513 8.00%, 11/15/31 (b) ...................... 250 276,505 British Telecommunications Plc 8.375%, 12/15/10 ......................... 700 840,739 8.875%, 12/15/30 ......................... 350 447,824 KPN NV 8.375%, 10/01/30 ......................... 500 619,077 Paramount Communications, Inc. 7.50%, 7/15/23 ...................... 300 315,290 Qwest Capital Funding, Inc. 5.875%, 8/03/04 .......................... 325 274,625 7.75%, 8/15/06 ........................... 45 32,625 Qwest Services Corp. 13.50%, 12/15/10 ......................... 259 270,655 Sprint Capital Corp. 6.875%, 11/15/28 ......................... 350 282,646 ----------- 3,469,499 ----------- COMMUNICATIONS - MOBILE-0.7% AT&T Wireless Services, Inc. 8.125%, 5/01/12 .......................... 500 503,476 7.875%, 3/01/11 .......................... 500 503,397 TELUS Corp. 7.50%, 6/01/07 ........................... 200 195,000 ----------- 1,201,873 ----------- ENERGY-0.8% Apache Finance PTY, Ltd. 6.50%, 12/15/07 .......................... 250 283,618 Conoco, Inc. 5.90%, 4/15/04 ................ 150 157,068 Devon Energy Corp. 7.95%, 4/15/32 ........................... 500 603,012 Union Pacific Resources Group, Inc. 7.30%, 4/15/09 ...................... 150 175,623 XTO Energy, Inc. 7.50%, 4/15/12 ........................... 100 106,750 ----------- 1,326,071 ----------- FINANCIAL-3.4% American Reinsurance 7.45%, 12/15/26 ........................... 140 146,289 Cho Hung Bank Co., Ltd. 11.875%, 4/01/10 (b) ...................... 80 92,184 Countrywide Home Loan, Inc. 4.25%, 12/19/07 ........................... 250 253,305 Ford Motor Credit Co. 6.00%, 1/14/03 ............................ 150 150,058 7.375%, 2/01/11 ........................... 400 389,537 7.875%, 6/15/10 ........................... 100 100,766 General Electric Capital Corp. 5.00%, 6/15/07 ............................ 500 529,951 5.875%, 2/15/12 ........................... 500 535,491 7 Total Return Portfolio Portfolio Of Investments (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- Goldman Sachs Group, Inc. 6.60%, 1/15/12 ............................ $ 500 $ 553,449 6.65%, 5/15/09 ............................ 200 220,741 Heller Financial, Inc. 8.00%, 6/15/05 ............................ 115 129,693 Household Finance Corp. 5.75%, 1/30/07 ............................ 200 209,512 6.375%, 10/15/11 .......................... 400 418,906 6.50%, 1/24/06 ............................ 75 79,924 7.875%, 3/01/07 ........................... 150 167,706 Lehman Brothers Holdings, Inc. 6.625%, 4/01/04 ........................... 145 152,910 7.875%, 8/15/10 ........................... 150 177,741 Markel Capital Trust I 8.71%, 1/01/46 ............................ 200 154,409 Merrill Lynch & Co., Inc. 6.00%, 2/17/09 ............................ 500 543,970 Morgan Stanley Dean Witter & Co. 5.625%, 1/20/04 ........................... 75 78,041 7.75%, 6/15/05 ............................ 125 139,542 Normandy Finance, Ltd. 7.50%, 7/15/05 (b) ........................ 500 534,626 The Hartford Financial Services, Inc. 6.375%, 11/01/08 .......................... 125 134,350 ----------- 5,893,101 ----------- FOOD/BEVERAGE-0.4% Fosters Finance Corp. 6.875%, 6/15/11 (b) ....................... 200 227,998 Kellogg Co. Cl.B 6.60%, 4/01/11 ............................ 300 338,419 Philip Morris Cos., Inc. 7.75%, 1/15/27 ............................ 90 99,307 ----------- 665,724 ----------- HEALTHCARE-0.2% Triad Hospitals, Inc. 8.75%, 5/01/09 ............................ 280 301,350 ----------- INDUSTRIAL-0.7% Continental Cablevision, Inc. 9.00%, 9/01/08 ............................ 300 342,507 General Motors Corp. 7.20%, 1/15/11 ............................ 250 251,426 Tyco International Group, SA 6.375%, 10/15/11 .......................... 200 187,367 Waste Management Inc. 6.375%, 11/15/12 (b) ...................... 500 515,463 ----------- 1,296,763 ----------- INSURANCE-0.1% Loews Corp. 6.75%, 12/15/06 ........................... 100 108,147 Lumbermens Mutual Casualty 9.15%, 7/01/26 ............................ 150 68,627 ----------- 176,774 ----------- MUNICIPAL OBLIGATION-0.2% Dallas-Fort Worth Texas International Airport Facility 7.07%, 11/01/24 ........................... 400 431,096 ----------- NON-AIR TRANSPORTATION-0.8% CNF, Inc. 7.35%, 6/01/05 ............................ 200 209,281 CSX Corp. 6.75%, 3/15/11 ............................ 250 279,534 Union Pacific Corp. 6.625%, 2/01/29 ........................... 800 880,649 ----------- 1,369,464 ----------- PAPER/PACKAGING-0.7% Abitibi-Consolidated, Inc. 8.30%, 8/01/05 ............................ 25 26,659 Domtar, Inc. 7.875%, 10/15/11 .......................... 