0000919574-18-003183.txt : 20180426
0000919574-18-003183.hdr.sgml : 20180426
20180426171517
ACCESSION NUMBER: 0000919574-18-003183
CONFORMED SUBMISSION TYPE: 485BPOS
PUBLIC DOCUMENT COUNT: 6
FILED AS OF DATE: 20180426
DATE AS OF CHANGE: 20180426
EFFECTIVENESS DATE: 20180501
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AB VARIABLE PRODUCTS SERIES FUND, INC.
CENTRAL INDEX KEY: 0000825316
IRS NUMBER: 000000000
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-18647
FILM NUMBER: 18779694
BUSINESS ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 2129691000
MAIL ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
FORMER COMPANY:
FORMER CONFORMED NAME: ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND INC
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AB VARIABLE PRODUCTS SERIES FUND, INC.
CENTRAL INDEX KEY: 0000825316
IRS NUMBER: 000000000
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 485BPOS
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-05398
FILM NUMBER: 18779695
BUSINESS ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
BUSINESS PHONE: 2129691000
MAIL ADDRESS:
STREET 1: ALLIANCEBERNSTEIN LP
STREET 2: 1345 AVENUE OF THE AMERICAS
CITY: NEW YORK
STATE: NY
ZIP: 10105
FORMER COMPANY:
FORMER CONFORMED NAME: ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND INC
DATE OF NAME CHANGE: 19920703
0000825316
S000010429
AB International Growth Portfolio
C000028824
Class A
C000028825
Class B
0000825316
S000010431
AB International Value Portfolio
C000028828
Class A
C000028829
Class B
0000825316
S000010432
AB Large Cap Growth Portfolio
C000028830
Class A
C000028831
Class B
0000825316
S000010434
AB Real Estate Investment Portfolio
C000028834
Class A
C000028835
Class B
0000825316
S000010435
AB Small Cap Growth Portfolio
C000028836
Class A
C000028837
Class B
0000825316
S000010436
AB Small/Mid Cap Value Portfolio
C000028838
Class A
C000028839
Class B
0000825316
S000010437
AB Intermediate Bond Portfolio
C000028840
Class A
C000028841
Class B
0000825316
S000010441
AB Value Portfolio
C000028848
Class A
C000028849
Class B
0000825316
S000010443
AB Balanced Wealth Strategy Portfolio
C000028852
Class A
C000028853
Class B
0000825316
S000010447
AB Global Thematic Growth Portfolio
C000028860
Class A
C000028861
Class B
0000825316
S000010448
AB Growth and Income Portfolio
C000028862
Class A
C000028863
Class B
0000825316
S000010449
AB Growth Portfolio
C000028864
Class A
C000028865
Class B
0000825316
S000031722
AB Dynamic Asset Allocation Portfolio
C000098721
Class A
C000098722
Class B
0000825316
S000049082
AB Global Risk Allocation-Moderate Portfolio
C000154813
Class A
C000154814
Class B
485BPOS
1
d7853644_485-b.txt
As filed with the Securities and Exchange Commission on April 26, 2018
File Nos. 33-18647
811-05398
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 74 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 75 X
____________________________________________
AB VARIABLE PRODUCTS SERIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 221-5672
_______________________________________________________________
EMILIE D. WRAPP
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)
Copies of communications to:
Paul M. Miller
Seward & Kissel LLP
901 K Street, N.W.
Suite 800
Washington, D.C. 20001
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate
box)
[_] Immediately upon filing pursuant to paragraph (b)
[X] On May 1, 2018 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)
[_] On (date) pursuant to paragraph (a)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
This Post-Effective Amendment No. 74 relates solely to the Class A and Class B
shares of the AB Intermediate Bond Portfolio, AB Large Cap Growth Portfolio, AB
Growth and Income Portfolio, AB Growth Portfolio, AB International Growth
Portfolio, AB Global Thematic Growth Portfolio, AB Small Cap Growth Portfolio,
AB Real Estate Investment Portfolio, AB International Value Portfolio, AB
Small/Mid Cap Value Portfolio, AB Value Portfolio, AB Balanced Wealth Strategy
Portfolio, AB Dynamic Asset Allocation Portfolio and AB Global Risk
Allocation--Moderate Portfolio. No information in the Registrant's Registration
Statement relating to the other Series or Classes of the Registrant not included
herein is amended or superseded.
[A/B]
[LOGO]/R/
PROSPECTUS | MAY 1, 2018
AB Variable Products Series Fund, Inc.
Class A Prospectus
AB VPS
Intermediate Bond Portfolio Real Estate Investment Portfolio
Large Cap Growth Portfolio International Value Portfolio
Growth and Income Portfolio Small/Mid Cap Value Portfolio
Growth Portfolio Value Portfolio
International Growth Portfolio Balanced Wealth Strategy Portfolio
Global Thematic Growth Portfolio Dynamic Asset Allocation Portfolio
Small Cap Growth Portfolio Global Risk Allocation--Moderate Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable contract. For information about your variable
contract, including information about insurance-related expenses, see the
prospectus for your variable contract which accompanies this Prospectus.
The Securities and Exchange Commission and the Commodity Futures Trading
Commission have not approved or disapproved these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
INVESTMENT PRODUCTS OFFERED
.. ARE NOT FDIC INSURED
.. MAY LOSE VALUE
.. ARE NOT BANK GUARANTEED
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
SUMMARY INFORMATION........................................................ 4
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS' RISKS AND INVESTMENTS......... 52
INVESTING IN THE PORTFOLIOS................................................ 65
MANAGEMENT OF THE PORTFOLIOS............................................... 68
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 71
GLOSSARY................................................................... 72
FINANCIAL HIGHLIGHTS....................................................... 73
APPENDIX A--BOND RATINGS................................................... A-1
APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION................ B-1
SUMMARY INFORMATION
--------------------------------------------------------------------------------
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to generate income and price
appreciation without assuming what the Adviser considers undue risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-----------------------------------------------------------------------------
Management Fees .45%
Other Expenses:
Transfer Agent .01%
Other Expenses .65%
-----
Total Other Expenses .66%
-----
Total Portfolio Operating Expenses 1.11%
=====
-----------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 113
After 3 Years $ 353
After 5 Years $ 612
After 10 Years $1,352
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 216% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests, under normal circumstances, at least 80% of its net
assets in fixed-income securities. The Portfolio expects to invest in readily
marketable fixed-income securities with a range of maturities from short- to
long-term and relatively attractive yields that do not involve undue risk of
loss of capital. The Portfolio expects to invest in fixed-income securities
with a dollar-weighted average maturity of between three to ten years and an
average duration of three to six years. The Portfolio may invest up to 25% of
its net assets in below investment grade bonds (commonly known as "junk
bonds"). The Portfolio may use leverage for investment purposes.
4
The Portfolio may invest without limit in U.S. Dollar-denominated foreign
fixed-income securities and may invest up to 25% of its assets in
non-U.S. Dollar-denominated foreign fixed-income securities. These investments
may include, in each case, developed and emerging market debt securities.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Portfolio. In
making this assessment, the Adviser takes into account various factors,
including the credit quality and sensitivity to interest rates of the
securities under consideration and of the Portfolio's other holdings.
The Portfolio may invest in mortgage-related and other asset-backed securities,
loan participations, inflation-indexed securities, structured securities,
variable, floating and inverse floating-rate instruments, and preferred stock,
and may use other investment techniques. The Portfolio intends, among other
things, to enter into transactions such as reverse repurchase agreements and
dollar rolls. The Portfolio may invest, without limit, in derivatives, such as
options, futures contracts, forwards and swaps.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. BELOW INVESTMENT GRADE SECURITY RISK: Investments in fixed-income securities
with lower ratings ("junk bonds") tend to have a higher probability that an
issuer will default or fail to meet its payment obligations. These
securities may be subject to greater price volatility due to such factors as
specific corporate developments, interest rate sensitivity, negative
perceptions of the junk bond market generally and less secondary market
liquidity.
.. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
For example, a fixed-income security with a duration of three years will
decrease in value by approximately 3% if interest rates increase by 1%.
.. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Portfolio's assets can
decline as can the value of the Portfolio's distributions. This risk is
significantly greater if the Portfolio invests a significant portion of its
assets in fixed-income securities with longer maturities.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Portfolio to a lower rate of return upon
reinvestment of principal. Mortgage-backed securities offered by
nongovernmental issuers and other asset-backed securities may be subject to
other risks, such as higher rates of default in the mortgages or assets
backing the securities or risks associated with the nature and servicing of
mortgages or assets backing the securities.
5
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes, large positions and heavy redemptions of Portfolio shares.
Over recent years liquidity risk has also increased because the capacity of
dealers in the secondary market for fixed-income securities to make markets
in these securities has decreased, even as the overall bond market has grown
significantly, due to, among other things, structural changes, additional
regulatory requirements and capital and risk restraints that have led to
reduced inventories. Liquidity risk may be higher in a rising interest rate
environment, when the value and liquidity of fixed-income securities
generally decline.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. ACTIVE TRADING RISK: The Portfolio expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate is
expected to exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Portfolio's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for
Contractholders.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------ ------ ----- ----- ----- ------ ----- ----- ----- -----
-6.38% 18.51% 9.20% 6.64% 6.05% -2.16% 6.48% 0.01% 4.71% 3.52%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 8.00%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-4.23%, 3RD QUARTER, 2008.
6
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 3.52% 2.46% 4.46%
-----------------------------------------------------------------------------
Bloomberg Barclays U.S. Aggregate Bond Index
(reflects no deduction for fees, expenses, or taxes) 3.54% 2.10% 4.01%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
Michael Canter Since 2016 Senior Vice President of the Adviser
Shawn E. Keegan Since 2007 Senior Vice President of the Adviser
Douglas J. Peebles Since 2007 Senior Vice President of the Adviser
Greg J. Wilensky Since 2005 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
7
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .60%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .09%
----
Total Other Expenses .09%
----
Total Portfolio Operating Expenses .69%
====
-------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
----------------------------------------------------------------------------
After 1 Year $ 72
After 3 Years $224
After 5 Years $390
After 10 Years $871
----------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 48% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high-quality U.S. companies. The Portfolio invests
primarily in the domestic equity securities of companies selected by the
Adviser for their growth potential within various market sectors. The Portfolio
emphasizes investments in large, seasoned companies. Under normal
circumstances, the Portfolio will invest at least 80% of its net assets in
common stocks of large-capitalization companies.
For these purposes, "large-capitalization companies" are those that, at the
time of investment, have market capitalizations within the range of market
capitalizations of companies appearing in the Russell 1000 Growth Index. While
the market capitalizations of companies in the Russell 1000 Growth Index ranged
from approximately $1.2 billion to $861 billion as of December 31, 2017, the
Portfolio normally will invest in common stocks of companies with market
capitalizations of at least $5 billion at the time of purchase.
8
The Adviser expects that normally the Portfolio's portfolio will tend to
emphasize investments in securities issued by U.S. companies, although it may
invest in foreign securities.
The Adviser allocates the Portfolio's investments among broad sector groups
based on the fundamental company research conducted by the Adviser's internal
research staff, assessing the current and forecasted investment opportunities
and conditions, as well as diversification and risk considerations. The Adviser
may vary the percentage allocations among market sectors and may change the
market sectors in which the Portfolio invests as companies' potential for
growth within a sector matures and new trends for growth emerge.
The Adviser's research focus is on companies with high sustainable growth
prospects, high or improving return on invested capital, transparent business
models, and strong and lasting competitive advantages.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in securities. ETFs may provide more
efficient and economical exposure to the types of companies and geographic
locations in which the Portfolio seeks to invest than direct investments.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
9
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ------ ------ ----- ------
-39.66% 37.52% 10.10% -3.04% 16.39% 37.35% 14.14% 11.11% 2.63% 31.98%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 16.90%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-19.83%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 31.98% 18.73% 9.30%
-----------------------------------------------------------------------------
Russell 1000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 30.21% 17.33% 10.00%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Frank V. Caruso Since 2012 Senior Vice President of the Adviser
John H. Fogarty Since 2012 Senior Vice President of the Adviser
Vinay Thapar Since May 2018 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
10
AB VPS GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .55%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .05%
----
Total Other Expenses .05%
----
Total Portfolio Operating Expenses .60%
====
--------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 61
After 3 Years $192
After 5 Years $335
After 10 Years $750
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 85% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in the equity securities of U.S. companies that
the Adviser believes are undervalued. The Adviser believes that, over time, a
company's stock price will come to reflect its intrinsic economic value. The
Portfolio may invest in companies of any size and in any industry.
The Adviser depends heavily upon the fundamental analysis and research of its
internal research staff in making investment decisions for the Portfolio. In
determining a company's intrinsic economic value, the Adviser takes into
account many fundamental and financial factors that it believes bear on the
company's ability to perform in the future, including earnings growth,
prospective cash flows, dividend growth and growth in book value. The Adviser
then ranks each of the companies in its research universe in the relative order
of disparity between their intrinsic economic values and their current stock
prices, with companies with the greatest disparities receiving the highest
rankings (i.e., being considered the most undervalued). The Adviser anticipates
that the Portfolio's portfolio normally will include companies ranking in the
top three deciles of the Adviser's valuation model.
11
The Adviser recognizes that the perception of what is a "value" stock is
relative and the factors considered in determining whether a stock is a "value"
stock may, and often will, have differing relative significance in different
phases of an economic cycle. Also, at different times, and as a result of how
individual companies are valued in the market, the Portfolio may be attracted
to investments in companies with different market capitalizations (i.e.,
large-, mid- or small-capitalization) or companies engaged in particular types
of business (e.g., banks and other financial institutions), although the
Portfolio does not intend to concentrate in any particular industries or
businesses. The Portfolio's portfolio emphasis upon particular industries or
sectors will be a by-product of the stock selection process rather than the
result of assigned targets or ranges.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may be underperforming the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. INDUSTRY/SECTOR RISK: Investments in a particular industry or group of
related industries may have more risk because market or economic factors
affecting that industry could have a significant effect on the value of the
Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
12
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ----- ----- ------ ------
-40.60% 20.82% 13.09% 6.32% 17.53% 34.96% 9.54% 1.70% 11.30% 18.93%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 14.27%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-20.17%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 18.93% 14.76% 7.28%
-----------------------------------------------------------------------------
Russell 1000(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 13.66% 14.04% 7.10%
-----------------------------------------------------------------------------
*Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.68%.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Frank V. Caruso Since 2001 Senior Vice President of the Adviser
John H. Fogarty Since May 2018 Senior Vice President of the Adviser
Vinay Thapar Since May 2018 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
13
AB VPS GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .01%
Other Expenses .36%
-----
Total Other Expenses .37%
-----
Total Portfolio Operating Expenses 1.12%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 114
After 3 Years $ 356
After 5 Years $ 617
After 10 Years $1,363
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 42% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a domestic portfolio of equity securities of
companies selected by the Adviser for their growth potential within various
market sectors. The Adviser looks for companies that have experienced
management teams, strong market positions, and the potential to deliver
greater-than-expected earnings growth rates.
In managing the Portfolio, the Adviser allocates investments among broad sector
groups and selects specific investments based on the fundamental company
research conducted by the Adviser's internal research staff, assessing the
current and forecasted investment opportunities and conditions, as well as
diversification and risk considerations. The Adviser's research focus is on
companies with high sustainable growth prospects, high or improving return on
invested capital, transparent business models, and clear competitive advantages.
The Portfolio has the flexibility to invest across the capitalization spectrum.
The Portfolio is designed for those seeking exposure to companies of various
sizes, and typically has substantial investments in both large-capitalization
companies and mid-capitalization companies, and may also invest in
small-capitalization companies.
14
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, in an effort to earn extra income, to adjust exposure to
individual securities or markets, or to protect all or a portion of the
Portfolio's portfolio from a decline in value.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ------ ----- ----- ------
-42.43% 33.13% 15.06% 1.24% 13.89% 34.01% 13.28% 9.06% 1.12% 34.51%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 15.64%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-22.09%, 4TH QUARTER, 2008.
15
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 34.51% 17.63% 8.64%
-----------------------------------------------------------------------------
Russell 3000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 29.59% 17.16% 9.93%
-----------------------------------------------------------------------------
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements and a regulatory settlement, which
enhanced the Portfolio's performance for the 1-Year period ended December 31,
2017 by 0.11% and 0.14%, respectively.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Bruce K. Aronow Since 2013 Senior Vice President of the Adviser
Frank V. Caruso Since 2008 Senior Vice President of the Adviser
John H. Fogarty Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
16
AB VPS INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .01%
Other Expenses .48%
-----
Total Other Expenses .49%
-----
Total Portfolio Operating Expenses 1.24%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 126
After 3 Years $ 393
After 5 Years $ 681
After 10 Years $1,500
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 52% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in an international portfolio of equity
securities of companies selected by the Adviser for their growth potential
within various market sectors. Examples of the types of market sectors in which
the Portfolio may invest include, but are not limited to, information
technology (which includes telecommunications), health care, financial
services, infrastructure, energy and natural resources, and consumer groups.
The Adviser's growth analysts seek to identify companies or industries for
which other investors have underestimated earnings potential--for example, some
hidden earnings driver (including, but not limited to, reduced competition,
market share gain, better margin trend, increased customer base, or similar
factors) that would cause a company to grow faster than market forecasts.
The Adviser allocates the Portfolio's investments among broad sector groups
utilizing the fundamental company research conducted by the Adviser's internal
research staff, assessing the current and forecasted investment opportunities
and conditions, as well as diversification and risk considerations. The Adviser
may vary the percentage allocations among market sectors and may change the
market sectors in which the Portfolio invests as companies' potential for
growth within a sector matures and new trends for growth emerge.
17
The Portfolio invests, under normal circumstances, in the equity securities of
companies located in at least three countries (and normally substantially more)
other than the United States. The Portfolio invests in securities of companies
in both developed and emerging market countries. Geographic distribution of the
Portfolio's investments among countries or regions also will be a product of
the stock selection process rather than a pre-determined allocation.
The Portfolio may also invest in synthetic foreign equity securities, which are
various types of warrants used internationally that entitle a holder to buy or
sell underlying securities. The Adviser expects that normally the Portfolio's
portfolio will tend to emphasize investments in larger capitalization
companies, although the Portfolio may invest in smaller or medium
capitalization companies.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in equity securities. ETFs may
provide more efficient and economical exposure to the type of companies and
geographic locations in which the Portfolio seeks to invest than direct
investments.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
18
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
-48.85% 39.58% 12.89% -15.85% 15.54% 13.60% -1.19% -1.87% -6.87% 35.02%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.51%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-27.30%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
------------------------------------------------------------------------------------------------------------------------
Portfolio 35.02% 6.73% 0.82%
------------------------------------------------------------------------------------------------------------------------
MSCI World Index (ex. U.S.)
(reflects no deduction for fees, expenses, or taxes except the reinvestment of dividends net of
non-U.S. withholding taxes) 24.21% 7.46% 1.87%
------------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (ex. U.S.)*
(reflects no deduction for fees, expenses, or taxes except the reinvestment of dividends net of
non-U.S. withholding taxes) 27.19% 6.80% 1.84%
------------------------------------------------------------------------------------------------------------------------
*The performance table includes an additional index that shows how the
Portfolio's performance compares with an index of the equity market
performance of developed markets.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGER
The following table lists the person responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Daniel C. Roarty Since 2012 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
19
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .01%
Other Expenses .26%
-----
Total Other Expenses .27%
-----
Total Portfolio Operating Expenses 1.02%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 104
After 3 Years $ 325
After 5 Years $ 563
After 10 Years $1,248
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 40% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio pursues opportunistic growth by investing in a global universe of
companies in multiple industries that may benefit from innovation.
The Adviser employs a combination of "top-down" and "bottom-up" investment
processes with the goal of identifying the most attractive securities
worldwide, fitting into broader themes, which are developments that have broad
effects across industries and companies. Drawing on its global fundamental
research capabilities, the Adviser seeks to identify long-term secular growth
trends that will affect multiple industries. The Adviser will assess the
effects of these trends on entire industries and on individual companies.
Through this process, the Adviser intends to identify key investment themes,
which will be the focus of the Portfolio's investments and which are expected
to change over time based on the Adviser's research.
In addition to this "top-down" thematic approach, the Adviser will also use a
"bottom-up" analysis of individual companies that focuses on prospective
earnings growth, valuation and quality of company management. The Adviser
normally considers a large universe of mid- to large-capitalization companies
worldwide for investment.
20
The Portfolio invests in securities issued by U.S. and non-U.S. companies from
multiple industry sectors in an attempt to maximize opportunity, which should
also tend to reduce risk. The Portfolio invests in both developed and emerging
market countries. Under normal market conditions, the Portfolio invests
significantly (at least 40%--unless market conditions are not deemed favorable
by the Adviser) in securities of non-U.S. companies. In addition, the Portfolio
invests, under normal circumstances, in the equity securities of companies
located in at least three countries. The percentage of the Portfolio's assets
invested in securities of companies in a particular country or denominated in a
particular currency varies in accordance with the Adviser's assessment of the
appreciation potential of such securities.
The Portfolio may invest in any company and industry and in any type of equity
security, listed and unlisted, with potential for capital appreciation. It
invests in well-known, established companies as well as new, smaller or
less-seasoned companies. Investments in new, smaller or less-seasoned companies
may offer more reward but may also entail more risk than is generally true of
larger, established companies. The Portfolio may also invest in synthetic
foreign equity securities, which are various types of warrants used
internationally that entitle a holder to buy or sell underlying securities,
real estate investment trusts and zero-coupon bonds.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in equity securities. ETFs may
provide more efficient and economical exposure to the type of companies and
geographic locations in which the Portfolio seeks to invest than direct
investments.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, to
earn extra income, to adjust exposure to individual securities or markets, or
to protect all or a portion of the Portfolio's portfolio from a decline in
value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. CAPITALIZATION RISK: Investments in mid-capitalization companies may be more
volatile than investments in large-capitalization companies. Investments in
mid-capitalization companies may have additional risks because these
companies may have limited product lines, markets or financial resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
NAV may be more volatile because leverage tends to exaggerate the effect of
changes in interest rates and any increase or decrease in the value of the
Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
21
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
-47.37% 53.49% 18.93% -23.23% 13.52% 23.26% 5.06% 2.89% -0.62% 36.66%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 21.43%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-25.85%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
Portfolio 36.66% 12.59% 4.24%
-------------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (Net)
(reflects no deduction for fees, expenses, or taxes, except the reinvestment of dividends net of
non-U.S. withholding taxes) 23.97% 10.80% 4.65%
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGER
The following table lists the person responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Daniel C. Roarty Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
22
AB VPS SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .01%
Other Expenses .62%
-----
Total Other Expenses .63%
-----
Total Portfolio Operating Expenses 1.38%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 140
After 3 Years $ 437
After 5 Years $ 755
After 10 Years $1,657
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 69% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
with relatively smaller capitalizations as compared to the overall U.S. market.
Under normal circumstances, the Portfolio invests at least 80% of its net
assets in equity securities of smaller companies. For these purposes, "smaller
companies" are those that, at the time of investment, fall within the lowest
20% of the total U.S. equity market capitalization (excluding, for purposes of
this calculation, companies with market capitalizations of less than $10
million). As of December 31, 2017, there were approximately 4,167 smaller
companies, and those smaller companies had market capitalizations ranging up to
approximately $14 billion. Because the Portfolio's definition of smaller
companies is dynamic, the limits on market capitalization will change with the
markets.
The Portfolio may invest in any company and industry and in any type of equity
security with potential for capital appreciation. It invests in well-known and
established companies and in new and less-seasoned companies. The Portfolio's
investment policies emphasize investments in companies that are demonstrating
improving financial results and a favorable earnings outlook. The Portfolio may
invest in foreign securities.
23
When selecting securities, the Adviser typically looks for companies that have
strong, experienced management teams, strong market positions, and the
potential to support greater than expected earnings growth rates. In making
specific investment decisions for the Portfolio, the Adviser combines
fundamental and quantitative analysis in its stock selection process. The
Portfolio may periodically invest in the securities of companies that are
expected to appreciate due to a development particularly or uniquely applicable
to that company regardless of general business conditions or movements of the
market as a whole.
The Portfolio invests primarily in equity securities but may also invest in
other types of securities, such as preferred stocks. The Portfolio may, at
times, invest in shares of exchange-traded funds, or ETFs, in lieu of making
direct investments in securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments. The Portfolio may also
invest up to 20% of its total assets in rights or warrants.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ------ ------ ----- ------
-45.54% 41.76% 36.90% 4.46% 15.02% 45.66% -1.81% -1.25% 6.46% 34.12%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 20.66%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-29.52%, 4TH QUARTER, 2008.
24
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 34.12% 15.06% 9.86%
-----------------------------------------------------------------------------
Russell 2000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 22.17% 15.21% 9.19%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
Bruce K. Aronow Since 2000 Senior Vice President of the Adviser
N. Kumar Kirpalani Since 2005 Senior Vice President of the Adviser
Samantha S. Lau Since 2005 Senior Vice President of the Adviser
Wen-Tse Tseng Since 2006 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
25
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is total return from long-term growth of
capital and income.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .55%
Other Expenses:
Transfer Agent .01%
Other Expenses .49%
-----
Total Other Expenses .50%
-----
Total Portfolio Operating Expenses 1.05%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 107
After 3 Years $ 334
After 5 Years $ 579
After 10 Years $1,283
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 59% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
Under normal circumstances, the Portfolio invests at least 80% of its net
assets in the equity securities of real estate investment trusts, or REITs, and
other real estate industry companies, such as real estate operating companies,
or REOCs. The Portfolio seeks to invest in real estate companies whose
underlying portfolios are diversified geographically and by property type.
The Portfolio's investment policies emphasize investment in companies
determined by the Adviser to be undervalued relative to their peers. In
selecting real estate equity securities, the Adviser uses its fundamental and
quantitative research to seek to identify companies where the magnitude and
growth of cash flow streams have not been appropriately reflected in the price
of the security. These securities may trade at a more attractive valuation than
others that may have similar overall fundamentals. The Adviser's fundamental
research efforts are focused on forecasting the short- and long-term normalized
cash generation capability of real estate companies by isolating supply and
demand for property types in local markets, determining the replacement value
of properties, assessing future development opportunities, and normalizing
capital structures of real estate companies.
26
The Portfolio may invest in short-term investment-grade debt securities and
other fixed-income securities.
The Portfolio invests in equity securities that include common stock, shares of
beneficial interests of REITs and securities with common stock characteristics,
such as preferred stock or convertible securities ("real estate equity
securities"). The Portfolio may invest in foreign securities and enter into
forward commitments and standby commitment agreements.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations.
.. REAL ESTATE RISK: The Portfolio's investments in the real estate market have
many of the same risks as direct ownership of real estate, including the
risk that the value of real estate could decline due to a variety of factors
that affect the real estate market generally. Investments in REITs may have
additional risks. REITs are dependent on the capability of their managers,
may have limited diversification, and could be significantly affected by
changes in tax laws.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
27
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ----- ------ ----- ----- -----
-35.68% 29.46% 26.34% 9.03% 21.19% 4.20% 25.35% 0.80% 7.76% 6.53%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 32.49%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-36.87%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 6.53% 8.61% 7.71%
-----------------------------------------------------------------------------
FTSE NAREIT Equity REIT Index
(reflects no deduction for fees, expenses, or taxes) 8.67% 9.83% 7.77%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
------------------------------------------------------------------------
Eric J. Franco Since 2012 Senior Vice President of the Adviser
Ajit D. Ketkar Since 2017 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
28
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .11%
----
Total Other Expenses .11%
----
Total Portfolio Operating Expenses .86%
====
--------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 88
After 3 Years $ 274
After 5 Years $ 477
After 10 Years $1,061
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 45% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of established companies selected from more than 40 industries and more than 40
developed and emerging market countries. These countries currently include the
developed nations in Europe and the Far East, Canada, Australia and emerging
market countries worldwide. Under normal market conditions, the Portfolio
invests significantly (at least 40%--unless market conditions are not deemed
favorable by the Adviser) in securities of non-U.S. companies. In addition, the
Portfolio invests, under normal circumstances, in the equity securities of
companies located in at least three countries.
The Portfolio invests in companies that are determined by the Adviser to be
undervalued, using a fundamental value approach. In selecting securities for
the Portfolio's portfolio, the Adviser uses its fundamental and quantitative
research to identify companies whose stocks are priced low in relation to their
perceived long-term earnings power.
29
The Adviser's fundamental analysis depends heavily upon its internal research
staff. The research staff begins with a global research universe of
approximately 2,000 international and emerging market companies. Teams within
the research staff cover a given industry worldwide to better understand each
company's competitive position in a global context. The Adviser typically
projects a company's financial performance over a full economic cycle,
including a trough and a peak, within the context of forecasts for real
economic growth, inflation and interest rate changes. The Adviser focuses on
the valuation implied by the current price, relative to the earnings the
company will be generating five years from now, or "normalized" earnings,
assuming average mid-economic cycle growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover. The
team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. The Adviser
evaluates currency and equity positions separately and may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments. The Portfolio may invest
in depositary receipts, instruments of supranational entities denominated in
the currency of any country, securities of multinational companies and
"semi-governmental securities", and enter into forward commitments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, its net asset value, or NAV, may be more volatile because
leverage tends to exaggerate the effect of changes in interest rates and any
increase or decrease in the value of the Portfolio's investments. The
Portfolio may create leverage through the use of reverse repurchase
agreements, forward commitments, or by borrowing money.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
30
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
-53.18% 34.68% 4.59% -19.25% 14.53% 23.00% -6.21% 2.59% -0.50% 25.42%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 26.30%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-28.76%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
Portfolio 25.42% 8.11% -1.04%
-------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index (Net)
(reflects no deduction for fees, expenses, or taxes, except the reinvestment of dividends net of
non-U.S. withholding taxes) 25.03% 7.90% 1.94%
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------
Tawhid Ali Since 2016 Senior Vice President of the Adviser
Takeo Aso Since 2012 Senior Vice President of the Adviser
Avi Lavi Since 2012 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
31
AB VPS SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .07%
----
Total Other Expenses .07%
----
Total Portfolio Operating Expenses .82%
====
-------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 84
After 3 Years $ 262
After 5 Years $ 455
After 10 Years $1,014
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 33% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of small- to mid-capitalization U.S. companies. Under normal circumstances, the
Portfolio invests at least 80% of its net assets in securities of small- to
mid-capitalization companies. For purposes of this policy, small- to
mid-capitalization companies are those that, at the time of investment, fall
within the capitalization range between the smallest company in the Russell
2500(R) Value Index and the greater of $5 billion or the market capitalization
of the largest company in the Russell 2500(R) Value Index.
Because the Portfolio's definition of small- to mid-capitalization companies is
dynamic, the lower and upper limits on market capitalization will change with
the markets. As of December 31, 2017, there were approximately 1,752 small- to
mid-capitalization companies, representing a market capitalization range from
approximately $22.7 million to approximately $13.8 billion.
32
The Portfolio invests in companies that are determined by the Adviser to be
undervalued, using the Adviser's fundamental value approach. In selecting
securities for the Portfolio's portfolio, the Adviser uses its fundamental and
quantitative research to identify companies whose long-term earnings power is
not reflected in the current market price of their securities.
In selecting securities for the Portfolio's portfolio, the Adviser looks for
companies with attractive valuation (for example, with low price to book
ratios) and compelling success factors (for example, momentum and return on
equity). The Adviser then uses this information to calculate an expected
return. Returns and rankings are updated on a daily basis. The rankings are
used to determine prospective candidates for further fundamental research and,
subsequently, possible addition to the portfolio. Typically, the Adviser's
fundamental research analysts focus their research on the most attractive 20%
of the universe.
The Adviser typically projects a company's financial performance over a full
economic cycle, including a trough and a peak, within the context of forecasts
for real economic growth, inflation and interest rate changes. The Adviser
focuses on the valuation implied by the current price, relative to the earnings
the company will be generating five years from now, or "normalized" earnings,
assuming average mid-economic cycle growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover. The
team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable. Typically, growth in the size of a company's market
capitalization relative to other domestically traded companies will not cause
the Portfolio to dispose of the security.
The Adviser seeks to manage overall portfolio volatility relative to the
universe of companies that comprise the lowest 20% of the total U.S. market
capitalization by favoring promising securities that offer the best balance
between return and targeted risk. At times, the Portfolio may favor or disfavor
a particular sector compared to that universe of companies. The Portfolio may
invest significantly in companies involved in certain sectors that constitute a
material portion of the universe of small- and mid-capitalization companies,
such as financial services and consumer services.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities issued by non-U.S. companies.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
33
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ----- ------ ------ ------
-35.58% 42.86% 26.91% -8.39% 18.75% 38.06% 9.20% -5.49% 25.09% 13.15%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.75%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-26.95%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 13.15% 15.06% 9.87%
-----------------------------------------------------------------------------
Russell 2500(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 10.36% 13.27% 8.82%
-----------------------------------------------------------------------------
Russell 2500/TM/ Index**
(reflects no deduction for fees, expenses, or taxes) 16.81% 14.33% 9.22%
-----------------------------------------------------------------------------
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.11%.
** The performance table includes an additional index that shows how the
Portfolio's performance compares with an index of securities similar to
those in which the Portfolio invests.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
James W. MacGregor Since 2005 Senior Vice President of the Adviser
Shri Singhvi Since 2014 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
34
AB VPS VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
------------------------------------------------------------------------------
Management Fees .55%
Other Expenses:
Transfer Agent .01%
Other Expenses .31%
----
Total Other Expenses .32%
----
Total Portfolio Operating Expenses .87%
====
------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 89
After 3 Years $ 278
After 5 Years $ 482
After 10 Years $1,073
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 36% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of U.S. companies with relatively large market capitalizations that the Adviser
believes are undervalued. The Portfolio invests in companies that are
determined by the Adviser to be undervalued using the fundamental value
approach of the Adviser. The fundamental value approach seeks to identify a
universe of securities that are considered to be undervalued because they are
attractively priced relative to their future earnings power and dividend-paying
capability.
In selecting securities for the Portfolio's portfolio, the Adviser uses its
fundamental and quantitative research to identify companies whose long-term
earnings power and dividend-paying capability are not reflected in the current
market price of their securities.
The Adviser's fundamental analysis depends heavily upon its internal research
staff. The research staff of company and industry analysts covers a research
universe that includes the majority of the capitalization of the Russell
1000(R) Value Index. The Adviser typically projects a company's financial
performance over a full economic cycle, including a trough and a peak, within
the context of forecasts for real economic growth, inflation and interest rate
changes. The research staff focuses on the valuation implied by the current
price, relative to the earnings the company will be generating five years from
now, or "normalized" earnings, assuming average mid-economic cycle growth for
the fifth year.
35
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio, and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover.
The team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities of non-U.S. issuers.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
36
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
-40.83% 21.12% 11.81% -3.50% 15.73% 36.85% 11.10% -6.95% 11.55% 13.57%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 18.44%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-21.97%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 13.57% 12.38% 4.84%
-----------------------------------------------------------------------------
Russell 1000(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 13.66% 14.04% 7.10%
-----------------------------------------------------------------------------
*Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.13%.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
------------------------------------------------------------------------
Cem Inal Since 2016 Senior Vice President of the Adviser
Joseph G. Paul Since 2009 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
37
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to maximize total return consistent
with the Adviser's determination of reasonable risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .55%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .18%
------
Total Other Expenses .18%
------
Acquired Fund Fees and Expenses(b) .24%
------
Total Portfolio Operating Expenses .97%
======
Fee Waiver and/or Expense Reimbursement(c) (.23)%
------
Total Portfolio Operating Expenses After Fee Waiver and/or Expense
Reimbursement .74%
======
--------------------------------------------------------------------------------
(a)Less than .01%.
(b)Restated to reflect current fees and expenses.
(c)The Adviser has contractually agreed to waive fees and/or reimburse the
expenses payable to the Adviser by the Portfolio in an amount equal to the
Portfolio's share of the advisory fees of any mutual funds advised by the
Adviser in which the Portfolio invests, as included in "Acquired Fund Fees
and Expenses" and paid by the Portfolio. This fee waiver and/or expense
reimbursement will remain in effect until at least May 1, 2019 unless
terminated by the Board of Directors of the AB Variable Products Series
(VPS) Fund, Inc. prior to its expiration date.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any fee waivers remain in effect for
only one year. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 76
After 3 Years $ 286
After 5 Years $ 514
After 10 Years $1,169
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 108% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests in a portfolio of equity and fixed-income securities that
is designed as a solution for investors who seek a moderate tilt toward equity
returns but also want the risk diversification offered by fixed-income
securities and the broad diversification of their equity risk across styles,
capitalization ranges and geographic regions. Under normal circumstances, the
Portfolio will invest at
38
least 25% of its total assets in equity securities and at least 25% of its
total assets in fixed-income securities with a goal of providing moderate
upside potential without excessive volatility. The Portfolio also seeks
exposure to real assets by investing in real estate-related equity securities
(including real estate investment trusts, or REITs), natural resource equity
securities and inflation-sensitive equity securities, which are equity
securities of companies that the Adviser believes maintain or grow margins in
rising inflation environments, including equity securities of utilities and
infrastructure-related companies ("inflation sensitive equities"). The
Portfolio pursues a global strategy, typically investing in securities of
issuers located in the United States and in other countries throughout the
world, including emerging market countries.
The Adviser expects that the Portfolio will normally invest a greater
percentage of its total assets in equity securities than in fixed-income
securities, and will generally invest in equity securities both directly and
through underlying investment companies advised by the Adviser ("Underlying
Portfolios"). A significant portion of the Portfolio's assets are expected to
be invested directly in U.S. large-cap equity securities, primarily common
stocks, in accordance with the Adviser's U.S. Strategic Equities investment
strategy ("U.S. Strategic Equities"). Under U.S. Strategic Equities, portfolio
managers of the Adviser that specialize in various investment disciplines
identify high-conviction large-cap equity securities based on their fundamental
investment research for potential investment by the Portfolio. These securities
are then assessed in terms of both this fundamental research and quantitative
analysis in creating the equity portion of the Portfolio's portfolio. In
applying the quantitative analysis, the Adviser considers a number of metrics
that historically have provided some indication of favorable future returns,
including metrics related to valuation, quality, investor behavior and
corporate behavior.
In addition, the Portfolio seeks to achieve exposure to international large-cap
equity securities through investments in the INTERNATIONAL STRATEGIC EQUITIES
PORTFOLIO of BERNSTEIN FUND, INC. ("Bernstein International Strategic Equities
Portfolio") and the INTERNATIONAL PORTFOLIO of SANFORD C. BERNSTEIN FUND, INC.
("SCB International Portfolio"), each a registered investment company advised
by the Adviser. Bernstein International Strategic Equities Portfolio and SCB
International Portfolio focus on investing in non-U.S. large-cap and mid-cap
equity securities. Bernstein International Strategic Equities Portfolio follows
a strategy similar to U.S. Strategic Equities, but in the international
context. In managing SCB International Portfolio, the Adviser selects stocks by
drawing on the capabilities of its separate investment teams specializing in
different investment disciplines, including value, growth, stability and
others. The Portfolio also invests in other Underlying Portfolios to
efficiently gain exposure to certain other types of equity securities,
including small- and mid-cap and emerging market equity securities. The Adviser
selects an Underlying Portfolio based on the segment of the equity market to
which the Underlying Portfolio provides exposure, its investment philosophy,
and how it complements and diversifies the Portfolio's overall portfolio.
In selecting fixed-income investments, the Adviser may draw on the capabilities
of separate investment teams that specialize in different areas that are
generally defined by the maturity of the debt securities and/or their ratings,
and which may include subspecialties (such as inflation-indexed securities).
These fixed-income teams draw on the resources and expertise of the Adviser's
internal fixed-income research staff, which includes over 50 dedicated
fixed-income research analysts and economists. The Portfolio's fixed-income
securities will primarily be investment-grade debt securities, but are expected
to include lower-rated securities ("junk bonds") and preferred stock.
The Portfolio expects to enter into derivative transactions, such as options,
futures contracts, forwards and swaps. Derivatives may provide a more efficient
and economical exposure to market segments than direct investments, and may
also be a more efficient way to alter the Portfolio's exposure. The Portfolio
may, for example, use credit default, interest rate and total return swaps to
establish exposure to the fixed-income markets or particular fixed-income
securities and, as noted below, may use currency derivatives to hedge foreign
currency exposure.
The Adviser may employ currency hedging strategies in the Portfolio or the
Underlying Portfolios, including the use of currency-related derivatives, to
seek to reduce currency risk in the Portfolio or the Underlying Portfolios, but
it is not required to do so. The Adviser will generally employ currency hedging
strategies more frequently in the fixed-income portion of the Portfolio than in
the equity portion.