250 292,666 MeadWestvaco Corp. 6.85%, 4/01/12 ............................ 500 555,779 Owens Brockway Glass 8.875%, 2/15/09 (b) ....................... 150 155,250 Weyerhaeuser Co. 6.75%, 3/15/12 (b) ........................ 250 273,056 ----------- 1,303,410 ----------- PETROLEUM PRODUCTS-0.3% Canadian Natural Resources, Ltd. 6.70%, 7/15/11 ............................ 300 334,030 Petronas Capital, Ltd. 7.00%, 5/22/12 (b) ........................ 150 163,687 ----------- 497,717 ----------- PUBLIC UTILITIES - ELECTRIC & GAS-1.5% Dominion Resources Capital Trust III 8.40%, 1/15/31 ............................ 200 219,487 Dominion Resources, Inc. 8.125%, 6/15/10 ........................... 150 174,810 DPL, Inc. 8.25%, 3/01/07 ............................ 550 532,068 Elwood Energy LLC 8.159%, 7/05/26 ........................... 245 227,213 FirstEnergy Corp. Series C 7.375%, 11/15/31 .......................... 500 486,393 FPL Energy Virginia 7.52%, 6/30/19 (b) ........................ 263 260,611 Nevada Power Co. Series A 8.25%, 6/01/11 ............................ 200 186,307 Progress Energy, Inc. 7.10%, 3/01/11 ............................ 400 441,667 Yorkshire Power 8.25%, 2/15/05 (b) ........................ 150 169,769 ----------- 2,698,325 ----------- 8 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- PUBLIC UTILITIES - TELEPHONE-0.7% New Jersey Bell Telephone 8.00%, 6/01/22 ............................. $ 500 $ 603,227 Verizon Maryland, Inc. 6.125%, 3/01/12 ............................. 500 541,788 Verizon New York, Inc. 6.875%, 4/01/12 ............................ 100 112,574 ----------- 1,257,589 ----------- RETAIL-0.3% J.C. Penney Co., Inc. 7.60%, 4/01/07 ............................. 100 101,750 Kohl's Corp. 7.25%, 6/01/29 ............................. 150 176,803 Toys "R" Us, Inc. 7.625%, 8/01/11 ............................ 250 247,971 ----------- 526,524 ----------- SERVICE-0.1% Allied Waste North America 10.00%, 8/01/09 ............................ 150 149,625 ----------- SOVEREIGN-0.1% Quebec Province of Canada 7.50%, 9/15/29 ............................. 150 187,801 ----------- Total Corporate Debt Obligations (cost $27,933,698) ......................... 29,910,094 ----------- Shares or Principal Amount Company (000) U.S. $ Value - -------------------------------------------------------------------------------- PREFERRED STOCK-0.6% AUTOMOTIVE-0.2% Ford Motor Co. Capital Trust II ................................... 10,000 $ 408,500 ----------- FINANCIAL-0.1% Sovereign Real Estate Investor Trust (b) .................................. 90,000 100,125 ----------- PUBLIC UTILITIES - ELECTRIC & GAS-0.3% DTE Energy Trust I ........................... 20,000 527,500 ----------- Total Preferred Stock (cost $1,077,884) .......................... 1,036,125 ----------- YANKEE BONDS-0.1% YANKEE BONDS-0.1% Imperial Tobacco 7.125%, 4/01/09 (cost $169,629) ............................ $170 189,540 ----------- SHORT-TERM INVESTMENT-6.7% TIME DEPOSIT-6.7% State Street Euro Dollar 0.75%, 1/02/03 (cost $11,745,000) ......................... 11,745 11,745,000 ----------- TOTAL INVESTMENTS-99.4% (cost $178,062,438) .......................... 173,964,107 Other assets less liabilities (d)-0.6% ....................... 1,008,130 ------------ NET ASSETS-100% .............................. $174,972,237 ============ - -------------------------------------------------------------------------------- (a) Non-income producing security. (b) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration normally applied to certain qualified buyers. At December 31, 2002, the aggregate market value of these securities amounted to $5,334,926 or 3.0% of net assets. (c) Variable rate coupon, rate shown as of December 31, 2002. (d) Includes cash collateral received of $16,178,000 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% 16,178,000 $16,178,000 Glossary: ADR - American Depositary Receipt See Notes to Financial Statements. 9 Total Return Portfolio Statement Of Assets And Liabilities December 31, 2002 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- ASSETS Investments in securities, at value (cost $178,062,438) ..................... $ 173,964,107(a) Cash ........................................................................ 495 Collateral held for securities loaned ....................................... 16,178,000 Dividends and interest receivable ........................................... 1,283,248 Receivable for capital stock sold ........................................... 27,931 Receivable for investment securities sold ................................... 