PRINCIPAL RISKS:
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. ALLOCATION RISK: The allocation of investments among the different
investment styles, such as growth or value, equity or debt securities, or
U.S. or non-U.S. securities may have a more significant effect on the
Portfolio's net asset value, or NAV, when one of these investment strategies
is performing more poorly than others.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors. These risks may be heightened with
respect to investments in emerging market countries, where there may be an
increased amount of economic, political and social instability.
39
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments in securities denominated in
foreign currencies or reduce the Portfolio's returns.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. BELOW INVESTMENT GRADE SECURITY RISK: Investments in fixed-income securities
with lower ratings ("junk bonds") tend to have a higher probability that an
issuer will default or fail to meet its payment obligations. These
securities may be subject to greater price volatility due to such factors as
specific corporate developments, interest rate sensitivity, negative
perceptions of the junk bond market generally and less secondary market
liquidity.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments,
investments in other investment companies are subject to market and
selection risk. In addition, Contractholders invested in the Portfolio bear
both their proportionate share of expenses in the Portfolio (including
management fees) and, indirectly, the expenses of the investment companies
(to the extent these expenses are not waived or reimbursed by the Adviser).
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. REAL ASSETS RISK: The Portfolio's investments in securities linked to real
assets involve significant risks, including financial, operating, and
competitive risks. Investments in securities linked to real assets expose
the Portfolio to adverse macroeconomic conditions, such as a rise in
interest rates or a downturn in the economy in which the asset is located.
Changes in inflation rates or in the market's inflation expectations may
adversely affect the market value of inflation-sensitive equities. The
Portfolio's investments in real estate securities have many of the same
risks as direct ownership of real estate, including the risk that the value
of real estate could decline due to a variety of factors that affect the
real estate market generally. Investments in REITs may have additional
risks. REITs are dependent on the capability of their managers, may have
limited diversification, and could be significantly affected by changes in
tax laws.
.. ACTIVE TRADING RISK: The Portfolio expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate is
expected to exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Portfolio's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for
Contractholders.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
40
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
EFFECTIVE MAY 1, 2018, THE PORTFOLIO AMENDED ITS PRINCIPAL STRATEGIES BY
ELIMINATING THE STATIC TARGETS FOR ALLOCATION OF INVESTMENTS AMONG ASSET
CLASSES, CHANGING THE SECURITIES SELECTION STRATEGIES USED FOR THE EQUITY
PORTION OF THE PORTFOLIO, AND BROADENING THE TYPES OF REAL ASSET SECURITIES IN
WHICH THE PORTFOLIO WILL INVEST. THE PERFORMANCE SHOWN BELOW FOR PERIODS PRIOR
TO MAY 1, 2018 IS BASED ON THE PORTFOLIO'S PRIOR PRINCIPAL STRATEGIES AND MAY
NOT BE REPRESENTATIVE OF THE PORTFOLIO'S PERFORMANCE UNDER ITS CURRENT
PRINCIPAL STRATEGIES.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ----- ----- ----- ------
-30.01% 24.88% 10.61% -2.81% 13.63% 16.49% 7.37% 1.65% 4.69% 15.84%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 15.07%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-14.72%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
Portfolio 15.84% 9.05% 5.11%
-------------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (net)
(reflects no deduction for fees, expenses, or taxes, except the reinvestment of dividends net of
non-U.S. withholding taxes) 23.97% 10.80% 4.65%
-------------------------------------------------------------------------------------------------------------------------
S&P 500 Index*
(reflects no deduction for fees, expenses, or taxes) 21.83% 15.79% 8.50%
-------------------------------------------------------------------------------------------------------------------------
Bloomberg Barclays Global Aggregate Bond Index (USD Hedged)**
(reflects no deduction for fees, expenses, or taxes) 3.04% 3.06% 4.16%
-------------------------------------------------------------------------------------------------------------------------
* In connection with changes in investment strategy referred to above, the
broad-based index used for comparison with the Portfolio's performance has
changed from the S&P 500 Index to the MSCI AC World Index (net) because the
new index more closely reflects the Portfolio's equity investments.
** The performance table includes the Bloomberg Barclays Global Aggregate Bond
Index (USD Hedged) to show how the Portfolio's performance compares with an
index of fixed-income securities similar to those in which the Portfolio
invests.
41
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
---------------------------------------------------------------------------
Jess Gaspar Since February 2018 Senior Vice President of the Adviser
Daniel J. Loewy Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
42
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to maximize total return consistent
with the Adviser's determination of reasonable risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .70%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .08%
------
Total Other Expenses .08%
------
Acquired Fund Fees and Expenses .04%
------
Total Portfolio Operating Expenses Before Fee Waiver and/or Expense
Reimbursement .82%
======
Fee Waiver and Expense Reimbursement(b) (.01)%
------
Total Portfolio Operating Expenses After Fee Waiver and/or Expense
Reimbursement .81%
======
--------------------------------------------------------------------------------
(a)Less than .01%.
(b)In connection with the Portfolio's investments in AB Government Money Market
Portfolio (the "Money Market Portfolio"), the Adviser has contractually
agreed to waive its management fee from the Portfolio and/or reimburse other
expenses of the Portfolio in an amount equal to the Portfolio's pro rata
share of the Money Market Portfolio's effective management fee, as included
in "Acquired Fund Fees and Expenses".
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any fee waiver is in effect for only
the first year. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
--------------------------------------------------------------------------------
After 1 Year $ 83
After 3 Years $ 261
After 5 Years $ 454
After 10 Years $1,013
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 20% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests in a globally diversified portfolio of equity and debt
securities, including exchange-traded funds, or ETFs, and other financial
instruments, and expects to enter into derivatives transactions, such as
options, futures contracts, forwards, and swaps to achieve market exposure. The
Portfolio's neutral weighting, from which it will make its tactical asset
allocations, is 60% equity exposure and 40% debt exposure. Within these broad
components, the Portfolio may invest in any type of security, including common
and preferred stocks, warrants and convertible securities, government and
corporate fixed-income securities, commodities, currencies,
43
real estate-related securities and inflation-indexed securities. The Portfolio
may invest in U.S., non-U.S. and emerging market issuers. The Portfolio may
invest in securities of companies across the capitalization spectrum, including
smaller capitalization companies. The Portfolio expects its investments in
fixed-income securities to have a broad range of maturities and quality levels.
The Portfolio is expected to be highly diversified across industries, sectors
and countries, and will choose its positions from several market indices
worldwide in a manner that is intended to track the performance (before fees
and expenses) of those indices.
The Adviser will continuously monitor the risks presented by the Portfolio's
asset allocation and may make frequent adjustments to the Portfolio's exposures
to different asset classes. Using its proprietary Dynamic Asset Allocation
techniques, the Adviser will adjust the Portfolio's exposure to the equity and
debt markets, and to segments within those markets, in response to the
Adviser's assessment of the relative risks and returns of those segments. For
example, when the Adviser determines that equity market volatility is
particularly low and that, therefore, the equity markets present reasonable
return opportunities, the Adviser may increase the Portfolio's equity exposure
to as much as 80%. Conversely, when the Adviser determines that the risks in
the equity markets are disproportionately greater than the potential returns
offered, the Adviser may reduce the Portfolio's equity exposure significantly
below the target percentage or may even decide to eliminate equity exposure
altogether by increasing the Portfolio's fixed-income exposure to 100%. This
investment strategy is intended to reduce the Portfolio's overall investment
risk, but may at times result in the Portfolio underperforming the markets.
The Portfolio expects to utilize derivatives and to invest in ETFs to a
significant extent. Derivatives and ETFs may provide more efficient and
economical exposure to market segments than direct investments, and the
Portfolio's market exposures may at times be achieved almost entirely through
the use of derivatives or through the investments in ETFs. Derivatives
transactions and ETFs may also be a quicker and more efficient way to alter the
Portfolio's exposure than buying and selling direct investments. As a result,
the Adviser expects to use derivatives as one of the primary tools for
adjusting the Portfolio's exposure levels from its neutral weighting. The
Adviser also expects to use direct investments and ETFs to adjust the
Portfolio's exposure levels. In determining when and to what extent to enter
into derivatives transactions or to invest in ETFs, the Adviser will consider
factors such as the relative risks and returns expected of potential
investments and the cost of such transactions. The Adviser will consider the
impact of derivatives and ETFs in making its assessment of the Portfolio's
risks.
Currency exchange rate fluctuations can have a dramatic impact on returns,
significantly adding to returns in some years and greatly diminishing them in
others. To the extent that the Portfolio invests in non-U.S. Dollar-denominated
investments, the Adviser will integrate the risks of foreign currency exposures
into its investment and asset allocation decision making. The Adviser may seek
to hedge all or a portion of the currency exposure resulting from the
Portfolio's investments. The Adviser may also seek investment opportunities
through currencies and currency-related derivatives.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations.
.. ALLOCATION RISK: The allocation of investments among different global asset
classes may have a significant effect on the Portfolio's net asset value, or
NAV, when one of these asset classes is performing more poorly than others.
As both the direct investments and derivatives positions will be
periodically adjusted to reflect the Adviser's view of market and economic
conditions, there will be transaction costs that may be, over time,
significant. In addition, there is a risk that certain asset allocation
decisions may not achieve the desired results and, as a result, the
Portfolio may incur significant losses.
.. FOREIGN (NON-U.S.) RISK: The Portfolio's investments in securities of
non-U.S. issuers may involve more risk than those of U.S. issuers. These
securities may fluctuate more widely in price and may be less liquid due to
adverse market, economic, political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
44
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. ETF RISK: ETFs are investment companies. When the Portfolio invests in an
ETF, the Portfolio bears its share of the ETF's expenses and runs the risk
that the ETF may not achieve its investment objective.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, its NAV may be more volatile because leverage tends to exaggerate
the effect of changes in interest rates and any increase or decrease in the
value of the Portfolio's investments. The Portfolio may create leverage
through the use of reverse repurchase agreements, forward commitments, or by
borrowing money.
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes, large positions and heavy redemptions of Portfolio shares.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. REAL ESTATE RISK: The Portfolio's investments in real estate securities have
many of the same risks as direct ownership of real estate, including the
risk that the value of real estate could decline due to a variety of factors
that affect the real estate market generally. Investments in real estate
investment trusts, or REITs, may have additional risks. REITs are dependent
on the capability of their managers, may have limited diversification, and
could be significantly affected by changes in taxes.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over the life of
the Portfolio; and
.. how the Portfolio's average annual returns for one year, five years and
since inception compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
---- ---- ---- ---- ----- ------ ----- ------ ----- ------
n/a n/a n/a n/a 8.22% 12.31% 4.45% -1.09% 3.59% 14.67%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 5.74%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-4.96%, 3RD QUARTER, 2015.
45
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
SINCE
1 YEAR 5 YEARS INCEPTION*
--------------------------------------------------------------------------------------------
Portfolio 14.67% 6.63% 5.70%
--------------------------------------------------------------------------------------------
MSCI World Index
(reflects no deduction for fees, expenses, or taxes) 22.40% 11.64% 9.10%
--------------------------------------------------------------------------------------------
Bloomberg Barclays U.S. Treasury Index**
(reflects no deduction for fees, expenses, or taxes) 2.31% 1.27% 2.67%
--------------------------------------------------------------------------------------------
60% MSCI World Index/40% Bloomberg Barclays U.S. Treasury Index**
(reflects no deduction for fees, expenses, or taxes) 13.98% 7.53% 6.71%
--------------------------------------------------------------------------------------------
* Since inception return is from April 1, 2011.
** The performance table includes an index of fixed-income securities and
information about the 60% MSCI World Index/40% Bloomberg Barclays U.S.
Treasury Index to show how the Portfolio's performance compares with indices
of securities similar to those in which the Portfolio invests.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Brian T. Brugman Since 2016 Senior Vice President of the Adviser
Daniel J. Loewy Since 2011 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
46
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to seek long term growth of capital
while seeking to limit volatility.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
---------------------------------------------------------------------------------
Management Fees .60%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .34%
------
Total Other Expenses .34%
------
Acquired Fund Fees and Expenses .12%
------
Total Portfolio Operating Expenses Before Fee Waiver and/or Expense
Reimbursement 1.06%
======
Fee Waiver and Expense Reimbursement(b) (.31)%
------
Total Portfolio Operating Expenses After Fee Waiver and/or Expense
Reimbursement .75%
======
---------------------------------------------------------------------------------
(a)Less than .01%.
(b)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Portfolio (including the Portfolio's proportionate
share of the fees and expenses of registered investment companies or series
thereof in which the Portfolio invests) through May 1, 2019, unless such
arrangement is terminated by the Board of Directors of the AB Variable
Products Series (VPS) Fund, Inc. prior to the expiration date, to the extent
necessary to prevent total Portfolio operating expenses (excluding interest
expense, taxes, extraordinary expenses, expenses associated with securities
sold short, and brokerage commissions and other transaction costs), on an
annualized basis, from exceeding .75% of average daily net assets ("expense
limitation"). Any fees waived and expenses borne by the Adviser through
April 27, 2018 may be reimbursed by the Portfolio until the end of the third
fiscal year after the fiscal period in which the fee was waived or the
expense was borne, provided that no reimbursement payment will be made that
would cause the Portfolio's Total Annual Fund Operating Expenses to exceed
the expense limitation.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any expense limitation remains in
effect for only the first year. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 77
After 3 Years $ 306
After 5 Years $ 555
After 10 Years $1,266
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 59% of the average value of its
portfolio.
47
PRINCIPAL STRATEGIES
In making decisions on the allocation of assets among "growth assets" and
"safety assets", the Adviser will use a risk-weighted allocation methodology
based on the expected "tail risk" of each asset class. For purposes of the
Portfolio, growth assets include global equities and, at times, high yield
fixed-income securities (commonly known as "junk bonds"), and safety assets
include government securities of developed countries. This strategy attempts to
provide investors with favorable long-term total return while minimizing
exposure to material or "tail" losses. To execute this strategy, the percentage
loss that will constitute a tail loss is calculated for each asset class based
on historical market behavior and on a forward-looking basis through options
prices. Portfolio assets are then allocated among asset classes so that growth
assets contribute the majority of the expected risk of tail loss ("tail risk")
of the Portfolio, and safety assets contribute a lesser amount of tail risk.
The Adviser will make frequent adjustments to the Portfolio's asset class
exposures based on these tail risk determinations. To help limit tail risk, the
Portfolio will utilize a risk management strategy involving the purchase of put
options and sale of call options on equity indices, equity index futures or
exchange-traded funds, or ETFs. The Adviser will on a best efforts basis seek
to limit the volatility of the Portfolio to no more than 10% on an annualized
basis. Actual results may vary.
The Adviser will also assess tail risk on a security, sector and country basis,
and make adjustments to the Portfolio's allocations within each asset class
when practicable. The Portfolio may invest in fixed-income securities with a
range of maturities from short- to long-term. The Adviser expects that the
Portfolio's investments in high yield fixed-income securities will not exceed
10% of the Portfolio's net assets. The Portfolio's investments in each asset
class will generally be global in nature.
The Adviser expects to utilize a variety of derivatives in its management of
the Portfolio, including futures contracts, options, swaps and forwards.
Derivatives often provide more efficient and economical exposure to market
segments than direct investments, and the Portfolio may utilize derivatives and
ETFs to gain exposure to equity and fixed-income asset classes. Because
derivatives transactions frequently require cash outlays that are only a small
portion of the amount of exposure obtained through the derivative, a portion of
the Portfolio's assets may be held in cash or invested in cash equivalents to
cover the Portfolio's derivatives obligations, such as short-term U.S.
Government and agency securities, repurchase agreements and money market funds.
At times, a combination of direct securities investments and derivatives will
be used to gain asset class exposure so that the Portfolio's aggregate exposure
will substantially exceed its net assets (i.e., so that the Portfolio is
effectively leveraged).
Currency exchange rate fluctuations can have a dramatic impact on returns. The
Adviser may seek to hedge all or a portion of the currency exposure resulting
from Portfolio investments through currency-related derivatives, or decide not
to hedge this exposure.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's investments will fluctuate as the
stock or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. ALLOCATION RISK: The allocation of investments among asset classes may have
a significant effect on the Portfolio's net asset value, or NAV, when the
asset classes in which the Portfolio has invested more heavily perform worse
than the asset classes invested in less heavily.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. HIGH YIELD SECURITIES RISK: Investments in fixed-income securities with
ratings below investment grade (commonly known as "junk bonds") tend to have
a higher probability that an issuer will default or fail to meet its payment
obligations. These securities may be subject to greater price volatility due
to such factors as specific corporate developments, interest rate
sensitivity, negative perceptions of the junk bond market generally and less
secondary market liquidity.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
48
.. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments,
investments in other investment companies, including ETFs, are subject to
market and selection risk. In addition, Contractholders of the Portfolio
bear both their proportionate share of expenses in the Portfolio (including
management fees) and, indirectly, the expenses of the investment companies.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments. Transactions intended to hedge fluctuations in
the values of the portfolios positions will typically limit the opportunity
for gain.
.. LEVERAGE RISK: Because the Portfolio uses leveraging techniques, its NAV may
be more volatile because leverage tends to exaggerate the effect of changes
in interest rates and any increase or decrease in the value of the
Portfolio's investments.
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes and large positions. Foreign fixed-income securities may
have more liquidity risk because secondary trading markets for these
securities may be smaller and less well-developed and the securities may
trade less frequently. Liquidity risk may be higher in a rising interest
rate environment, when the value and liquidity of fixed-income securities
generally decline.
.. NON-DIVERSIFICATION RISK: The Portfolio may have more risk because it is
"non-diversified", meaning that it can invest more of its assets in a
smaller number of issuers. Accordingly, changes in the value of a single
security may have a more significant effect, either negative or positive, on
the Portfolio's NAV.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over the life of
the Portfolio; and
.. how the Portfolio's average annual returns for one year and since inception
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
---- ---- ---- ---- ---- ---- ---- ---- ----- ------
n/a n/a n/a n/a n/a n/a n/a n/a 4.39% 11.87%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.48%, 1ST QUARTER, 2017; AND WORST QUARTER WAS DOWN
-1.06%, 1ST QUARTER, 2016.
49
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
SINCE
1 YEAR INCEPTION*
--------------------------------------------------------------------------------
Portfolio 11.87% 3.55%
--------------------------------------------------------------------------------
MSCI World Index (net) (U.S. Dollar hedged)
(reflects no deduction for fees, expenses, or taxes) 19.13% 8.21%
--------------------------------------------------------------------------------
60% MSCI World Index (U.S. Dollar hedged)/40% Bloomberg
Barclays Global G7 Treasury Index (U.S. Dollar hedged)**
(reflects no deduction for fees, expenses, or taxes) 12.05% 5.88%
--------------------------------------------------------------------------------
* Since inception return is from April 28, 2015.
** The performance table includes an additional index that shows how the
Portfolio's performance compares with a composite index comprised of a broad
equity index and an investment grade government bond index.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Daniel J. Loewy Since 2016 Senior Vice President of the Adviser
Leon Zhu Since 2015 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 51 in this Prospectus.
50
ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND
FINANCIAL INTERMEDIARIES
. PURCHASE AND SALE OF PORTFOLIO SHARES
The Portfolios offer their shares through the separate accounts of
participating life insurance companies ("Insurers"). You may only purchase and
sell shares through these separate accounts. See the prospectus of the separate
account of the Insurer for information on the purchase and sale of the
Portfolios' shares.
. TAX INFORMATION
Each Portfolio may pay income dividends or make capital gains distributions.
The income and capital gains distributions are expected to be made in shares of
each Portfolio. See the prospectus of the separate account of the Insurer for
federal income tax information.
. PAYMENTS TO INSURERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of a Portfolio through an Insurer or other financial
intermediary, the Portfolio and its related companies may pay the intermediary
for the sale of Portfolio shares and related services. These payments may
create a conflict of interest by influencing the Insurer or other financial
intermediary and your salesperson to recommend the Portfolio over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
51
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS' RISKS AND INVESTMENTS
--------------------------------------------------------------------------------
This section of the Prospectus provides additional information about the
Portfolios' investment practices and risks, including principal and
non-principal strategies and risks. Most of these investment practices are
discretionary, which means that the Adviser may or may not decide to use them.
This Prospectus does not describe all of a Portfolio's investment practices and
additional descriptions of each Portfolio's strategies, investments, and risks
can be found in the Portfolios' Statement of Additional Information ("SAI").
DERIVATIVES
Each Portfolio may, but is not required to, use derivatives for hedging or
other risk management purposes or as part of its investment strategies.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. A Portfolio may use
derivatives to earn income and enhance returns, to hedge or adjust the risk
profile of its investments, to replace more traditional direct investments and
to obtain exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures contracts,
forwards and swaps--each of which is described below. Derivatives include
listed and cleared transactions, where a Portfolio's derivative trade
counterparty is an exchange or clearinghouse and non-cleared bilateral
"over-the-counter" transactions, where the Portfolio's derivative trade
counterparty is a financial institution. Exchange-traded or cleared derivatives
transactions tend to be more liquid and subject to less counterparty credit
risk than those that are privately negotiated.
A Portfolio's use of derivatives may involve risks that are different from, or
possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include: the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible
to close out a position when desired; and the risk that the counterparty will
not perform its obligations. Certain derivatives may have a leverage component
and involve leverage risk. Adverse changes in the value or level of the
underlying asset, note or index can result in a loss substantially greater than
the Portfolio's investment (in some cases, the potential loss is unlimited).
The Portfolios' investments in derivatives may include, but are not limited to,
the following:
.. FORWARD CONTRACTS. A forward contract is an agreement that obligates one
party to buy, and the other party to sell, a specific quantity of an
underlying commodity or other tangible asset for an agreed-upon price at a
future date. A forward contract generally is settled by physical delivery of
the commodity or tangible asset to an agreed-upon location (rather than
settled by cash) or is rolled forward into a new forward contract. The
Portfolios' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. A Portfolio may purchase or sell
forward currency exchange contracts for hedging purposes to minimize the
risk from adverse changes in the relationship between the U.S. Dollar and
other currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". A Portfolio, for
example, may enter into a forward contract as a transaction hedge (to "lock
in" the U.S. Dollar price of a non-U.S. Dollar security), as a position
hedge (to protect the value of securities the Portfolio owns that are
denominated in a foreign currency against substantial changes in the value
of the foreign currency) or as a cross-hedge (to protect the value of
securities the Portfolio owns that are denominated in a foreign currency
against substantial changes in the value of that foreign currency by
entering into a forward contract for a different foreign currency that is
expected to change in the same direction as the currency in which the
securities are denominated).
.. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A futures contract is a
standardized, exchange-traded agreement that obligates the buyer to buy and
the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or
index) at a specific price on the contract maturity date. Options on futures
contracts are options that call for the delivery of futures contracts upon
exercise. A Portfolio may purchase or sell futures contracts and options
thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies. A Portfolio may also purchase or
sell futures contracts for foreign currencies or options thereon for
non-hedging purposes as a means of making direct investments in foreign
currencies, as described below under "Other Derivatives and
Strategies--Currency Transactions".
.. OPTIONS. An option is an agreement that, for a premium payment or fee, gives
the option holder (the buyer) the right but not the obligation to buy (a
"call option") or sell (a "put option") the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Investments in options are considered speculative. A Portfolio may lose the
premium paid for them if the price of the underlying security or other asset
decreased or remained the same (in the case of a call option) or increased
or remained the same (in the case of a put option). If a put or call option
purchased by a Portfolio were permitted to expire without being sold or
exercised, its premium
52
would represent a loss to the Portfolio. The Portfolios' investments in
options include the following:
- Options on Foreign Currencies. A Portfolio may invest in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign
exchanges for hedging purposes to protect against declines in the
U.S. Dollar value of foreign currency denominated securities held by the
Portfolio and against increases in the U.S. Dollar cost of securities to be
acquired. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates, although if rates
move adversely, a Portfolio may forfeit the entire amount of the premium
plus related transaction costs. A Portfolio may also invest in options on
foreign currencies for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions".
- Options on Securities. A Portfolio may purchase or write a put or call
option on securities. A Portfolio may write covered options, which means
writing an option for securities the Portfolio owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than taking or making delivery
of a security at a specified price, an option on a securities index gives
the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
- Other Option Strategies. In an effort to earn extra income, to adjust
exposure to individual securities or markets, or to protect all or a portion
of its portfolio from a decline in value, sometimes within certain ranges, a
Portfolio that invests in equity securities may use option strategies such
as the concurrent purchase of a call or put option, including on individual
securities and stock indices, futures contracts (including on individual
securities and stock indices) or shares of exchange-traded funds, or ETFs,
at one strike price and the writing of a call or put option on the same
individual security, stock index, futures contract or ETF at a higher strike
price in the case of a call option or at a lower strike price in the case of
a put option. The maximum profit from this strategy would result for the
call options from an increase in the value of the individual security, stock
index, futures contract or ETF above the higher strike price or for the put
options the decline in the value of the individual security, stock index,
futures contract or ETF below the lower strike price. If the price of the
individual security, stock index, futures contract or ETF declines, in the
case of the call option, or increases, in the case of the put option, the
Portfolio has the risk of losing the entire amount paid for the call or put
options.
.. SWAP TRANSACTIONS. A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals (payment dates) based
upon, or calculated by, reference to changes in specified prices or rates
(e.g., interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). Generally, the notional principal
amount is used solely to calculate the payment stream, but is not exchanged.
Most swaps are entered into on a net basis (i.e., the two payment streams
are netted out, with the Portfolio receiving or paying, as the case may be,
only the net amount of the two payments). Certain standardized swaps,
including certain interest rate swaps and credit default swaps, are (or soon
will be) subject to mandatory central clearing. Cleared swaps are transacted
through futures commission merchants ("FCMs") that are members of central
clearinghouses with the clearinghouse serving as central counterparty,
similar to transactions in futures contracts. Portfolios post initial and
variation margin to support their obligations under cleared swaps by making
payments to their clearing member FCMs. Central clearing is expected to
reduce counterparty credit risks and increase liquidity, but central
clearing does not make swap transactions risk free. Centralized clearing
will be required for additional categories of swaps on a phased-in basis
based on Commodity Futures Trading Commission approval of contracts for
central clearing. The Securities and Exchange Commission ("Commission") may
adopt similar clearing requirements in respect of security-based swaps.
Bilateral swap agreements are two-party contracts entered into primarily by
institutional investors and are not cleared through a third party. The
Portfolios' investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve
the exchange by a Portfolio with another party of their respective
commitments to pay or receive interest (e.g., an exchange of floating-rate
payments for fixed-rate payments). Unless there is a counterparty default,
the risk of loss to a Portfolio from interest rate swap transactions is
limited to the net amount of interest payments that the Portfolio is
contractually obligated to make. If the counterparty to an interest rate
transaction defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio contractually is entitled to
receive.
An option on a swap agreement, also called a "swaption", is an option that
gives the buyer the right, but not the obligation, to enter into a swap on a
future date in exchange for paying a market-based "premium". A receiver
swaption gives the owner the right to receive the total return of a
specified asset, reference rate, or index. A payer swaption gives the owner
the right to pay the total return of a specified asset, reference rate, or
index. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties.
53
The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
party selling the interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on an agreed
principal amount from the party selling the interest rate floor. Caps and
floors may be less liquid than swaps.
Interest rate swap, swaption, cap and floor transactions may, for example,
be used to preserve a return or spread on a particular investment or a
portion of a Portfolio's portfolio or to protect against an increase in the
price of securities a Portfolio anticipates purchasing at a later date. A
Portfolio may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one
party agrees to pay the cumulative percentage increase in a price index (the
Consumer Price Index with respect to CPI swaps) over the term of the swap
(with some lag on the inflation index), and the other pays a compounded
fixed rate. Inflation swap agreements may be used to protect the net asset
value, or NAV, of a Portfolio against an unexpected change in the rate of
inflation measured by an inflation index since the value of these agreements
is expected to increase if unexpected inflation increases.
- Credit Default Swaps. The "buyer" in a credit default swap contract is
obligated to pay the "seller" a periodic stream of payments over the term of
the contract in return for a contingent payment upon the occurrence of a
credit event with respect to an underlying reference obligation. Generally,
a credit event means bankruptcy, failure to pay, obligation acceleration or
restructuring. A Portfolio may be either the buyer or seller in the
transaction. If a Portfolio is a seller, the Portfolio receives a fixed rate
of income throughout the term of the contract, which typically is between
one month and ten years, provided that no credit event occurs. If a credit
event occurs, a Portfolio typically must pay the contingent payment to the
buyer, which will be either (i) the "par value" (face amount) of the
reference obligation, in which case the Portfolio will receive the reference
obligation in return or (ii) an amount equal to the difference between the
par value and the current market value of the reference obligation. The
current market value of the reference obligation is typically determined via
an auction process sponsored by the International Swaps and Derivatives
Association, Inc. The periodic payments previously received by the
Portfolio, coupled with the value of any reference obligation received, may
be less than the amount it pays to the buyer, resulting in a loss to the
Portfolio. If a Portfolio is a buyer and no credit event occurs, the
Portfolio will lose its periodic stream of payments over the term of the
contract. However, if a credit event occurs, the buyer typically receives
full notional value for a reference obligation that may have little or no
value. Credit default swaps may involve greater risks than if a Portfolio
had invested in the reference obligation directly. Credit default swaps are
subject to general market risk, liquidity risk and credit risk.
- Currency Swaps. A Portfolio may invest in currency swaps for hedging
purposes to protect against adverse changes in exchange rates between the
U.S. Dollar and other currencies or for non-hedging purposes as a means of
making direct investments in foreign currencies, as described below under
"Other Derivatives and Strategies--Currency Transactions". Currency swaps
involve the exchange by a Portfolio with another party of a series of
payments in specified currencies. Currency swaps may be bilateral and
privately negotiated with the Portfolio expecting to achieve an acceptable
degree of correlation between its portfolio investments and its currency
swaps position. Currency swaps may involve the exchange of actual principal
amounts of currencies by the counterparties at the initiation, and again
upon the termination, of the transaction.
.. OTHER DERIVATIVES AND STRATEGIES
- Currency Transactions. A Portfolio may invest in non-U.S. Dollar-denominated
securities on a currency hedged or unhedged basis. The Adviser may actively
manage the Portfolio's currency exposures and may seek investment
opportunities by taking long or short positions in currencies through the
use of currency-related derivatives, including forward currency exchange
contracts, futures contracts and options on futures contracts, swaps and
options. The Adviser may enter into transactions for investment
opportunities when it anticipates that a foreign currency will appreciate or
depreciate in value but securities denominated in that currency are not held
by a Portfolio and do not present attractive investment opportunities. Such
transactions may also be used when the Adviser believes that it may be more
efficient than a direct investment in a foreign currency-denominated
security. A Portfolio may also conduct currency exchange contracts on a spot
basis (i.e., for cash at the spot rate prevailing in the currency exchange
market for buying or selling currencies).
- Synthetic Foreign Equity Securities. The Portfolios may invest in different
types of derivatives generally referred to as synthetic foreign equity
securities. These securities may include international warrants or local
access products. International warrants are financial instruments issued by
banks or other financial institutions, which may or may not be traded on a
foreign exchange. International warrants are a form of derivative security
that may give holders the right to buy or sell an underlying security or a
basket of securities representing an index from or to the issuer of the
warrant for a particular price or may entitle holders to receive a cash
payment relating to the value of the underlying security or index, in each
case upon exercise by a Portfolio.
54
Local access products are similar to options in that they are exercisable by
the holder for an underlying security or a cash payment based upon the value
of that security, but are generally exercisable over a longer term than
typical options. These types of instruments may be American style, which
means that they can be exercised at any time on or before the expiration
date of the international warrant, or European style, which means that they
may be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which a Portfolio may
invest include covered warrants and low exercise price warrants. Covered
warrants entitle the holder to purchase from the issuer, typically a
financial institution, upon exercise, common stock of an international
company or receive a cash payment (generally in U.S. Dollars). The issuer of
the covered warrants usually owns the underlying security or has a
mechanism, such as owning equity warrants on the underlying securities,
through which it can obtain the underlying securities. The cash payment is
calculated according to a predetermined formula, which is generally based on
the difference between the value of the underlying security on the date of
exercise and the strike price. Low exercise price warrants are warrants with
an exercise price that is very low relative to the market price of the
underlying instrument at the time of issue (e.g., one cent or less). The
buyer of a low exercise price warrant effectively pays the full value of the
underlying common stock at the outset. In the case of any exercise of
warrants, there may be a time delay between the time a holder of warrants
gives instructions to exercise and the time the price of the common stock
relating to exercise or the settlement date is determined, during which time
the price of the underlying security could change significantly. In
addition, the exercise or settlement date of the warrants may be affected by
certain market disruption events, such as difficulties relating to the
exchange of a local currency into U.S. Dollars, the imposition of capital
controls by a local jurisdiction or changes in the laws relating to foreign
investments. These events could lead to a change in the exercise date or
settlement currency of the warrants, or postponement of the settlement date.
In some cases, if the market disruption events continue for a certain period
of time, the warrants may become worthless, resulting in a total loss of the
purchase price of the warrants.
A Portfolio will acquire synthetic foreign equity securities issued by
entities deemed to be creditworthy by the Adviser, which will monitor the
creditworthiness of the issuers on an ongoing basis. Investments in these
instruments involve the risk that the issuer of the instrument may default
on its obligation to deliver the underlying security or cash in lieu
thereof. These instruments may also be subject to liquidity risk because
there may be a limited secondary market for trading the warrants. They are
also subject, like other investments in foreign securities, to foreign
(non-U.S.) risk and currency risk.
- Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options that are linked to the
London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings.
CONVERTIBLE SECURITIES
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market prices of the underlying common stock. Convertible debt securities that
are rated Baa3 or lower by Moody's Investors Service, Inc. or BBB- or lower by
S&P Global Ratings or Fitch Ratings and comparable unrated securities may share
some or all of the risks of debt securities with those ratings.
DEPOSITARY RECEIPTS AND SECURITIES OF SUPRANATIONAL ENTITIES
A Portfolio may invest in depositary receipts. American Depositary Receipts, or
ADRs, are depositary receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a foreign
corporation. Global Depositary Receipts, or GDRs, European Depositary Receipts,
or EDRs, and other types of depositary receipts are typically issued by
non-U.S. banks or trust companies and evidence ownership of underlying
securities issued by either a U.S. or a non-U.S. company. Depositary receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the issuers of the
stock underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in securities markets
outside of the United States. For purposes of determining the country of
issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include the World Bank
(International Bank for Reconstruction and Development) and the European
Investment Bank. "Semi-governmental securities" are securities issued by
entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.
55
FORWARD COMMITMENTS
Forward commitments for the purchase or sale of securities may include
purchases on a when-issued basis or purchases or sales on a delayed delivery
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (i.e., a "when, as and if issued"
trade).
A Portfolio may invest in TBA-mortgage-backed securities. A TBA or "To Be
Announced" trade represents a contract for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date;
however, the specific mortgage pool numbers or the number of pools that will be
delivered to fulfill the trade obligation or terms of the contract are unknown
at the time of the trade. Mortgage pools (including fixed-rate or variable-rate
mortgages) guaranteed by the Government National Mortgage Association, or GNMA,
the Federal National Mortgage Association, or FNMA, or the Federal Home Loan
Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA
transactions.
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Securities purchased or sold under a forward
commitment are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. There is a risk of loss
if the value of either a purchased security declines before the settlement date
or the security sold increases before the settlement date. The use of forward
commitments helps a Portfolio to protect against anticipated changes in
interest rates and prices.
ILLIQUID SECURITIES
Each Portfolio limits its investments in illiquid securities to 15% of its net
assets. Until the Portfolios' compliance date of December 1, 2018 for new
Rule 22e-4 under the Investment Company Act of 1940 (the "1940 Act"), the term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount a Portfolio has valued the securities. After such date, the term shall
mean any security or investment that a Portfolio reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment.
A Portfolio that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale.
Restricted securities (securities subject to legal or contractual restrictions
on resale) may be illiquid. Some restricted securities (such as securities
issued pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities") or certain commercial paper) may be treated as liquid, although
they may be less liquid than registered securities traded on established
secondary markets.
INDEXED COMMERCIAL PAPER
Indexed commercial paper may have its principal linked to changes in foreign
currency exchange rates whereby its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the referenced
exchange rate. A Portfolio will receive interest and principal payments on such
commercial paper in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity will change in
proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables a Portfolio to hedge (or cross-hedge) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. A
Portfolio will purchase such commercial paper for hedging purposes only, not
for speculation.
INFLATION-INDEXED SECURITIES
Inflation-indexed securities are fixed-income securities whose principal value
is periodically adjusted according to the rate of inflation. If the index
measuring inflation falls, the principal value of these securities will be
adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced.
The value of inflation-indexed securities tends to react to changes in real
interest rates. In general, the price of these securities can fall when real
interest rates rise, and can rise when real interest rates fall. In addition,
the value of these securities can fluctuate based on fluctuations in
expectations of inflation. Interest payments on these securities can be
unpredictable and will vary as the principal and/or interest is adjusted for
inflation.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES
A Portfolio may invest in shares of ETFs, subject to the restrictions and
limitations of the 1940 Act, or any applicable rules, exemptive orders or
regulatory guidance thereunder. ETFs are pooled investment vehicles, which may
be managed or unmanaged, that generally seek to track the performance of a
specific index. ETFs will not track their underlying indices precisely since
the ETFs have expenses and may need to hold a portion of their assets in cash,
unlike the underlying indices, and the ETFs may not invest in all of the
securities in the underlying indices in the same proportion as the indices for
varying reasons. A Portfolio will incur transaction costs when buying and
selling ETF shares, and indirectly bear the expenses of the ETFs. In addition,
the market value of an ETF's shares, which is based on supply and demand in the
market for the ETF's shares, may differ from its NAV. Accordingly, there may be
times when an ETF's shares trade at a discount to its NAV.
The Portfolios may also invest in investment companies other than ETFs, as
permitted by the 1940 Act, and the rules and
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regulations or exemptive orders thereunder. As with ETF investments, if a
Portfolio acquires shares in other investment companies, Contractholders would
bear, indirectly, the expenses of such investment companies (which may include
management and advisory fees), which to the extent not waived or reimbursed,
would be in addition to the Portfolio's expenses. The Portfolios intend to
invest uninvested cash balances in an affiliated money market fund as permitted
by Rule 12d1-1 under the 1940 Act. A Portfolio's investment in other investment
companies, including ETFs, subjects the Portfolio indirectly to the underlying
risks of those investment companies.
The AB VPS BALANCED WEALTH STRATEGY PORTFOLIO expects to invest in other AB
Mutual Funds (each an "Underlying Portfolio"). A brief description of each of
these Underlying Portfolios follows. Additional details are available in each
Underlying Portfolio's prospectus or SAI. You may request a free copy of each
Underlying Portfolio's prospectus and/or SAI by contacting the Adviser:
By Mail: c/o AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
INTERNATIONAL PORTFOLIO, a series of Sanford C. Bernstein Fund, Inc., has an
investment objective of long-term capital growth. This Underlying Portfolio
invests primarily in equity securities of issuers in countries that make up the
Morgan Stanley Capital International ("MSCI") EAFE Index (Europe, Australasia
and the Far East) and Canada. The Adviser may diversify the Underlying
Portfolio across multiple investment disciplines as well as capitalization
ranges, although the Adviser expects to invest primarily in large- and
mid-sized capitalization companies. The Adviser relies on both fundamental and
quantitative research to manage both risk and return for the Underlying
Portfolio. The Underlying Portfolio may own stocks from the Adviser's bottom-up
fundamental research in value, growth, stability and other disciplines. Within
each investment discipline, the Adviser draws on the capabilities of separate
investment teams. The research analyses that support buy and sell decisions for
the Underlying Portfolio are fundamental and bottom-up, based largely on
specific company and industry findings and taking into account broad economic
forecasts.
The Underlying Portfolio may enter into foreign currency transactions for
hedging and non-hedging purposes on a spot (i.e., cash) basis or through the
use of derivatives transactions.
INTERNATIONAL STRATEGIC EQUITIES PORTFOLIO, a series of Bernstein Fund, Inc.,
has an investment objective of seeking long-term growth of capital. The Adviser
invests the assets of this Underlying Portfolio primarily in equity securities
of issuers in countries that make up the MSCI All Country World Index ("ACWI")
ex-US Index, which includes both developed and emerging market countries. The
Underlying Portfolio focuses on securities of large-cap and mid-cap companies.
The Adviser utilizes both fundamental and quantitative research to both
determine which securities will be held by the Underlying Portfolio and to
manage risk. Specifically, the Underlying Portfolio's management team uses the
universe of securities selected by the Adviser's various fundamental investment
teams focusing on international equity securities, and applies its quantitative
analysis to these securities. In applying its quantitative analysis, the
Adviser considers a number of metrics that have historically provided some
indication of favorable future returns, including metrics relating to
valuation, quality, investor behavior and corporate behavior. The Adviser may
employ currency hedging strategies, including the use of currency-related
derivatives, to seek to reduce currency risk in the Underlying Portfolio, but
it is not required to do so.
AB DISCOVERY GROWTH FUND has an investment objective of long-term growth of
capital. This Underlying Portfolio invests primarily in a diversified portfolio
of equity securities of small- and mid-capitalization companies. The Underlying
Portfolio may invest in any company and industry and in any type of equity
security with potential for capital appreciation. The Underlying Portfolio's
investment policies emphasize investments in companies that are demonstrating
improving financial results and a favorable earnings outlook. When selecting
securities, the Adviser typically looks for companies that have strong,
experienced management teams, strong market positions, and the potential to
support greater than expected earnings growth rates. In making specific
investment decisions for the Underlying Portfolio, the Adviser combines
fundamental and quantitative analysis in its stock selection process.
AB DISCOVERY VALUE FUND, a series of AB Trust, has an investment objective of
long-term growth of capital. This Underlying Portfolio invests primarily in a
diversified portfolio of equity securities of small- to mid-capitalization U.S.
companies. The Underlying Portfolio invests in companies that are determined by
the Adviser to be undervalued, using the Adviser's fundamental value approach.
In selecting securities for the Underlying Portfolio's portfolio, the Adviser
uses its fundamental and quantitative research to identify companies whose
long-term earnings power is not reflected in the current market price of their
securities.
SMALL CAP CORE PORTFOLIO, a series of Bernstein Fund, Inc., has an investment
objective of long-term growth of capital. The Adviser invests the assets of
this Underlying Portfolio primarily in a diversified portfolio of equity
securities of small-capitalization companies located in the U.S.
The Adviser utilizes both quantitative analysis and fundamental research to
determine which securities will be held by the Underlying Portfolio and to
manage risk. The Adviser applies quantitative analysis to all of the securities
in the Underlying Portfolio's research universe, which is composed primarily of
securities in the Russell 2000 Index. Those securities that score highly on
this quantitative analysis are then screened to eliminate those securities that
the Adviser is recommending against purchasing based on its fundamental
research, and a portfolio is constructed from the remaining highly ranked
securities based on diversification and risk considerations. In its quantitative
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analysis, the Adviser considers a number of metrics that have historically
provided some indication of favorable future returns, including metrics
relating to valuation, quality, investor behavior and corporate behavior.
INTERNATIONAL SMALL CAP PORTFOLIO, a series of Bernstein Fund, Inc., has an
investment objective of long-term growth of capital. The Adviser invests the
assets of this Underlying Portfolio primarily in a diversified portfolio of
equity securities of small-capitalization companies located outside the U.S.
The Adviser seeks to identify attractive investment opportunities primarily
through its fundamental investment research or quantitative analysis. In
applying its fundamental research, the Adviser generally seeks to identify
companies that possess both attractive valuation and compelling company- and/or
industry-level investment catalysts. In applying its quantitative analysis, the
Adviser typically considers a number of metrics that historically have provided
some indication of favorable future returns, including metrics related to
valuation, quality, investor behavior and corporate behavior. Utilizing these
resources, the Adviser expects to allocate the Underlying Portfolio's assets
among issuers, industries and geographic locations to attempt to create a
diversified portfolio of investments.
EMERGING MARKETS PORTFOLIO, a series of Sanford C. Bernstein Fund, Inc., has an
investment objective of long-term capital growth through investments in equity
securities of companies in emerging-market countries. This Underlying Portfolio
invests, under normal circumstances, at least 80% of its net assets in
securities of companies in emerging markets.
The Adviser diversifies the investment portfolio between growth and value
investment styles. The Adviser selects emerging markets growth and emerging
markets value equity securities based on its fundamental growth and value
investment disciplines to produce a blended portfolio. Within each investment
discipline, the Adviser draws on the capabilities of separate investment teams.
In allocating the Underlying Portfolio's assets among emerging market
countries, the Adviser considers such factors as the geographical distribution
of the Underlying Portfolio, the sizes of the stock markets represented and the
various key economic characteristics of the countries. The Adviser may hedge
currency risk when it believes there is potential to enhance risk-adjusted
returns.
The Underlying Portfolios also intend to invest uninvested cash balances in an
affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act.
LOANS OF PORTFOLIO SECURITIES
For the purposes of achieving income, a Portfolio may make secured loans of
portfolio securities to brokers, dealers and financial institutions
("borrowers") to the extent permitted under the 1940 Act or the rules and
regulations thereunder (as such statute, rules or regulations may be amended
from time to time) or by guidance regarding, interpretations of or exemptive
orders under the 1940 Act. Under a Portfolio's securities lending program, all
securities loans will be secured continually by cash collateral. The loans will
be made only to borrowers deemed by the Adviser to be creditworthy, and when,
in the judgment of the Adviser, the consideration that can be earned currently
from securities loans justifies the attendant risk. The Portfolio will be
compensated for the loan from a portion of the net return from the interest
earned on cash collateral after a rebate paid to the borrower (in some cases
this rebate may be a "negative rebate", or fee paid by the borrower to the
Portfolio in connection with the loan) and payments for fees of the securities
lending agent and for certain other administrative expenses.
A Portfolio will have the right to call a loan and obtain the securities loaned
at any time on notice to the borrower within the normal and customary
settlement time for the securities. While the securities are on loan, the
borrower is obligated to pay the Portfolio amounts equal to any income or other
distributions from the securities. The Portfolio will not have the right to
vote any securities during the existence of a loan, but will have the right to
regain ownership of loaned securities in order to exercise voting or other
ownership rights. When the Portfolio lends securities, its investment
performance will continue to reflect changes in the value of the securities
loaned.
A Portfolio will invest cash collateral in a money market fund approved by the
Portfolio's Board of Directors (the "Board") and expected to be managed by the
Adviser. Any such investment will be at the Portfolio's risk. A Portfolio may
pay reasonable finders', administrative, and custodial fees in connection with
a loan.
A principal risk of lending portfolio securities is that the borrower will fail
to return the loaned securities upon termination of the loan and that the
collateral will not be sufficient to replace the loaned securities.
LOAN PARTICIPATIONS
A Portfolio may invest in corporate loans either by participating as co-lender
at the time the loan is originated or by buying an interest in the loan in the
secondary market from a financial institution or institutional investor. The
financial status of an institution interposed between a Portfolio and a
borrower may affect the ability of the Portfolio to receive principal and
interest payments.
The success of a Portfolio may depend on the skill with which an agent bank
administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
MORTGAGE-BACKED SECURITIES, OTHER ASSET-BACKED SECURITIES AND STRUCTURED
SECURITIES
Mortgage-backed securities may be issued by the U.S. Government or one of its
sponsored entities, or may be issued by private organizations. Interest and
principal payments (including prepayments) on the mortgages underlying
mortgage-backed securities are passed through to the holders of the securities.
As a result of the pass-through of prepayments of principal on the
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underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate.
Prepayments occur when the mortgagor on a mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. Because the prepayment
characteristics of the underlying mortgages vary, it is impossible to predict
accurately the realized yield or average life of a particular issue of
pass-through certificates. Prepayments are important because of their effect on
the yield and price of the mortgage-backed securities. During periods of
declining interest rates, prepayments can be expected to accelerate and a
Portfolio that invests in these securities would be required to reinvest the
proceeds at the lower interest rates then available. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase the effective
maturity of the securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates. In addition, prepayments of
mortgages underlying securities purchased at a premium could result in capital
losses.
Mortgage-backed securities include mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduit certificates, or REMICs, collateralized mortgage obligations, or CMOs,
government sponsored enterprise ("GSE") risk-sharing bonds, and stripped
mortgage-backed securities, and other types of mortgage-backed securities that
may be available in the future.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
Mortgage-backed securities also include CMOs and REMIC pass-through or
participation certificates that may be issued by, among others, U.S. Government
agencies and instrumentalities as well as private lenders. CMOs and REMICs are
issued in multiple classes and the principal of and interest on the mortgage
assets may be allocated among the several classes of CMOs or REMICs in various
ways. Each class of CMOs or REMICs, often referred to as a "tranche", is issued
at a specific adjustable or fixed interest rate and must be fully retired no
later than its final distribution date. Generally, interest is paid or accrued
on all classes of CMOs or REMICs on a monthly basis.
Typically, CMOs are collateralized by GNMA or FHLMC certificates but also may
be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgage assets and any
reinvestment income.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, or the Code, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments. Investors may purchase "regular" and "residual" interest shares of
beneficial interest in REMIC trusts.
GSE Risk-Sharing Bonds. The AB VPS BALANCED WEALTH STRATEGY PORTFOLIO, AB VPS
DYNAMIC ASSET ALLOCATION PORTFOLIO, AB VPS INTERMEDIATE BOND PORTFOLIO and AB
VPS GLOBAL RISK ALLOCATION-MODERATE PORTFOLIO may each invest in
mortgage-backed securities known as GSE Risk-Sharing Bonds or Credit Risk
Transfer Securities ("CRTs"), which are issued by GSEs (and sometimes banks or
mortgage insurers) and structured without any government or GSE guarantee in
respect of borrower defaults or underlying collateral. The risks associated
with an investment in CRTs differ from the risks associated with an investment
in more traditional mortgage-backed securities issued by GSEs because, in CRTs,
some or all of the credit risk associated with the underlying mortgage loans is
transferred to the end-investor.
Other Asset-Backed Securities. A Portfolio may invest in other asset-backed
securities. The securitization techniques used to develop mortgage-related
securities are applied to a broad range of financial assets. Through the use of
trusts and special purpose corporations, various types of assets, including
automobile loans and leases, credit card receivables, home equity loans,
equipment leases and trade receivables, are securitized in structures similar
to the structures used in mortgage securitizations.
Structured Securities. A Portfolio may invest in securities issued in
structured financing transactions, which generally involve aggregating types of
debt assets in a pool or special purpose entity and then issuing new
securities. Types of structured financings include securities described
elsewhere in this Prospectus, such as mortgage-related and other asset-backed
securities. These investments include investments in structured securities that
represent interests in entities organized and operated solely for the purpose
of restructuring the investment characteristics of particular debt obligations.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or high-yield bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. Because these types of structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of the underlying instruments.
PREFERRED STOCK
A Portfolio may invest in preferred stock. Preferred stock is a class of
capital stock that typically pays dividends at a specified rate. Preferred
stock is generally senior to common stock, but is subordinated to any debt the
issuer has outstanding. Accordingly, preferred stock dividends are not paid
until all debt obligations are first met. Preferred stock may be subject to
more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer. These investments include convertible preferred stock, which
includes an option for the holder to convert the preferred stock into the
issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion may begin, a certain number
of common shares per preferred share, or a certain price per share for the
common stock. Convertible preferred stock tends to be more volatile than
non-convertible preferred stock, because its value is related to the price of
the
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issuer's common stock as well as the dividends payable on the preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are pooled investment vehicles that invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest
payments and principal. Similar to investment companies such as the Portfolios,
REITs are not taxed on income distributed to shareholders provided they comply
with several requirements of the Code. A Portfolio will indirectly bear its
proportionate share of expenses incurred by REITs in which the Portfolio
invests in addition to the expenses incurred directly by the Portfolio.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
A Portfolio may enter into repurchase agreements. In a repurchase agreement
transaction, the Portfolio buys a security and simultaneously agrees to sell it
back to the counterparty at a specified price in the future. However, a
repurchase agreement is economically similar to a secured loan, in that the
Portfolio lends cash to a counterparty for a specific term, normally a day or a
few days, and is given acceptable collateral (the purchased securities) to hold
in case the counterparty does not repay the loan. The difference between the
purchase price and the repurchase price of the securities reflects an
agreed-upon "interest rate". Given that the price at which a Portfolio will
sell the collateral back is specified in advance, a Portfolio is not exposed to
price movements on the collateral unless the counterparty defaults. If the
counterparty defaults on its obligation to buy back the securities at the
maturity date and the liquidation value of the collateral is less than the
outstanding loan amount, a Portfolio would suffer a loss. In order to further
mitigate any potential credit exposure to the counterparty, if the value of the
securities falls below a specified level that is linked to the loan amount
during the life of the agreement, the counterparty must provide additional
collateral to support the loan.
A Portfolio may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, a Portfolio enters a trade
to buy securities at one price and simultaneously enters a trade to sell the
same securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
A Portfolio may enter into reverse repurchase agreements and dollar rolls,
subject to the Portfolio's limitations on borrowings. A reverse repurchase
agreement or dollar roll involves the sale of a security by a Portfolio and its
agreement to repurchase the instrument at a specified time and price, and may
be considered a form of borrowing for some purposes. Reverse repurchase
agreements, dollar rolls and other forms of borrowings may create leverage risk
for a Portfolio. In addition, reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities a Portfolio is
obligated to repurchase may decline below the purchase price.
Dollar rolls involve sales by a Portfolio of securities for delivery in the
current month and the Portfolio's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, a Portfolio forgoes principal and interest paid
on the securities. A Portfolio is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Portfolio is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES
A Portfolio may make short sales as a part of overall portfolio management or
to offset a potential decline in the value of a security. A short sale involves
the sale of a security that a Portfolio does not own, or if the Portfolio owns
the security, is not to be delivered upon consummation of the sale. When the
Portfolio makes a short sale of a security that it does not own, it must borrow
from a broker-dealer the security sold short and deliver the security to the
broker-dealer upon conclusion of the short sale.
If the price of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Although a Portfolio's gain is limited to
the price at
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which it sold the security short, its potential loss is theoretically unlimited
because there is a theoretically unlimited potential for the price of a
security sold short to increase.
STANDBY COMMITMENT AGREEMENTS
Standby commitment agreements are similar to put options that commit a
Portfolio, for a stated period of time, to purchase a stated amount of a
security that may be issued and sold to the Portfolio at the option of the
issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Portfolio is paid a
commitment fee regardless of whether the security ultimately is issued. The
Portfolios will enter into such agreements only for the purpose of investing in
the security underlying the commitment at a yield and price considered
advantageous to the Portfolio and unavailable on a firm commitment basis.
There is no guarantee that a security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Portfolio will bear the risk of capital loss
in the event that the value of the security declines and may not benefit from
an appreciation in the value of the security during the commitment period if
the issuer decides not to issue and sell the security to the Portfolio.
STRUCTURED PRODUCTS
A Portfolio may invest in certain hybrid derivatives-type instruments that
combine features of a traditional stock or bond with those of, for example, a
futures contract or an option. These instruments include structured notes and
indexed securities, commodity-linked notes and commodity index-linked notes and
credit-linked securities. The performance of the structured product, which is
generally a fixed-income security, is tied (positively or negatively) to the
price or prices of an unrelated reference indicator such as a security or
basket of securities, currencies, commodities, a securities or commodities
index or a credit default swap or other kinds of swaps. The structured product
may not pay interest or protect the principal invested. The structured product
or its interest rate may be a multiple of the reference indicator and, as a
result, may be leveraged and move (up or down) more rapidly than the reference
indicator. Investments in structured products may provide a more efficient and
less expensive means of obtaining exposure to underlying securities,
commodities or other derivatives, but may potentially be more volatile, less
liquid and carry greater market risk than investments in traditional
securities. The purchase of a structured product also exposes a Portfolio to
the credit risk of the structured product.
Structured notes are derivative debt instruments. The interest rate or
principal of these notes is determined by reference to an unrelated indicator
(for example, a currency, security, or indices thereof) unlike a typical note
where the borrower agrees to make fixed or floating interest payments and to
pay a fixed sum at maturity. Indexed securities may include structured notes as
well as securities other than debt securities, the interest or principal of
which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the
commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodity
futures contracts, commodity options, commodity indices or similar instruments.
Commodity-linked products may be either equity or debt securities, leveraged or
unleveraged, and have both security and commodity-like characteristics. A
portion of the value of these instruments may be derived from the value of a
commodity, futures contract, index or other economic variable.
A Portfolio may also invest in certain hybrid derivatives-type investments that
combine features of a traditional bond with those of certain derivatives such
as a credit default swap, an interest rate swap or other securities. These
investments include credit-linked securities. The issuers of these securities
frequently are limited purpose trusts or other special purpose vehicles that
invest in a derivative instrument or basket of derivative instruments in order
to provide exposure to certain fixed-income markets. For instance, a Portfolio
may invest in credit-linked securities as a cash management tool to gain
exposure to a certain market or to remain fully invested when more traditional
income-producing securities are not available. The performance of the
structured product, which is generally a fixed-income security, is linked to
the receipt of payments from the counterparties to the derivative instruments
or other securities. A Portfolio's investments in credit-linked securities are
indirectly subject to the risks associated with derivative instruments,
including, among others, credit risk, default risk, counterparty risk, interest
rate risk and leverage risk. These securities are generally structured as
Rule 144A Securities so that they may be freely traded among institutional
buyers. However, changes in the market for credit-linked securities or the
availability of willing buyers may result in the securities becoming illiquid.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS
Variable and floating-rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
A Portfolio may also invest in inverse floating-rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may have greater volatility in market value in
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed-rate securities.
ZERO-COUPON AND PRINCIPAL-ONLY SECURITIES
Zero-coupon securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of their unmatured
interest coupons, and include
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receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
ADDITIONAL RISK AND OTHER CONSIDERATIONS
Investments in the Portfolios involve the risk considerations described below.
BORROWINGS AND LEVERAGE
Certain of the Portfolios may use borrowings for investment purposes subject to
applicable statutory or regulatory requirements. Borrowings by a Portfolio
result in leveraging of the Portfolio's shares. Likewise, a Portfolio's use of
certain derivatives may effectively leverage the Portfolio's portfolio. The
Portfolios may use leverage for investment purposes by entering into
transactions such as reverse repurchase agreements, forward contracts, dollar
rolls or certain derivatives. This means that a Portfolio uses cash made
available during the term of these transactions to make investments in other
securities.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Portfolio's Contractholders. These include a higher
volatility of the NAV of the Portfolio's shares and the relatively greater
effect of changes in the value of the Portfolio's portfolio on the NAV of the
shares. In the case of borrowings for investment purposes, so long as the
Portfolio is able to realize a net return on its investment portfolio that is
higher than the interest expense paid on borrowings, the effect of such
leverage will be to cause the Portfolio's Contractholders to realize a higher
net return than if the Portfolio were not leveraged. With respect to a
Portfolio's use of certain derivatives that result in leverage of the
Portfolio's shares, if the Portfolio is able to realize a net return on its
investments that is higher than the costs of the leverage, the effect of such
leverage will be to cause the Portfolio to realize a higher return than if the
Portfolio were not leveraged. If the interest expense on borrowings or other
costs of leverage approach the return on a Portfolio's investment portfolio or
investments made through leverage, as applicable, the benefit of leverage to
the Portfolio's Contractholders will be reduced. If the interest expense on
borrowings or other costs of leverage were to exceed the net return to
Contractholders, a Portfolio's use of leverage would result in a lower rate of
return than if the Portfolio were not leveraged. Similarly, the effect of
leverage in a declining market would normally be a greater decrease in NAV per
share than if the Portfolio were not leveraged.
FOREIGN (NON-U.S.) SECURITIES
Investing in securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. securities. The
securities markets of many foreign countries are relatively small, with the
majority of market capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries. A Portfolio that
invests in securities of foreign issuers may experience greater price
volatility and significantly lower liquidity than a portfolio invested solely
in securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the United
States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of a Portfolio. In addition, the repatriation of investment
income, capital or the proceeds of sales of securities from certain countries
is controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to a Portfolio. These factors may affect the liquidity of a Portfolio's
investments in any country and the Adviser will monitor the effect of any such
factor or factors on a Portfolio's investments. Transaction costs, including
brokerage commissions for transactions both on and off the securities
exchanges, in many foreign countries are generally higher than in the United
States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in securities of foreign issuers than to
investors in U.S. securities. Substantially less information is publicly
available about certain non-U.S. issuers than is available about most U.S.
issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or
62
confiscatory taxation, currency blockage, political changes, government
regulation, political or social instability, revolutions, wars or diplomatic
developments could affect adversely the economy of a foreign country. In the
event of nationalization, expropriation, or other confiscation, a Portfolio
could lose its entire investment in securities in the country involved. In
addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Portfolios than that provided by U.S. laws.
In June 2016, the United Kingdom ("UK") voted in a referendum to leave the
European Union ("EU"). On March 29, 2017, the UK notified the European Council
of its intention to withdraw from the EU. It is expected that the UK's
withdrawal will be completed within two years of such notification. There is
considerable uncertainty relating to the potential consequences of the
withdrawal. During this period and beyond, the impact on the UK and European
economies and the broader global economy could be significant, resulting in
increased volatility and illiquidity, currency fluctuations, impacts on
arrangements for trading and on other existing cross-border cooperation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise),
and in potentially lower growth for companies in the UK, Europe and globally,
which could have an adverse effect on the value of a Portfolio's investments.
Investments in securities of companies in emerging markets involve special
risks. There are approximately 100 countries identified by the World Bank as
Low Income, Lower Middle Income and Upper Middle Income countries that are
generally regarded as emerging markets. Emerging market countries that the
Adviser currently considers for investment include:
Argentina Hungary Philippines
Bangladesh India Poland
Belarus Indonesia Russia
Belize Iraq Senegal
Brazil Ivory Coast Serbia
Bulgaria Jamaica South Africa
Chile Jordan South Korea
China Kazakhstan Sri Lanka
Colombia Lebanon Taiwan
Croatia Lithuania Thailand
Dominican Republic Malaysia Turkey
Ecuador Mexico Ukraine
Egypt Mongolia Uruguay
El Salvador Nigeria Venezuela
Gabon Pakistan Vietnam
Georgia Panama
Ghana Peru
Countries may be added to or removed from this list at any time.
Investing in emerging market securities imposes risks different from, or
greater than, risks of investing in domestic securities or in foreign,
developed countries. These risks include: smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and possible
repatriation of investment income and capital. In addition, foreign investors
may be required to register the proceeds of sales and future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. Dollar, and devaluation may occur
subsequent to investments in these currencies by a Portfolio. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
Additional risks of emerging market securities may include: greater social,
economic and political uncertainty and instability; more substantial
governmental involvement in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; and less developed legal systems. In addition, emerging securities
markets may have different clearance and settlement procedures, which may be
unable to keep pace with the volume of securities transactions or otherwise
make it difficult to engage in such transactions. Settlement problems may cause
a Portfolio to miss attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in disposing of a portfolio
security. Such a delay could result in possible liability to a purchaser of the
security.
FOREIGN (NON-U.S.) CURRENCIES
A Portfolio that invests some portion of its assets in securities denominated
in, and receives revenues in, foreign currencies will be adversely affected by
reductions in the value of those currencies relative to the U.S. Dollar.
Foreign currency exchange rates may fluctuate significantly. They are
determined by supply and demand in the foreign exchange markets, the relative
merits of investments in different countries, actual or perceived changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected unpredictably by intervention (or the failure to intervene) by U.S. or
non-U.S. Governments or central banks or by currency controls or political
developments. In light of these risks, a Portfolio may engage in certain
currency hedging transactions, as described above, which involve certain
special risks. A Portfolio may also invest directly in foreign currencies for
non-hedging purposes directly on a spot basis (i.e., cash) or through
derivatives transactions, such as forward currency exchange contracts, futures
contracts and options thereon, swaps and options as described above. These
investments will be subject to the same risks. In addition, currency exchange
rates may fluctuate significantly over short periods of time, causing a
Portfolio's NAV to fluctuate.
INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES
Investments in securities rated below investment grade (commonly referred to as
"junk bonds") may be subject to greater risk of loss of principal and interest
than higher-rated securities. These securities are also generally considered to
be subject to greater market risk than higher-rated securities. The capacity of
issuers of these securities to pay interest and repay principal is more likely
to weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, below
investment
63
grade securities may be more susceptible to real or perceived adverse economic
conditions than investment grade securities.
The market for these securities may be thinner and less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. To the extent that there is no established secondary
market for these securities, a Portfolio may experience difficulty in valuing
such securities and, in turn, the Portfolio's assets.
INVESTMENT IN SMALLER, LESS-SEASONED COMPANIES
Investment in smaller, less-seasoned companies involves greater risks than are
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel that have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller, less-seasoned companies may
have relatively limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger companies or broad market
indices. The revenue flow of such companies may be erratic and their results of
operation may fluctuate widely and may also contribute to stock price
volatility.
REAL ESTATE INVESTMENTS
Although the Portfolios do not invest directly in real estate, they invest in
securities of real estate companies, including, in particular, AB VPS REAL
ESTATE INVESTMENT PORTFOLIO. Therefore, an investment in a Portfolio that makes
such investments is subject to certain risks associated with the direct
ownership of real estate and with the real estate industry in general. These
risks include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions, including increases in
the rate of inflation; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured
damages from floods, earthquakes or other natural disasters; limitations on and
variations in rents; and changes in interest rates. To the extent that assets
underlying such investments are concentrated geographically, by property type
or in certain other respects, a Portfolio may be subject to certain of the
foregoing risks to a greater extent. These risks may be greater for investments
in non-U.S. real estate companies.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to heavy cash flow dependency, default by borrowers and
self-liquidation.
Investing in REITs involves risks similar to those associated with investing in
small-capitalization companies. REITs may
have limited financial resources, may trade less frequently and in a limited
volume and may be subject to more abrupt or erratic price movements than larger
company securities. Historically, small-capitalization stocks, such as REITs,
have had more price volatility than larger capitalization stocks.
UNRATED SECURITIES
A Portfolio may invest in unrated fixed-income securities when the Adviser
believes that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the risk
to the Portfolio to a degree comparable to that of rated securities that are
consistent with the Portfolio's objective and policies.
FUTURE DEVELOPMENTS
A Portfolio may take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The AB VARIABLE PRODUCTS SERIES (VPS) FUND'S (the "Fund") Board may change a
Portfolio's investment objective without shareholder approval. A Portfolio will
provide shareholders with 60 days' prior written notice of any change to the
Portfolio's investment objective. Portfolios that have a policy to invest at
least 80% of their net assets in securities indicated by their name, such as
the AB VPS INTERMEDIATE BOND PORTFOLIO, AB VPS LARGE CAP GROWTH PORTFOLIO, AB
VPS SMALL CAP GROWTH PORTFOLIO, AB VPS REAL ESTATE INVESTMENT PORTFOLIO, and AB
VPS SMALL/MID CAP VALUE PORTFOLIO, will not change such policy without 60 days'
prior written notice to shareholders. Unless otherwise noted, all other
investment policies of a Portfolio may be changed without shareholder approval.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes to attempt to respond to adverse market,
economic, political or other conditions, each Portfolio may invest in certain
types of short-term, liquid, investment-grade or high-quality (depending on the
Portfolio) debt securities. While a Portfolio is investing for temporary
defensive purposes, it may not meet its investment objectives.
PORTFOLIO HOLDINGS
The Portfolios' SAI includes a description of the policies and procedures that
apply to disclosure of each Portfolio's portfolio holdings.
CYBER SECURITY RISK
Mutual funds, including the Portfolios, are susceptible to cyber security
risk. Cyber security breaches may allow an unauthorized party to gain access to
Portfolio assets, Contractholder data, or proprietary information, or cause a
Portfolio and/or its service providers to suffer data corruption or lose
operational functionality. In addition, cyber security breaches in companies in
which the Portfolios invest may affect the value of your investment in a
Portfolio.
64
INVESTING IN THE PORTFOLIOS
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HOW TO BUY AND SELL SHARES
The Portfolios offer their shares through the separate accounts of the
Insurers. You may only purchase and sell shares through these separate
accounts. See the prospectus of the separate account of the Insurer for
information on how to purchase and sell the Portfolios' shares.
AllianceBernstein Investments, Inc. ("ABI") may, from time to time, receive
payments from Insurers in connection with the sale of the Portfolios' shares
through the Insurers' separate accounts.
The NAV of each of the AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO and AB VPS
GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO is disclosed daily on the Fund's
website or through the investor's online account information at ABfunds.com
and/or by calling (800) 221-5672.
The Insurers maintain omnibus account arrangements with the Fund in respect of
one or more Portfolios and place aggregate purchase, redemption and exchange
orders for shares of a Portfolio corresponding to orders placed by the
Insurers' customers, or Contractholders, who have purchased contracts from the
Insurers, in each case, in accordance with the terms and conditions of the
relevant contract. Omnibus account arrangements maintained by the Insurers are
discussed below under "Policy Regarding Short-Term Trading".
The purchase or sale of a Portfolio's shares is priced at the next-determined
NAV after the order is received in proper form.
ABI may refuse any order to purchase shares. Each Portfolio reserves the right
to suspend the sale of its shares to the public in response to conditions in
the securities markets or for other reasons.
The Portfolios expect that it will typically take up to three business days
following the receipt of a redemption request in proper form to pay out
redemption proceeds. However, while not expected, payment of redemption
proceeds may take up to seven days from the day a request is received in proper
form by a Portfolio by the close of regular trading on any day the New York
Stock Exchange (the "Exchange") is open (ordinarily, 4:00 p.m., Eastern time,
but sometimes earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading).
Each Portfolio expects, under normal circumstances, to use cash or cash
equivalents held by the Portfolio to satisfy redemption requests. A Portfolio
may also determine to sell portfolio assets to meet such requests. Under
certain circumstances, including stressed market conditions, a Portfolio may
determine to pay a redemption request by accessing a bank line of credit or by
distributing wholly or partly in kind securities from its portfolio, instead of
cash.
PAYMENTS TO FINANCIAL INTERMEDIARIES
Financial intermediaries, such as the Insurers, market and sell shares of the
Portfolios and typically receive compensation for selling shares of the
Portfolios. This compensation is paid from various sources.
Insurers or your financial intermediary receive compensation from ABI and/or
the Adviser in several ways from various sources, which include some or all
of the following:
- defrayal of costs for educational seminars and training;
- additional distribution support; and
- payments related to providing Contractholder recordkeeping and/or
administrative services.
ABI and/or the Adviser may pay Insurers or other financial intermediaries to
perform recordkeeping and administrative services in connection with the
Portfolios. Such payments will generally not exceed 0.35% of the average daily
net assets of each Portfolio attributable to the Insurer.
OTHER PAYMENTS FOR EDUCATIONAL SUPPORT AND DISTRIBUTION ASSISTANCE
In addition to the fees described above, ABI, at its expense, currently
provides additional payments to the Insurers that sell shares of the
Portfolios. These sums include payments to reimburse directly or indirectly the
costs incurred by the Insurers and their employees in connection with
educational seminars and training efforts about the Portfolios for the
Insurers' employees and/or their clients and potential clients and may include
payments for distribution analytical data regarding Portfolio sales by the
Insurer. The costs and expenses associated with these efforts may include
travel, lodging, entertainment and meals.
For 2018, ABI's additional payments to these firms for educational support and
distribution assistance related to the Fund's Portfolios are expected to be
approximately $325,000. In 2017, ABI paid additional payments of approximately
$325,000 for the Fund's Portfolios.
IF ONE MUTUAL FUND SPONSOR THAT OFFERS SHARES TO SEPARATE ACCOUNTS OF AN
INSURER MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, THE
INSURER MAY HAVE AN INCENTIVE TO RECOMMEND OR OFFER THE SHARES OF FUNDS OF
ONE FUND SPONSOR OVER ANOTHER.
PLEASE SPEAK WITH YOUR FINANCIAL INTERMEDIARY TO LEARN MORE ABOUT THE TOTAL
AMOUNTS PAID TO YOUR FINANCIAL INTERMEDIARY BY THE ADVISER, ABI AND BY OTHER
MUTUAL FUND SPONSORS THAT OFFER SHARES TO INSURERS THAT MAY BE RECOMMENDED TO
YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL INTERMEDIARY
AT THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the Insurers or their
affiliates that will receive additional payments for educational support
include:
AIG
AXA Advisors
Jackson National Life
Lincoln Financial Distributors
65
MetLife Inc.
Ohio National
Pacific Life Insurance Co.
Principal Financial Group
Prudential Financial
Riversource Distributors
Transamerica Capital
Variable Annuity Life Insurance/VALIC
Although the Portfolios may use brokers and dealers who sell shares of the
Portfolios to effect portfolio transactions, the Portfolios do not consider the
sale of AB Mutual Fund shares as a factor when selecting brokers or dealers to
effect portfolio transactions.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The Board has adopted policies and procedures designed to detect and deter
frequent purchases and redemptions of Portfolio shares or excessive or
short-term trading that may disadvantage long-term Contractholders. These
policies are described below. There is no guarantee that a Portfolio will be
able to detect excessive or short-term trading or to identify Contractholders
engaged in such practices, particularly with respect to transactions in omnibus
accounts. Contractholders should be aware that application of these policies
may have adverse consequences, as described below, and should avoid frequent
trading in Portfolio shares through purchases, sales and exchanges of shares.
Each Portfolio reserves the right to restrict, reject, or cancel, without any
prior notice, any purchase or exchange order for any reason, including any
purchase or exchange order accepted by any Insurer or a Contractholder's
financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Fund
will try to prevent market timing by utilizing the procedures described below,
these procedures may not be successful in identifying or stopping excessive or
short-term trading in all circumstances. By realizing profits through
short-term trading, Contractholders that engage in rapid purchases and sales or
exchanges of a Portfolio's shares dilute the value of shares held by long-term
Contractholders. Volatility resulting from excessive purchases and sales or
exchanges of shares of a Portfolio, especially involving large dollar amounts,
may disrupt efficient portfolio management and cause a Portfolio to sell
portfolio securities at inopportune times to raise cash to accommodate
redemptions relating to short-term trading activity. In particular, a Portfolio
may have difficulty implementing its long-term investment strategies if it is
forced to maintain a higher level of its assets in cash to accommodate
significant short-term trading activity. In addition, a Portfolio may incur
increased administrative and other expenses due to excessive or short-term
trading and increased brokerage costs.
Investments in securities of foreign issuers may be particularly susceptible to
short-term trading strategies. This is because securities of foreign issuers
are typically traded on markets that close well before the time a Portfolio
ordinarily calculates its NAV at 4:00 p.m., Eastern time, which gives rise to
the possibility that developments may have occurred in the interim that would
affect the value of these securities. The time zone differences among
international stock markets can allow a Contractholder engaging in a short-term
trading strategy to exploit differences in share prices that are based on
closing prices of securities of foreign issuers established some time before a
Portfolio calculates its own share price (referred to as "time zone
arbitrage"). Each of the Portfolios has procedures, referred to as fair value
pricing, designed to adjust closing market prices of securities of foreign
issuers to reflect what is believed to be fair value of those securities at the
time the Portfolio calculates its NAV. While there is no assurance, each of the
Portfolios expects that the use of fair value pricing, in addition to the
short-term trading policies discussed below, will significantly reduce a
Contractholder's ability to engage in time zone arbitrage to the detriment of
other Contractholders.
Contractholders engaging in a short-term trading strategy may also target a
Portfolio irrespective of its investments in securities of foreign issuers. Any
Portfolio that invests in securities that are, among other things, thinly
traded, traded infrequently, or relatively illiquid, has the risk that the
current market price for the securities may not accurately reflect current
market values. Contractholders may seek to engage in short-term trading to take
advantage of these pricing differences (referred to as "price arbitrage"). All
Portfolios may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the
Portfolios should be made for investment purposes only. The Fund seeks to
prevent patterns of excessive purchases and sales or exchanges of shares of the
Portfolios to the extent they are detected by the procedures described below,
subject to the Fund's ability to monitor purchase, sale and exchange activity.
Insurers utilizing omnibus account arrangements may not identify to the Fund,
ABI or AllianceBernstein Investor Services, Inc. ("ABIS") Contractholders'
transaction activity relating to shares of a particular Portfolio on an
individual basis. Consequently, the Fund, ABI and ABIS may not be able to
detect excessive or short-term trading in shares of a Portfolio attributable to
a particular Contractholder who effects purchase and redemption and/or exchange
activity in shares of the Portfolio through an Insurer acting in an omnibus
capacity. In seeking to prevent excessive or short-term trading in shares of
the Portfolios, including the maintenance of any transaction surveillance or
account blocking procedures, the Fund, ABI and ABIS consider the information
actually available to them at the time. The Fund reserves the right to modify
this policy, including any surveillance or account blocking procedures
established from time to time to effectuate this policy, at any time without
notice.
.. TRANSACTION SURVEILLANCE PROCEDURES. The Portfolios, through their agents,
ABI and ABIS, maintain surveillance procedures to detect excessive or
short-term trading in Portfolio shares. This surveillance process involves
several factors, which include scrutinizing each individual Insurer's
omnibus transaction activity in Portfolio shares in order to seek to
ascertain whether any such activity attributable to one or
66
more Contractholders might constitute excessive or short-term trading.
Insurers' omnibus transaction activity identified by these surveillance
procedures, or as a result of any other information actually available at
the time, will be evaluated to determine whether such activity might
indicate excessive or short-term trading activity attributable to one or
more Contractholders. These surveillance procedures may be modified from
time to time, as necessary or appropriate to improve the detection of
excessive or short-term trading or to address specific circumstances.
.. ACCOUNT BLOCKING PROCEDURES. If the Fund determines, in its sole discretion,
that a particular transaction or pattern of transactions identified by the
transaction surveillance procedures described above is excessive or
short-term trading in nature, the relevant Insurer's omnibus account(s) will
be immediately "blocked" and no future purchase or exchange activity will be
permitted, except to the extent the Fund, ABI or ABIS has been informed in
writing that the terms and conditions of a particular contract may limit the
Fund's ability to apply its short-term trading policy to Contractholder
activity as discussed below. As a result, any Contractholder seeking to
engage through an Insurer in purchase or exchange activity in shares of one
or more Portfolios under a particular contract will be prevented from doing
so. However, sales of Portfolio shares back to the Portfolio or redemptions
will continue to be permitted in accordance with the terms of the
Portfolio's current prospectus. In the event an account is blocked, certain
account-related privileges, such as the ability to place purchase, sale and
exchange orders over the internet or by phone, may also be suspended. As a
result, unless the Contractholder redeems his or her shares, the
Contractholder effectively may be "locked" into an investment in shares of
one or more of the Portfolios that the Contractholder did not intend to hold
on a long-term basis or that may not be appropriate for the Contractholder's
risk profile. To rectify this situation, a Contractholder with a "blocked"
account may be forced to redeem Portfolio shares, which could be costly if,
for example, these shares have declined in value. To avoid this risk, a
Contractholder should carefully monitor the purchases, sales, and exchanges
of Portfolio shares and should avoid frequent trading in Portfolio shares.
An Insurer's omnibus account that is blocked will generally remain blocked
unless and until the Insurer provides evidence or assurance acceptable to
the Fund that one or more Contractholders did not or will not in the future
engage in excessive or short-term trading.
.. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS
ACCOUNTS. The Portfolios apply their surveillance procedures to Insurers. As
required by Commission rules, the Portfolios have entered into agreements
with all of their financial intermediaries that require the financial
intermediaries to provide the Portfolios, upon the request of the Portfolios
or their agents, with individual account level information about their
transactions. If the Portfolios detect excessive trading through their
monitoring of omnibus accounts, including trading at the individual account
level, Insurers will also execute instructions from the Portfolios to take
actions to curtail the activity, which may include applying blocks to
accounts to prohibit future purchases and exchanges of Portfolio shares.
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each Portfolio's NAV is calculated on any day the Exchange is open at the close
of regular trading (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading). To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. If a Portfolio invests in securities that are
primarily traded on foreign exchanges that trade on weekends or other days when
the Portfolio does not price its shares, the NAV of the Portfolio's shares may
change on days when Contractholders will not be able to purchase or redeem
their shares in the Portfolio.
The Portfolios value their securities at their current market value determined
on the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Board. When
a Portfolio uses fair value pricing, it may take into account any factors it
deems appropriate. A Portfolio may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The prices of securities used by a Portfolio to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing involves subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Portfolios expect to use fair value pricing for securities primarily traded
on U.S. exchanges only under very limited circumstances, such as the early
closing of the exchange on which a security is traded or suspension of trading
in the security. The Portfolios may use fair value pricing more frequently for
securities primarily traded in foreign markets because, among other things,
most foreign markets close well before the Portfolios ordinarily value their
securities at 4:00 p.m., Eastern time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim. For example, the Portfolios
believe that foreign security values may be affected by events that occur after
the close of foreign securities markets. To account for this, the Portfolios
may frequently value many of their foreign equity securities using fair value
prices based on third-party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing a
Portfolio's assets to the Adviser. The Adviser has established a Valuation
Committee, which operates under the policies and procedures approved by the
Board, to value the Portfolio's assets on behalf of the Portfolio. The
Valuation Committee values Portfolio assets as described above. More
information about the valuation of the Portfolios' assets is available in the
Portfolios' SAI.