10,259 ------------- Total assets ................................................................ 191,464,040 ------------- LIABILITIES Payable for collateral received on securities loaned ........................ 16,178,000 Payable for capital stock redeemed .......................................... 157,288 Advisory fee payable ........................................................ 93,305 Accrued expenses ............................................................ 63,210 ------------- Total liabilities ........................................................... 16,491,803 ------------- NET ASSETS ..................................................................... $ 174,972,237 ============= COMPOSITION OF NET ASSETS Capital stock, at par ....................................................... $ 11,437 Additional paid-in capital .................................................. 193,095,525 Undistributed net investment income ......................................... 4,970,043 Accumulated net realized loss on investment and foreign currency transactions ..................................................... (19,006,437) Net unrealized depreciation of investments .................................. (4,098,331) ------------- $ 174,972,237 ============= Class A Shares Net assets .................................................................. $ 171,670,138 ============= Shares of capital stock outstanding ......................................... 11,221,169 ============= Net asset value per share ................................................... $ 15.30 ============= Class B Shares Net assets .................................................................. $ 3,302,099 ============= Shares of capital stock outstanding ......................................... 216,313 ============= Net asset value per share ................................................... $ 15.27 =============
- -------------------------------------------------------------------------------- (a) Includes securities on loan with a value of $15,634,886 (see Note F). See Notes to Financial Statements. 10 Total Return Portfolio Statement Of Operations Year Ended December 31, 2002 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- INVESTMENT INCOME Interest ................................................... $ 4,515,898 Dividends (net of foreign taxes withheld of $5,571) ........ 1,907,393 ------------ Total investment income .................................... 6,423,291 ------------ EXPENSES Advisory fee ............................................... 1,131,591 Distribution fee--Class B .................................. 4,256 Custodian .................................................. 130,818 Administrative ............................................. 69,000 Audit and legal ............................................ 62,293 Printing ................................................... 11,149 Directors' fees and expenses ............................... 1,526 Transfer agency ............................................ 947 Miscellaneous .............................................. 17,983 ------------ Total expenses ............................................. 1,429,563 ------------ Net investment income ...................................... 4,993,728 ------------ REALIZED AND UNREALIZED LOSS ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS Net realized loss on: Investment transactions .................................... (15,456,901) Foreign currency transactions .............................. (25) Net change in unrealized appreciation/depreciation of investments .............................................. (10,994,614) ------------ Net loss on investment and foreign currency transactions ... (26,451,540) ------------ NET DECREASE IN NET ASSETS FROM OPERATIONS .................... $(21,457,812) ============ - -------------------------------------------------------------------------------- See Notes to Financial Statements. 11 Total Return Portfolio Statement Of Changes In Net Assets Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Year Ended Year Ended December 31, December 31, 2002 2001 ============== ================ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net investment income ................................................. $ 4,993,728 $ 3,590,417 Net realized loss on investment and foreign currency transactions ..... (15,456,926) (599,424) Net change in unrealized appreciation/depreciation of investments ..... (10,994,614) (353,682) ------------- ------------- Net increase (decrease) in net assets from operations ................. (21,457,812) 2,637,311 DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM Net investment income Class A ............................................................. (3,555,334) (2,234,141) Class B ............................................................. (24,488) -0- Net realized gain on investment transactions Class A ............................................................ (2,101,896) (3,254,079) Class B ............................................................ (14,899) -0- Distributions in excess of net realized gain on investment transactions Class A ............................................................. -0- (677,076) CAPITAL STOCK TRANSACTIONS Net increase .......................................................... 17,458,182 97,460,305 ------------- ------------- Total increase (decrease) ............................................. (9,696,247) 93,932,320 NET ASSETS Beginning of period ................................................... 184,668,484 90,736,164 ------------- ------------- End of period (including undistributed net investment income of $4,970,043 and $3,559,572, respectively) ............................ $ 174,972,237 $ 184,668,484 ============= =============
- -------------------------------------------------------------------------------- See Notes to Financial Statements. 12 Total Return Portfolio Notes To Financial Statements December 31, 2002 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- NOTE A: Significant Accounting Policies The Total Return Portfolio (the "Portfolio") is a series of Alliance Variable Products Series Fund, Inc. (the "Fund"). The Portfolio's investment objective is to seek to achieve a high return through a combination of current income and capital appreciation. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers nineteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan. The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio's net asset value per share. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Portfolio. 1. Security Valuation Portfolio securities traded on a national securities exchange or on a foreign securities exchange (other than foreign securities exchanges whose operations are similar to those of the United States over-the-counter market) or on The Nasdaq Stock Market, Inc., are generally valued at the last reported sales price or if no sale occurred, at the mean of the closing bid and asked 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 securities 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 or accretes discounts as adjustments to interest income. Investment gains and losses are determined on the identified cost basis. 5. Dividends and Distributions The Portfolio declares and distributes dividends and distributions from net investment income and net realized gains, respectively, if any, at least annually. Income dividends and capital gains distributions to shareholders are recorded on the ex-dividend date. 13 Total Return Portfolio Notes To Financial Statements (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with accounting principles generally accepted in the United States. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification. During the current fiscal year, permanent differences, primarily due to foreign currency transactions, tax treatment of bond premium and tax character of distributions resulted in a net increase in undistributed net investment income and a corresponding increase in accumulated net realized loss on investment and foreign currency transactions. This reclassification had no effect on net assets. 6. Income and Expenses Expenses attributable to a single portfolio are charged to that portfolio. Expenses of the Fund are charged to each portfolio in proportion to net assets. All income earned and expenses incurred by a portfolio with multi-class shares outstanding are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the portfolio represented by the net assets of such class, except that the portfolio's Class B shares bear the distribution fees. - -------------------------------------------------------------------------------- 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 .625 of 1% of the Portfolio's average daily net assets. Such fee is accrued daily and paid monthly. During the year ended December 31, 2002, the Adviser agreed to waive its fee and to reimburse the additional operating expenses to the extent necessary to limit total operating expenses on an annual basis to .95% and 1.20% of the average daily net assets for Class A and Class B shares, respectively. Expense waivers/reimbursements, if any, are accrued daily and paid monthly. For the year ended December 31, 2002, the Portfolio received no such waivers/reimbursements. 