67
MANAGEMENT OF THE PORTFOLIOS
--------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Portfolio's adviser is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, New York 10105. The Adviser is a leading global investment
adviser managing client accounts with assets as of December 31, 2017, totaling
approximately $555 billion (of which over $108 billion represented assets of
registered investment companies sponsored by the Adviser). As of December 31,
2017, the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 16 of the nation's FORTUNE 100
companies), for public employee retirement funds in 28 states and the District
of Columbia, for investment companies, and for foundations, endowments, banks
and insurance companies worldwide. The 29 registered investment companies
managed by the Adviser, comprising 115 separate investment portfolios, had as
of December 31, 2017 approximately 2.6 million retail accounts.
The Adviser provides investment advisory services and order placement
facilities for the Portfolios. For these advisory services, each of the
Portfolios paid the Adviser for the fiscal year ended December 31, 2017 as a
percentage of average daily net assets:
FEE AS A PERCENTAGE OF
AVERAGE DAILY NET
PORTFOLIO ASSETS
-------------------------------------------------------------------------
AB VPS Intermediate Bond Portfolio .45%
AB VPS Large Cap Growth Portfolio .60%
AB VPS Growth and Income Portfolio .55%
AB VPS Growth Portfolio .75%
AB VPS International Growth Portfolio .75%
AB VPS Global Thematic Growth Portfolio .75%
AB VPS Small Cap Growth Portfolio .75%
AB VPS Real Estate Investment Portfolio .55%
AB VPS International Value Portfolio .75%
AB VPS Small/Mid Cap Value Portfolio .75%
AB VPS Value Portfolio .55%
AB VPS Balanced Wealth Strategy Portfolio .32%*
AB VPS Dynamic Asset Allocation Portfolio .70%*
AB VPS Global Risk Allocation--Moderate Portfolio .32%*
--------
* Net of fee waiver and/or reimbursement.
The Adviser has contractually agreed to waive fees and/or reimburse the
expenses payable to the Adviser by the AB VPS BALANCED WEALTH STRATEGY
PORTFOLIO in an amount equal to the Portfolio's share of the advisory fees of
any mutual funds advised by the Adviser in which the Portfolio invests. The fee
waiver and/or expense reimbursement will remain in effect until at least May 1,
2019.
A discussion regarding the basis for the Board's most recent approval of each
Portfolio's investment advisory agreement is available in the Portfolio's
annual report to Contractholders for the fiscal year ended December 31, 2017.
The Adviser may act as an investment adviser to other persons, firms, or
corporations, including investment companies, hedge funds, pension funds, and
other institutional investors. The Adviser may receive management fees,
including performance fees, that may be higher or lower than the advisory fees
it receives from a Portfolio. Certain other clients of the Adviser may have
investment objectives and policies similar to those of a Portfolio. The Adviser
may, from time to time, make recommendations that result in the purchase or
sale of a particular security by its other clients simultaneously with a
Portfolio. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of the Adviser to allocate advisory recommendations and the
placing of orders in a manner that is deemed equitable by the Adviser to the
accounts involved, including a Portfolio. When two or more of the clients of
the Adviser (including a Portfolio) are purchasing or selling the same security
on a given day from the same broker-dealer, such transactions may be averaged
as to price.
PORTFOLIO MANAGERS
The day-to-day management of, and investment decisions for, the AB VPS GROWTH
AND INCOME PORTFOLIO are made by the Adviser's Relative Value Investment Team.
The Relative Value Investment Team relies heavily on the fundamental analysis
and research of the Adviser's internal research staff.
The following table lists the persons within the Relative Value Investment Team
with the most significant responsibility for the day-to-day management of the
Portfolio's portfolio, the length of time that each person has been jointly and
primarily responsible for the Portfolio, and each person's principal occupation
during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
----------------------------------------------------------------------------------
Frank V. Caruso; since 2001; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013,
and Chief Investment Officer of U.S.
Growth Equities.
John H. Fogarty; since May 2018; Senior Senior Vice President of the Adviser,
Vice President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Vinay Thapar; since May 2018; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS
INTERMEDIATE BOND PORTFOLIO are made by the Adviser's U.S. Core Fixed Income
Investment Team. The U.S. Core Fixed Income Investment Team relies heavily on
the fundamental analysis and research of the Adviser's internal research staff.
The following table lists the persons within the U.S. Core Fixed Income
Investment Team with the most significant responsibility for the day-to-day
management of the Portfolio's portfolio, the length of time that each person
has been jointly
68
and primarily responsible for the Portfolio, and each person's principal
occupation during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
------------------------------------------------------------------------------------
Michael Canter; since 2016; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Shawn E. Keegan; since 2007; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Douglas J. Peebles; since 2007; Senior Vice Senior Vice President of the Adviser,
President of the Adviser, and Chief with which he has been associated in a
Investment Officer of AB Fixed Income substantially similar capacity to his
current position since prior to 2013.
Greg J. Wilensky; since 2005; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS GLOBAL
THEMATIC GROWTH PORTFOLIO are made by the Adviser's Thematic and Sustainable
Equities Investment Team.
The following table lists the person within the Thematic and Sustainable
Equities Investment Team with the most significant responsibility for the
day-to-day management of the Portfolio's portfolio, the length of time that
person has been jointly or primarily responsible for the Portfolio, and that
person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
----------------------------------------------------------------------------------
Daniel C. Roarty; since 2013; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS
INTERNATIONAL GROWTH PORTFOLIO are made by the Adviser's Thematic and
Sustainable Equities Investment Team.
The following table lists the person within the Thematic and Sustainable
Equities Investment Team with the responsibility for the day-to-day management
of the Portfolio's portfolio, the length of time that person has been jointly
or primarily responsible for the Portfolio and that person's principal
occupation during the past five years:
PRINCIPAL OCCUPATION(S) DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
--------------------------------------------------------------------------
Daniel C. Roarty; since 2012; Senior Vice See above.
President of the Adviser
The day-to-day management of, and investment decisions for, each of the other
Portfolios' portfolios are made by certain Senior Investment Management Teams
or Investment Teams. Each Senior Investment Management Team or Investment Team
relies heavily on the fundamental analysis and research of the Adviser's
internal research staff. No one person is principally responsible for making
recommendations for each Portfolio's portfolio.
The following table lists the Senior Investment Management Teams or Investment
Teams, as applicable, the persons within each Senior Investment Management Team
or Investment Team with the most significant responsibility for the day-to-day
management of the Portfolio's portfolio, the length of time that each person
has been jointly and primarily responsible for the Portfolio, and each person's
principal occupation during the past five years:
PORTFOLIO AND PRINCIPAL OCCUPATION
RESPONSIBLE DURING THE PAST FIVE (5)
GROUP EMPLOYEE; YEAR; TITLE YEARS
-----------------------------------------------------------------------------
AB VPS Growth Portfolio Bruce K. Aronow; since Senior Vice President of
Growth Investment Team 2013; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Frank V. Caruso; since See above.
2008; Senior Vice
President of the Adviser
John H. Fogarty; since See above.
2013; Senior Vice
President of the Adviser
AB VPS Small Cap Growth Bruce K. Aronow; since See above.
Portfolio 2000; Senior Vice
Small Cap Growth President of the Adviser
Investment Team
N. Kumar Kirpalani; Senior Vice President of
since 2005; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Samantha S. Lau; since Senior Vice President of
2005; Senior Vice the Adviser, with which
President of the Adviser she has been associated
in a substantially
similar capacity to her
current position since
prior to 2013.
Wen-Tse Tseng; since Senior Vice President of
2006; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Real Eric J. Franco; since Senior Vice President of
Estate Investment 2012; Senior Vice the Adviser, with which
Portfolio President of the Adviser he has been associated
REIT Senior Investment in a substantially
Management Team similar capacity to his
current position since
prior to 2013.
Ajit D. Ketkar; since Senior Vice President of
2017; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
69
PORTFOLIO AND PRINCIPAL OCCUPATION
RESPONSIBLE DURING THE PAST FIVE (5)
GROUP EMPLOYEE; YEAR; TITLE YEARS
-----------------------------------------------------------------------------
AB VPS International Tawhid Ali; since 2016; Senior Vice President of
Value Portfolio Senior Vice President of the Adviser, with which
International Value the Adviser he has been associated
Senior Investment in a substantially
Management Team similar capacity to his
current position since
prior to 2013.
Takeo Aso; since 2012; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Avi Lavi; since 2012; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Small/Mid Cap James W. MacGregor; Senior Vice President of
Value Portfolio since 2005; Senior Vice the Adviser, with which
Small/Mid Cap Value President of the Adviser he has been associated
Senior Investment in a substantially
Management Team similar capacity to his
current position since
prior to 2013.
Shri Singhvi; since Senior Vice President of
2014; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Value Portfolio Cem Inal; since 2016; Senior Vice President of
U.S. Value Senior Senior Vice President of the Adviser, with which
Investment Management the Adviser he has been associated
Team in a substantially
similar capacity to his
current position since
prior to 2013.
Joseph G. Paul; since Senior Vice President of
2009; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Large Cap Growth Frank V. Caruso; since See above.
Portfolio 2012; Senior Vice
U.S. Large Cap Growth President of the Adviser
Investment Team
John H. Fogarty; since See above.
2012; Senior Vice
President of the Adviser
Vinay Thapar; since May See above.
2018; Senior Vice
President of the Adviser
AB VPS Balanced Wealth Jess Gaspar; since Senior Vice President of
Strategy Portfolio February 2018; Senior the Adviser, with which
Multi-Asset Vice President of the he has been associated
Solutions Team Adviser in a substantially
similar capacity to his
current position since
2016. Prior thereto, he
was Managing Director
and head of allocation
and research at
Communfund from prior to
2013 until 2016.
Daniel J. Loewy; since Senior Vice President of
2013; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Dynamic Asset Brian T. Brugman; since Senior Vice President of
Allocation Portfolio 2016; Senior Vice the Adviser, with which
Dynamic Asset Allocation President of the Adviser he has been associated
Team in a substantially
similar capacity to his
current position since
prior to 2013.
Daniel J. Loewy; since See above.
2011; Senior Vice
President of the Adviser
AB VPS Global Risk Daniel J. Loewy; since See above.
Allocation--Moderate 2016; Senior Vice
Portfolio President of the Adviser
Quantitative Investment
Team
Leon Zhu; since 2015; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
The Portfolios' SAI provides additional information about the Portfolio
Managers' compensation, other accounts managed by the Portfolio Managers, and
the Portfolio Managers' ownership of securities in the Portfolios.
70
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
The Portfolios declare dividends on their shares at least annually. The income
and capital gains distributions are expected to be made in shares of each
Portfolio.
See the prospectus of the separate account of the Insurer for federal income
tax information.
Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Provided that
certain requirements are met, a Portfolio may "pass-through" to its
Contractholders credits or deductions to foreign income taxes paid. Non-U.S.
investors may not be able to credit or deduct such foreign taxes.
71
GLOSSARY
--------------------------------------------------------------------------------
BONDS are interest-bearing or discounted government or corporate securities
that obligate the issuer to pay the bondholder a specified sum of money,
usually at specified intervals, and to repay the principal amount of the loan
at maturity.
FIXED-INCOME SECURITIES are investments, such as bonds or other debt securities
or preferred stocks, that pay a fixed rate of return.
BLOOMBERG BARCLAYS GLOBAL AGGREGATE BOND INDEX is a broad-based index comprised
of government, corporate, mortgage and asset-backed issues, rated investment
grade or higher, and having at least one year to maturity.
The BLOOMBERG BARCLAYS GLOBAL G7 TREASURY INDEX tracks fixed-rate local
currency government debt of investment-grade G7 countries.
BLOOMBERG BARCLAYS U.S. AGGREGATE BOND INDEX provides a measure of the
performance of the U.S. Dollar-denominated, investment-grade bond market, which
includes U.S. Government bonds, corporate bonds, mortgage pass-through
securities, commercial mortgage-backed securities, and asset-backed securities
that are publicly for sale in the United States.
The BLOOMBERG BARCLAYS U.S. TREASURY INDEX represents the performance of U.S.
Treasuries within the U.S. Government fixed-income market.
FTSE NAREIT EQUITY REIT INDEX is an index of publicly traded REITs that own
commercial property.
MSCI AC WORLD INDEX is a free float-adjusted market capitalization weighted
index that is designed to measure the equity market performance of developed
and emerging markets.
MSCI EAFE (EUROPE, AUSTRALASIA, FAR EAST) INDEX is a free float-adjusted market
capitalization index that is designed to measure the equity performance of
developed markets excluding the United States and Canada.
MSCI WORLD INDEX is a free float-adjusted market capitalization weighted index
that is designed to measure developed-market equity performance throughout the
world.
RUSSELL 1000(R) GROWTH INDEX measures the performance of the
large-capitalization growth segment of the U.S. equity universe. It includes
those Russell 1000(R) companies with higher price-to-book ratios and higher
forecasted growth values.
RUSSELL 1000(R) VALUE INDEX measures the performance of the
large-capitalization value segment of the U.S. equity universe. It includes
those Russell 1000(R) companies with lower price-to-book ratios and lower
expected growth values.
RUSSELL 2000(R) GROWTH INDEX measures the performance of the
small-capitalization growth segment of the U.S. equity universe. It includes
those Russell 2000(R) companies with higher price-to-value ratios and higher
forecasted growth values.
RUSSELL 2500/TM/ INDEX measures the performance of the small-to
mid-capitalization segment of the U.S. equity universe, commonly referred to as
"smid" capitalization. The Russell 2500/TM/ Index is a subset of the Russell
3000(R) Index. It includes approximately 2,500 of the smallest securities based
on a combination of their market capitalization and current index membership.
RUSSELL 2500(R) VALUE INDEX measures the performance of the small- to
mid-capitalization value segment of the U.S. equity universe. It includes those
Russell 2500(R) companies with lower price-to-book ratios and lower forecasted
growth values.
RUSSELL 3000(R) GROWTH INDEX measures the performance of the broad growth
segment of the U.S. equity universe. It includes those Russell 3000(R)
companies with higher price-to-book ratios and higher forecasted growth values.
S&P 500 INDEX is a stock market index containing the stocks of 500
large-capitalization corporations. Widely regarded as the best single gauge of
the U.S. equities market, the S&P 500 Index includes a representative sample of
500 leading companies in leading industries of the U.S. economy.
72
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the past 5 years (or, if shorter, the
period of the Portfolio's operations). Certain information reflects financial
results for a single share of a class of each Portfolio. The total returns in
the table represent the rate that a Contractholder would have earned (or lost)
on an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). The total returns in the table do not take into account
separate account charges. If separate account charges were included, a
Contractholder's return would have been lower. This information has been
audited by Ernst & Young LLP, the independent registered public accounting firm
for all Portfolios, whose report, along with each Portfolio's financial
statements, are included in each Portfolio's annual report to Contractholders,
which is available upon request.
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.65 $ 10.63 $ 11.37 $ 11.22 $ 12.30
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .23 .28+ .27 .28 .32
Net realized and unrealized gain (loss) on investment and
foreign currency transactions .14 .23 (.27) .44 (.59)
Contributions from Affiliates .00(b) -0- -0- -0- -0-
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations .37 .51 -0- .72 (.27)
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.36) (.35) (.40) (.41) (.45)
Distributions from net realized gain on investment
transactions (.10) (.14) (.34) (.16) (.36)
------- ------- ------- ------- -------
Total dividends and distributions (.46) (.49) (.74) (.57) (.81)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.56 $ 10.65 $ 10.63 $ 11.37 $ 11.22
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c) 3.52%* 4.71%+* .01%* 6.48% (2.16)%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $38,172 $42,183 $47,554 $56,437 $61,848
Ratio to average net assets of:
Expenses 1.11% 1.06% .96% .88% .77%
Net investment income 2.11% 2.60%+ 2.44% 2.46% 2.74%
Portfolio turnover rate** 216% 156% 230% 262% 217%
----------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- - --------------------------- ------------
$.03 .28% .29%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015 and December 31, 2013 by 0.03%, 0.03%, 0.03% and 0.02%,
respectively.
** The Portfolio accounts for dollar roll transactions as purchases and sales.
73
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 45.22 $ 49.50 $ 48.83 $ 42.78 $ 31.17
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)(a) .02(b) (.03)(b)+ .02 .02 (.04)
Net realized and unrealized gain on investment transactions 14.10 1.44 5.33 6.03 11.68
Contributions from Affiliates -0- .00(c) -0- -0- -0-
-------- -------- -------- -------- --------
Net increase in net asset value from operations 14.12 1.41 5.35 6.05 11.64
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.03)
Distributions from net realized gain on investment
transactions (3.00) (5.69) (4.68) -0- -0-
-------- -------- -------- -------- --------
Total dividends and distributions (3.00) (5.69) (4.68) -0- (.03)
-------- -------- -------- -------- --------
Net asset value, end of period $ 56.34 $ 45.22 $ 49.50 $ 48.83 $ 42.78
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* 31.98% 2.63%+ 11.11% 14.14% 37.35%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $208,392 $178,136 $191,568 $189,620 $190,488
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .70% .85% .82% .83% .85%
Expenses, before waivers/reimbursements .70% .85% .82% .83% .85%
Net investment income (loss) .03%(b) (.07)%(b)+ .04% .04% (.11)%
Portfolio turnover rate 48% 59% 65% 65% 60%
-----------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.005 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.01%,
0.09%, 0.02% and 0.10%, respectively.
74
AB VPS GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 31.21 $ 30.12 $ 30.04 $ 27.80 $ 20.88
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .31(b) .43(b)+ .37 .40 .33
Net realized and unrealized gain on investment transactions 5.21 2.84 .14 2.23 6.92
Capital contributions .00(c) -0- -0- -0- -0-
-------- -------- -------- -------- --------
Net increase in net asset value from operations 5.52 3.27 .51 2.63 7.25
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.49) (.32) (.43) (.39) (.33)
Distributions from net realized gain on investment
transactions (2.89) (1.86) -0- -0- -0-
-------- -------- -------- -------- --------
Total dividends and distributions (3.38) (2.18) (.43) (.39) (.33)
-------- -------- -------- -------- --------
Net asset value, end of period $ 33.35 $ 31.21 $ 30.12 $ 30.04 $ 27.80
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* 18.93% 11.30%+ 1.70% 9.54% 34.96%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $159,324 $155,924 $150,801 $168,135 $164,154
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .60% .61% .60% .60% .60%
Expenses, before waivers/reimbursements .60% .61% .60% .60% .60%
Net investment income .97%(b) 1.46%(b)+ 1.21% 1.39% 1.35%
Portfolio turnover rate 85% 101% 73% 51% 63%
---------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.68%, 0.03%,
0.14%, 0.11% and 0.08%, respectively.
Includes the impact of proceeds received and credited to the Portfolio
resulting from a regulatory settlement, which enhanced the Portfolio's
performance for the year ended December 31, 2017 by 0.01%.
75
AB VPS GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 27.95 $ 31.05 $ 34.47 $ 31.03 $ 23.22
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.18)(b) (.07)(b)+ (.08) (.09) (.03)
Net realized and unrealized gain on investment and foreign
currency transactions 9.61 .54 3.18 4.15 7.92
Capital contributions .00(c) -0- -0- -0- -0-
------- ------- ------- ------- -------
Net increase in net asset value from operations 9.43 .47 3.10 4.06 7.89
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.08)
Distributions from net realized gain on investment
transactions (1.65) (3.57) (6.52) (.62) -0-
------- ------- ------- ------- -------
Total dividends and distributions (1.65) (3.57) (6.52) (.62) (.08)
------- ------- ------- ------- -------
Net asset value, end of period $ 35.73 $ 27.95 $ 31.05 $ 34.47 $ 31.03
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* 34.51% 1.12%+ 9.06% 13.28% 34.01%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,230 $24,645 $27,060 $28,141 $28,650
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.12% 1.15% 1.09% 1.08% 1.06%
Expenses, before waivers/reimbursements 1.12% 1.15% 1.09% 1.08% 1.06%
Net investment loss (.57)%(b) (.23)%(b)+ (.24)% (.28)% (.10)%
Portfolio turnover rate 42% 57% 51% 66% 63%
---------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.0005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.015 .05% .05%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.11%, 0.01%,
0.06%, 0.03% and 0.06%, respectively.
Includes the impact of proceeds received and credited to the Portfolio
resulting from a regulatory settlement, which enhanced the Portfolio's
performance for the year ended December 31, 2017 by 0.14%.
76
AB VPS INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.34 $ 18.62 $ 19.04 $ 19.27 $ 17.13
------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .06(b) .11(b)+ .15 .24 .21
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 6.00 (1.39) (.50) (.47) 2.11
Contributions from Affiliates -0- -0- -0- .00(c) -0-
------- ------- ------- ------- --------
Net increase (decrease) in net asset value from operations 6.06 (1.28) (.35) (.23) 2.32
------- ------- ------- ------- --------
LESS: DIVIDENDS
Dividends from net investment income (.25) -0- (.07) -0- (.18)
------- ------- ------- ------- --------
Net asset value, end of period $ 23.15 $ 17.34 $ 18.62 $ 19.04 $ 19.27
======= ======= ======= ======= ========
TOTAL RETURN
Total investment return based on net asset value(d) 35.02%* (6.87)%+* (1.87)% (1.19)% 13.60%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $30,318 $26,045 $33,090 $38,924 $102,467
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.24% 1.27% 1.11% 1.07% .94%
Expenses, before waivers/reimbursements 1.24% 1.27% 1.11% 1.07% .94%
Net investment income .30%(b) .60%(b)+ .78% 1.20% 1.15%
Portfolio turnover rate 52% 52% 17% 29% 31%
--------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.04 .22% .23%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2016 by
0.01% and 0.09%, respectively.
77
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 22.29 $ 22.43 $ 21.80 $ 20.75 $ 16.88
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .03(b) .04(b)+ .02 .06 .04
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 8.13 (.18) .60 .99 3.88
Contributions from Affiliates -0- -0- .01 -0- -0-
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations 8.16 (.14) .63 1.05 3.92
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.13) -0- -0- -0- (.05)
Tax return of capital -0- -0- -0- -0- (.00)(c)
------- ------- ------- ------- -------
Total dividends and distributions (.13) -0- -0- -0- (.05)
------- ------- ------- ------- -------
Net asset value, end of period $ 30.32 $ 22.29 $ 22.43 $ 21.80 $ 20.75
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* 36.66% (.62)%+ 2.89% 5.06% 23.26%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $40,121 $28,458 $31,534 $30,886 $32,195
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.02% 1.06% 1.01% 1.01% .98%
Expenses, before waivers/reimbursements 1.02% 1.06% 1.01% 1.01% .98%
Net investment income .09%(b) .17%(b)+ .07% .26% .22%
Portfolio turnover rate 40% 54% 47% 48% 96%
-------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of fees waived and expenses reimbursed by the Adviser.
(c)Amount is less than $.005.
(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 (i)
insurance company's separate account related expense charges and (ii) the
deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.004 .02% .02%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.04%, 0.28%,
0.01%, 0.02% and 0.05%, respectively.
78
AB VPS SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.07 $ 17.31 $ 20.97 $ 23.47 $ 18.96
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.18)(b) (.12)(b)+ (.19) (.15) (.21)
Net realized and unrealized gain (loss) on investment
transactions 4.64 1.05 .18 (.30) 8.30
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations 4.46 .93 (.01) (.45) 8.09
------- ------- ------- ------- -------
LESS: DISTRIBUTIONS
Distributions from net realized gain on investment
transactions -0- (5.17) (3.65) (2.05) (3.58)
------- ------- ------- ------- -------
Net asset value, end of period $ 17.53 $ 13.07 $ 17.31 $ 20.97 $ 23.47
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c)* 34.12% 6.46%+ (1.25)% (1.81)% 45.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $26,039 $22,405 $25,033 $28,055 $33,510
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(d) 1.38% 1.48% 1.31% 1.11% 1.17%
Expenses, before waivers/reimbursements(d) 1.38% 1.49% 1.31% 1.11% 1.17%
Net investment loss (1.19)%(b) (.83)%(b)+ (.92)% (.67)% (.96)%
Portfolio turnover rate 69% 60% 72% 84% 81%
---------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the year ended December 31, 2017, such waiver amounted
to 0.01% for the Portfolio.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.004 .03% .03%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.08%,
0.02%, 0.01% and 0.23%, respectively.
79
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.22 $ 9.08 $ 10.00 $ 11.18 $ 12.25
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .14(b) .18(b)+ .18 .14 .24
Net realized and unrealized gain (loss) on investment and
foreign currency transactions .44 .56 (.12) 2.39 .24
------- ------- ------- ------- -------
Net increase in net asset value from operations .58 .74 .06 2.53 .48
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.17) (.15) (.15) (.37) (.20)
Distributions from net realized gain on investment
transactions (.52) (.45) (.83) (3.34) (1.35)
------- ------- ------- ------- -------
Total dividends and distributions (.69) (.60) (.98) (3.71) (1.55)
------- ------- ------- ------- -------
Net asset value, end of period $ 9.11 $ 9.22 $ 9.08 $ 10.00 $ 11.18
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c) 6.53% 7.76%+ .80% 25.35% 4.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $32,883 $35,294 $35,970 $38,003 $31,576
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.05% 1.08% 1.07% 1.08% .86%
Expenses, before waivers/reimbursements 1.05% 1.08% 1.07% 1.08% .86%
Net investment income 1.54%(b) 1.90%(b)+ 1.91% 1.26% 1.92%
Portfolio turnover rate 59% 77% 67% 67% 98%
----------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .02% .02%
80
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.28 $ 13.52 $ 13.53 $ 14.99 $ 12.96
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .31(b) .30(b)+ .30 .48 .33
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 3.06 (.37) .05 (1.40) 2.59
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations 3.37 (.07) .35 (.92) 2.92
------- ------- ------- ------- -------
LESS: DIVIDENDS
Dividends from net investment income (.35) (.17) (.36) (.54) (.89)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.30 $ 13.28 $ 13.52 $ 13.53 $ 14.99
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c) 25.42%* (.50)%+* 2.59% (6.21)% 23.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $53,014 $47,385 $48,665 $50,504 $58,723
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .85% .86% .85% .85% .82%
Expenses, before waivers/reimbursements .86% .86% .85% .85% .82%
Net investment income 2.05%(b) 2.27%(b)+ 2.09% 3.25% 2.33%
Portfolio turnover rate 45% 64% 74% 64% 59%
-----------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2016 by
0.01% and 0.07%, respectively.
81
AB VPS SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.29 $ 17.29 $ 21.95 $ 22.89 $ 17.67
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .10(b) .10(b)+ .11 .17 .16
Net realized and unrealized gain (loss) on investment
transactions 2.41 4.09 (1.11) 1.82 6.41
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations 2.51 4.19 (1.00) 1.99 6.57
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.09) (.11) (.17) (.17) (.13)
Distributions from net realized gain on investment
transactions (1.03) (1.08) (3.49) (2.76) (1.22)
-------- -------- -------- -------- --------
Total dividends and distributions (1.12) (1.19) (3.66) (2.93) (1.35)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.68 $ 20.29 $ 17.29 $ 21.95 $ 22.89
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(c) 13.15%* 25.09%+ (5.49)% 9.20% 38.06%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $233,652 $231,197 $191,388 $211,680 $217,146
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(d) .81% .82% .82% .82% .81%
Expenses, before waivers/reimbursements(d) .82% .83% .82% .82% .81%
Net investment income .47%(b) .53%(b)+ .56% .75% .77%
Portfolio turnover rate 33% 57% 42% 45% 56%
-----------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bear proportionate
shares of the acquired fund fees and expenses (i.e., operating,
administrative and investment advisory fees) of the affiliated underlying
portfolios. The Adviser has contractually agreed to waive its fees from the
Portfolio in an amount equal to the Portfolio's pro rata share of certain
acquired fund fees and expenses, and for the year ended December 31, 2017
and year ended December 31, 2016, such waiver amounted to less than .005%
for the Portfolio.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.001 .003% .003%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2013 by
0.11% and 0.01%, respectively.
82
AB VPS VALUE PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.47 $14.11 $15.50 $14.22 $10.63
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .17(b) .19(b)+ .21 .26 .19
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 1.91 1.42 (1.26) 1.31 3.70
Contributions from Affiliates .00(c) -0- -0- -0- -0-
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations 2.08 1.61 (1.05) 1.57 3.89
------ ------ ------ ------ ------
LESS: DIVIDENDS
Dividends from net investment income (.23) (.25) (.34) (.29) (.30)
------ ------ ------ ------ ------
Net asset value, end of period $17.32 $15.47 $14.11 $15.50 $14.22
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* 13.57% 11.55%+ (6.95)% 11.10% 36.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,364 $1,463 $1,373 $2,050 $2,205
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .87% .88% .81% .79% .73%
Expenses, before waivers/reimbursements(e) .87% .89% .81% .79% .73%
Net investment income 1.08%(b) 1.30%(b)+ 1.38% 1.74% 1.51%
Portfolio turnover rate 36% 68% 83% 42% 44%
------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.0005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bear proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the year ended December 31, 2016, such waiver amounted
to less than .005% for the Portfolio.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- - --------------------------- ------------
$.003 .02% .02%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.13%, 0.02%,
0.17%, 0.04% and 0.07%, respectively.
83
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.54 $ 10.99 $ 12.16 $ 13.77 $ 12.12
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .17(b) .19(b)+ .20 .26 .23
Net realized and unrealized gain on investment and foreign
currency transactions 1.48 .34 .02++ .71 1.74
Contributions from Affiliates .00(c) .00(c) -0- .00(c) -0-
------- ------- ------- ------- -------
Net increase in net asset value from operations 1.65 .53 .22 .97 1.97
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.24) (.24) (.27) (.39) (.32)
Distributions from net realized gain on investment and
foreign currency transactions (.09) (.74) (1.12) (2.19) -0-
------- ------- ------- ------- -------
Total dividends and distributions (.33) (.98) (1.39) (2.58) (.32)
------- ------- ------- ------- -------
Net asset value, end of period $ 11.86 $ 10.54 $ 10.99 $ 12.16 $ 13.77
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) 15.84%* 4.69%+ 1.65%* 7.37%* 16.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $29,328 $30,132 $33,409 $36,882 $41,222
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .73% .73% .70% .71% .65%
Expenses, before waivers/reimbursements .73% .73% .70% .71% .65%
Net investment income 1.51%(b) 1.74%(b)+ 1.71% 1.96% 1.76%
Portfolio turnover rate** 108% 106% 132% 114% 117%
-------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out-of-pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.001 .01% .01%
++ Due to timing of sales and repurchase of capital shares, the net realized
and unrealized gain (loss) per share is not in accord with the Portfolio's
change in net realized and unrealized gain (loss) on investment transactions
for the period.
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2015 and
December 31, 2014 by 0.02%, 0.03% and 0.01%, respectively.
** The Portfolio accounts for dollar roll transactions as purchases and sales.
84
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.63 $11.33 $11.74 $11.74 $10.53
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .17(b) .13(b)+ .08 .08(b) .03(b)
Net realized and unrealized gain (loss) on investment and
foreign currency transactions 1.52 .27 (.19) .44 1.26
Contributions from Affiliates .00(c) -0- -0- -0- -0-
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations 1.69 .40 (.11) .52 1.29
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.25) (.10) (.10) (.07) (.04)
Distributions from net realized gain on investment
transactions -0- (.00)(c) (.20) (.45) (.04)
------ ------ ------ ------ ------
Total dividends and distributions (.25) (.10) (.30) (.52) (.08)
------ ------ ------ ------ ------
Net asset value, end of period $13.07 $11.63 $11.33 $11.74 $11.74
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d) 14.67% 3.59%+ (1.09)% 4.45% 12.31%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 328 $ 303 $ 400 $ 350 $ 269
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .77% .79% .83% .85% .85%
Expenses, before waivers/reimbursements(e) .78% .81% .83% .85% .89%
Net investment income 1.39%(b) 1.11%(b)+ .67% .69%(b) .31%(b)
Portfolio turnover rate 20% 64% 93% 53% 52%
------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of fees waived and expenses reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the years ended December 31, 2017 and December 31,
2016, such waiver amounted to 0.01% and 0.02% (annualized), respectively.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.00005 .0004% .0004%
85
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
--------------------------------------------------------------------------------
CLASS A
APRIL 28,
2015(a) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
2017 2016 2015
-------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.78 $9.40 $10.00
------ ----- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .06 .04 .05
Net realized and unrealized gain (loss) on investment
transactions and foreign currency transactions 1.09 .37 (.65)
Contributions from Affiliates .00(d) -0- -0-
------ ----- ------
Net increase (decrease) in net asset value from operations 1.15 .41 (.60)
------ ----- ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.05) (.03) -0-
Distributions from net realized gain on investment
transactions (.05) -0- -0-
------ ----- ------
Total dividends and distributions (.10) (.03) -0-
------ ----- ------
Net asset value, end of period $10.83 $9.78 $ 9.40
====== ===== ======
TOTAL RETURN
Total investment return based on net asset value(e) 11.87% 4.39% (6.00)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 12 $ 11 $ 10
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) .63% .63% .69%^
Expenses, before waivers/reimbursements(f) .94% 1.08% 3.21%^
Net investment income(c) .55% .46% .82%^
Portfolio turnover rate 59% 79% 111%
-------------------------------------------------------------------------------------------------
(a)Commencement of operations.
(b)Based on average shares outstanding.
(c)Net of fees waived and expenses reimbursed by the Adviser.
(d)Amount is less than $.005.
(e)Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return does not reflect
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
(f)In connection with the Portfolio's investments in affiliated/unaffiliated
underlying portfolios, the Portfolio incurs no direct expenses, but bears
proportionate shares of the fees and expenses (i.e., operating,
administrative and investment advisory fees) of the affiliated/unaffiliated
underlying portfolios. The Adviser has contractually agreed to waive its
fees from the Portfolio in an amount equal to the Portfolio's pro rata share
of affiliated/unaffiliated acquired fund fees and expenses, and for the
years ended December 31, 2017, December 31, 2016 and December 31, 2015 such
waiver amounted to 0.11%, 0.12% and 0.06% (annualized), respectively.
^ Annualized.
86
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--Where no rating has been assigned or where a rating has been
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension may occur if new and material circumstances arise, the effects of
which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
S&P GLOBAL RATINGS ("S&P")
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing
A-1
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to an inadequate capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
FITCH RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
Defaulted obligations are typically rated in the 'B' to 'C' rating categories,
depending upon their recovery prospects and other relevant considerations. This
approach better aligns obligations that have comparable overall expected loss
but varying vulnerability to default and loss.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category or in categories below B.
A-2
APPENDIX B
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
--------------------------------------------------------------------------------
The following supplemental hypothetical investment information provides
additional information calculated and presented in a manner different from
expense information found under "Fees and Expenses of the Portfolios" in this
Prospectus about the effect of a Portfolio's expenses, including investment
advisory fees and other Portfolio costs, on the Portfolio's returns over a
10-year period. The chart shows the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class A shares of the Portfolio
assuming a 5% return each year. Except as otherwise indicated, the chart also
assumes that the current annual expense ratio stays the same throughout the
10-year period. The current annual expense ratio for each Portfolio is the same
as stated under "Fees and Expenses of the Portfolios". There are additional
fees and expenses associated with variable products. These fees can include
mortality and expense risk charges, administrative charges, and other charges
that can significantly affect expenses. These fees and expenses are not
reflected in the following expense information. Your actual expenses may be
higher or lower.
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 116.55 $10,383.45
2 10,383.45 519.17 10,902.62 121.02 10,781.60
3 10,781.60 539.08 11,320.68 125.66 11,195.02
4 11,195.02 559.75 11,754.77 130.48 11,624.29
5 11,624.29 581.21 12,205.50 135.48 12,070.02
6 12,070.02 603.50 12,673.52 140.68 12,532.84
7 12,532.84 626.64 13,159.48 146.07 13,013.41
8 13,013.41 650.67 13,664.08 151.67 13,512.41
9 13,512.41 675.62 14,188.03 157.49 14,030.54
10 14,030.54 701.53 14,732.07 163.53 14,568.54
--------------------------------------------------------------------------
Cumulative $5,957.17 $1,388.63
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 73.50 $10,426.50
2 10,426.50 521.33 10,947.83 76.63 10,871.20
3 10,871.20 543.56 11,414.76 79.90 11,334.86
4 11,334.86 566.74 11,901.60 83.31 11,818.29
5 11,818.29 590.91 12,409.20 86.86 12,322.34
6 12,322.34 616.12 12,938.46 90.57 12,847.89
7 12,847.89 642.39 13,490.28 94.43 13,395.85
8 13,395.85 669.79 14,065.64 98.46 13,967.18
9 13,967.18 698.36 14,665.54 102.66 14,562.88
10 14,562.88 728.14 15,291.02 107.04 15,183.98
--------------------------------------------------------------------------
Cumulative $6,077.34 $893.36
AB VPS GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 63.00 $10,437.00
2 10,437.00 521.85 10,958.85 65.75 10,893.10
3 10,893.10 544.66 11,437.76 68.63 11,369.13
4 11,369.13 568.46 11,937.59 71.63 11,865.96
5 11,865.96 593.30 12,459.26 74.76 12,384.50
6 12,384.50 619.23 13,003.73 78.02 12,925.71
7 12,925.71 646.29 13,572.00 81.43 13,490.57
8 13,490.57 674.53 14,165.10 84.99 14,080.11
9 14,080.11 704.01 14,784.12 88.70 14,695.42
10 14,695.42 734.77 15,430.19 92.58 15,337.61
--------------------------------------------------------------------------
Cumulative $6,107.10 $769.49
B-1
AB VPS GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 120.75 $10,379.25
2 10,379.25 518.96 10,898.21 125.33 10,772.88
3 10,772.88 538.64 11,311.52 130.08 11,181.44
4 11,181.44 559.07 11,740.51 135.02 11,605.49
5 11,605.49 580.27 12,185.76 140.14 12,045.62
6 12,045.62 602.28 12,647.90 145.45 12,502.45
7 12,502.45 625.12 13,127.57 150.97 12,976.60
8 12,976.60 648.83 13,625.43 156.69 13,468.74
9 13,468.74 673.44 14,142.18 162.64 13,979.54
10 13,979.54 698.98 14,678.52 168.80 14,509.72
--------------------------------------------------------------------------
Cumulative $5,945.59 $1,435.87
AB VPS INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 130.20 $10,369.80
2 10,369.80 518.49 10,888.29 135.01 10,753.28
3 10,753.28 537.66 11,290.94 140.01 11,150.93
4 11,150.93 557.55 11,708.48 145.19 11,563.29
5 11,563.29 578.16 12,141.45 150.55 11,990.90
6 11,990.90 599.55 12,590.45 156.12 12,434.33
7 12,434.33 621.72 13,056.05 161.90 12,894.15
8 12,894.15 644.71 13,538.86 167.88 13,370.98
9 13,370.98 668.55 14,039.53 174.09 13,865.44
10 13,865.44 693.27 14,558.71 180.53 14,378.18
--------------------------------------------------------------------------
Cumulative $5,919.66 $1,541.48
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 107.10 $10,392.90
2 10,392.90 519.65 10,912.55 111.31 10,801.24
3 10,801.24 540.06 11,341.30 115.68 11,225.62
4 11,225.62 561.28 11,786.90 120.23 11,666.67
5 11,666.67 583.33 12,250.00 124.95 12,125.05
6 12,125.05 606.25 12,731.30 129.86 12,601.44
7 12,601.44 630.07 13,231.51 134.96 13,096.55
8 13,096.55 654.83 13,751.38 140.26 13,611.12
9 13,611.12 680.56 14,291.68 145.78 14,145.90
10 14,145.90 707.30 14,853.20 151.50 14,701.70
--------------------------------------------------------------------------
Cumulative $5,983.33 $1,281.63
AB VPS SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 144.90 $10,355.10
2 10,355.10 517.76 10,872.86 150.05 10,722.81
3 10,722.81 536.14 11,258.95 155.37 11,103.58
4 11,103.58 555.18 11,658.76 160.89 11,497.87
5 11,497.87 574.89 12,072.76 166.60 11,906.16
6 11,906.16 595.31 12,501.47 172.52 12,328.95
7 12,328.95 616.45 12,945.40 178.65 12,766.75
8 12,766.75 638.34 13,405.09 184.99 13,220.10
9 13,220.10 661.01 13,881.11 191.56 13,689.55
10 13,689.55 684.48 14,374.03 198.36 14,175.67
--------------------------------------------------------------------------
Cumulative $5,879.56 $1,703.89
B-2
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 110.25 $10,389.75
2 10,389.75 519.49 10,909.24 114.55 10,794.69
3 10,794.69 539.73 11,334.42 119.01 11,215.41
4 11,215.41 560.77 11,776.18 123.65 11,652.53
5 11,652.53 582.63 12,235.16 128.47 12,106.69
6 12,106.69 605.33 12,712.02 133.48 12,578.54
7 12,578.54 628.93 13,207.47 138.68 13,068.79
8 13,068.79 653.44 13,722.23 144.08 13,578.15
9 13,578.15 678.91 14,257.06 149.70 14,107.36
10 14,107.36 705.37 14,812.73 155.53 14,657.20
--------------------------------------------------------------------------
Cumulative $5,974.60 $1,317.40
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 90.30 $10,409.70
2 10,409.70 520.49 10,930.19 94.00 10,836.19
3 10,836.19 541.81 11,378.00 97.85 11,280.15
4 11,280.15 564.01 11,844.16 101.86 11,742.30
5 11,742.30 587.12 12,329.42 106.03 12,223.39
6 12,223.39 611.17 12,834.56 110.38 12,724.18
7 12,724.18 636.21 13,360.39 114.90 13,245.49
8 13,245.49 662.27 13,907.76 119.61 13,788.15
9 13,788.15 689.41 14,477.56 124.51 14,353.05
10 14,353.05 717.65 15,070.70 129.61 14,941.09
--------------------------------------------------------------------------
Cumulative $6,030.14 $1,089.05
AB VPS SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 87.15 $10,412.85
2 10,412.85 520.64 10,933.49 90.75 10,842.74
3 10,842.74 542.14 11,384.88 94.49 11,290.39
4 11,290.39 564.52 11,854.91 98.40 11,756.51
5 11,756.51 587.83 12,344.34 102.46 12,241.88
6 12,241.88 612.09 12,853.97 106.69 12,747.28
7 12,747.28 637.36 13,384.64 111.09 13,273.55
8 13,273.55 663.68 13,937.23 115.68 13,821.55
9 13,821.55 691.08 14,512.63 120.45 14,392.18
10 14,392.18 719.61 15,111.79 125.43 14,986.36
--------------------------------------------------------------------------
Cumulative $6,038.95 $1,052.59
AB VPS VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 91.35 $10,408.65
2 10,408.65 520.43 10,929.08 95.08 10,834.00
3 10,834.00 541.70 11,375.70 98.97 11,276.73
4 11,276.73 563.84 11,840.57 103.01 11,737.56
5 11,737.56 586.88 12,324.44 107.22 12,217.22
6 12,217.22 610.86 12,828.08 111.60 12,716.48
7 12,716.48 635.82 13,352.30 116.17 13,236.13
8 13,236.13 661.81 13,897.94 120.91 13,777.03
9 13,777.03 688.85 14,465.88 125.85 14,340.03
10 14,340.03 717.00 15,057.03 131.00 14,926.03
--------------------------------------------------------------------------
Cumulative $6,027.19 $1,101.16
B-3
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 76.65 $10,423.35
2 10,423.35 521.17 10,944.52 79.89 10,864.63
3 10,864.63 543.23 11,407.86 83.28 11,324.58
4 11,324.58 566.23 11,890.81 86.80 11,804.01
5 11,804.01 590.20 12,394.21 90.48 12,303.73
6 12,303.73 615.19 12,918.92 94.31 12,824.61
7 12,824.61 641.23 13,465.84 98.30 13,367.54
8 13,367.54 668.38 14,035.92 102.46 13,933.46
9 13,933.46 696.67 14,630.13 106.80 14,523.33
10 14,523.33 726.17 15,249.50 111.32 15,138.18
--------------------------------------------------------------------------
Cumulative $6,068.47 $930.29
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 85.05 $10,414.95
2 10,414.95 520.75 10,935.70 89.67 10,846.03
3 10,846.03 542.30 11,388.33 93.38 11,294.95
4 11,294.95 564.75 11,859.70 97.25 11,762.45
5 11,762.45 588.12 12,350.57 101.27 12,249.30
6 12,249.30 612.47 12,861.77 105.47 12,756.30
7 12,756.30 637.82 13,394.12 109.83 13,284.29
8 13,284.29 664.21 13,948.50 114.38 13,834.12
9 13,834.12 691.71 14,525.83 119.11 14,406.72
10 14,406.72 720.34 15,127.06 124.04 15,003.02
--------------------------------------------------------------------------
Cumulative $6,042.47 $1,039.45
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 78.75 $10,421.25
2 10,421.25 521.06 10,942.31 115.99 10,826.32
3 10,826.32 541.32 11,367.64 120.50 11,247.14
4 11,247.14 562.36 11,809.50 125.18 11,684.32
5 11,684.32 584.22 12,268.54 130.05 12,138.49
6 12,138.49 606.92 12,745.41 135.10 12,610.31
7 12,610.31 630.52 13,240.83 140.35 13,100.48
8 13,100.48 655.02 13,755.50 145.81 13,609.69
9 13,609.69 680.48 14,290.17 151.48 14,138.69
10 14,138.69 706.93 14,845.62 157.36 14,688.26
--------------------------------------------------------------------------
Cumulative $5,988.83 $1,300.57
--------
* Expenses are net of any applicable fee waivers and expense reimbursements by
the Adviser in the first year. Thereafter, the expense ratio reflects the
Portfolio's operating expenses as reflected under "Fee and Expenses of the
Portfolio" before the waiver and expense reimbursement in the Summary
information at the beginning of this Prospectus.
B-4
For more information about the Portfolios, the following documents are
available upon request:
.. ANNUAL/SEMI-ANNUAL REPORTS TO CONTRACTHOLDERS
The Portfolios' annual and semi-annual reports to Contractholders contain
additional information on the Portfolios' investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Portfolio's performance during its last fiscal
year.
.. STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Portfolios have an SAI, which contains more detailed information about the
Portfolios, including their operations and investment policies. The Portfolios'
SAI and the independent registered public accounting firm's report and
financial statements in each Portfolio's most recent annual report to
Contractholders are incorporated by reference into (and are legally part of)
this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make inquiries concerning the Portfolios, by contacting your broker or
other financial intermediary, or by contacting the Adviser:
BY MAIL: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Securities and Exchange
Commission:
.. Call the Commission at 1-202-551-8090 for information on the operation of
the Public Reference Room.
.. Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
.. Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing to the
Commission's Public Reference Section, Washington, DC 20549-1520.
You also may find these documents and more information about the Adviser and
the Portfolios on the Internet at: www.abfunds.com.
The [A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein(R)
is a registered trademark used by permission of the owner, AllianceBernstein
L.P.
SEC File No. 811-05398
[GRAPHIC]
[A/B]
[LOGO]/R/
PROSPECTUS | MAY 1, 2018
AB Variable Products Series Fund, Inc.
Class B Prospectus
AB VPS
Intermediate Bond Portfolio Real Estate Investment Portfolio
Large Cap Growth Portfolio International Value Portfolio
Growth and Income Portfolio Small/Mid Cap Value Portfolio
Growth Portfolio Value Portfolio
International Growth Portfolio Balanced Wealth Strategy Portfolio
Global Thematic Growth Portfolio Dynamic Asset Allocation Portfolio
Small Cap Growth Portfolio Global Risk Allocation--Moderate Portfolio
This Prospectus describes the Portfolios that are available as underlying
investments through your variable contract. For information about your variable
contract, including information about insurance-related expenses, see the
prospectus for your variable contract which accompanies this Prospectus.
The Securities and Exchange Commission and the Commodity Futures Trading
Commission have not approved or disapproved these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
Investment Products Offered
.. Are Not FDIC Insured
.. May Lose Value
.. Are Not Bank Guaranteed
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
SUMMARY INFORMATION....................................................... 4
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS' RISKS AND INVESTMENTS........ 51
INVESTING IN THE PORTFOLIOS............................................... 64
MANAGEMENT OF THE PORTFOLIOS.............................................. 67
DIVIDENDS, DISTRIBUTIONS AND TAXES........................................ 70
GLOSSARY.................................................................. 71
FINANCIAL HIGHLIGHTS...................................................... 72
APPENDIX A--BOND RATINGS.................................................. A-1
APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION............... B-1
SUMMARY INFORMATION
--------------------------------------------------------------------------------
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to generate income and price
appreciation without assuming what the Adviser considers undue risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-----------------------------------------------------------------------------
Management Fees .45%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .65%
-----
Total Other Expenses .66%
-----
Total Portfolio Operating Expenses 1.36%
=====
-----------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 138
After 3 Years $ 431
After 5 Years $ 745
After 10 Years $1,635
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 216% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests, under normal circumstances, at least 80% of its net
assets in fixed-income securities. The Portfolio expects to invest in readily
marketable fixed-income securities with a range of maturities from short- to
long-term and relatively attractive yields that do not involve undue risk of
loss of capital. The Portfolio expects to invest in fixed-income securities
with a dollar-weighted average maturity of between three to ten years and an
average duration of three to six years. The Portfolio may invest up to 25% of
its net assets in below investment grade bonds (commonly known as "junk
bonds"). The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in U.S. Dollar-denominated foreign
fixed-income securities and may invest up to 25% of its assets in
non-U.S. Dollar-denominated foreign fixed-income securities. These investments
may include, in each case, developed and emerging market debt securities.
4
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Portfolio. In
making this assessment, the Adviser takes into account various factors,
including the credit quality and sensitivity to interest rates of the
securities under consideration and of the Portfolio's other holdings.
The Portfolio may invest in mortgage-related and other asset-backed securities,
loan participations, inflation-indexed securities, structured securities,
variable, floating and inverse floating-rate instruments, and preferred stock,
and may use other investment techniques. The Portfolio intends, among other
things, to enter into transactions such as reverse repurchase agreements and
dollar rolls. The Portfolio may invest, without limit, in derivatives, such as
options, futures contracts, forwards and swaps.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. BELOW INVESTMENT GRADE SECURITY RISK: Investments in fixed-income securities
with lower ratings ("junk bonds") tend to have a higher probability that an
issuer will default or fail to meet its payment obligations. These
securities may be subject to greater price volatility due to such factors as
specific corporate developments, interest rate sensitivity, negative
perceptions of the junk bond market generally and less secondary market
liquidity.
.. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
For example, a fixed-income security with a duration of three years will
decrease in value by approximately 3% if interest rates increase by 1%.
.. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Portfolio's assets can
decline as can the value of the Portfolio's distributions. This risk is
significantly greater if the Portfolio invests a significant portion of its
assets in fixed-income securities with longer maturities.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Portfolio to a lower rate of return upon
reinvestment of principal. Mortgage-backed securities offered by
nongovernmental issuers and other asset-backed securities may be subject to
other risks, such as higher rates of default in the mortgages or assets
backing the securities or risks associated with the nature and servicing of
mortgages or assets backing the securities.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
5
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes, large positions and heavy redemptions of Portfolio shares.
Over recent years liquidity risk has also increased because the capacity of
dealers in the secondary market for fixed-income securities to make markets
in these securities has decreased, even as the overall bond market has grown
significantly, due to, among other things, structural changes, additional
regulatory requirements and capital and risk restraints that have led to
reduced inventories. Liquidity risk may be higher in a rising interest rate
environment, when the value and liquidity of fixed-income securities
generally decline.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. ACTIVE TRADING RISK: The Portfolio expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate is
expected to exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Portfolio's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for
Contractholders.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------ ------ ----- ----- ----- ------ ----- ------ ----- -----
-6.59% 18.20% 8.93% 6.38% 5.79% -2.34% 6.22% -0.18% 4.36% 3.28%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 7.97%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-4.26%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 3.28% 2.22% 4.21%
-----------------------------------------------------------------------------
Bloomberg Barclays U.S. Aggregate Bond Index
(reflects no deduction for fees, expenses, or taxes) 3.54% 2.10% 4.01%
-----------------------------------------------------------------------------
6
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
Michael Canter Since 2016 Senior Vice President of the Adviser
Shawn E. Keegan Since 2007 Senior Vice President of the Adviser
Douglas J. Peebles Since 2007 Senior Vice President of the Adviser
Greg J. Wilensky Since 2005 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
7
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .60%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .09%
----
Total Other Expenses .09%
----
Total Portfolio Operating Expenses .94%
====
-------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 97
After 3 Years $ 303
After 5 Years $ 525
After 10 Years $1,166
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 48% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in equity securities of a limited number of
large, carefully selected, high-quality U.S. companies. The Portfolio invests
primarily in the domestic equity securities of companies selected by the
Adviser for their growth potential within various market sectors. The Portfolio
emphasizes investments in large, seasoned companies. Under normal
circumstances, the Portfolio will invest at least 80% of its net assets in
common stocks of large-capitalization companies.
For these purposes, "large-capitalization companies" are those that, at the
time of investment, have market capitalizations within the range of market
capitalizations of companies appearing in the Russell 1000 Growth Index. While
the market capitalizations of companies in the Russell 1000 Growth Index ranged
from approximately $1.2 billion to $861 billion as of December 31, 2017, the
Portfolio normally will invest in common stocks of companies with market
capitalizations of at least $5 billion at the time of purchase.
The Adviser expects that normally the Portfolio's portfolio will tend to
emphasize investments in securities issued by U.S. companies, although it may
invest in foreign securities.
8
The Adviser allocates the Portfolio's investments among broad sector groups
based on the fundamental company research conducted by the Adviser's internal
research staff, assessing the current and forecasted investment opportunities
and conditions, as well as diversification and risk considerations. The Adviser
may vary the percentage allocations among market sectors and may change the
market sectors in which the Portfolio invests as companies' potential for
growth within a sector matures and new trends for growth emerge.
The Adviser's research focus is on companies with high sustainable growth
prospects, high or improving return on invested capital, transparent business
models, and strong and lasting competitive advantages.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in securities. ETFs may provide more
efficient and economical exposure to the types of companies and geographic
locations in which the Portfolio seeks to invest than direct investments.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ----- ------ ------ ------ ------ ------ ----- ------
-39.82% 37.10% 9.83% -3.27% 16.12% 37.00% 13.84% 10.86% 2.36% 31.67%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 16.81%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-19.87%, 4TH QUARTER, 2008.
9
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 31.67% 18.43% 9.02%
-----------------------------------------------------------------------------
Russell 1000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 30.21% 17.33% 10.00%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Frank V. Caruso Since 2012 Senior Vice President of the Adviser
John H. Fogarty Since 2012 Senior Vice President of the Adviser
Vinay Thapar Since May 2018 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
10
AB VPS GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .55%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .05%
----
Total Other Expenses .05%
----
Total Portfolio Operating Expenses .85%
====
--------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 87
After 3 Years $ 271
After 5 Years $ 471
After 10 Years $1,049
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 85% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in the equity securities of U.S. companies that
the Adviser believes are undervalued. The Adviser believes that, over time, a
company's stock price will come to reflect its intrinsic economic value. The
Portfolio may invest in companies of any size and in any industry.
The Adviser depends heavily upon the fundamental analysis and research of its
internal research staff in making investment decisions for the Portfolio. In
determining a company's intrinsic economic value, the Adviser takes into
account many fundamental and financial factors that it believes bear on the
company's ability to perform in the future, including earnings growth,
prospective cash flows, dividend growth and growth in book value. The Adviser
then ranks each of the companies in its research universe in the relative order
of disparity between their intrinsic economic values and their current stock
prices, with companies with the greatest disparities receiving the highest
rankings (I.E., being considered the most undervalued). The Adviser anticipates
that the Portfolio's portfolio normally will include companies ranking in the
top three deciles of the Adviser's valuation model.
11
The Adviser recognizes that the perception of what is a "value" stock is
relative and the factors considered in determining whether a stock is a "value"
stock may, and often will, have differing relative significance in different
phases of an economic cycle. Also, at different times, and as a result of how
individual companies are valued in the market, the Portfolio may be attracted
to investments in companies with different market capitalizations (I.E.,
large-, mid- or small-capitalization) or companies engaged in particular types
of business (E.G., banks and other financial institutions), although the
Portfolio does not intend to concentrate in any particular industries or
businesses. The Portfolio's portfolio emphasis upon particular industries or
sectors will be a by-product of the stock selection process rather than the
result of assigned targets or ranges.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may be underperforming the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. INDUSTRY/SECTOR RISK: Investments in a particular industry or group of
related industries may have more risk because market or economic factors
affecting that industry could have a significant effect on the value of the
Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
12
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ----- ----- ------ ------
-40.69% 20.35% 12.80% 6.07% 17.24% 34.59% 9.29% 1.43% 11.07% 18.59%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 14.14%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-20.14%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 18.59% 14.47% 7.00%
-----------------------------------------------------------------------------
Russell 1000(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 13.66% 14.04% 7.10%
-----------------------------------------------------------------------------
*Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.68%.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Frank V. Caruso Since 2001 Senior Vice President of the Adviser
John H. Fogarty Since May 2018 Senior Vice President of the Adviser
Vinay Thapar Since May 2018 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
13
AB VPS GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .36%
-----
Total Other Expenses .37%
-----
Total Portfolio Operating Expenses 1.37%
=====
------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 139
After 3 Years $ 434
After 5 Years $ 750
After 10 Years $1,646
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 42% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a domestic portfolio of equity securities of
companies selected by the Adviser for their growth potential within various
market sectors. The Adviser looks for companies that have experienced
management teams, strong market positions, and the potential to deliver
greater-than-expected earnings growth rates.
In managing the Portfolio, the Adviser allocates investments among broad sector
groups and selects specific investments based on the fundamental company
research conducted by the Adviser's internal research staff, assessing the
current and forecasted investment opportunities and conditions, as well as
diversification and risk considerations. The Adviser's research focus is on
companies with high sustainable growth prospects, high or improving return on
invested capital, transparent business models, and clear competitive advantages.
The Portfolio has the flexibility to invest across the capitalization spectrum.
The Portfolio is designed for those seeking exposure to companies of various
sizes, and typically has substantial investments in both large-capitalization
companies and mid-capitalization companies, and may also invest in
small-capitalization companies.
14
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, in an effort to earn extra income, to adjust exposure to
individual securities or markets, or to protect all or a portion of the
Portfolio's portfolio from a decline in value.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ------ ----- ----- ------
-42.55% 32.76% 14.80% 0.97% 13.58% 33.72% 12.96% 8.82% 0.85% 34.15%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 15.55%, 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-22.13%, 4TH QUARTER, 2008.
15
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 34.15% 17.33% 8.36%
-----------------------------------------------------------------------------
Russell 3000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 29.59% 17.16% 9.93%
-----------------------------------------------------------------------------
*Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements and a regulatory settlement, which
enhanced the Portfolio's performance for the 1-Year period ended December 31,
2017 by 0.11% and 0.14%, respectively.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Bruce K. Aronow Since 2013 Senior Vice President of the Adviser
Frank V. Caruso Since 2008 Senior Vice President of the Adviser
John H. Fogarty Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
16
AB VPS INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .48%
-----
Total Other Expenses .49%
-----
Total Portfolio Operating Expenses 1.49%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 152
After 3 Years $ 471
After 5 Years $ 813
After 10 Years $1,779
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 52% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in an international portfolio of equity
securities of companies selected by the Adviser for their growth potential
within various market sectors. Examples of the types of market sectors in which
the Portfolio may invest include, but are not limited to, information
technology (which includes telecommunications), health care, financial
services, infrastructure, energy and natural resources, and consumer groups.
The Adviser's growth analysts seek to identify companies or industries for
which other investors have underestimated earnings potential--for example, some
hidden earnings driver (including, but not limited to, reduced competition,
market share gain, better margin trend, increased customer base, or similar
factors) that would cause a company to grow faster than market forecasts.
17
The Adviser allocates the Portfolio's investments among broad sector groups
utilizing the fundamental company research conducted by the Adviser's internal
research staff, assessing the current and forecasted investment opportunities
and conditions, as well as diversification and risk considerations. The Adviser
may vary the percentage allocations among market sectors and may change the
market sectors in which the Portfolio invests as companies' potential for
growth within a sector matures and new trends for growth emerge.
The Portfolio invests, under normal circumstances, in the equity securities of
companies located in at least three countries (and normally substantially more)
other than the United States. The Portfolio invests in securities of companies
in both developed and emerging market countries. Geographic distribution of the
Portfolio's investments among countries or regions also will be a product of
the stock selection process rather than a pre-determined allocation.
The Portfolio may also invest in synthetic foreign equity securities, which are
various types of warrants used internationally that entitle a holder to buy or
sell underlying securities. The Adviser expects that normally the Portfolio's
portfolio will tend to emphasize investments in larger capitalization
companies, although the Portfolio may invest in smaller or medium
capitalization companies.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in equity securities. ETFs may
provide more efficient and economical exposure to the type of companies and
geographic locations in which the Portfolio seeks to invest than direct
investments.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
18
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------- ------ ------ ------ ------ ------ ------
-48.96% 39.24% 12.61% -16.04% 15.23% 13.32% -1.41% -2.17% -7.07% 34.63%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.40%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-27.33%, 3RD QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
------------------------------------------------------------------------------------------------------------------------
Portfolio 34.63% 6.46% 0.57%
------------------------------------------------------------------------------------------------------------------------
MSCI World Index (ex. U.S.)
(reflects no deduction for fees, expenses, or taxes except the reinvestment of dividends net of
non-U.S. withholding taxes) 24.21% 7.46% 1.87%
------------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (ex. U.S.)*
(reflects no deduction for fees, expenses, or taxes except the reinvestment of dividends net of
non-U.S. withholding taxes) 27.19% 6.80% 1.84%
------------------------------------------------------------------------------------------------------------------------
*The performance table includes an additional index that shows how the
Portfolio's performance compares with an index of the equity market
performance of developed markets.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGER
The following table lists the person responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Daniel C. Roarty Since 2012 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
19
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .26%
-----
Total Other Expenses .27%
-----
Total Portfolio Operating Expenses 1.27%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 129
After 3 Years $ 403
After 5 Years $ 697
After 10 Years $1,534
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 40% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio pursues opportunistic growth by investing in a global universe of
companies in multiple industries that may benefit from innovation.
The Adviser employs a combination of "top-down" and "bottom-up" investment
processes with the goal of identifying the most attractive securities
worldwide, fitting into broader themes, which are developments that have broad
effects across industries and companies. Drawing on its global fundamental
research capabilities, the Adviser seeks to identify long-term secular growth
trends that will affect multiple industries. The Adviser will assess the
effects of these trends on entire industries and on individual companies.
Through this process, the Adviser intends to identify key investment themes,
which will be the focus of the Portfolio's investments and which are expected
to change over time based on the Adviser's research.
In addition to this "top-down" thematic approach, the Adviser will also use a
"bottom-up" analysis of individual companies that focuses on prospective
earnings growth, valuation and quality of company management. The Adviser
normally considers a large universe of mid- to large-capitalization companies
worldwide for investment.
20
The Portfolio invests in securities issued by U.S. and non-U.S. companies from
multiple industry sectors in an attempt to maximize opportunity, which should
also tend to reduce risk. The Portfolio invests in both developed and emerging
market countries. Under normal market conditions, the Portfolio invests
significantly (at least 40%--unless market conditions are not deemed favorable
by the Adviser) in securities of non-U.S. companies. In addition, the Portfolio
invests, under normal circumstances, in the equity securities of companies
located in at least three countries. The percentage of the Portfolio's assets
invested in securities of companies in a particular country or denominated in a
particular currency varies in accordance with the Adviser's assessment of the
appreciation potential of such securities.
The Portfolio may invest in any company and industry and in any type of equity
security, listed and unlisted, with potential for capital appreciation. It
invests in well-known, established companies as well as new, smaller or
less-seasoned companies. Investments in new, smaller or less-seasoned companies
may offer more reward but may also entail more risk than is generally true of
larger, established companies. The Portfolio may also invest in synthetic
foreign equity securities, which are various types of warrants used
internationally that entitle a holder to buy or sell underlying securities,
real estate investment trusts and zero-coupon bonds.
The Portfolio may, at times, invest in shares of exchange-traded funds, or
ETFs, in lieu of making direct investments in equity securities. ETFs may
provide more efficient and economical exposure to the type of companies and
geographic locations in which the Portfolio seeks to invest than direct
investments.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, to
earn extra income, to adjust exposure to individual securities or markets, or
to protect all or a portion of the Portfolio's portfolio from a decline in
value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. CAPITALIZATION RISK: Investments in mid-capitalization companies may be more
volatile than investments in large-capitalization companies. Investments in
mid-capitalization companies may have additional risks because these
companies may have limited product lines, markets or financial resources.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. FOCUSED PORTFOLIO RISK: Investments in a limited number of companies may
have more risk because changes in the value of a single security may have a
more significant effect, either negative or positive, on the Portfolio's net
asset value, or NAV.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
NAV may be more volatile because leverage tends to exaggerate the effect of
changes in interest rates and any increase or decrease in the value of the
Portfolio's investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
21
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------- ------ ------ ----- ----- ------ ------
-47.46% 53.14% 18.58% -23.41% 13.24% 22.93% 4.81% 2.65% -0.87% 36.30%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 21.23%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-25.80%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------------------------
Portfolio 36.30% 12.31% 3.99%
-----------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (Net)
(reflects no deduction for fees, expenses or taxes except the reinvestment of dividends net of
non-U.S. withholding taxes) 23.97% 10.80% 4.65%
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGER
The following table lists the person responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Daniel C. Roarty Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
22
AB VPS SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .61%
-----
Total Other Expenses .62%
-----
Total Portfolio Operating Expenses 1.62%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
-------------------------------------------------------------------------------
After 1 Year $ 165
After 3 Years $ 511
After 5 Years $ 881
After 10 Years $1,922
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 69% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
with relatively smaller capitalizations as compared to the overall U.S. market.
Under normal circumstances, the Portfolio invests at least 80% of its net
assets in equity securities of smaller companies. For these purposes, "smaller
companies" are those that, at the time of investment, fall within the lowest
20% of the total U.S. equity market capitalization (excluding, for purposes of
this calculation, companies with market capitalizations of less than $10
million). As of December 31, 2017, there were approximately 4,167 smaller
companies, and those smaller companies had market capitalizations ranging up to
approximately $14 billion. Because the Portfolio's definition of smaller
companies is dynamic, the limits on market capitalization will change with the
markets.
23
The Portfolio may invest in any company and industry and in any type of equity
security with potential for capital appreciation. It invests in well-known and
established companies and in new and less-seasoned companies. The Portfolio's
investment policies emphasize investments in companies that are demonstrating
improving financial results and a favorable earnings outlook. The Portfolio may
invest in foreign securities.
When selecting securities, the Adviser typically looks for companies that have
strong, experienced management teams, strong market positions, and the
potential to support greater than expected earnings growth rates. In making
specific investment decisions for the Portfolio, the Adviser combines
fundamental and quantitative analysis in its stock selection process. The
Portfolio may periodically invest in the securities of companies that are
expected to appreciate due to a development particularly or uniquely applicable
to that company regardless of general business conditions or movements of the
market as a whole.
The Portfolio invests primarily in equity securities but may also invest in
other types of securities, such as preferred stocks. The Portfolio may, at
times, invest in shares of exchange-traded funds, or ETFs, in lieu of making
direct investments in securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments. The Portfolio may also
invest up to 20% of its total assets in rights or warrants.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of ETFs. These transactions may be used, for example, in an
effort to earn extra income, to adjust exposure to individual securities or
markets, or to protect all or a portion of the Portfolio's portfolio from a
decline in value, sometimes within certain ranges.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's growth
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
24
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ------ ------ ------ ----- ------
-45.62% 41.28% 36.59% 4.20% 14.73% 45.33% -2.08% -1.53% 6.22% 33.78%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 20.60%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-29.52%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 33.78% 14.77% 9.59%
-----------------------------------------------------------------------------
Russell 2000(R) Growth Index
(reflects no deduction for fees, expenses, or taxes) 22.17% 15.21% 9.19%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
Bruce K. Aronow Since 2000 Senior Vice President of the Adviser
N. Kumar Kirpalani Since 2005 Senior Vice President of the Adviser
Samantha S. Lau Since 2005 Senior Vice President of the Adviser
Wen-Tse Tseng Since 2006 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
25
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is total return from long-term growth of
capital and income.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .55%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .49%
-----
Total Other Expenses .50%
-----
Total Portfolio Operating Expenses 1.30%
=====
-------------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 132
After 3 Years $ 412
After 5 Years $ 713
After 10 Years $1,568
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 59% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
Under normal circumstances, the Portfolio invests at least 80% of its net
assets in the equity securities of real estate investment trusts, or REITs, and
other real estate industry companies, such as real estate operating companies,
or REOCs. The Portfolio seeks to invest in real estate companies whose
underlying portfolios are diversified geographically and by property type.
The Portfolio's investment policies emphasize investment in companies
determined by the Adviser to be undervalued relative to their peers. In
selecting real estate equity securities, the Adviser uses its fundamental and
quantitative research to seek to identify companies where the magnitude and
growth of cash flow streams have not been appropriately reflected in the price
of the security. These securities may trade at a more attractive valuation than
others that may have similar overall fundamentals. The Adviser's fundamental
research efforts are focused on forecasting the short- and long-term normalized
cash generation capability of real estate companies by isolating supply and
demand for property types in local markets, determining the replacement value
of properties, assessing future development opportunities, and normalizing
capital structures of real estate companies.
26
The Portfolio may invest in short-term investment-grade debt securities and
other fixed-income securities.
The Portfolio invests in equity securities that include common stock, shares of
beneficial interests of REITs and securities with common stock characteristics,
such as preferred stock or convertible securities ("real estate equity
securities"). The Portfolio may invest in foreign securities and enter into
forward commitments and standby commitment agreements.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. Currency and
equity positions are evaluated separately. The Adviser may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations.
.. REAL ESTATE RISK: The Portfolio's investments in the real estate market have
many of the same risks as direct ownership of real estate, including the
risk that the value of real estate could decline due to a variety of factors
that affect the real estate market generally. Investments in REITs may have
additional risks. REITs are dependent on the capability of their managers,
may have limited diversification, and could be significantly affected by
changes in tax laws.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: To the extent the Portfolio uses leveraging techniques, its
net asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Portfolio's investments.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
27
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ----- ------ ----- ------ ----- ----- -----
-35.82% 29.22% 26.05% 8.75% 20.83% 3.97% 24.96% 0.66% 7.38% 6.37%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 32.54%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-36.87%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio 6.37% 8.36% 7.45%
-----------------------------------------------------------------------------
FTSE NAREIT Equity REIT Index
(reflects no deduction for fees, expenses, or taxes) 8.67% 9.83% 7.77%
-----------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
------------------------------------------------------------------------
Eric J. Franco Since 2012 Senior Vice President of the Adviser
Ajit D. Ketkar Since 2017 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
28
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .11%
-----
Total Other Expenses .11%
-----
Total Portfolio Operating Expenses 1.11%
=====
-------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 113
After 3 Years $ 353
After 5 Years $ 612
After 10 Years $1,352
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 45% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of established companies selected from more than 40 industries and more than 40
developed and emerging market countries. These countries currently include the
developed nations in Europe and the Far East, Canada, Australia and emerging
market countries worldwide. Under normal market conditions, the Portfolio
invests significantly (at least 40%--unless market conditions are not deemed
favorable by the Adviser) in securities of non-U.S. companies. In addition, the
Portfolio invests, under normal circumstances, in the equity securities of
companies located in at least three countries.
The Portfolio invests in companies that are determined by the Adviser to be
undervalued, using a fundamental value approach. In selecting securities for
the Portfolio's portfolio, the Adviser uses its fundamental and quantitative
research to identify companies whose stocks are priced low in relation to their
perceived long-term earnings power.
29
The Adviser's fundamental analysis depends heavily upon its internal research
staff. The research staff begins with a global research universe of
approximately 2,000 international and emerging market companies. Teams within
the research staff cover a given industry worldwide to better understand each
company's competitive position in a global context. The Adviser typically
projects a company's financial performance over a full economic cycle,
including a trough and a peak, within the context of forecasts for real
economic growth, inflation and interest rate changes. The Adviser focuses on
the valuation implied by the current price, relative to the earnings the
company will be generating five years from now, or "normalized" earnings,
assuming average mid-economic cycle growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover. The
team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable.
Currencies can have a dramatic impact on equity returns, significantly adding
to returns in some years and greatly diminishing them in others. The Adviser
evaluates currency and equity positions separately and may seek to hedge the
currency exposure resulting from securities positions when it finds the
currency exposure unattractive. To hedge all or a portion of its currency risk,
the Portfolio may, from time to time, invest in currency-related derivatives,
including forward currency exchange contracts, futures contracts, options on
futures contracts, swaps and options. The Adviser may also seek investment
opportunities by taking long or short positions in currencies through the use
of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options,
futures contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments. The Portfolio may invest
in depositary receipts, instruments of supranational entities denominated in
the currency of any country, securities of multinational companies and
"semi-governmental securities", and enter into forward commitments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, its net asset value, or NAV, may be more volatile because
leverage tends to exaggerate the effect of changes in interest rates and any
increase or decrease in the value of the Portfolio's investments. The
Portfolio may create leverage through the use of reverse repurchase
agreements, forward commitments, or by borrowing money.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
30
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ----- ------- ------ ------ ------ ----- ------ ------
-53.28% 34.36% 4.30% -19.44% 14.19% 22.73% -6.46% 2.40% -0.80% 25.09%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 26.18%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-28.75%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
Portfolio 25.09% 7.85% -1.29%
-------------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index (Net)
(reflects no deduction for fees, expenses, or taxes, except the reinvestment of dividends net of
non-U.S. withholding taxes) 25.03% 7.90% 1.94%
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------
Tawhid Ali Since 2016 Senior Vice President of the Adviser
Takeo Aso Since 2012 Senior Vice President of the Adviser
Avi Lavi Since 2012 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
31
AB VPS SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------
Management Fees .75%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .07%
-----
Total Other Expenses .07%
-----
Total Portfolio Operating Expenses 1.07%
=====
-------------------------------------------------------------------------------
(a)Less than .01%.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 109
After 3 Years $ 340
After 5 Years $ 590
After 10 Years $1,306
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 33% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of small- to mid-capitalization U.S. companies. Under normal circumstances, the
Portfolio invests at least 80% of its net assets in securities of small- to
mid-capitalization companies. For purposes of this policy, small- to
mid-capitalization companies are those that, at the time of investment, fall
within the capitalization range between the smallest company in the Russell
2500(R) Value Index and the greater of $5 billion or the market capitalization
of the largest company in the Russell 2500(R) Value Index.
Because the Portfolio's definition of small- to mid-capitalization companies is
dynamic, the lower and upper limits on market capitalization will change with
the markets. As of December 31, 2017, there were approximately 1,752 small- to
mid-capitalization companies, representing a market capitalization range from
approximately $22.7 million to approximately $13.8 billion.
32
The Portfolio invests in companies that are determined by the Adviser to be
undervalued, using the Adviser's fundamental value approach. In selecting
securities for the Portfolio's portfolio, the Adviser uses its fundamental and
quantitative research to identify companies whose long-term earnings power is
not reflected in the current market price of their securities.
In selecting securities for the Portfolio's portfolio, the Adviser looks for
companies with attractive valuation (for example, with low price to book
ratios) and compelling success factors (for example, momentum and return on
equity). The Adviser then uses this information to calculate an expected
return. Returns and rankings are updated on a daily basis. The rankings are
used to determine prospective candidates for further fundamental research and,
subsequently, possible addition to the portfolio. Typically, the Adviser's
fundamental research analysts focus their research on the most attractive 20%
of the universe.
The Adviser typically projects a company's financial performance over a full
economic cycle, including a trough and a peak, within the context of forecasts
for real economic growth, inflation and interest rate changes. The Adviser
focuses on the valuation implied by the current price, relative to the earnings
the company will be generating five years from now, or "normalized" earnings,
assuming average mid-economic cycle growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover. The
team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable. Typically, growth in the size of a company's market
capitalization relative to other domestically traded companies will not cause
the Portfolio to dispose of the security.
The Adviser seeks to manage overall portfolio volatility relative to the
universe of companies that comprise the lowest 20% of the total U.S. market
capitalization by favoring promising securities that offer the best balance
between return and targeted risk. At times, the Portfolio may favor or disfavor
a particular sector compared to that universe of companies. The Portfolio may
invest significantly in companies involved in certain sectors that constitute a
material portion of the universe of small- and mid-capitalization companies,
such as financial services and consumer services.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities issued by non-U.S. companies.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the types of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
33
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ----- ------ ------ ------
-35.75% 42.66% 26.59% -8.62% 18.47% 37.63% 8.95% -5.69% 24.79% 12.85%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 24.73%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-27.00%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 12.85% 14.77% 9.60%
-----------------------------------------------------------------------------
Russell 2500(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 10.36% 13.27% 8.82%
-----------------------------------------------------------------------------
Russell 2500/TM/ Index**
(reflects no deduction for fees, expenses, or taxes) 16.81% 14.33% 9.22%
-----------------------------------------------------------------------------
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.11%.
**The performance table includes an additional index that shows how the
Portfolio's performance compares with an index of securities similar to those
in which the Portfolio invests.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------
James W. MacGregor Since 2005 Senior Vice President of the Adviser
Shri Singhvi Since 2014 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
34
AB VPS VALUE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is long-term growth of capital.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
----------------------------------------------------------------------------
Management Fees .55%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .01%
Other Expenses .31%
-----
Total Other Expenses .32%
-----
Total Portfolio Operating Expenses 1.12%
=====
----------------------------------------------------------------------------
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year and that the Portfolio's
operating expenses stay the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 114
After 3 Years $ 356
After 5 Years $ 617
After 10 Years $1,363
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 36% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests primarily in a diversified portfolio of equity securities
of U.S. companies with relatively large market capitalizations that the Adviser
believes are undervalued. The Portfolio invests in companies that are
determined by the Adviser to be undervalued using the fundamental value
approach of the Adviser. The fundamental value approach seeks to identify a
universe of securities that are considered to be undervalued because they are
attractively priced relative to their future earnings power and dividend-paying
capability.
In selecting securities for the Portfolio's portfolio, the Adviser uses its
fundamental and quantitative research to identify companies whose long-term
earnings power and dividend-paying capability are not reflected in the current
market price of their securities.
The Adviser's fundamental analysis depends heavily upon its internal research
staff. The research staff of company and industry analysts covers a research
universe that includes the majority of the capitalization of the Russell
1000(R) Value Index. The Adviser typically projects a company's financial
performance over a full economic cycle, including a trough and a peak, within
the context of forecasts for real economic growth, inflation and interest rate
changes. The research staff focuses on the valuation implied by the
35
current price, relative to the earnings the company will be generating five
years from now, or "normalized" earnings, assuming average mid-economic cycle
growth for the fifth year.
The Portfolio's management team and other senior investment professionals work
in close collaboration to weigh each investment opportunity identified by the
research staff relative to the entire portfolio, and determine the timing and
position size for purchases and sales. Analysts remain responsible for
monitoring new developments that would affect the securities they cover.
The team will generally sell a security when it no longer meets appropriate
valuation criteria, although sales may be delayed when positive return trends
are favorable.
The Portfolio may enter into derivatives transactions, such as options, futures
contracts, forwards and swaps. The Portfolio may use options strategies
involving the purchase and/or writing of various combinations of call and/or
put options, including on individual securities and stock indices, futures
contracts (including futures contracts on individual securities and stock
indices) or shares of exchange-traded funds, or ETFs. These transactions may be
used, for example, to earn extra income, to adjust exposure to individual
securities or markets, or to protect all or a portion of the Portfolio's
portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities of non-U.S. issuers.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct
investments in equity securities. ETFs may provide more efficient and
economical exposure to the type of companies and geographic locations in which
the Portfolio seeks to invest than direct investments.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market. It includes the risk
that a particular style of investing, such as the Portfolio's value
approach, may underperform the market generally.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
36
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ------ ------ ------ ------
-41.01% 21.04% 11.42% -3.78% 15.54% 36.49% 10.77% -7.17% 11.29% 13.29%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 18.29%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-22.07%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------
Portfolio* 13.29% 12.09% 4.58%
-----------------------------------------------------------------------------
Russell 1000(R) Value Index
(reflects no deduction for fees, expenses, or taxes) 13.66% 14.04% 7.10%
-----------------------------------------------------------------------------
*Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the 1-Year period ended December 31, 2017 by 0.13%.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
------------------------------------------------------------------------
Cem Inal Since 2016 Senior Vice President of the Adviser
Joseph G. Paul Since 2009 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
37
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to maximize total return consistent
with the Adviser's determination of reasonable risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
-------------------------------------------------------------------------------------------
Management Fees .55%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .18%
------
Total Other Expenses .18%
------
Acquired Fund Fees and Expenses(b) .24%
------
Total Portfolio Operating Expenses 1.22%
======
Fee Waiver and/or Expense Reimbursement(c) (.23)%
------
Total Portfolio Operating Expenses After Fee Waiver and/or Expense Reimbursement .99%
======
-------------------------------------------------------------------------------------------
(a)Less than .01%.