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, this reimbursement to the Adviser amounted to $69,000. Brokerage commissions paid on investment transactions for the year ended December 31, 2002 amounted to $259,136, 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. 14 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 .................................... $92,708,733.59 U.S. government and agencies ................................... 19,497,206 Sales: Stocks and debt obligations .................................... $ 84,822,650 U.S. government and agencies ................................... 14,277,025 At December 31, 2002, the cost of investments for federal income tax purposes was $178,919,587. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows: Gross unrealized appreciation .................................. $ 11,777,747 Gross unrealized depreciation .................................. (16,733,227) -------------- Net unrealized depreciation .................................... $ (4,955,480) ============== 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 outstanding 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 writing an option, the Portfolio bears the market risk of an 15 Total Return Portfolio Notes To Financial Statements (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- 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 ........................... $ 4,856,562 $ 2,257,494 Net long-term capital gains ............... 840,055 3,907,802 ----------- ----------- Total taxable distributions ................. 5,696,617 6,165,296 ----------- ----------- Total distributions paid .................... $ 5,696,617 $ 6,165,296 =========== =========== As of December 31, 2002, the components of accumulated earnings/(deficit) on a tax basis were as follows: Undistributed ordinary income ................................ $ 4,970,043 Accumulated capital and other losses ......................... (18,149,288)(a) Unrealized appreciation/(depreciation) ....................... (4,955,480)(b) ------------- Total accumulated earnings/(deficit) ......................... $ (18,134,725) ============= (a) On December 31, 2002, the Portfolio had a capital loss carryforward of $16,290,423 all of which 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 of $1,858,865. (b) The differences 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 $15,634,886 and received cash collateral of $16,178,800, 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 $28,410 which is included in interest income in the accompanying statement of operations. 16 Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- NOTE G: Capital Stock There are 1,000,000,000 shares of $.001 par value capital stock authorized, divided into two classes, designated Class A and Class B shares. Each class consists of 500,000,000 authorized shares. Transactions in capital stock were as follows: ==================================== ===================================== Shares Amount ==================================== ===================================== Year Ended Year Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2002 2001 2002 2001 ============= ================= ============== ================ Class A Shares sold .............................. 2,476,767 5,276,804 $ 40,916,841 $ 94,753,113 Shares issued in connection with the acquisition of Brinson Series Trust Balanced Portfolio ............... -0- 704,488 -0- 12,369,676 Shares issued in reinvestment of dividends and distributions ............ 352,256 339,125 5,657,229 6,165,296 Shares redeemed .......................... (1,980,636) (986,886) (31,050,188) (17,390,546) ----------- --------- ------------ ------------ Net increase ............................. 848,387 5,333,531 $ 15,523,882 $ 95,897,539 =========== ========= ============ ============ Year Ended October 26, 2001* Year Ended October 26, 2001* December 31, to December 31, December 31, to December 31, 2002 2001 2002 2001 ============= ================= ============== ================ Class B Shares sold .............................. 180,775 1,114 $ 2,760,763 $ 19,680 Shares issued in connection with the acquisition of Brinson Series Trust Balanced Portfolio ............... -0- 90,728 -0- 1,593,583 Shares issued in reinvestment of dividends and distributions ............ 2,455 -0- 39,387 -0- Shares redeemed .......................... (55,871) (2,888) (865,850) (50,497) ----------- --------- ------------ ------------ Net increase ............................. 127,359 88,954 $ 1,934,300 $ 1,562,766 =========== ========= ============ ============