(b)Restated to reflect current fees and expenses.
(c)The Adviser has contractually agreed to waive fees and/or reimburse the
expenses payable to the Adviser by the Portfolio in an amount equal to the
Portfolio's share of the advisory fees of any mutual funds advised by the
Adviser in which the Portfolio invests, as included in "Acquired Fund Fees
and Expenses" and paid by the Portfolio. This fee waiver and/or expense
reimbursement will remain in effect until at least May 1, 2019 unless
terminated by the Board of Directors of the AB Variable Products Series
(VPS) Fund, Inc. prior to its expiration date.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any fee waivers remain in effect for
only one year. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 101
After 3 Years $ 364
After 5 Years $ 648
After 10 Years $1,457
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 108% of the average value of its
portfolio.
38
PRINCIPAL STRATEGIES
The Portfolio invests in a portfolio of equity and fixed-income securities that
is designed as a solution for investors who seek a moderate tilt toward equity
returns but also want the risk diversification offered by fixed-income
securities and the broad diversification of their equity risk across styles,
capitalization ranges and geographic regions. Under normal circumstances, the
Portfolio will invest at least 25% of its total assets in equity securities and
at least 25% of its total assets in fixed-income securities with a goal of
providing moderate upside potential without excessive volatility. The Portfolio
also seeks exposure to real assets by investing in real estate-related equity
securities (including real estate investment trusts, or REITs), natural
resource equity securities and inflation-sensitive equity securities, which are
equity securities of companies that the Adviser believes maintain or grow
margins in rising inflation environments, including equity securities of
utilities and infrastructure-related companies ("inflation sensitive
equities"). The Portfolio pursues a global strategy, typically investing in
securities of issuers located in the United States and in other countries
throughout the world, including emerging market countries.
The Adviser expects that the Portfolio will normally invest a greater
percentage of its total assets in equity securities than in fixed-income
securities, and will generally invest in equity securities both directly and
through underlying investment companies advised by the Adviser ("Underlying
Portfolios"). A significant portion of the Portfolio's assets are expected to
be invested directly in U.S. large-cap equity securities, primarily common
stocks, in accordance with the Adviser's U.S. Strategic Equities investment
strategy ("U.S. Strategic Equities"). Under U.S. Strategic Equities, portfolio
managers of the Adviser that specialize in various investment disciplines
identify high-conviction large-cap equity securities based on their fundamental
investment research for potential investment by the Portfolio. These securities
are then assessed in terms of both this fundamental research and quantitative
analysis in creating the equity portion of the Portfolio's portfolio. In
applying the quantitative analysis, the Adviser considers a number of metrics
that historically have provided some indication of favorable future returns,
including metrics related to valuation, quality, investor behavior and
corporate behavior.
In addition, the Portfolio seeks to achieve exposure to international large-cap
equity securities through investments in the INTERNATIONAL STRATEGIC EQUITIES
PORTFOLIO of BERNSTEIN FUND, INC. ("Bernstein International Strategic Equities
Portfolio") and the INTERNATIONAL PORTFOLIO of SANFORD C. BERNSTEIN FUND, INC.
("SCB International Portfolio"), each a registered investment company advised
by the Adviser. Bernstein International Strategic Equities Portfolio and SCB
International Portfolio focus on investing in non-U.S. large-cap and mid-cap
equity securities. Bernstein International Strategic Equities Portfolio follows
a strategy similar to U.S. Strategic Equities, but in the international
context. In managing SCB International Portfolio, the Adviser selects stocks by
drawing on the capabilities of its separate investment teams specializing in
different investment disciplines, including value, growth, stability and
others. The Portfolio also invests in other Underlying Portfolios to
efficiently gain exposure to certain other types of equity securities,
including small- and mid-cap and emerging market equity securities. The Adviser
selects an Underlying Portfolio based on the segment of the equity market to
which the Underlying Portfolio provides exposure, its investment philosophy,
and how it complements and diversifies the Portfolio's overall portfolio.
In selecting fixed-income investments, the Adviser may draw on the capabilities
of separate investment teams that specialize in different areas that are
generally defined by the maturity of the debt securities and/or their ratings,
and which may include subspecialties (such as inflation-indexed securities).
These fixed-income teams draw on the resources and expertise of the Adviser's
internal fixed-income research staff, which includes over 50 dedicated
fixed-income research analysts and economists. The Portfolio's fixed-income
securities will primarily be investment-grade debt securities, but are expected
to include lower-rated securities ("junk bonds") and preferred stock.
The Portfolio expects to enter into derivative transactions, such as options,
futures contracts, forwards and swaps. Derivatives may provide a more efficient
and economical exposure to market segments than direct investments, and may
also be a more efficient way to alter the Portfolio's exposure. The Portfolio
may, for example, use credit default, interest rate and total return swaps to
establish exposure to the fixed-income markets or particular fixed-income
securities and, as noted below, may use currency derivatives to hedge foreign
currency exposure.
The Adviser may employ currency hedging strategies in the Portfolio or the
Underlying Portfolios, including the use of currency-related derivatives, to
seek to reduce currency risk in the Portfolio or the Underlying Portfolios, but
it is not required to do so. The Adviser will generally employ currency hedging
strategies more frequently in the fixed-income portion of the Portfolio than in
the equity portion.
PRINCIPAL RISKS:
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. ALLOCATION RISK: The allocation of investments among the different
investment styles, such as growth or value, equity or debt securities, or
U.S. or non-U.S. securities may have a more significant effect on the
Portfolio's net asset value, or NAV, when one of these investment strategies
is performing more poorly than others.
39
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors. These risks may be heightened with
respect to investments in emerging market countries, where there may be an
increased amount of economic, political and social instability.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments in securities denominated in
foreign currencies or reduce the Portfolio's returns.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. BELOW INVESTMENT GRADE SECURITY RISK: Investments in fixed-income securities
with lower ratings ("junk bonds") tend to have a higher probability that an
issuer will default or fail to meet its payment obligations. These
securities may be subject to greater price volatility due to such factors as
specific corporate developments, interest rate sensitivity, negative
perceptions of the junk bond market generally and less secondary market
liquidity.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments,
investments in other investment companies are subject to market and
selection risk. In addition, Contractholders invested in the Portfolio bear
both their proportionate share of expenses in the Portfolio (including
management fees) and, indirectly, the expenses of the investment companies
(to the extent these expenses are not waived or reimbursed by the Adviser).
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. REAL ASSETS RISK: The Portfolio's investments in securities linked to real
assets involve significant risks, including financial, operating, and
competitive risks. Investments in securities linked to real assets expose
the Portfolio to adverse macroeconomic conditions, such as a rise in
interest rates or a downturn in the economy in which the asset is located.
Changes in inflation rates or in the market's inflation expectations may
adversely affect the market value of inflation-sensitive equities. The
Portfolio's investments in real estate securities have many of the same
risks as direct ownership of real estate, including the risk that the value
of real estate could decline due to a variety of factors that affect the
real estate market generally. Investments in REITs may have additional
risks. REITs are dependent on the capability of their managers, may have
limited diversification, and could be significantly affected by changes in
tax laws.
.. ACTIVE TRADING RISK: The Portfolio expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate is
expected to exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Portfolio's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for
Contractholders.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over ten years; and
.. how the Portfolio's average annual returns for one, five and ten years
compare to those of a broad-based securities market index.
40
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
EFFECTIVE MAY 1, 2018, THE PORTFOLIO AMENDED ITS PRINCIPAL STRATEGIES BY
ELIMINATING THE STATIC TARGETS FOR ALLOCATION OF INVESTMENTS AMONG ASSET
CLASSES, CHANGING THE SECURITIES SELECTION STRATEGIES USED FOR THE EQUITY
PORTION OF THE PORTFOLIO, AND BROADENING THE TYPES OF REAL ASSET SECURITIES IN
WHICH THE PORTFOLIO WILL INVEST. THE PERFORMANCE SHOWN BELOW FOR PERIODS PRIOR
TO MAY 1, 2018 IS BASED ON THE PORTFOLIO'S PRIOR PRINCIPAL STRATEGIES AND MAY
NOT BE REPRESENTATIVE OF THE PORTFOLIO'S PERFORMANCE UNDER ITS CURRENT
PRINCIPAL STRATEGIES.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
------- ------ ------ ------ ------ ------ ----- ----- ----- ------
-30.20% 24.45% 10.30% -3.06% 13.38% 16.27% 7.11% 1.29% 4.44% 15.62%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 15.06%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-14.71%, 4TH QUARTER, 2008.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------------
Portfolio 15.62% 8.78% 4.84%
-------------------------------------------------------------------------------------------------------------------------
MSCI AC World Index (net)
(reflects no deduction for fees, expenses, or taxes, except the reinvestment of dividends net of
non-U.S. withholding taxes) 23.97% 10.80% 4.65%
-------------------------------------------------------------------------------------------------------------------------
S&P 500 Stock Index*
(reflects no deduction for fees, expenses, or taxes) 21.83% 15.79% 8.50%
-------------------------------------------------------------------------------------------------------------------------
Bloomberg Barclays Global Aggregate Bond Index (USD Hedged)**
(reflects no deduction for fees, expenses, or taxes) 3.04% 3.06% 4.16%
-------------------------------------------------------------------------------------------------------------------------
* In connection with changes in investment strategy referred to above, the
broad-based index used for comparison with the Portfolio's performance has
changed from the S&P 500 Index to the MSCI AC World Index (net) because the
new index more closely reflects the Portfolio's equity investments.
**The performance table includes the Bloomberg Barclays Global Aggregate Bond
Index (USD Hedged) to show how the Portfolio's performance compares with an
index of fixed-income securities similar to those in which the Portfolio
invests.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
---------------------------------------------------------------------------
Jess Gaspar Since February 2018 Senior Vice President of the Adviser
Daniel J. Loewy Since 2013 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
41
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to maximize total return consistent
with the Adviser's determination of reasonable risk.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------------------
Management Fees .70%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .09%
------
Total Other Expenses .09%
------
Acquired Fund Fees and Expenses .04%
------
Total Portfolio Operating Expenses Before Fee Waiver and/or Expense Reimbursement 1.08%
======
Fee Waiver and Expense Reimbursement(b) (.01)%
------
Total Portfolio Operating Expenses After Fee Wavier and Expense Reimbursement 1.07%
======
--------------------------------------------------------------------------------------------
(a)Less than .01%.
(b)In connection with the Portfolio's investments in AB Government Money Market
Portfolio (the "Money Market Portfolio"), the Adviser has contractually
agreed to waive its management fee from the Portfolio and/or reimburse other
expenses of the Portfolio in an amount equal to the Portfolio's pro rata
share of the Money Market Portfolio's effective management fee, as included
in "Acquired Fund Fees and Expenses".
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any fee waiver is in effect for only
the first year. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 109
After 3 Years $ 342
After 5 Years $ 595
After 10 Years $1,316
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 20% of the average value of its
portfolio.
PRINCIPAL STRATEGIES
The Portfolio invests in a globally diversified portfolio of equity and debt
securities, including exchange-traded funds, or ETFs, and other financial
instruments, and expects to enter into derivatives transactions, such as
options, futures contracts, forwards, and swaps to achieve market exposure. The
Portfolio's neutral weighting, from which it will make its tactical asset
allocations, is 60% equity exposure and 40% debt exposure. Within these broad
components, the Portfolio may invest in any type of security, including
42
common and preferred stocks, warrants and convertible securities, government
and corporate fixed-income securities, commodities, currencies, real
estate-related securities and inflation-indexed securities. The Portfolio may
invest in U.S., non-U.S. and emerging market issuers. The Portfolio may invest
in securities of companies across the capitalization spectrum, including
smaller capitalization companies. The Portfolio expects its investments in
fixed-income securities to have a broad range of maturities and quality levels.
The Portfolio is expected to be highly diversified across industries, sectors
and countries, and will choose its positions from several market indices
worldwide in a manner that is intended to track the performance (before fees
and expenses) of those indices.
The Adviser will continuously monitor the risks presented by the Portfolio's
asset allocation and may make frequent adjustments to the Portfolio's exposures
to different asset classes. Using its proprietary Dynamic Asset Allocation
techniques, the Adviser will adjust the Portfolio's exposure to the equity and
debt markets, and to segments within those markets, in response to the
Adviser's assessment of the relative risks and returns of those segments. For
example, when the Adviser determines that equity market volatility is
particularly low and that, therefore, the equity markets present reasonable
return opportunities, the Adviser may increase the Portfolio's equity exposure
to as much as 80%. Conversely, when the Adviser determines that the risks in
the equity markets are disproportionately greater than the potential returns
offered, the Adviser may reduce the Portfolio's equity exposure significantly
below the target percentage or may even decide to eliminate equity exposure
altogether by increasing the Portfolio's fixed-income exposure to 100%. This
investment strategy is intended to reduce the Portfolio's overall investment
risk, but may at times result in the Portfolio underperforming the markets.
The Portfolio expects to utilize derivatives and to invest in ETFs to a
significant extent. Derivatives and ETFs may provide more efficient and
economical exposure to market segments than direct investments, and the
Portfolio's market exposures may at times be achieved almost entirely through
the use of derivatives or through the investments in ETFs. Derivatives
transactions and ETFs may also be a quicker and more efficient way to alter the
Portfolio's exposure than buying and selling direct investments. As a result,
the Adviser expects to use derivatives as one of the primary tools for
adjusting the Portfolio's exposure levels from its neutral weighting. The
Adviser also expects to use direct investments and ETFs to adjust the
Portfolio's exposure levels. In determining when and to what extent to enter
into derivatives transactions or to invest in ETFs, the Adviser will consider
factors such as the relative risks and returns expected of potential
investments and the cost of such transactions. The Adviser will consider the
impact of derivatives and ETFs in making its assessment of the Portfolio's
risks.
Currency exchange rate fluctuations can have a dramatic impact on returns,
significantly adding to returns in some years and greatly diminishing them in
others. To the extent that the Portfolio invests in non-U.S. Dollar-denominated
investments, the Adviser will integrate the risks of foreign currency exposures
into its investment and asset allocation decision making. The Adviser may seek
to hedge all or a portion of the currency exposure resulting from the
Portfolio's investments. The Adviser may also seek investment opportunities
through currencies and currency-related derivatives.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's assets will fluctuate as the stock
or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security. Investments in fixed-income securities with lower ratings tend to
have a higher probability that an issuer will default or fail to meet its
payment obligations.
.. ALLOCATION RISK: The allocation of investments among different global asset
classes may have a significant effect on the Portfolio's net asset value, or
NAV, when one of these asset classes is performing more poorly than others.
As both the direct investments and derivatives positions will be
periodically adjusted to reflect the Adviser's view of market and economic
conditions, there will be transaction costs that may be, over time,
significant. In addition, there is a risk that certain asset allocation
decisions may not achieve the desired results and, as a result, the
Portfolio may incur significant losses.
.. FOREIGN (NON-U.S.) RISK: The Portfolio's investments in securities of
non-U.S. issuers may involve more risk than those of U.S. issuers. These
securities may fluctuate more widely in price and may be less liquid due to
adverse market, economic, political, regulatory or other factors.
43
.. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. ETF RISK: ETFs are investment companies. When the Portfolio invests in an
ETF, the Portfolio bears its share of the ETF's expenses and runs the risk
that the ETF may not achieve its investment objective.
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments.
.. LEVERAGE RISK: When the Portfolio borrows money or otherwise leverages its
portfolio, its NAV may be more volatile because leverage tends to exaggerate
the effect of changes in interest rates and any increase or decrease in the
value of the Portfolio's investments. The Portfolio may create leverage
through the use of reverse repurchase agreements, forward commitments, or by
borrowing money.
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes, large positions and heavy redemptions of Portfolio shares.
.. CAPITALIZATION RISK: Investments in small- and mid-capitalization companies
may be more volatile than investments in large-capitalization companies.
Investments in small-capitalization companies may have additional risks
because these companies have limited product lines, markets or financial
resources.
.. REAL ESTATE RISK: The Portfolio's investments in real estate securities have
many of the same risks as direct ownership of real estate, including the
risk that the value of real estate could decline due to a variety of factors
that affect the real estate market generally. Investments in real estate
investment trusts, or REITs, may have additional risks. REITs are dependent
on the capability of their managers, may have limited diversification, and
could be significantly affected by changes in taxes.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over the life of
the Portfolio; and
.. how the Portfolio's average annual returns for one year, five years and
since inception compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
---- ---- ---- ---- ----- ------ ----- ------ ----- ------
n/a n/a n/a n/a 7.90% 12.04% 4.21% -1.30% 3.37% 14.32%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 5.75% FOR THE 1ST QUARTER, 2012; AND WORST QUARTER WAS DOWN
-5.02% FOR THE 3RD QUARTER, 2015.
44
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
SINCE
1 YEAR 5 YEARS INCEPTION*
--------------------------------------------------------------------------------------------
Portfolio 14.32% 6.37% 5.45%
--------------------------------------------------------------------------------------------
MSCI World Index
(reflects no deduction for fees, expenses or taxes) 22.40% 11.64% 9.10%
--------------------------------------------------------------------------------------------
Bloomberg Barclays U.S. Treasury Index**
(reflects no deduction for fees, expenses, or taxes) 2.31% 1.27% 2.67%
--------------------------------------------------------------------------------------------
60% MSCI World Index/40% Bloomberg Barclays U.S. Treasury Index**
(reflects no deduction for fees, expenses, or taxes) 13.98% 7.53% 6.71%
--------------------------------------------------------------------------------------------
* Since inception return is from April 1, 2011.
**The performance table includes an index of fixed-income securities and
information about the 60% MSCI World Index/40% Bloomberg Barclays U.S.
Treasury Index to show how the Portfolio's performance compares with indices
of securities similar to those in which the Portfolio invests.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
--------------------------------------------------------------------------
Brian T. Brugman Since 2016 Senior Vice President of the Adviser
Daniel J. Loewy Since 2011 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
45
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Portfolio's investment objective is to seek long term growth of capital
while seeking to limit volatility.
FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Portfolio. Because the information does not reflect deductions at
the separate account level or contract level for any charges that may be
incurred under a contract, Contractholders that invest in the Portfolio should
refer to the variable contract prospectus for a description of fees and
expenses that apply to Contractholders. Inclusion of these charges would
increase the fees and expenses provided below.
SHAREHOLDER FEES (fees paid directly from your investment)
N/A
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that you pay each year as a
percentage of the value of your investment)
--------------------------------------------------------------------------------
Management Fees .60%
Distribution (12b-1) Fees .25%
Other Expenses:
Transfer Agent .00%(a)
Other Expenses .32%
------
Total Other Expenses .32%
------
Acquired Fund Fees and Expenses .11%
------
Total Portfolio Operating Expenses Before Fee Waiver and/or Expense
Reimbursement 1.28%
======
Fee Waiver and Expense Reimbursement(b) (.28)%
------
Total Portfolio Operating Expenses After Fee Waiver and/or Expense
Reimbursement 1.00%
======
--------------------------------------------------------------------------------
(a)Less than .01%.
(b)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Portfolio (including the Portfolio's proportionate
share of the fees and expenses of registered investment companies or series
thereof in which the Portfolio invests) through May 1, 2019, unless such
arrangement is terminated by the Board of Directors of the AB Variable
Products Series (VPS) Fund, Inc. prior to the expiration date, to the extent
necessary to prevent total Portfolio operating expenses (excluding interest
expense, taxes, extraordinary expenses, expenses associated with securities
sold short, and brokerage commissions and other transaction costs), on an
annualized basis, from exceeding 1.00% of average daily net assets ("expense
limitation"). Any fees waived and expenses borne by the Adviser through
April 27, 2018 may be reimbursed by the Portfolio until the end of the third
fiscal year after the fiscal period in which the fee was waived or the
expense was borne, provided that no reimbursement payment will be made that
would cause the Portfolio's Total Annual Fund Operating Expenses to exceed
the expense limitation.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Examples assume
that you invest $10,000 in the Portfolio for the time periods indicated and
then redeem all of your shares at the end of those periods. The Examples also
assume that your investment has a 5% return each year, that the Portfolio's
operating expenses stay the same and that any expense limitation remains in
effect for the first year. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
------------------------------------------------------------------------------
After 1 Year $ 102
After 3 Years $ 378
After 5 Years $ 675
After 10 Years $1,521
------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Portfolio pays transaction costs, such as commissions, when it buys or
sells securities (or "turns over" its portfolio). A higher portfolio turnover
rate may indicate higher transaction costs. These transaction costs, which are
not reflected in the Annual Portfolio Operating Expenses or in the Examples,
affect the Portfolio's performance. During the most recent fiscal year, the
Portfolio's portfolio turnover rate was 59% of the average value of its
portfolio.
46
PRINCIPAL STRATEGIES
In making decisions on the allocation of assets among "growth assets" and
"safety assets", the Adviser will use a risk-weighted allocation methodology
based on the expected "tail risk" of each asset class. For purposes of the
Portfolio, growth assets include global equities and, at times, high yield
fixed-income securities (commonly known as "junk bonds"), and safety assets
include government securities of developed countries. This strategy attempts to
provide investors with favorable long-term total return while minimizing
exposure to material or "tail" losses. To execute this strategy, the percentage
loss that will constitute a tail loss is calculated for each asset class based
on historical market behavior and on a forward-looking basis through options
prices. Portfolio assets are then allocated among asset classes so that growth
assets contribute the majority of the expected risk of tail loss ("tail risk")
of the Portfolio, and safety assets contribute a lesser amount of tail risk.
The Adviser will make frequent adjustments to the Portfolio's asset class
exposures based on these tail risk determinations. To help limit tail risk, the
Portfolio will utilize a risk management strategy involving the purchase of put
options and sale of call options on equity indices, equity index futures or
exchange-traded funds, or ETFs. The Adviser will on a best efforts basis seek
to limit the volatility of the Portfolio to no more than 10% on an annualized
basis. Actual results may vary.
The Adviser will also assess tail risk on a security, sector and country basis,
and make adjustments to the Portfolio's allocations within each asset class
when practicable. The Portfolio may invest in fixed-income securities with a
range of maturities from short- to long-term. The Adviser expects that the
Portfolio's investments in high yield fixed-income securities will not exceed
10% of the Portfolio's net assets. The Portfolio's investments in each asset
class will generally be global in nature.
The Adviser expects to utilize a variety of derivatives in its management of
the Portfolio, including futures contracts, options, swaps and forwards.
Derivatives often provide more efficient and economical exposure to market
segments than direct investments, and the Portfolio may utilize derivatives and
ETFs to gain exposure to equity and fixed-income asset classes. Because
derivatives transactions frequently require cash outlays that are only a small
portion of the amount of exposure obtained through the derivative, a portion of
the Portfolio's assets may be held in cash or invested in cash equivalents to
cover the Portfolio's derivatives obligations, such as short-term U.S.
Government and agency securities, repurchase agreements and money market funds.
At times, a combination of direct securities investments and derivatives will
be used to gain asset class exposure so that the Portfolio's aggregate exposure
will substantially exceed its net assets (I.E., so that the Portfolio is
effectively leveraged).
Currency exchange rate fluctuations can have a dramatic impact on returns. The
Adviser may seek to hedge all or a portion of the currency exposure resulting
from Portfolio investments through currency-related derivatives, or decide not
to hedge this exposure.
PRINCIPAL RISKS
.. MARKET RISK: The value of the Portfolio's investments will fluctuate as the
stock or bond market fluctuates. The value of its investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
.. ALLOCATION RISK: The allocation of investments among asset classes may have
a significant effect on the Portfolio's net asset value, or NAV, when the
asset classes in which the Portfolio has invested more heavily perform worse
than the asset classes invested in less heavily.
.. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
The Portfolio may be subject to heightened interest rate risk due to rising
rates as the current period of historically low interest rates may be
ending. Interest rate risk is generally greater for fixed-income securities
with longer maturities or durations.
.. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
.. HIGH YIELD SECURITIES RISK: Investments in fixed-income securities with
ratings below investment grade (commonly known as "junk bonds") tend to have
a higher probability that an issuer will default or fail to meet its payment
obligations. These securities may be subject to greater price volatility due
to such factors as specific corporate developments, interest rate
sensitivity, negative perceptions of the junk bond market generally and less
secondary market liquidity.
.. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be less liquid due to adverse market, economic,
political, regulatory or other factors.
.. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Portfolio's investments or reduce its returns.
.. INVESTMENT IN OTHER INVESTMENT COMPANIES RISK: As with other investments,
investments in other investment companies, including ETFs, are subject to
market and selection risk. In addition, Contractholders of the Portfolio
bear both their proportionate share of expenses in the Portfolio (including
management fees) and, indirectly, the expenses of the investment companies.
47
.. DERIVATIVES RISK: Derivatives may be illiquid, difficult to price, and
leveraged so that small changes may produce disproportionate losses for the
Portfolio, and may be subject to counterparty risk to a greater degree than
more traditional investments. Transactions intended to hedge fluctuations in
the values of the portfolios positions will typically limit the opportunity
for gain.
.. LEVERAGE RISK: Because the Portfolio uses leveraging techniques, its NAV may
be more volatile because leverage tends to exaggerate the effect of changes
in interest rates and any increase or decrease in the value of the
Portfolio's investments.
.. LIQUIDITY RISK: Liquidity risk occurs when certain investments become
difficult to purchase or sell. Difficulty in selling less liquid securities
may result in sales at disadvantageous prices affecting the value of your
investment in the Portfolio. Causes of liquidity risk may include low
trading volumes and large positions. Foreign fixed-income securities may
have more liquidity risk because secondary trading markets for these
securities may be smaller and less well-developed and the securities may
trade less frequently. Liquidity risk may be higher in a rising interest
rate environment, when the value and liquidity of fixed-income securities
generally decline.
.. NON-DIVERSIFICATION RISK: The Portfolio may have more risk because it is
"non-diversified", meaning that it can invest more of its assets in a
smaller number of issuers. Accordingly, changes in the value of a single
security may have a more significant effect, either negative or positive, on
the Portfolio's NAV.
.. MANAGEMENT RISK: The Portfolio is subject to management risk because it is
an actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions for the
Portfolio, but there is no guarantee that its techniques will produce the
intended results.
As with all investments, you may lose money by investing in the Portfolio.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Portfolio by showing:
.. how the Portfolio's performance changed from year to year over the life of
the Portfolio; and
.. how the Portfolio's average annual returns for one year and since inception
compare to those of a broad-based securities market index.
The performance information does not take into account separate account
charges. If separate account charges were included, an investor's return would
be lower. The Portfolio's past performance, of course, does not necessarily
indicate how it will perform in the future.
BAR CHART
[CHART]
Calendar Year End (%)
08 09 10 11 12 13 14 15 16 17
---- ---- ---- ---- ---- ---- ---- ---- ----- ------
n/a n/a n/a n/a n/a n/a n/a n/a 4.24% 11.50%
During the period shown in the bar chart, the Portfolio's:
BEST QUARTER WAS UP 3.28% FOR THE 1ST QUARTER, 2017; AND WORST QUARTER WAS DOWN
-0.96%, FOR THE 1ST QUARTER, 2016.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2017)
SINCE
1 YEAR INCEPTION*
------------------------------------------------------------------------------
Portfolio 11.50% 3.28%
------------------------------------------------------------------------------
MSCI World Index (net) (U.S. Dollar hedged)
(reflects no deduction for fees, expenses, or taxes) 19.13% 8.21%
------------------------------------------------------------------------------
60% MSCI World Index (U.S. Dollar hedged)/40% Bloomberg
Barclays Global G7 Treasury Index (U.S. Dollar hedged)**
(reflects no deduction for fees, expenses, or taxes) 12.05% 5.88%
------------------------------------------------------------------------------
* Since inception return is from April 28, 2015.
**The performance table includes an additional index that shows how the
Portfolio's performance compares with a composite index comprised of a broad
equity index and an investment grade government bond index.
48
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Portfolio.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Portfolio's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------
Daniel J. Loewy Since 2016 Senior Vice President of the Adviser
Leon Zhu Since 2015 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Portfolio shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 50 in this Prospectus.
49
ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF PORTFOLIO SHARES, TAXES AND
FINANCIAL INTERMEDIARIES
. PURCHASE AND SALE OF PORTFOLIO SHARES
The Portfolios offer their shares through the separate accounts of
participating life insurance companies ("Insurers"). You may only purchase and
sell shares through these separate accounts. See the prospectus of the separate
account of the Insurer for information on the purchase and sale of the
Portfolios' shares.
. TAX INFORMATION
Each Portfolio may pay income dividends or make capital gains distributions.
The income and capital gains distributions are expected to be made in shares of
each Portfolio. See the prospectus of the separate account of the Insurer for
federal income tax information.
. PAYMENTS TO INSURERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of a Portfolio through an Insurer or other financial
intermediary, the Portfolio and its related companies may pay the intermediary
for the sale of Portfolio shares and related services. These payments may
create a conflict of interest by influencing the Insurer or other financial
intermediary and your salesperson to recommend the Portfolio over another
investment. Ask your salesperson or visit your financial intermediary's website
for more information.
50
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS' RISKS AND INVESTMENTS
--------------------------------------------------------------------------------
This section of the Prospectus provides additional information about the
Portfolios' investment practices and risks, including principal and
non-principal strategies and risks. Most of these investment practices are
discretionary, which means that the Adviser may or may not decide to use them.
This Prospectus does not describe all of a Portfolio's investment practices and
additional descriptions of each Portfolio's strategies, investments, and risks
can be found in the Portfolios' Statement of Additional Information ("SAI").
DERIVATIVES
Each Portfolio may, but is not required to, use derivatives for hedging or
other risk management purposes or as part of its investment strategies.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. A Portfolio may use
derivatives to earn income and enhance returns, to hedge or adjust the risk
profile of its investments, to replace more traditional direct investments and
to obtain exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures contracts,
forwards and swaps--each of which is described below. Derivatives include
listed and cleared transactions, where a Portfolio's derivative trade
counterparty is an exchange or clearinghouse and non-cleared bilateral
"over-the-counter" transactions, where the Portfolio's derivative trade
counterparty is a financial institution. Exchange-traded or cleared derivatives
transactions tend to be more liquid and subject to less counterparty credit
risk than those that are privately negotiated.
A Portfolio's use of derivatives may involve risks that are different from, or
possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include: the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible
to close out a position when desired; and the risk that the counterparty will
not perform its obligations. Certain derivatives may have a leverage component
and involve leverage risk. Adverse changes in the value or level of the
underlying asset, note or index can result in a loss substantially greater than
the Portfolio's investment (in some cases, the potential loss is unlimited).
The Portfolios' investments in derivatives may include, but are not limited to,
the following:
.. FORWARD CONTRACTS. A forward contract is an agreement that obligates one
party to buy, and the other party to sell, a specific quantity of an
underlying commodity or other tangible asset for an agreed-upon price at a
future date. A forward contract generally is settled by physical delivery of
the commodity or tangible asset to an agreed-upon location (rather than
settled by cash) or is rolled forward into a new forward contract. The
Portfolios' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. A Portfolio may purchase or sell
forward currency exchange contracts for hedging purposes to minimize the
risk from adverse changes in the relationship between the U.S. Dollar and
other currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". A Portfolio, for
example, may enter into a forward contract as a transaction hedge (to "lock
in" the U.S. Dollar price of a non-U.S. Dollar security), as a position
hedge (to protect the value of securities the Portfolio owns that are
denominated in a foreign currency against substantial changes in the value
of the foreign currency) or as a cross-hedge (to protect the value of
securities the Portfolio owns that are denominated in a foreign currency
against substantial changes in the value of that foreign currency by
entering into a forward contract for a different foreign currency that is
expected to change in the same direction as the currency in which the
securities are denominated).
.. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A futures contract is a
standardized, exchange-traded agreement that obligates the buyer to buy and
the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or
index) at a specific price on the contract maturity date. Options on futures
contracts are options that call for the delivery of futures contracts upon
exercise. A Portfolio may purchase or sell futures contracts and options
thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies. A Portfolio may also purchase or
sell futures contracts for foreign currencies or options thereon for
non-hedging purposes as a means of making direct investments in foreign
currencies, as described below under "Other Derivatives and
Strategies--Currency Transactions".
.. OPTIONS. An option is an agreement that, for a premium payment or fee, gives
the option holder (the buyer) the right but not the obligation to buy (a
"call option") or sell (a "put option") the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Investments in options are considered speculative. A Portfolio may lose the
premium paid for them if the price of the underlying security or other asset
decreased or remained the same (in the case of a call option) or increased
or remained the same (in the case of a put option). If
51
a put or call option purchased by a Portfolio were permitted to expire
without being sold or exercised, its premium would represent a loss to the
Portfolio. The Portfolios' investments in options include the following:
- Options on Foreign Currencies. A Portfolio may invest in options on foreign
currencies that are privately negotiated or traded on U.S. or foreign
exchanges for hedging purposes to protect against declines in the
U.S. Dollar value of foreign currency denominated securities held by the
Portfolio and against increases in the U.S. Dollar cost of securities to be
acquired. The purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates, although if rates
move adversely, a Portfolio may forfeit the entire amount of the premium
plus related transaction costs. A Portfolio may also invest in options on
foreign currencies for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions".
- Options on Securities. A Portfolio may purchase or write a put or call
option on securities. A Portfolio may write covered options, which means
writing an option for securities the Portfolio owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than taking or making delivery
of a security at a specified price, an option on a securities index gives
the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
- Other Option Strategies. In an effort to earn extra income, to adjust
exposure to individual securities or markets, or to protect all or a portion
of its portfolio from a decline in value, sometimes within certain ranges, a
Portfolio that invests in equity securities may use option strategies such
as the concurrent purchase of a call or put option, including on individual
securities and stock indices, futures contracts (including on individual
securities and stock indices) or shares of exchange-traded funds, or ETFs,
at one strike price and the writing of a call or put option on the same
individual security, stock index, futures contract or ETF at a higher strike
price in the case of a call option or at a lower strike price in the case of
a put option. The maximum profit from this strategy would result for the
call options from an increase in the value of the individual security, stock
index, futures contract or ETF above the higher strike price or for the put
options the decline in the value of the individual security, stock index,
futures contract or ETF below the lower strike price. If the price of the
individual security, stock index, futures contract or ETF declines, in the
case of the call option, or increases, in the case of the put option, the
Portfolio has the risk of losing the entire amount paid for the call or put
options.
.. SWAP TRANSACTIONS. A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals (payment dates) based
upon, or calculated by, reference to changes in specified prices or rates
(E.G., interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). Generally, the notional principal
amount is used solely to calculate the payment stream, but is not exchanged.
Most swaps are entered into on a net basis (I.E., the two payment streams
are netted out, with the Portfolio receiving or paying, as the case may be,
only the net amount of the two payments). Certain standardized swaps,
including certain interest rate swaps and credit default swaps, are (or soon
will be) subject to mandatory central clearing. Cleared swaps are transacted
through futures commission merchants ("FCMs") that are members of central
clearinghouses with the clearinghouse serving as central counterparty,
similar to transactions in futures contracts. Portfolios post initial and
variation margin to support their obligations under cleared swaps by making
payments to their clearing member FCMs. Central clearing is expected to
reduce counterparty credit risks and increase liquidity, but central
clearing does not make swap transactions risk free. Centralized clearing
will be required for additional categories of swaps on a phased-in basis
based on Commodity Futures Trading Commission approval of contracts for
central clearing. The Securities and Exchange Commission ("Commission") may
adopt similar clearing requirements in respect of security-based swaps.
Bilateral swap agreements are two-party contracts entered into primarily by
institutional investors and are not cleared through a third party. The
Portfolios' investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve
the exchange by a Portfolio with another party of their respective
commitments to pay or receive interest (E.G., an exchange of floating-rate
payments for fixed-rate payments). Unless there is a counterparty default,
the risk of loss to a Portfolio from interest rate swap transactions is
limited to the net amount of interest payments that the Portfolio is
contractually obligated to make. If the counterparty to an interest rate
transaction defaults, the Portfolio's risk of loss consists of the net
amount of interest payments that the Portfolio contractually is entitled to
receive.
An option on a swap agreement, also called a "swaption", is an option that
gives the buyer the right, but not the obligation, to enter into a swap on a
future date in exchange for paying a market-based "premium". A receiver
swaption gives the owner the right to receive the total return of a
specified asset, reference rate, or index. A payer swaption gives the owner
the right to pay the total return of a specified asset, reference rate, or
index. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties.
52
The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
party selling the interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on an agreed
principal amount from the party selling the interest rate floor. Caps and
floors may be less liquid than swaps.
Interest rate swap, swaption, cap and floor transactions may, for example,
be used to preserve a return or spread on a particular investment or a
portion of a Portfolio's portfolio or to protect against an increase in the
price of securities a Portfolio anticipates purchasing at a later date. A
Portfolio may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending on whether it is hedging its
assets or liabilities.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one
party agrees to pay the cumulative percentage increase in a price index (the
Consumer Price Index with respect to CPI swaps) over the term of the swap
(with some lag on the inflation index), and the other pays a compounded
fixed rate. Inflation swap agreements may be used to protect the net asset
value, or NAV, of a Portfolio against an unexpected change in the rate of
inflation measured by an inflation index since the value of these agreements
is expected to increase if unexpected inflation increases.
- Credit Default Swaps. The "buyer" in a credit default swap contract is
obligated to pay the "seller" a periodic stream of payments over the term of
the contract in return for a contingent payment upon the occurrence of a
credit event with respect to an underlying reference obligation. Generally,
a credit event means bankruptcy, failure to pay, obligation acceleration or
restructuring. A Portfolio may be either the buyer or seller in the
transaction. If a Portfolio is a seller, the Portfolio receives a fixed rate
of income throughout the term of the contract, which typically is between
one month and ten years, provided that no credit event occurs. If a credit
event occurs, a Portfolio typically must pay the contingent payment to the
buyer, which will be either (i) the "par value" (face amount) of the
reference obligation, in which case the Portfolio will receive the reference
obligation in return or (ii) an amount equal to the difference between the
par value and the current market value of the reference obligation. The
current market value of the reference obligation is typically determined via
an auction process sponsored by the International Swaps and Derivatives
Association, Inc. The periodic payments previously received by the
Portfolio, coupled with the value of any reference obligation received, may
be less than the amount it pays to the buyer, resulting in a loss to the
Portfolio. If a Portfolio is a buyer and no credit event occurs, the
Portfolio will lose its periodic stream of payments over the term of the
contract. However, if a credit
event occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value. Credit default swaps
may involve greater risks than if a Portfolio had invested in the reference
obligation directly. Credit default swaps are subject to general market
risk, liquidity risk and credit risk.
- Currency Swaps. A Portfolio may invest in currency swaps for hedging
purposes to protect against adverse changes in exchange rates between the
U.S. Dollar and other currencies or for non-hedging purposes as a means of
making direct investments in foreign currencies, as described below under
"Other Derivatives and Strategies-- Currency Transactions". Currency swaps
involve the exchange by a Portfolio with another party of a series of
payments in specified currencies. Currency swaps may be bilateral and
privately negotiated with the Portfolio expecting to achieve an acceptable
degree of correlation between its portfolio investments and its currency
swaps position. Currency swaps may involve the exchange of actual principal
amounts of currencies by the counterparties at the initiation, and again
upon the termination, of the transaction.
.. OTHER DERIVATIVES AND STRATEGIES
- Currency Transactions. A Portfolio may invest in non-U.S. Dollar-denominated
securities on a currency hedged or unhedged basis. The Adviser may actively
manage the Portfolio's currency exposures and may seek investment
opportunities by taking long or short positions in currencies through the
use of currency-related derivatives, including forward currency exchange
contracts, futures contracts and options on futures contracts, swaps and
options. The Adviser may enter into transactions for investment
opportunities when it anticipates that a foreign currency will appreciate or
depreciate in value but securities denominated in that currency are not held
by a Portfolio and do not present attractive investment opportunities. Such
transactions may also be used when the Adviser believes that it may be more
efficient than a direct investment in a foreign currency-denominated
security. A Portfolio may also conduct currency exchange contracts on a spot
basis (I.E., for cash at the spot rate prevailing in the currency exchange
market for buying or selling currencies).