- -------------------------------------------------------------------------------- NOTE H: Concentration of Risk Investing in securities of foreign companies or foreign governments involves special risks which include changes in foreign exchange rates and the possibility of future political and economic developments which could adversely affect the value of such securities. Moreover, securities of many foreign companies or foreign governments and their markets may be less liquid and their prices more volatile than those of comparable United States companies or of the United States government. - -------------------------------------------------------------------------------- NOTE I: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. - -------------------------------------------------------------------------------- * Commencement of distribution. 17 Total Return Portfolio Notes To Financial Statements (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- NOTE J: Acquisition of Brinson Series Trust Balanced Portfolio On October 26, 2001, the Portfolio acquired all the assets and liabilities, of the Brinson Series Trust Balanced Portfolio pursuant to a plan of reorganization approved by the shareholders of Brinson Series Trust Balanced Portfolio on March 1, 2001. The acquisition was accomplished by a tax-free exchange of 795,216 shares of the Portfolio for 1,750,377 shares of Brinson Series Trust Balanced Portfolio on October 26, 2001. The aggregate net assets of the Portfolio and Brinson Series Trust Balanced Portfolio immediately before the acquisition were $159,038,305 and $13,963,259 (including $105,721 net unrealized appreciation of investments), respectively. Immediately after the acquisition the combined net assets of the Portfolio amounted to $173,001,564. 18 Total Return Portfolio Financial Highlights Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period ================================================================ Class A ================================================================ Year Ended December 31, ================================================================ 2002 2001(a) 2000 1999 1998 ====== ====== ====== ====== ====== Net asset value, beginning of period ......... $17.65 $18.01 $17.49 $18.06 $16.92 ------ ------ ------ ------ ------ Income From Investment Operations - --------------------------------- Net investment income (b) .................... .45 .44 .48 .44 .41(c) Net realized and unrealized gain (loss) on investment and foreign currency transactions ........................ (2.29) (.01) 1.63 .70 2.36 ------ ------ ------ ------ ------ Net increase (decrease) in net asset value from operations .............................. (1.84) .43 2.11 1.14 2.77 ------ ------ ------ ------ ------ Less: Dividends and Distributions - --------------------------------- Dividends from net investment income ......... (.32) (.28) (.39) (.36) (.29) Distributions from net realized gain on investment transactions .................... (.19) (.42) (1.20) (1.35) (1.34) Distributions in excess of net realized gain on investment transactions ................. -0- (.09) -0- -0- -0- ------ ------ ------ ------ ------ Total dividends and distributions ............ (.51) (.79) (1.59) (1.71) (1.63) ------ ------ ------ ------ ------ Net asset value, end of period ............... $15.30 $17.65 $18.01 $17.49 $18.06 ====== ====== ====== ====== ====== Total Return - ------------ Total investment return based on net asset value (d) .......................... (10.58)% 2.27% 12.52% 6.53% 16.99% Ratios/Supplemental Data - ------------------------ Net assets, end of period (000's omitted)..... $171,670 $183,098 $90,736 $75,170 $59,464 Ratio to average net assets of: Expenses, net of waivers and reimbursements ....................... .79% .78% .87% .86% .88% Expenses, before waivers and reimbursements ....................... .79% .78% .87% .86% .95% Net investment income ...................... 2.76% 2.50% 2.77% 2.48% 2.41%(c) Portfolio turnover rate ...................... 57% 71% 102% 91% 57%
- -------------------------------------------------------------------------------- See footnote summary on page 20. 19 Total Return Portfolio Financial Highlights (continued) Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period ============================ Class B ============================ October 26, 2001(e) Year Ended to December 31, December 31, 2002 2001(a) ============ ============ Net asset value, beginning of period ................................................. $17.65 $17.56 ------ ------ Income From Investment Operations - --------------------------------- Net investment income (b) ............................................................ .39 .06 Net realized and unrealized gain (loss) on investment and foreign currency transactions .............................................................. (2.27) .03 ------ ------ Net increase (decrease) in net asset value from operations ........................... (1.88) .09 ------ ------ Less: Dividends and Distributions - --------------------------------- Dividends from net investment income ................................................. (.31) -0- Distributions from net realized gain on investment transactions ...................... (.19) -0- ------ ------ Total dividends and distributions .................................................... (.50) -0- ------ ------ Net asset value, end of period ....................................................... $15.27 $17.65 ====== ====== Total Return - ------------ Total investment return based on net asset value (d) ................................. (10.80)% .51% Ratios/Supplemental Data - ------------------------ Net assets, end of period (000's omitted) ............................................ $3,302 $1,570 Ratio to average net assets of: Expenses ........................................................................... 1.05% 1.00%(f) Net investment income .............................................................. 2.51% 1.80%(f) Portfolio turnover rate .............................................................. 57% 71%
- -------------------------------------------------------------------------------- (a) As required, effective January 1, 2001, the Portfolio has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies, and began amortizing premium on debt securities. For the year ended December 31, 2001, the effect of this change to Class A and Class B shares was to decrease net investment income per share by $.02 and $.02, increase net realized and unrealized gain (loss) on investments per share by $.02 and $.02, and decrease the ratio of net investment income to average net assets from 2.61% to 2.50% for Class A and from 2.41% to 1.80% for Class B. Per share, ratios and supplemental data for periods prior to January 1, 2001 have not been restated to reflect this change in presentation. (b) Based on average shares outstanding. (c) Net of expenses reimbursed or waived by the Adviser. (d) Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total 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. (e) Commencement of distribution. (f) Annualized. 20 Report Of Ernst & Young llp Independent Auditors Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- To the Shareholders and Board of Directors Total Return Portfolio Alliance Variable Products Series Fund, Inc. We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Total Return Portfolio (the "Portfolio"), (one of the portfolios constituting the Alliance Variable Products Series Fund, Inc.) as of December 31, 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 Total Return 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 21 Total Return Portfolio Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Board Of Directors John D. Carifa, Chairman and President Ruth Block (1) David H. Dievler (1) John H. Dobkin (1) William H. Foulk, Jr. (1) Clifford L. Michel (1) Donald J. Robinson (1) CUSTODIAN State Street Bank and Trust Company 225 Franklin Street Boston, MA 02110 DISTRIBUTOR Alliance Fund Distributors, Inc. 1345 Avenue of the Americas New York, NY 10105 INDEPENDENT AUDITORS Ernst & Young LLP 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. 22 Total Return Portfolio Alliance Variable Products Series Fund - ------------------------------------------------------------------------------- Management of the Fund Board of Directors Information The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund's Directors is set forth below. PORTFOLIOS IN FUND OTHER NAME, 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.
23 Total Return 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 of (7) 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. 24 Total Return 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. Andrew Aran, 45 Vice President Senior Vice President of ACMC, with which he has been associated since prior to 1998. Frank Caruso, 46 Vice President Senior Vice President of Shields/ACMC, with which he has been associated since prior to 1998. Paul C. Rissman, 46 Vice President Executive Vice President 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 Financial Officer AFD with which he 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. 25 -----END PRIVACY-ENHANCED MESSAGE-----