- Synthetic Foreign Equity Securities. The Portfolios may invest in different
types of derivatives generally referred to as synthetic foreign equity
securities. These securities may include international warrants or local
access products. International warrants are financial instruments issued by
banks or other financial institutions, which may or may not be traded on a
foreign exchange. International warrants are a form of derivative security
that may give holders the right to buy or sell an underlying security or a
basket of securities representing an index from or to the issuer of the
warrant for a particular price or may entitle holders to receive a cash
payment relating to the value of the underlying security or index, in each
case upon exercise by a Portfolio. Local access products are similar to
options in that they are exercisable by the holder for an
53
underlying security or a cash payment based upon the value of that security,
but are generally exercisable over a longer term than typical options. These
types of instruments may be American style, which means that they can be
exercised at any time on or before the expiration date of the international
warrant, or European style, which means that they may be exercised only on
the expiration date.
Other types of synthetic foreign equity securities in which a Portfolio may
invest include covered warrants and low exercise price warrants. Covered
warrants entitle the holder to purchase from the issuer, typically a
financial institution, upon exercise, common stock of an international
company or receive a cash payment (generally in U.S. Dollars). The issuer of
the covered warrants usually owns the underlying security or has a
mechanism, such as owning equity warrants on the underlying securities,
through which it can obtain the underlying securities. The cash payment is
calculated according to a predetermined formula, which is generally based on
the difference between the value of the underlying security on the date of
exercise and the strike price. Low exercise price warrants are warrants with
an exercise price that is very low relative to the market price of the
underlying instrument at the time of issue (E.G., one cent or less). The
buyer of a low exercise price warrant effectively pays the full value of the
underlying common stock at the outset. In the case of any exercise of
warrants, there may be a time delay between the time a holder of warrants
gives instructions to exercise and the time the price of the common stock
relating to exercise or the settlement date is determined, during which time
the price of the underlying security could change significantly. In
addition, the exercise or settlement date of the warrants may be affected by
certain market disruption events, such as difficulties relating to the
exchange of a local currency into U.S. Dollars, the imposition of capital
controls by a local jurisdiction or changes in the laws relating to foreign
investments. These events could lead to a change in the exercise date or
settlement currency of the warrants, or postponement of the settlement date.
In some cases, if the market disruption events continue for a certain period
of time, the warrants may become worthless, resulting in a total loss of the
purchase price of the warrants.
A Portfolio will acquire synthetic foreign equity securities issued by
entities deemed to be creditworthy by the Adviser, which will monitor the
creditworthiness of the issuers on an ongoing basis. Investments in these
instruments involve the risk that the issuer of the instrument may default
on its obligation to deliver the underlying security or cash in lieu
thereof. These instruments may also be subject to liquidity risk because
there may be a limited secondary market for trading the warrants. They are
also subject, like other investments in foreign securities, to foreign
(non-U.S.) risk and currency risk.
- Eurodollar Instruments. Eurodollar instruments are essentially
U.S. Dollar-denominated futures contracts or options that are linked to the
London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings.
CONVERTIBLE SECURITIES
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market prices of the underlying common stock. Convertible debt securities that
are rated Baa3 or lower by Moody's Investors Service, Inc. or BBB- or lower by
S&P Global Ratings or Fitch Ratings and comparable unrated securities may share
some or all of the risks of debt securities with those ratings.
DEPOSITARY RECEIPTS AND SECURITIES OF SUPRANATIONAL ENTITIES
A Portfolio may invest in depositary receipts. American Depositary Receipts, or
ADRs, are depositary receipts typically issued by a U.S. bank or trust company
that evidence ownership of underlying securities issued by a foreign
corporation. Global Depositary Receipts, or GDRs, European Depositary Receipts,
or EDRs, and other types of depositary receipts are typically issued by
non-U.S. banks or trust companies and evidence ownership of underlying
securities issued by either a U.S. or a non-U.S. company. Depositary receipts
may not necessarily be denominated in the same currency as the underlying
securities into which they may be converted. In addition, the issuers of the
stock underlying unsponsored depositary receipts are not obligated to disclose
material information in the United States. Generally, depositary receipts in
registered form are designed for use in the U.S. securities markets, and
depositary receipts in bearer form are designed for use in securities markets
outside of the United States. For purposes of determining the country of
issuance, investments in depositary receipts of either type are deemed to be
investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include the World Bank
(International Bank for Reconstruction and Development) and the European
Investment Bank. "Semi-governmental securities" are securities issued by
entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.
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FORWARD COMMITMENTS
Forward commitments for the purchase or sale of securities may include
purchases on a when-issued basis or purchases or sales on a delayed delivery
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (I.E., a "when, as and if issued"
trade).
A Portfolio may invest in TBA-mortgage-backed securities. A TBA or "To Be
Announced" trade represents a contract for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date;
however, the specific mortgage pool numbers or the number of pools that will be
delivered to fulfill the trade obligation or terms of the contract are unknown
at the time of the trade. Mortgage pools (including fixed-rate or variable-rate
mortgages) guaranteed by the Government National Mortgage Association, or GNMA,
the Federal National Mortgage Association, or FNMA, or the Federal Home Loan
Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA
transactions.
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Securities purchased or sold under a forward
commitment are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. There is a risk of loss
if the value of either a purchased security declines before the settlement date
or the security sold increases before the settlement date. The use of forward
commitments helps a Portfolio to protect against anticipated changes in
interest rates and prices.
ILLIQUID SECURITIES
Each Portfolio limits its investments in illiquid securities to 15% of its net
assets. Until the Portfolios' compliance date of December 1, 2018 for new Rule
22e-4 under the Investment Company Act of 1940 (the "1940 Act"), the term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount a Portfolio has valued the securities. After such date, the term shall
mean any security or investment that a Portfolio reasonably expects cannot be
sold or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment.
A Portfolio that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale.
Restricted securities (securities subject to legal or contractual restrictions
on resale) may be illiquid. Some restricted securities (such as securities
issued pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities") or certain commercial paper) may be treated as liquid, although
they may be less liquid than registered securities traded on established
secondary markets.
INDEXED COMMERCIAL PAPER
Indexed commercial paper may have its principal linked to changes in foreign
currency exchange rates whereby its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the referenced
exchange rate. A Portfolio will receive interest and principal payments on such
commercial paper in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity will change in
proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables a Portfolio to hedge (or cross-hedge) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. A
Portfolio will purchase such commercial paper for hedging purposes only, not
for speculation.
INFLATION-INDEXED SECURITIES
Inflation-indexed securities are fixed-income securities whose principal value
is periodically adjusted according to the rate of inflation. If the index
measuring inflation falls, the principal value of these securities will be
adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced.
The value of inflation-indexed securities tends to react to changes in real
interest rates. In general, the price of these securities can fall when real
interest rates rise, and can rise when real interest rates fall. In addition,
the value of these securities can fluctuate based on fluctuations in
expectations of inflation. Interest payments on these securities can be
unpredictable and will vary as the principal and/or interest is adjusted for
inflation.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES
A Portfolio may invest in shares of ETFs, subject to the restrictions and
limitations of the 1940 Act, or any applicable rules, exemptive orders or
regulatory guidance thereunder. ETFs are pooled investment vehicles, which may
be managed or unmanaged, that generally seek to track the performance of a
specific index. ETFs will not track their underlying indices precisely since
the ETFs have expenses and may need to hold a portion of their assets in cash,
unlike the underlying indices, and the ETFs may not invest in all of the
securities in the underlying indices in the same proportion as the indices for
varying reasons. A Portfolio will incur transaction costs when buying and
selling ETF shares, and indirectly bear the expenses of the ETFs. In addition,
the market value of an ETF's shares, which is based on supply and demand in the
market for the ETF's shares, may differ from its NAV. Accordingly, there may be
times when an ETF's shares trade at a discount to its NAV.
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The Portfolios may also invest in investment companies other than ETFs, as
permitted by the 1940 Act, and the rules and regulations or exemptive orders
thereunder. As with ETF investments, if a Portfolio acquires shares in other
investment companies, Contractholders would bear, indirectly, the expenses of
such investment companies (which may include management and advisory fees),
which to the extent not waived or reimbursed, would be in addition to the
Portfolio's expenses. The Portfolios intend to invest uninvested cash balances
in an affiliated money market fund as permitted by Rule 12d1-1 under the 1940
Act. A Portfolio's investment in other investment companies, including ETFs,
subjects the Portfolio indirectly to the underlying risks of those investment
companies.
The AB VPS BALANCED WEALTH STRATEGY PORTFOLIO expects to invest in other AB
Mutual Funds (each an "Underlying Portfolio"). A brief description of each of
these Underlying Portfolios follows. Additional details are available in each
Underlying Portfolio's prospectus or SAI. You may request a free copy of each
Underlying Portfolio's prospectus and/or SAI by contacting the Adviser:
By Mail: c/o AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
INTERNATIONAL PORTFOLIO, a series of Sanford C. Bernstein Fund, Inc., has an
investment objective of long-term capital growth. This Underlying Portfolio
invests primarily in equity securities of issuers in countries that make up the
Morgan Stanley Capital International ("MSCI") EAFE Index (Europe, Australasia
and the Far East) and Canada. The Adviser may diversify the Underlying
Portfolio across multiple investment disciplines as well as capitalization
ranges, although the Adviser expects to invest primarily in large- and
mid-sized capitalization companies. The Adviser relies on both fundamental and
quantitative research to manage both risk and return for the Underlying
Portfolio. The Underlying Portfolio may own stocks from the Adviser's bottom-up
fundamental research in value, growth, stability and other disciplines. Within
each investment discipline, the Adviser draws on the capabilities of separate
investment teams. The research analyses that support buy and sell decisions for
the Underlying Portfolio are fundamental and bottom-up, based largely on
specific company and industry findings and taking into account broad economic
forecasts.
The Underlying Portfolio may enter into foreign currency transactions for
hedging and non-hedging purposes on a spot (I.E., cash) basis or through the
use of derivatives transactions.
INTERNATIONAL STRATEGIC EQUITIES PORTFOLIO, a series of Bernstein Fund, Inc.,
has an investment objective of seeking long-term growth of capital. The Adviser
invests the assets of this Underlying Portfolio primarily in equity securities
of issuers in countries that make up the MSCI All Country World Index ("ACWI")
ex-US Index, which includes both developed and emerging market countries. The
Underlying Portfolio focuses on securities of large-cap and mid-cap companies.
The Adviser utilizes both fundamental and quantitative research to both
determine which securities will be held by the Underlying Portfolio and to
manage risk. Specifically, the Underlying Portfolio's management team uses the
universe of securities selected by the Adviser's various fundamental investment
teams focusing on international equity securities, and applies its quantitative
analysis to these securities. In applying its quantitative analysis, the
Adviser considers a number of metrics that have historically provided some
indication of favorable future returns, including metrics relating to
valuation, quality, investor behavior and corporate behavior. The Adviser may
employ currency hedging strategies, including the use of currency-related
derivatives, to seek to reduce currency risk in the Underlying Portfolio, but
it is not required to do so.
AB DISCOVERY GROWTH FUND has an investment objective of long-term growth of
capital. This Underlying Portfolio invests primarily in a diversified portfolio
of equity securities of small- and mid-capitalization companies. The Underlying
Portfolio may invest in any company and industry and in any type of equity
security with potential for capital appreciation. The Underlying Portfolio's
investment policies emphasize investments in companies that are demonstrating
improving financial results and a favorable earnings outlook. When selecting
securities, the Adviser typically looks for companies that have strong,
experienced management teams, strong market positions, and the potential to
support greater than expected earnings growth rates. In making specific
investment decisions for the Underlying Portfolio, the Adviser combines
fundamental and quantitative analysis in its stock selection process.
AB DISCOVERY VALUE FUND, a series of AB Trust, has an investment objective of
long-term growth of capital. This Underlying Portfolio invests primarily in a
diversified portfolio of equity securities of small- to mid-capitalization U.S.
companies. The Underlying Portfolio invests in companies that are determined by
the Adviser to be undervalued, using the Adviser's fundamental value approach.
In selecting securities for the Underlying Portfolio's portfolio, the Adviser
uses its fundamental and quantitative research to identify companies whose
long-term earnings power is not reflected in the current market price of their
securities.
SMALL CAP CORE PORTFOLIO, a series of Bernstein Fund, Inc., has an investment
objective of long-term growth of capital. The Adviser invests the assets of
this Underlying Portfolio primarily in a diversified portfolio of equity
securities of small-capitalization companies located in the U.S.
The Adviser utilizes both quantitative analysis and fundamental research to
determine which securities will be held by the Underlying Portfolio and to
manage risk. The Adviser applies quantitative analysis to all of the securities
in the Underlying Portfolio's research universe, which is composed primarily of
securities in the Russell 2000 Index. Those securities that score highly on
this quantitative analysis are then screened to eliminate those securities that
the Adviser is recommending against purchasing based on its fundamental
research, and a portfolio is constructed from the remaining highly ranked
securities based on diversification and risk considerations. In its
quantitative analysis, the Adviser considers a number of metrics that have
historically provided some indication of favorable future returns,
56
including metrics relating to valuation, quality, investor behavior and
corporate behavior.
INTERNATIONAL SMALL CAP PORTFOLIO, a series of Bernstein Fund, Inc., has an
investment objective of long-term growth of capital. The Adviser invests the
assets of this Underlying Portfolio primarily in a diversified portfolio of
equity securities of small-capitalization companies located outside the U.S.
The Adviser seeks to identify attractive investment opportunities primarily
through its fundamental investment research or quantitative analysis. In
applying its fundamental research, the Adviser generally seeks to identify
companies that possess both attractive valuation and compelling company- and/or
industry-level investment catalysts. In applying its quantitative analysis, the
Adviser typically considers a number of metrics that historically have provided
some indication of favorable future returns, including metrics related to
valuation, quality, investor behavior and corporate behavior. Utilizing these
resources, the Adviser expects to allocate the Underlying Portfolio's assets
among issuers, industries and geographic locations to attempt to create a
diversified portfolio of investments.
EMERGING MARKETS PORTFOLIO, a series of Sanford C. Bernstein Fund, Inc., has an
investment objective of long-term capital growth through investments in equity
securities of companies in emerging-market countries. This Underlying Portfolio
invests, under normal circumstances, at least 80% of its net assets in
securities of companies in emerging markets.
The Adviser diversifies the investment portfolio between growth and value
investment styles. The Adviser selects emerging markets growth and emerging
markets value equity securities based on its fundamental growth and value
investment disciplines to produce a blended portfolio. Within each investment
discipline, the Adviser draws on the capabilities of separate investment teams.
In allocating the Underlying Portfolio's assets among emerging market
countries, the Adviser considers such factors as the geographical distribution
of the Underlying Portfolio, the sizes of the stock markets represented and the
various key economic characteristics of the countries. The Adviser may hedge
currency risk when it believes there is potential to enhance risk-adjusted
returns.
The Underlying Portfolios also intend to invest uninvested cash balances in an
affiliated money market fund as permitted by Rule 12d1-1 under the 1940 Act.
LOANS OF PORTFOLIO SECURITIES
For the purposes of achieving income, a Portfolio may make secured loans of
portfolio securities to brokers, dealers and financial institutions
("borrowers") to the extent permitted under the 1940 Act or the rules and
regulations thereunder (as such statute, rules or regulations may be amended
from time to time) or by guidance regarding, interpretations of or exemptive
orders under the 1940 Act. Under a Portfolio's securities lending program, all
securities loans will be secured continually by cash collateral. The loans will
be made only to borrowers deemed by the Adviser to be creditworthy, and when,
in the judgment of the Adviser, the consideration that can be earned currently
from securities loans justifies the attendant risk. The Portfolio will be
compensated for the loan from a portion of the net return from the interest
earned on cash collateral after a rebate paid to the borrower (in some cases
this rebate may be a "negative rebate", or fee paid by the borrower to the
Portfolio in connection with the loan) and payments for fees of the securities
lending agent and for certain other administrative expenses.
A Portfolio will have the right to call a loan and obtain the securities loaned
at any time on notice to the borrower within the normal and customary
settlement time for the securities. While the securities are on loan, the
borrower is obligated to pay the Portfolio amounts equal to any income or other
distributions from the securities. The Portfolio will not have the right to
vote any securities during the existence of a loan, but will have the right to
regain ownership of loaned securities in order to exercise voting or other
ownership rights. When the Portfolio lends securities, its investment
performance will continue to reflect changes in the value of the securities
loaned.
A Portfolio will invest cash collateral in a money market fund approved by the
Portfolio's Board of Directors (the "Board") and expected to be managed by the
Adviser. Any such investment will be at the Portfolio's risk. A Portfolio may
pay reasonable finders', administrative, and custodial fees in connection with
a loan.
A principal risk of lending portfolio securities is that the borrower will fail
to return the loaned securities upon termination of the loan and that the
collateral will not be sufficient to replace the loaned securities.
LOAN PARTICIPATIONS
A Portfolio may invest in corporate loans either by participating as co-lender
at the time the loan is originated or by buying an interest in the loan in the
secondary market from a financial institution or institutional investor. The
financial status of an institution interposed between a Portfolio and a
borrower may affect the ability of the Portfolio to receive principal and
interest payments.
The success of a Portfolio may depend on the skill with which an agent bank
administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
MORTGAGE-BACKED SECURITIES, OTHER ASSET-BACKED SECURITIES AND STRUCTURED
SECURITIES
Mortgage-backed securities may be issued by the U.S. Government or one of its
sponsored entities or may be issued by private organizations. Interest and
principal payments (including prepayments) on the mortgages underlying
mortgage-backed securities are passed through to the holders of the securities.
As a result of the pass-through of prepayments of principal on the underlying
securities, mortgage-backed securities are often subject to more rapid
prepayment of principal than their stated maturity would indicate. Prepayments
occur when the mortgagor
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on a mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. Because the prepayment characteristics of the underlying
mortgages vary, it is impossible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayments
are important because of their effect on the yield and price of the
mortgage-backed securities. During periods of declining interest rates,
prepayments can be expected to accelerate and a Portfolio that invests in these
securities would be required to reinvest the proceeds at the lower interest
rates then available. Conversely, during periods of rising interest rates, a
reduction in prepayments may increase the effective maturity of the securities,
subjecting them to a greater risk of decline in market value in response to
rising interest rates. In addition, prepayments of mortgages underlying
securities purchased at a premium could result in capital losses.
Mortgage-backed securities include mortgage pass-through certificates and
multiple-class pass-through securities, such as real estate mortgage investment
conduit certificates, or REMICs, collateralized mortgage obligations, or CMOs,
government sponsored enterprise ("GSE") risk-sharing bonds, and stripped
mortgage-backed securities, and other types of mortgage-backed securities that
may be available in the future.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE OBLIGATIONS.
Mortgage-backed securities also include CMOs and REMIC pass-through or
participation certificates that may be issued by, among others, U.S. Government
agencies and instrumentalities as well as private lenders. CMOs and REMICs are
issued in multiple classes and the principal of and interest on the mortgage
assets may be allocated among the several classes of CMOs or REMICs in various
ways. Each class of CMOs or REMICs, often referred to as a "tranche", is issued
at a specific adjustable or fixed interest rate and must be fully retired no
later than its final distribution date. Generally, interest is paid or accrued
on all classes of CMOs or REMICs on a monthly basis.
Typically, CMOs are collateralized by GNMA or FHLMC certificates but also may
be collateralized by other mortgage assets such as whole loans or private
mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgage assets and any
reinvestment income.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended, or the Code, and invests in certain mortgages
primarily secured by interests in real property and other permitted
investments. Investors may purchase "regular" and "residual" interest shares of
beneficial interest in REMIC trusts.
GSE RISK-SHARING BONDS. The AB VPS BALANCED WEALTH STRATEGY PORTFOLIO, AB VPS
DYNAMIC ASSET ALLOCATION PORTFOLIO, AB VPS INTERMEDIATE BOND PORTFOLIO and AB
VPS GLOBAL RISK ALLOCATION-MODERATE PORTFOLIO may each invest in
mortgage-backed securities known as GSE Risk-Sharing Bonds or Credit Risk
Transfer Securities ("CRTs"), which are issued by GSEs (and sometimes banks or
mortgage insurers) and structured without any government or GSE guarantee in
respect of borrower defaults or underlying collateral. The risks associated
with an investment in CRTs differ from the risks associated with an investment
in more traditional mortgage-backed securities issued by GSEs because, in CRTs,
some or all of the credit risk associated with the underlying mortgage loans is
transferred to the end-investor.
OTHER ASSET-BACKED SECURITIES. A Portfolio may invest in other asset-backed
securities. The securitization techniques used to develop mortgage-related
securities are applied to a broad range of financial assets. Through the use of
trusts and special purpose corporations, various types of assets, including
automobile loans and leases, credit card receivables, home equity loans,
equipment leases and trade receivables, are securitized in structures similar
to the structures used in mortgage securitizations.
STRUCTURED SECURITIES. A Portfolio may invest in securities issued in
structured financing transactions, which generally involve aggregating types of
debt assets in a pool or special purpose entity and then issuing new
securities. Types of structured financings include securities described
elsewhere in this Prospectus, such as mortgage-related and other asset-backed
securities. These investments include investments in structured securities that
represent interests in entities organized and operated solely for the purpose
of restructuring the investment characteristics of particular debt obligations.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or high-yield bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. Because these types of structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of the underlying instruments.
PREFERRED STOCK
A Portfolio may invest in preferred stock. Preferred stock is a class of
capital stock that typically pays dividends at a specified rate. Preferred
stock is generally senior to common stock, but is subordinated to any debt the
issuer has outstanding. Accordingly, preferred stock dividends are not paid
until all debt obligations are first met. Preferred stock may be subject to
more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer. These investments include convertible preferred stock, which
includes an option for the holder to convert the preferred stock into the
issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion may begin, a certain number
of common shares per preferred share, or a certain price per share for the
common stock. Convertible preferred stock tends to be more volatile than
non-convertible preferred stock, because its value is related to the price of
the issuer's common stock as well as the dividends payable on the preferred
stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are pooled investment vehicles that invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage
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REITs or a combination of equity and mortgage REITs. Equity REITs invest the
majority of their assets directly in real property and derive income primarily
from the collection of rents. Equity REITs can also realize capital gains by
selling properties that have appreciated in value. Mortgage REITs invest the
majority of their assets in real estate mortgages and derive income from the
collection of interest payments and principal. Similar to investment companies
such as the Portfolios, REITs are not taxed on income distributed to
shareholders provided they comply with several requirements of the Code. A
Portfolio will indirectly bear its proportionate share of expenses incurred by
REITs in which the Portfolio invests in addition to the expenses incurred
directly by the Portfolio.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
A Portfolio may enter into repurchase agreements. In a repurchase agreement
transaction, the Portfolio buys a security and simultaneously agrees to sell it
back to the counterparty at a specified price in the future. However, a
repurchase agreement is economically similar to a secured loan, in that the
Portfolio lends cash to a counterparty for a specific term, normally a day or a
few days, and is given acceptable collateral (the purchased securities) to hold
in case the counterparty does not repay the loan. The difference between the
purchase price and the repurchase price of the securities reflects an
agreed-upon "interest rate". Given that the price at which a Portfolio will
sell the collateral back is specified in advance, a Portfolio is not exposed to
price movements on the collateral unless the counterparty defaults. If the
counterparty defaults on its obligation to buy back the securities at the
maturity date and the liquidation value of the collateral is less than the
outstanding loan amount, a Portfolio would suffer a loss. In order to further
mitigate any potential credit exposure to the counterparty, if the value of the
securities falls below a specified level that is linked to the loan amount
during the life of the agreement, the counterparty must provide additional
collateral to support the loan.
A Portfolio may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, a Portfolio enters a trade
to buy securities at one price and simultaneously enters a trade to sell the
same securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
A Portfolio may enter into reverse repurchase agreements and dollar rolls,
subject to the Portfolio's limitations on borrowings. A reverse repurchase
agreement or dollar roll involves the sale of a security by a Portfolio and its
agreement to repurchase the instrument at a specified time and price, and may
be considered a form of borrowing for some purposes. Reverse repurchase
agreements, dollar rolls and other forms of borrowings may create leverage risk
for a Portfolio. In addition, reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities a Portfolio is
obligated to repurchase may decline below the purchase price.
Dollar rolls involve sales by a Portfolio of securities for delivery in the
current month and the Portfolio's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, a Portfolio forgoes principal and interest paid
on the securities. A Portfolio is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on the cash
proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Portfolio is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, a Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other party, or its
trustee or receiver, whether to enforce the Portfolio's obligation to
repurchase the securities.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES
A Portfolio may make short sales as a part of overall portfolio management or
to offset a potential decline in the value of a security. A short sale involves
the sale of a security that a Portfolio does not own, or if the Portfolio owns
the security, is not to be delivered upon consummation of the sale. When the
Portfolio makes a short sale of a security that it does not own, it must borrow
from a broker-dealer the security sold short and deliver the security to the
broker-dealer upon conclusion of the short sale.
If the price of the security sold short increases between the time of the short
sale and the time a Portfolio replaces the borrowed security, the Portfolio
will incur a loss; conversely, if the price declines, the Portfolio will
realize a short-term capital gain. Although a Portfolio's gain is limited to
the price at which it sold the security short, its potential loss is
theoretically unlimited because there is a theoretically unlimited potential
for the price of a security sold short to increase.
STANDBY COMMITMENT AGREEMENTS
Standby commitment agreements are similar to put options that commit a
Portfolio, for a stated period of time, to purchase
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a stated amount of a security that may be issued and sold to the Portfolio at
the option of the issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the agreement, the
Portfolio is paid a commitment fee regardless of whether the security
ultimately is issued. The Portfolios will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous to the Portfolio and unavailable on a firm
commitment basis.
There is no guarantee that a security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Portfolio will bear the risk of capital loss
in the event that the value of the security declines and may not benefit from
an appreciation in the value of the security during the commitment period if
the issuer decides not to issue and sell the security to the Portfolio.
STRUCTURED PRODUCTS
A Portfolio may invest in certain hybrid derivatives-type instruments that
combine features of a traditional stock or bond with those of, for example, a
futures contract or an option. These instruments include structured notes and
indexed securities, commodity-linked notes and commodity index-linked notes and
credit-linked securities. The performance of the structured product, which is
generally a fixed-income security, is tied (positively or negatively) to the
price or prices of an unrelated reference indicator such as a security or
basket of securities, currencies, commodities, a securities or commodities
index or a credit default swap or other kinds of swaps. The structured product
may not pay interest or protect the principal invested. The structured product
or its interest rate may be a multiple of the reference indicator and, as a
result, may be leveraged and move (up or down) more rapidly than the reference
indicator. Investments in structured products may provide a more efficient and
less expensive means of obtaining exposure to underlying securities,
commodities or other derivatives, but may potentially be more volatile, less
liquid and carry greater market risk than investments in traditional
securities. The purchase of a structured product also exposes a Portfolio to
the credit risk of the structured product.
Structured notes are derivative debt instruments. The interest rate or
principal of these notes is determined by reference to an unrelated indicator
(for example, a currency, security, or indices thereof) unlike a typical note
where the borrower agrees to make fixed or floating interest payments and to
pay a fixed sum at maturity. Indexed securities may include structured notes as
well as securities other than debt securities, the interest or principal of
which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the
commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodity
futures contracts, commodity options, commodity indices or similar instruments.
Commodity-linked products may be either equity or debt securities, leveraged or
unleveraged, and have both security and commodity-like characteristics. A
portion of the value of these instruments may be derived from the value of a
commodity, futures contract, index or other economic variable.
A Portfolio may also invest in certain hybrid derivatives-type investments that
combine features of a traditional bond with those of certain derivatives such
as a credit default swap, an interest rate swap or other securities. These
investments include credit-linked securities. The issuers of these securities
frequently are limited purpose trusts or other special purpose vehicles that
invest in a derivative instrument or basket of derivative instruments in order
to provide exposure to certain fixed-income markets. For instance, a Portfolio
may invest in credit-linked securities as a cash management tool to gain
exposure to a certain market or to remain fully invested when more traditional
income-producing securities are not available. The performance of the
structured product, which is generally a fixed-income security, is linked to
the receipt of payments from the counterparties to the derivative instruments
or other securities. A Portfolio's investments in credit-linked securities are
indirectly subject to the risks associated with derivative instruments,
including, among others, credit risk, default risk, counterparty risk, interest
rate risk and leverage risk. These securities are generally structured as Rule
144A Securities so that they may be freely traded among institutional buyers.
However, changes in the market for credit-linked securities or the availability
of willing buyers may result in the securities becoming illiquid.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS
Variable and floating-rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (E.G., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
A Portfolio may also invest in inverse floating-rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may have greater volatility in market value in
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed-rate securities.
ZERO-COUPON AND PRINCIPAL-ONLY SECURITIES
Zero-coupon securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of their unmatured
interest coupons, and include receipts or certificates representing interests
in such stripped debt obligations and coupons. Such a security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value. Such securities
60
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
ADDITIONAL RISK AND OTHER CONSIDERATIONS
Investments in the Portfolios involve the risk considerations described below.
BORROWINGS AND LEVERAGE
Certain of the Portfolios may use borrowings for investment purposes subject to
applicable statutory or regulatory requirements. Borrowings by a Portfolio
result in leveraging of the Portfolio's shares. Likewise, a Portfolio's use of
certain derivatives may effectively leverage the Portfolio's portfolio. The
Portfolios may use leverage for investment purposes by entering into
transactions such as reverse repurchase agreements, forward contracts, dollar
rolls or certain derivatives. This means that a Portfolio uses cash made
available during the term of these transactions to make investments in other
securities.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Portfolio's Contractholders. These include a higher
volatility of the NAV of the Portfolio's shares and the relatively greater
effect of changes in the value of the Portfolio's portfolio on the NAV of the
shares. In the case of borrowings for investment purposes, so long as the
Portfolio is able to realize a net return on its investment portfolio that is
higher than the interest expense paid on borrowings, the effect of such
leverage will be to cause the Portfolio's Contractholders to realize a higher
net return than if the Portfolio were not leveraged. With respect to a
Portfolio's use of certain derivatives that result in leverage of the
Portfolio's shares, if the Portfolio is able to realize a net return on its
investments that is higher than the costs of the leverage, the effect of such
leverage will be to cause the Portfolio to realize a higher return than if the
Portfolio were not leveraged. If the interest expense on borrowings or other
costs of leverage approach the return on a Portfolio's investment portfolio or
investments made through leverage, as applicable, the benefit of leverage to
the Portfolio's Contractholders will be reduced. If the interest expense on
borrowings or other costs of leverage were to exceed the net return to
Contractholders, a Portfolio's use of leverage would result in a lower rate of
return than if the Portfolio were not leveraged. Similarly, the effect of
leverage in a declining market would normally be a greater decrease in NAV per
share than if the Portfolio were not leveraged.
FOREIGN (NON-U.S.) SECURITIES
Investing in securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. securities. The
securities markets of many foreign countries are relatively small, with the
majority of market capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries. A Portfolio that
invests in securities of foreign issuers may experience greater price
volatility and significantly lower liquidity than a portfolio invested solely
in securities of U.S. companies. These markets may be subject to greater
influence by adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual in the
United States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of a Portfolio. In addition, the repatriation of investment
income, capital or the proceeds of sales of securities from certain countries
is controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
A Portfolio also could be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to a Portfolio. These factors may affect the liquidity of a Portfolio's
investments in any country and the Adviser will monitor the effect of any such
factor or factors on a Portfolio's investments. Transaction costs, including
brokerage commissions for transactions both on and off the securities
exchanges, in many foreign countries are generally higher than in the
United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in securities of foreign issuers than to
investors in U.S. securities. Substantially less information is publicly
available about certain non-U.S. issuers than is available about most U.S.
issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, revolutions, wars or
diplomatic developments could affect adversely the economy of a foreign
country. In the event of nationalization, expropriation, or other confiscation,
a Portfolio could lose its entire investment in securities in the country
involved. In addition,
61
laws in foreign countries governing business organizations, bankruptcy and
insolvency may provide less protection to security holders such as the
Portfolios than that provided by U.S. laws.
In June 2016, the United Kingdom ("UK") voted in a referendum to leave the
European Union ("EU"). On March 29, 2017, the UK notified the European Council
of its intention to withdraw from the EU. It is expected that the UK's
withdrawal will be completed within two years of such notification. There is
considerable uncertainty relating to the potential consequences of the
withdrawal. During this period and beyond, the impact on the UK and European
economies and the broader global economy could be significant, resulting in
increased volatility and illiquidity, currency fluctuations, impacts on
arrangements for trading and on other existing cross-border cooperation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise),
and in potentially lower growth for companies in the UK, Europe and globally,
which could have an adverse effect on the value of a Portfolio's investments.
Investments in securities of companies in emerging markets involve special
risks. There are approximately 100 countries identified by the World Bank as
Low Income, Lower Middle Income and Upper Middle Income countries that are
generally regarded as emerging markets. Emerging market countries that the
Adviser currently considers for investment include:
Argentina Hungary Philippines
Bangladesh India Poland
Belarus Indonesia Russia
Belize Iraq Senegal
Brazil Ivory Coast Serbia
Bulgaria Jamaica South Africa
Chile Jordan South Korea
China Kazakhstan Sri Lanka
Colombia Lebanon Taiwan
Croatia Lithuania Thailand
Dominican Republic Malaysia Turkey
Ecuador Mexico Ukraine
Egypt Mongolia Uruguay
El Salvador Nigeria Venezuela
Gabon Pakistan Vietnam
Georgia Panama
Ghana Peru
Countries may be added to or removed from this list at any time.
Investing in emerging market securities imposes risks different from, or
greater than, risks of investing in domestic securities or in foreign,
developed countries. These risks include: smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and possible
repatriation of investment income and capital. In addition, foreign investors
may be required to register the proceeds of sales and future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. Dollar, and devaluation may occur
subsequent to investments in these currencies by a Portfolio. Inflation and
rapid fluctuations in inflation rates have had, and may continue to have,
negative effects on the economies and securities markets of certain emerging
market countries.
Additional risks of emerging market securities may include: greater social,
economic and political uncertainty and instability; more substantial
governmental involvement in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; and less developed legal systems. In addition, emerging securities
markets may have different clearance and settlement procedures, which may be
unable to keep pace with the volume of securities transactions or otherwise
make it difficult to engage in such transactions. Settlement problems may cause
a Portfolio to miss attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in disposing of a portfolio
security. Such a delay could result in possible liability to a purchaser of the
security.
FOREIGN (NON-U.S.) CURRENCIES
A Portfolio that invests some portion of its assets in securities denominated
in, and receives revenues in, foreign currencies will be adversely affected by
reductions in the value of those currencies relative to the U.S. Dollar.
Foreign currency exchange rates may fluctuate significantly. They are
determined by supply and demand in the foreign exchange markets, the relative
merits of investments in different countries, actual or perceived changes in
interest rates, and other complex factors. Currency exchange rates also can be
affected unpredictably by intervention (or the failure to intervene) by U.S. or
non-U.S. Governments or central banks or by currency controls or political
developments. In light of these risks, a Portfolio may engage in certain
currency hedging transactions, as described above, which involve certain
special risks. A Portfolio may also invest directly in foreign currencies for
non-hedging purposes directly on a spot basis (I.E., cash) or through
derivatives transactions, such as forward currency exchange contracts, futures
contracts and options thereon, swaps and options as described above. These
investments will be subject to the same risks. In addition, currency exchange
rates may fluctuate significantly over short periods of time, causing a
Portfolio's NAV to fluctuate.
INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES
Investments in securities rated below investment grade (commonly referred to as
"junk bonds") may be subject to greater risk of loss of principal and interest
than higher-rated securities. These securities are also generally considered to
be subject to greater market risk than higher-rated securities. The capacity of
issuers of these securities to pay interest and repay principal is more likely
to weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, below
investment grade securities may be more susceptible to real or perceived
adverse economic conditions than investment grade securities.
62
The market for these securities may be thinner and less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. To the extent that there is no established secondary
market for these securities, a Portfolio may experience difficulty in valuing
such securities and, in turn, the Portfolio's assets.
INVESTMENT IN SMALLER, LESS-SEASONED COMPANIES
Investment in smaller, less-seasoned companies involves greater risks than are
customarily associated with securities of more established companies. Companies
in the earlier stages of their development often have products and management
personnel that have not been thoroughly tested by time or the marketplace;
their financial resources may not be as substantial as those of more
established companies. The securities of smaller, less-seasoned companies may
have relatively limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger companies or broad market
indices. The revenue flow of such companies may be erratic and their results of
operation may fluctuate widely and may also contribute to stock
price volatility.
REAL ESTATE INVESTMENTS
Although the Portfolios do not invest directly in real estate, they invest in
securities of real estate companies, including, in particular, AB VPS REAL
ESTATE INVESTMENT PORTFOLIO. Therefore, an investment in a Portfolio that makes
such investments is subject to certain risks associated with the direct
ownership of real estate and with the real estate industry in general. These
risks include, among others: possible declines in the value of real estate;
risks related to general and local economic conditions, including increases in
the rate of inflation; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting
from, environmental problems; casualty or condemnation losses; uninsured
damages from floods, earthquakes or other natural disasters; limitations on and
variations in rents; and changes in interest rates. To the extent that assets
underlying such investments are concentrated geographically, by property type
or in certain other respects, a Portfolio may be subject to certain of the
foregoing risks to a greater extent. These risks may be greater for investments
in non-U.S. real estate companies.
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, and
are subject to heavy cash flow dependency, default by borrowers and
self-liquidation.
Investing in REITs involves risks similar to those associated with investing in
small-capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically,
small-capitalization stocks, such as REITs, have had more price volatility than
larger capitalization stocks.
UNRATED SECURITIES
A Portfolio may invest in unrated fixed-income securities when the Adviser
believes that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves, limits the risk
to the Portfolio to a degree comparable to that of rated securities that are
consistent with the Portfolio's objective and policies.
FUTURE DEVELOPMENTS
A Portfolio may take advantage of other investment practices that are not
currently contemplated for use by the Portfolio, or are not available but may
yet be developed, to the extent such investment practices are consistent with
the Portfolio's investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that are different
from or exceed those involved in the practices described above.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
The AB VARIABLE PRODUCTS SERIES (VPS) FUND'S (the "Fund") Board may change a
Portfolio's investment objective without shareholder approval. A Portfolio will
provide shareholders with 60 days' prior written notice of any change to the
Portfolio's investment objective. Portfolios that have a policy to invest at
least 80% of their net assets in securities indicated by their name, such as
the AB VPS INTERMEDIATE BOND PORTFOLIO, AB VPS LARGE CAP GROWTH PORTFOLIO, AB
VPS SMALL CAP GROWTH PORTFOLIO, AB VPS REAL ESTATE INVESTMENT PORTFOLIO, and AB
VPS SMALL/MID CAP VALUE PORTFOLIO, will not change such policy without 60 days'
prior written notice to shareholders. Unless otherwise noted, all other
investment policies of a Portfolio may be changed without shareholder approval.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes to attempt to respond to adverse market,
economic, political or other conditions, each Portfolio may invest in certain
types of short-term, liquid, investment grade or high-quality (depending on the
Portfolio) debt securities. While a Portfolio is investing for temporary
defensive purposes, it may not meet its investment objectives.
PORTFOLIO HOLDINGS
The Portfolios' SAI includes a description of the policies and procedures that
apply to disclosure of each Portfolio's portfolio holdings.
CYBER SECURITY RISK
Mutual funds, including the Portfolios, are susceptible to cyber security risk.
Cyber security breaches may allow an unauthorized party to gain access to
Portfolio assets, Contractholder data, or proprietary information, or cause a
Portfolio and/or its service providers to suffer data corruption or lose
operational functionality. In addition, cyber security breaches in companies in
which the Portfolios invest may affect the value of your investment in a
Portfolio.
63
INVESTING IN THE PORTFOLIOS
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HOW TO BUY AND SELL SHARES
The Portfolios offer their shares through the separate accounts of the
Insurers. You may only purchase and sell shares through these separate
accounts. See the prospectus of the separate account of the Insurer for
information on how to purchase and sell the Portfolios' shares.
AllianceBernstein Investments, Inc. ("ABI") may, from time to time, receive
payments from Insurers in connection with the sale of the Portfolios' shares
through the Insurers' separate accounts.
The NAV of each of the AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO, and AB VPS
GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO is disclosed daily on the Fund's
website or through the investor's online account information at abfunds.com
and/or by calling (800) 221-5672.
The Insurers maintain omnibus account arrangements with the Fund in respect of
one or more Portfolios and place aggregate purchase, redemption and exchange
orders for shares of a Portfolio corresponding to orders placed by the
Insurers' customers, or Contractholders, who have purchased contracts from the
Insurers, in each case, in accordance with the terms and conditions of the
relevant contract. Omnibus account arrangements maintained by the Insurers are
discussed below under "Policy Regarding Short-Term Trading".
The purchase or sale of a Portfolio's shares is priced at the next-determined
NAV after the order is received in proper form.
ABI may refuse any order to purchase shares. Each Portfolio reserves the right
to suspend the sale of its shares to the public in response to conditions in
the securities markets or for other reasons.
The Portfolios expect that it will typically take up to three business days
following the receipt of a redemption request in proper form to pay out
redemption proceeds. However, while not expected, payment of redemption
proceeds may take up to seven days from the day a request is received in proper
form by a Portfolio by the close of regular trading on any day the New York
Stock Exchange (the "Exchange") is open (ordinarily, 4:00 p.m., Eastern time,
but sometimes earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading).
Each Portfolio expects, under normal circumstances, to use cash or cash
equivalents held by the Portfolio to satisfy redemption requests. A Portfolio
may also determine to sell portfolio assets to meet such requests. Under
certain circumstances, including stressed market conditions, a Portfolio may
determine to pay a redemption request by accessing a bank line of credit or by
distributing wholly or partly in kind securities from its portfolio, instead of
cash.
DISTRIBUTION ARRANGEMENTS
The Portfolios have adopted a plan under Commission Rule 12b-1 that allows the
Portfolios to pay asset-based sales charges or distribution and/or service fees
for the distribution and sale of their shares. The amount of this fee for the
Class B shares of the Portfolios is .25% of the aggregate average daily net
assets. Because these fees are paid out of the Portfolios' assets on an ongoing
basis, over time these fees will increase the costs of your investment and may
cost you more than paying other types of sales charges.
PAYMENTS TO FINANCIAL INTERMEDIARIES
Financial intermediaries, such as the Insurers, market and sell shares of the
Portfolios and typically receive compensation for selling shares of the
Portfolios. This compensation is paid from various sources.
Insurers or your financial intermediary receive compensation from ABI and/or
the Adviser in several ways from various sources, which include some or all
of the following:
- Rule 12b-1 fees;
- defrayal of costs for educational seminars and training;
- additional distribution support; and
- payments related to providing Contractholder recordkeeping and/or
administrative services.
In the case of Class B shares, up to 100% of the Rule 12b-1 fees applicable to
Class B shares each year may be paid to the financial intermediary that sells
Class B shares.
ABI and/or the Adviser may pay Insurers or other financial intermediaries to
perform recordkeeping and administrative services in connection with the
Portfolios. Such payments will generally not exceed 0.35% of the average daily
net assets of each Portfolio attributable to the Insurer.
OTHER PAYMENTS FOR EDUCATIONAL SUPPORT AND DISTRIBUTION ASSISTANCE
In addition to the fees described above, ABI, at its expense, currently
provides additional payments to the Insurers that sell shares of the
Portfolios. These sums include payments to reimburse directly or indirectly the
costs incurred by the Insurers and their employees in connection with
educational seminars and training efforts about the Portfolios for the
Insurers' employees and/or their clients and potential clients and may include
payments for distribution analytical data regarding Portfolio sales by the
Insurer. The costs and expenses associated with these efforts may include
travel, lodging, entertainment and meals.
For 2018, ABI's additional payments to these firms for educational support and
distribution assistance related to the Fund's Portfolios are expected to be
approximately $325,000. In 2017, ABI paid additional payments of approximately
$325,000 for the Fund's Portfolios.
64
IF ONE MUTUAL FUND SPONSOR THAT OFFERS SHARES TO SEPARATE ACCOUNTS OF AN
INSURER MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS THAN ANOTHER, THE
INSURER MAY HAVE AN INCENTIVE TO RECOMMEND OR OFFER THE SHARES OF FUNDS OF
ONE FUND SPONSOR OVER ANOTHER.
PLEASE SPEAK WITH YOUR FINANCIAL INTERMEDIARY TO LEARN MORE ABOUT THE TOTAL
AMOUNTS PAID TO YOUR FINANCIAL INTERMEDIARY BY THE ADVISER, ABI AND BY OTHER
MUTUAL FUND SPONSORS THAT OFFER SHARES TO INSURERS THAT MAY BE RECOMMENDED TO
YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL INTERMEDIARY
AT THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the Insurers or their
affiliates that will receive additional payments for educational support
include:
AIG
AXA Advisors
Jackson National Life
Lincoln Financial Distributors
MetLife Inc.
Ohio National
Pacific Life Insurance Co.
Principal Financial Group
Prudential Financial
Riversource Distributors
Transamerica Capital
Variable Annuity Life Insurance/VALIC
Although the Portfolios may use brokers and dealers who sell shares of the
Portfolios to effect portfolio transactions, the Portfolios do not consider the
sale of AB Mutual Fund shares as a factor when selecting brokers or dealers to
effect portfolio transactions.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The Board has adopted policies and procedures designed to detect and deter
frequent purchases and redemptions of Portfolio shares or excessive or
short-term trading that may disadvantage long-term Contractholders. These
policies are described below. There is no guarantee that a Portfolio will be
able to detect excessive or short-term trading or to identify Contractholders
engaged in such practices, particularly with respect to transactions in omnibus
accounts. Contractholders should be aware that application of these policies
may have adverse consequences, as described below, and should avoid frequent
trading in Portfolio shares through purchases, sales and exchanges of shares.
Each Portfolio reserves the right to restrict, reject, or cancel, without any
prior notice, any purchase or exchange order for any reason, including any
purchase or exchange order accepted by any Insurer or a Contractholder's
financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the Fund
will try to prevent market timing by utilizing the procedures described below,
these procedures may not be successful in identifying or stopping excessive or
short-term trading in all circumstances. By realizing profits through
short-term trading, Contractholders that engage in rapid purchases and sales or
exchanges of a Portfolio's shares dilute the value of shares held by long-term
Contractholders. Volatility resulting from excessive purchases and sales or
exchanges of shares of a Portfolio, especially involving large dollar amounts,
may disrupt efficient portfolio management and cause a Portfolio to sell
portfolio securities at inopportune times to raise cash to accommodate
redemptions relating to short-term trading activity. In particular, a Portfolio
may have difficulty implementing its long-term investment strategies if it is
forced to maintain a higher level of its assets in cash to accommodate
significant short-term trading activity. In addition, a Portfolio may incur
increased administrative and other expenses due to excessive or short-term
trading and increased brokerage costs.
Investments in securities of foreign issuers may be particularly susceptible to
short-term trading strategies. This is because securities of foreign issuers
are typically traded on markets that close well before the time a Portfolio
ordinarily calculates its NAV at 4:00 p.m., Eastern time, which gives rise to
the possibility that developments may have occurred in the interim that would
affect the value of these securities. The time zone differences among
international stock markets can allow a Contractholder engaging in a short-term
trading strategy to exploit differences in share prices that are based on
closing prices of securities of foreign issuers established some time before a
Portfolio calculates its own share price (referred to as "time zone
arbitrage"). Each of the Portfolios has procedures, referred to as fair value
pricing, designed to adjust closing market prices of securities of foreign
issuers to reflect what is believed to be fair value of those securities at the
time the Portfolio calculates its NAV. While there is no assurance, each of the
Portfolios expects that the use of fair value pricing, in addition to the
short-term trading policies discussed below, will significantly reduce a
Contractholder's ability to engage in time zone arbitrage to the detriment of
other Contractholders.
Contractholders engaging in a short-term trading strategy may also target a
Portfolio irrespective of its investments in securities of foreign issuers. Any
Portfolio that invests in securities that are, among other things, thinly
traded, traded infrequently, or relatively illiquid, has the risk that the
current market price for the securities may not accurately reflect current
market values. Contractholders may seek to engage in short-term trading to take
advantage of these pricing differences (referred to as "price arbitrage"). All
Portfolios may be adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the
Portfolios should be made for investment purposes only. The Fund seeks to
prevent patterns of excessive purchases and sales or exchanges of shares of the
Portfolios to the extent they are detected by the procedures described below,
subject to the Fund's ability to monitor purchase, sale and exchange activity.
Insurers utilizing omnibus account arrangements may not identify to the Fund,
ABI or AllianceBernstein Investor Services, Inc. ("ABIS") Contractholders'
transaction activity relating to shares of a particular Portfolio on an
individual basis. Consequently, the Fund, ABI and ABIS may not be able to
detect excessive or short-term trading in shares of a Portfolio attributable to
a particular Contractholder who effects purchase and redemption and/or exchange
activity in shares of the Portfolio through an Insurer acting in an omnibus
capacity. In seeking to prevent excessive or short-term trading in shares of
the Portfolios, including the maintenance of any transaction surveillance or
account blocking procedures, the Fund, ABI and ABIS consider the information
actually available to them at the time. The Fund reserves the right to modify
this policy, including any surveillance or account blocking procedures
established from time to time to effectuate this policy, at any time without
notice.
65
.. TRANSACTION SURVEILLANCE PROCEDURES. The Portfolios, through their agents,
ABI and ABIS, maintain surveillance procedures to detect excessive or
short-term trading in Portfolio shares. This surveillance process involves
several factors, which include scrutinizing each individual Insurer's
omnibus transaction activity in Portfolio shares in order to seek to
ascertain whether any such activity attributable to one or more
Contractholders might constitute excessive or short-term trading. Insurers'
omnibus transaction activity identified by these surveillance procedures, or
as a result of any other information actually available at the time, will be
evaluated to determine whether such activity might indicate excessive or
short-term trading activity attributable to one or more Contractholders.
These surveillance procedures may be modified from time to time, as
necessary or appropriate to improve the detection of excessive or short-term
trading or to address specific circumstances.
.. ACCOUNT BLOCKING PROCEDURES. If the Fund determines, in its sole discretion,
that a particular transaction or pattern of transactions identified by the
transaction surveillance procedures described above is excessive or
short-term trading in nature, the relevant Insurer's omnibus account(s) will
be immediately "blocked" and no future purchase or exchange activity will be
permitted, except to the extent the Fund, ABI or ABIS has been informed in
writing that the terms and conditions of a particular contract may limit the
Fund's ability to apply its short-term trading policy to Contractholder
activity as discussed below. As a result, any Contractholder seeking to
engage through an Insurer in purchase or exchange activity in shares of one
or more Portfolios under a particular contract will be prevented from doing
so. However, sales of Portfolio shares back to the Portfolio or redemptions
will continue to be permitted in accordance with the terms of the
Portfolio's current prospectus. In the event an account is blocked, certain
account-related privileges, such as the ability to place purchase, sale and
exchange orders over the internet or by phone, may also be suspended. As a
result, unless the Contractholder redeems his or her shares, the
Contractholder effectively may be "locked" into an investment in shares of
one or more of the Portfolios that the Contractholder did not intend to hold
on a long-term basis or that may not be appropriate for the Contractholder's
risk profile. To rectify this situation, a Contractholder with a "blocked"
account may be forced to redeem Portfolio shares, which could be costly if,
for example, these shares have declined in value. To avoid this risk, a
Contractholder should carefully monitor the purchases, sales, and exchanges
of Portfolio shares and should avoid frequent trading in Portfolio shares.
An Insurer's omnibus account that is blocked will generally remain blocked
unless and until the Insurer provides evidence or assurance acceptable to
the Fund that one or more Contractholders did not or will not in the future
engage in excessive or short-term trading.
.. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS
ACCOUNTS. The Portfolios apply their surveillance procedures to Insurers. As
required by Commission rules, the Portfolios have entered into agreements
with all of their financial intermediaries that require the financial
intermediaries to provide the Portfolios, upon the request of the Portfolios
or their agents, with individual account level information about their
transactions. If the Portfolios detect excessive trading through their
monitoring of omnibus accounts, including trading at the individual account
level, Insurers will also execute instructions from the Portfolios to take
actions to curtail the activity, which may include applying blocks to
accounts to prohibit future purchases and exchanges of Portfolio shares.
HOW THE PORTFOLIOS VALUE THEIR SHARES
Each Portfolio's NAV is calculated on any day the Exchange is open at the close
of regular trading (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading). To calculate NAV, a Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. If a Portfolio invests in securities that are
primarily traded on foreign exchanges that trade on weekends or other days when
the Portfolio does not price its shares, the NAV of the Portfolio's shares may
change on days when Contractholders will not be able to purchase or redeem
their shares in the Portfolio.
The Portfolios value their securities at their current market value determined
on the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of the Board. When
a Portfolio uses fair value pricing, it may take into account any factors it
deems appropriate. A Portfolio may determine fair value based upon developments
related to a specific security, current valuations of foreign stock indices (as
reflected in U.S. futures markets) and/or U.S. sector or broader stock market
indices. The prices of securities used by a Portfolio to calculate its NAV may
differ from quoted or published prices for the same securities. Fair value
pricing involves subjective judgments and it is possible that the fair value
determined for a security is materially different than the value that could be
realized upon the sale of that security.
The Portfolios expect to use fair value pricing for securities primarily traded
on U.S. exchanges only under very limited circumstances, such as the early
closing of the exchange on which a security is traded or suspension of trading
in the security. The Portfolios may use fair value pricing more frequently for
securities primarily traded in foreign markets because, among other things,
most foreign markets close well before the Portfolios ordinarily value their
securities at 4:00 p.m., Eastern time. The earlier close of these foreign
markets gives rise to the possibility that significant events, including broad
market moves, may have occurred in the interim. For example, the Portfolios
believe that foreign security values may be affected by events that occur after
the close of foreign securities markets. To account for this, the Portfolios
may frequently value many of their foreign equity securities using fair value
prices based on third-party vendor modeling tools to the extent available.
Subject to its oversight, the Board has delegated responsibility for valuing a
Portfolio's assets to the Adviser. The Adviser has established a Valuation
Committee, which operates under the policies and procedures approved by the
Board, to value a Portfolio's assets on behalf of the Portfolio. The Valuation
Committee values Portfolio assets as described above. More information about
the valuation of the Portfolios' assets is available in the Portfolios' SAI.
66
MANAGEMENT OF THE PORTFOLIOS
--------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Portfolio's adviser is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, New York 10105. The Adviser is a leading global investment
adviser managing client accounts with assets as of December 31, 2017, totaling
approximately $555 billion (of which over $108 billion represented assets of
registered investment companies sponsored by the Adviser). As of December 31,
2017, the Adviser managed retirement assets for many of the largest public and
private employee benefit plans (including 16 of the nation's FORTUNE 100
companies), for public employee retirement funds in 28 states and the District
of Columbia, for investment companies, and for foundations, endowments, banks
and insurance companies worldwide. The 29 registered investment companies
managed by the Adviser, comprising 115 separate investment portfolios, had as
of December 31, 2017 approximately 2.6 million retail accounts.
The Adviser provides investment advisory services and order placement
facilities for the Portfolios. For these advisory services, each of the
Portfolios paid the Adviser for the fiscal year ended December 31, 2017 as a
percentage of average daily net assets:
FEE AS A PERCENTAGE OF
PORTFOLIO AVERAGE DAILY NET ASSETS
---------------------------------------------------------------------------
AB VPS Intermediate Bond Portfolio .45%
AB VPS Large Cap Growth Portfolio .60%
AB VPS Growth and Income Portfolio .55%
AB VPS Growth Portfolio .75%
AB VPS International Growth Portfolio .75%
AB VPS Global Thematic Growth Portfolio .75%
AB VPS Small Cap Growth Portfolio .75%
AB VPS Real Estate Investment Portfolio .55%
AB VPS International Value Portfolio .75%
AB VPS Small/Mid Cap Value Portfolio .75%
AB VPS Value Portfolio .55%
AB VPS Balanced Wealth Strategy Portfolio .32%*
AB VPS Dynamic Asset Allocation Portfolio .70%*
AB VPS Global Risk Allocation--Moderate Portfolio .32%*
--------
*Net of fee waiver and/or reimbursement.
The Adviser has contractually agreed to waive fees and/or reimburse the
expenses payable to the Adviser by the AB VPS BALANCED WEALTH STRATEGY
PORTFOLIO in an amount equal to the Portfolio's share of the advisory fees of
any mutual funds advised by the Adviser in which the Portfolio invests. The fee
waiver and/or expense reimbursement will remain in effect until at least May 1,
2019.
A discussion regarding the basis for the Board's most recent approval of each
Portfolio's investment advisory agreement is available in the Portfolio's
annual report to Contractholders for the fiscal year ended December 31, 2017.
The Adviser may act as an investment adviser to other persons, firms, or
corporations, including investment companies, hedge funds, pension funds, and
other institutional investors. The Adviser may receive management fees,
including performance fees, that may be higher or lower than the advisory fees
it receives from a Portfolio. Certain other clients of the Adviser may have
investment objectives and policies similar to those of a Portfolio. The Adviser
may, from time to time, make recommendations that result in the purchase or
sale of a particular security by its other clients simultaneously with a
Portfolio. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price or quantity. It
is the policy of the Adviser to allocate advisory recommendations and the
placing of orders in a manner that is deemed equitable by the Adviser to the
accounts involved, including a Portfolio. When two or more of the clients of
the Adviser (including a Portfolio) are purchasing or selling the same security
on a given day from the same broker-dealer, such transactions may be averaged
as to price.
PORTFOLIO MANAGERS
The day-to-day management of, and investment decisions for, the AB VPS GROWTH
AND INCOME PORTFOLIO are made by the Adviser's Relative Value Investment Team.
The Relative Value Investment Team relies heavily on the fundamental analysis
and research of the Adviser's internal research staff.
The following table lists the persons within the Relative Value Investment Team
with the most significant responsibility for the day-to-day management of the
Portfolio's portfolio, the length of time that each person has been jointly and
primarily responsible for the Portfolio, and each person's principal occupation
during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
----------------------------------------------------------------------------------
Frank V. Caruso; since 2001; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013,
and Chief Investment Officer of U.S.
Growth Equities.
John H. Fogarty; since May 2018; Senior Senior Vice President of the Adviser,
Vice President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Vinay Thapar; since May 2018; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS
INTERMEDIATE BOND PORTFOLIO are made by the Adviser's U.S. Core Fixed Income
Investment Team. The U.S. Core Fixed Income Investment Team relies heavily on
the fundamental analysis and research of the Adviser's internal research staff.
The following table lists the persons within the U.S. Core Fixed Income
Investment Team with the most significant responsibility for the day-to-day
management of the Portfolio's portfolio, the length of time that each person
has been jointly
67
and primarily responsible for the Portfolio, and each person's principal
occupation during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
------------------------------------------------------------------------------------
Michael Canter; since 2016; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Shawn E. Keegan; since 2007; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
Douglas J. Peebles; since 2007; Senior Vice Senior Vice President of the Adviser,
President of the Adviser, and Chief with which he has been associated in a
Investment Officer of AB Fixed Income substantially similar capacity to his
current position since prior to 2013.
Greg J. Wilensky; since 2005; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS GLOBAL
THEMATIC GROWTH PORTFOLIO are made by the Adviser's Thematic and Sustainable
Equities Investment Team.
The following table lists the person within the Thematic and Sustainable
Equities Investment Team with the most significant responsibility for the
day-to-day management of the Portfolio's portfolio, the length of time that
person has been jointly or primarily responsible for the Portfolio, and that
person's principal occupation during the past five years:
PRINCIPAL OCCUPATION DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
----------------------------------------------------------------------------------
Daniel C. Roarty; since 2013; Senior Vice Senior Vice President of the Adviser,
President of the Adviser with which he has been associated in a
substantially similar capacity to his
current position since prior to 2013.
The day-to-day management of, and investment decisions for, the AB VPS
INTERNATIONAL GROWTH PORTFOLIO are made by the Adviser's Thematic and
Sustainable Equities Investment Team.
The following table lists the person within the Thematic and Sustainable
Equities Investment Team with the responsibility for the day-to-day management
of the Portfolio's portfolio, the length of time that person has been jointly
or primarily responsible for the Portfolio and that person's principal
occupation during the past five years:
PRINCIPAL OCCUPATION(S) DURING
EMPLOYEE; YEAR; TITLE THE PAST FIVE (5) YEARS
--------------------------------------------------------------------------
Daniel C. Roarty; since 2012; Senior Vice See above.
President of the Adviser
The day-to-day management of, and investment decisions for, each of the other
Portfolios' portfolios are made by certain Senior Investment Management Teams
or Investment Teams. Each Senior Investment Management Team or Investment Team
relies heavily on the fundamental analysis and research of the Adviser's
internal research staff. No one person is principally responsible for making
recommendations for each Portfolio's portfolio.
The following table lists the Senior Investment Management Teams or Investment
Teams, as applicable, the persons within each Senior Investment Management Team
or Investment Team with the most significant responsibility for the day-to-day
management of the Portfolio's portfolio, the length of time that each person
has been jointly and primarily responsible for the Portfolio, and each person's
principal occupation during the past five years:
PRINCIPAL
PORTFOLIO OCCUPATION DURING THE
AND RESPONSIBLE GROUP EMPLOYEE; YEAR; TITLE PAST FIVE (5) YEARS
-----------------------------------------------------------------------------
AB VPS Growth Portfolio Bruce K. Aronow; since Senior Vice President of
GROWTH INVESTMENT TEAM 2013; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Frank V. Caruso; since See above.
2008; Senior Vice
President of the Adviser
John H. Fogarty; since See above.
2013; Senior Vice
President of the Adviser
AB VPS Small Cap Growth Bruce K. Aronow; since See above.
Portfolio 2000; Senior Vice
SMALL CAP GROWTH President of the Adviser
INVESTMENT TEAM
N. Kumar Kirpalani; Senior Vice President of
since 2005; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Samantha S. Lau; since Senior Vice President of
2005; Senior Vice the Adviser, with which
President of the Adviser she has been associated
in a substantially
similar capacity to her
current position since
prior to 2013.
Wen-Tse Tseng; since Senior Vice President of
2006; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
68
PRINCIPAL
PORTFOLIO OCCUPATION DURING THE
AND RESPONSIBLE GROUP EMPLOYEE; YEAR; TITLE PAST FIVE (5) YEARS
-----------------------------------------------------------------------------
AB VPS Real Eric J. Franco; since Senior Vice President of
Estate Investment 2012; Senior Vice the Adviser, with which
Portfolio President of the Adviser he has been associated
REIT SENIOR INVESTMENT in a substantially
MANAGEMENT TEAM similar capacity to his
current position since
prior to 2013.
Ajit D. Ketkar; since Senior Vice President of
2017; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS International Tawhid Ali; since 2016; Senior Vice President of
Value Portfolio Senior Vice President of the Adviser, with which
INTERNATIONAL VALUE the Adviser he has been associated
SENIOR INVESTMENT in a substantially
MANAGEMENT TEAM similar capacity to his
current position since
prior to 2013.
Takeo Aso; since 2012; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
Avi Lavi; since 2012; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Small/Mid Cap James W. MacGregor; Senior Vice President of
Value Portfolio since 2005; Senior Vice the Adviser, with which
SMALL/MID CAP VALUE President of the Adviser he has been associated
SENIOR INVESTMENT in a substantially
MANAGEMENT TEAM similar capacity to his
current position since
prior to 2013.
Shri Singhvi; since Senior Vice President of
2014; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Value Portfolio Cem Inal; since 2016; Senior Vice President of
U.S. VALUE SENIOR Senior Vice President of the Adviser, with which
INVESTMENT MANAGEMENT the Adviser he has been associated
TEAM in a substantially
similar capacity to his
current position since
prior to 2013.
Joseph G. Paul; since Senior Vice President of
2009; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Large Cap Growth Frank V. Caruso; since See above.
Portfolio 2012; Senior Vice
U.S. LARGE CAP GROWTH President of the Adviser
INVESTMENT TEAM
John H. Fogarty; since See above.
2012; Senior Vice
President of the Adviser
Vinay Thapar; since May See above.
2018; Senior Vice
President of the Adviser
AB VPS Balanced Wealth Jess Gaspar; since Senior Vice President of
Strategy Portfolio February 2018; Senior the Adviser, with which
MULTI-ASSET SOLUTIONS Vice President of the he has been associated
TEAM Adviser in a substantially
similar capacity to his
current position since
2016. Prior thereto, he
was Managing Director
and head of allocation
and research at
Communfund from prior to
2013 until 2016.
Daniel J. Loewy; since Senior Vice President of
2013; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
AB VPS Dynamic Asset Brian T. Brugman; since Senior Vice President of
Allocation Portfolio 2016; Senior Vice the Adviser, with which
DYNAMIC ASSET ALLOCATION President of the Adviser he has been associated
TEAM in a substantially
similar capacity to his
current position since
prior to 2013.
Daniel J. Loewy; since See above.
2011; Senior Vice
President of the Adviser
AB VPS Global Risk Daniel J. Loewy; since See above.
Allocation--Moderate 2016; Senior Vice
Portfolio President of the Adviser
QUANTITATIVE INVESTMENT
TEAM
Leon Zhu; since 2015; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2013.
The Portfolios' SAI provides additional information about the Portfolio
Managers' compensation, other accounts managed by the Portfolio Managers, and
the Portfolio Managers' ownership of securities in the Portfolios.
69
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
The Portfolios declare dividends on their shares at least annually. The income
and capital gains distributions are expected to be made in shares of each
Portfolio.
See the prospectus of the separate account of the Insurer for federal income
tax information.
Investment income received by a Portfolio from sources within foreign countries
may be subject to foreign income taxes withheld at the source. Provided that
certain requirements are met, a Portfolio may "pass-through" to its
Contractholders credits or deductions to foreign income taxes paid. Non-U.S.
investors may not be able to credit or deduct such foreign taxes.
70
GLOSSARY
--------------------------------------------------------------------------------
BONDS are interest-bearing or discounted government or corporate securities
that obligate the issuer to pay the bondholder a specified sum of money,
usually at specified intervals, and to repay the principal amount of the loan
at maturity.
FIXED-INCOME SECURITIES are investments, such as bonds or other debt securities
or preferred stocks, that pay a fixed rate of return.
BLOOMBERG BARCLAYS GLOBAL AGGREGATE BOND INDEX is a broad-based index comprised
of government, corporate, mortgage and asset-backed issues, rated investment
grade or higher, and having at least one year to maturity.
The BLOOMBERG BARCLAYS GLOBAL G7 TREASURY INDEX tracks fixed-rate local
currency government debt of investment-grade G7 countries.
BLOOMBERG BARCLAYS U.S. AGGREGATE BOND INDEX provides a measure of the
performance of the U.S. Dollar-denominated, investment grade bond market, which
includes U.S. Government bonds, corporate bonds, mortgage pass-through
securities, commercial mortgage-backed securities, and asset-backed securities
that are publicly for sale in the United States.
The BLOOMBERG BARCLAYS U.S. TREASURY INDEX represents the performance of U.S.
Treasuries within the U.S. Government fixed-income market.
FTSE NAREIT EQUITY REIT INDEX is an index of publicly traded REITs that own
commercial property.
MSCI AC WORLD INDEX is a free float-adjusted market capitalization weighted
index that is designed to measure the equity market performance of developed
and emerging markets.
MSCI EAFE (EUROPE, AUSTRALASIA, FAR EAST) INDEX is a free float-adjusted market
capitalization index that is designed to measure the equity performance of
developed markets excluding the United States and Canada.
MSCI WORLD INDEX is a free float-adjusted market capitalization weighted index
that is designed to measure developed-market equity performance throughout the
world.
RUSSELL 1000(R) GROWTH INDEX measures the performance of the
large-capitalization growth segment of the U.S. equity universe. It includes
those Russell 1000(R) companies with higher price-to-book ratios and higher
forecasted growth values.
RUSSELL 1000(R) VALUE INDEX measures the performance of the
large-capitalization value segment of the U.S. equity universe. It includes
those Russell 1000(R) companies with lower price-to-book ratios and lower
expected growth values.
RUSSELL 2000(R) GROWTH INDEX measures the performance of the
small-capitalization growth segment of the U.S. equity universe. It includes
those Russell 2000(R) companies with higher price-to-value ratios and higher
forecasted growth values.
RUSSELL 2500/TM/ INDEX measures the performance of the small- to
mid-capitalization segment of the U.S. equity universe, commonly referred to as
"smid" capitalization. The Russell 2500/TM/ Index is a subset of the Russell
3000(R) Index. It includes approximately 2,500 of the smallest securities based
on a combination of their market capitalization and current index membership.
RUSSELL 2500(R) VALUE INDEX measures the performance of the small- to
mid-capitalization value segment of the U.S. equity universe. It includes those
Russell 2500(R) companies with lower price-to-book ratios and lower forecasted
growth values.
RUSSELL 3000(R) GROWTH INDEX measures the performance of the broad growth
segment of the U.S. equity universe. It includes those Russell 3000(R)
companies with higher price-to-book ratios and higher forecasted growth values.
S&P 500 INDEX is a stock market index containing the stocks of 500
large-capitalization corporations. Widely regarded as the best single gauge of
the U.S. equities market, the S&P 500 Index includes a representative sample of
500 leading companies in leading industries of the U.S. economy.
71
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each
Portfolio's financial performance for the past 5 years (or, if shorter, the
period of the Portfolio's operations). Certain information reflects financial
results for a single share of a class of each Portfolio. The total returns in
the table represent the rate that a Contractholder would have earned (or lost)
on an investment in the Portfolio (assuming reinvestment of all dividends and
distributions). The total returns in the table do not take into account
separate account charges. If separate account charges were included, a
Contractholder's return would have been lower. This information has been
audited by Ernst & Young LLP, the independent registered public accounting firm
for all Portfolios, whose report, along with each Portfolio's financial
statements, are included in each Portfolio's annual report to Contractholders,
which is available upon request.
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.54 $ 10.53 $ 11.26 $ 11.11 $ 12.17
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .20 .25+ .24 .25 .29
Net realized and unrealized gain (loss) on investment and foreign
currency transactions .14 .22 (.26) .43 (.58)
Contributions from Affiliates .00(b) -0- -0- -0- -0-
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations .34 .47 (.02) .68 (.29)
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.33) (.32) (.37) (.37) (.41)
Distributions from net realized gain on investment transactions (.10) (.14) (.34) (.16) (.36)
------- ------- ------- ------- -------
Total dividends and distributions (.43) (.46) (.71) (.53) (.77)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.45 $ 10.54 $ 10.53 $ 11.26 $ 11.11
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c) 3.28%* 4.36%+* (.18)%* 6.22% (2.34)%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $14,786 $16,029 $17,681 $19,891 $22,450
Ratio to average net assets of:
Expenses 1.36% 1.32% 1.21% 1.13% 1.02%
Net investment income 1.87% 2.36%+ 2.19% 2.21% 2.49%
Portfolio turnover rate** 216% 156% 230% 262% 217%
---------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.03 .28% .29%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015 and December 31, 2013 by 0.03%, 0.03%, 0.03% and 0.02%,
respectively.
** The Portfolio accounts for dollar roll transactions as purchases and sales.
72
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 43.32 $ 47.77 $ 47.38 $ 41.62 $ 30.38
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.11)(b) (.14)(b)+ (.10) (.09) (.13)
Net realized and unrealized gain on investment
transactions 13.49 1.38 5.17 5.85 11.37
Contributions from Affiliates -0- .00(c) -0- -0- -0-
-------- -------- -------- -------- --------
Net increase in net asset value from operations 13.38 1.24 5.07 5.76 11.24
-------- -------- -------- -------- --------
LESS: DISTRIBUTIONS
Distributions from net realized gain on
investment transactions (3.00) (5.69) (4.68) -0- -0-
-------- -------- -------- -------- --------
Net asset value, end of period $ 53.70 $ 43.32 $ 47.77 $ 47.38 $ 41.62
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset
value(d)* 31.67% 2.36%+ 10.86% 13.84% 37.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $220,934 $202,903 $267,171 $237,452 $230,350
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .95% 1.10% 1.07% 1.08% 1.10%
Expenses, before waivers/reimbursements .95% 1.10% 1.07% 1.08% 1.10%
Net investment loss (.21)%(b) (.32)%(b)+ (.21)% (.21)% (.36)%
Portfolio turnover rate 48% 59% 65% 65% 60%
----------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.005 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.01%,
0.09%, 0.02% and 0.10%, respectively.
73
AB VPS GROWTH AND INCOME PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.82 $ 29.78 $ 29.71 $ 27.49 $ 20.66
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .23(b) .36(b)+ .29 .32 .27
Net realized and unrealized gain on investment transactions 5.14 2.79 .14 2.22 6.83
Capital contributions .00(c) -0- -0- -0- -0-
-------- -------- -------- -------- --------
Net increase in net asset value from operations 5.37 3.15 .43 2.54 7.10
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.42) (.25) (.36) (.32) (.27)
Distributions from net realized gain on investment transactions (2.89) (1.86) -0- -0- -0-
-------- -------- -------- -------- --------
Total dividends and distributions (3.31) (2.11) (.36) (.32) (.27)
-------- -------- -------- -------- --------
Net asset value, end of period $ 32.88 $ 30.82 $ 29.78 $ 29.71 $ 27.49
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* 18.59% 11.07%+ 1.43% 9.29% 34.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $906,790 $886,666 $646,424 $701,442 $709,257
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .85% .86% .85% .85% .85%
Expenses, before waivers/reimbursements .85% .86% .85% .85% .85%
Net investment income .72%(b) 1.21%(b)+ .96% 1.14% 1.11%
Portfolio turnover rate 85% 101% 73% 51% 63%
-------------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.68%, 0.03%,
0.14%, 0.11% and 0.08%, respectively.
Includes the impact of proceeds received and credited to the Portfolio
resulting from a regulatory settlement, which enhanced the Portfolio's
performance for the year ended December 31, 2017 by 0.01%.
74
AB VPS GROWTH PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 26.51 $ 29.70 $ 33.30 $ 30.08 $ 22.50
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.25)(b) (.13)(b)+ (.16) (.16) (.09)
Net realized and unrealized gain on investment and foreign currency
transactions 9.09 .51 3.08 4.00 7.68
Capital contributions .00(c) -0- -0- -0- -0-
------- ------- ------- ------- -------
Net increase in net asset value from operations 8.84 .38 2.92 3.84 7.59
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income -0- -0- -0- -0- (.01)
Distributions from net realized gain on investment transactions (1.65) (3.57) (6.52) (.62) -0-
------- ------- ------- ------- -------
Total dividends and distributions (1.65) (3.57) (6.52) (.62) (.01)
------- ------- ------- ------- -------
Net asset value, end of period $ 33.70 $ 26.51 $ 29.70 $ 33.30 $ 30.08
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* 34.15% .85%+ 8.82% 12.96% 33.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $39,946 $37,026 $43,383 $46,330 $51,993
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.37% 1.40% 1.34% 1.33% 1.31%
Expenses, before waivers/reimbursements 1.37% 1.40% 1.34% 1.33% 1.31%
Net investment loss (.82)%(b) (.48)%(b)+ (.49)% (.52)% (.35)%
Portfolio turnover rate 42% 57% 51% 66% 63%
-------------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.0005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.015 .05% .05%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.11%, 0.01%,
0.06%, 0.03% and 0.06%, respectively.
Includes the impact of proceeds received and credited to the Portfolio
resulting from a regulatory settlement, which enhanced the Portfolio's
performance for the year ended December 31, 2017 by 0.14%.
75
AB VPS INTERNATIONAL GROWTH PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.09 $ 18.39 $ 18.81 $ 19.08 $ 16.96
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .01(b) .07(b)+ .10 .20 .16
Net realized and unrealized gain (loss) on investment and foreign
currency transactions 5.90 (1.37) (.51) (.47) 2.09
Contributions from Affiliates -0- -0- -0- .00(c) -0-
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations 5.91 (1.30) (.41) (.27) 2.25
------- ------- ------- ------- -------
LESS: DIVIDENDS
Dividends from net investment income (.20) -0- (.01) -0- (.13)
------- ------- ------- ------- -------
Net asset value, end of period $ 22.80 $ 17.09 $ 18.39 $ 18.81 $ 19.08
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) 34.63%* (7.07)%+* (2.17)% (1.41)% 13.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $41,007 $32,843 $40,566 $47,884 $54,643
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.49% 1.52% 1.36% 1.36% 1.19%
Expenses, before waivers/reimbursements 1.49% 1.52% 1.36% 1.36% 1.19%
Net investment income .04%(b) .37%(b)+ .52% 1.02% .92%
Portfolio turnover rate 52% 52% 17% 29% 31%
-----------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.04 .22% .23%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2016 by
0.01% and 0.09%, respectively.
76
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.52 $ 21.71 $ 21.15 $ 20.18 $ 16.42
-------- ------- ------- ------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss)(a) (.04)(b) (.02)(b)+ (.04) .00(c) (.01)
Net realized and unrealized gain (loss) on
investment and foreign currency transactions 7.84 (.17) .59 .97 3.77
Contributions from Affiliates -0- -0- .01 -0- -0-
-------- ------- ------- ------- --------
Net increase (decrease) in net asset value from
operations 7.80 (.19) .56 .97 3.76
-------- ------- ------- ------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.07) -0- -0- -0- (.00)(c)
Tax return of capital -0- -0- -0- -0- (.00)(c)
-------- ------- ------- ------- --------
Total dividends and distributions (.07) -0- -0- -0- (.00)
-------- ------- ------- ------- --------
Net asset value, end of period $ 29.25 $ 21.52 $ 21.71 $ 21.15 $ 20.18
======== ======= ======= ======= ========
TOTAL RETURN
Total investment return based on net asset
value(d)* 36.30% (.87)%+ 2.65% 4.81% 22.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $106,331 $78,625 $92,298 $96,728 $101,388
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.26% 1.31% 1.26% 1.26% 1.23%
Expenses, before waivers/reimbursements 1.27% 1.31% 1.26% 1.26% 1.23%
Net investment income (loss) (.15)%(b) (.07)%(b)+ (.17)% .01% (.06)%
Portfolio turnover rate 40% 54% 47% 48% 96%
----------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of fees waived and expenses reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.004 .02% .02%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.04%, 0.28%,
0.01%, 0.02% and 0.05%, respectively.
77
AB VPS SMALL CAP GROWTH PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.96 $ 16.30 $ 20.00 $ 22.54 $ 18.36
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.20)(b) (.15)(b)+ (.22) (.19) (.25)
Net realized and unrealized gain (loss) on investment transactions 4.24 .98 .17 (.30) 8.01
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations 4.04 .83 (.05) (.49) 7.76
------- ------- ------- ------- -------
LESS: DISTRIBUTIONS
Distributions from net realized gain on investment transactions -0- (5.17) (3.65) (2.05) (3.58)
------- ------- ------- ------- -------
Net asset value, end of period $ 16.00 $ 11.96 $ 16.30 $ 20.00 $ 22.54
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c)* 33.78% 6.22%+ (1.53)% (2.08)% 45.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $23,396 $15,094 $19,857 $59,763 $38,128
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(d) 1.61% 1.73% 1.48% 1.34% 1.43%
Expenses, before waivers/reimbursements(d) 1.62% 1.74% 1.48% 1.34% 1.43%
Net investment loss (1.42)%(b) (1.08)%(b)+ (1.10)% (.89)% (1.21)%
Portfolio turnover rate 69% 60% 72% 84% 81%
-------------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the year ended December 31, 2017, such waiver amounted
to 0.01% for the Portfolio.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.004 .03% .03%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.08%,
0.02%, 0.01% and 0.23%, respectively.
78
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.27 $ 9.14 $ 10.05 $ 11.22 $ 12.28
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .12(b) .15(b)+ .16 .11 .27
Net realized and unrealized gain (loss) on investment and foreign
currency transactions .45 .56 (.11) 2.40 .18
------- ------- ------- ------- -------
Net increase in net asset value from operations .57 .71 .05 2.51 .45
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.15) (.13) (.13) (.34) (.16)
Distributions from net realized gain on investment transactions (.52) (.45) (.83) (3.34) (1.35)
------- ------- ------- ------- -------
Total dividends and distributions (.67) (.58) (.96) (3.68) (1.51)
------- ------- ------- ------- -------
Net asset value, end of period $ 9.17 $ 9.27 $ 9.14 $ 10.05 $ 11.22
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(c) 6.37% 7.38%+ .66% 24.96% 3.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $18,921 $17,617 $13,888 $13,301 $12,394
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.30% 1.34% 1.33% 1.33% 1.15%
Expenses, before waivers/reimbursements 1.30% 1.34% 1.33% 1.33% 1.15%
Net investment income 1.32%(b) 1.56%(b)+ 1.67% 1.03% 2.13%
Portfolio turnover rate 59% 77% 67% 67% 98%
--------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .02% .02%
79
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.16 $ 13.41 $ 13.41 $ 14.86 $ 12.84
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .27(b) .27(b)+ .26 .45 .30
Net realized and unrealized gain (loss) on investment and foreign
currency transactions 3.02 (.38) .06 (1.40) 2.56
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations 3.29 (.11) .32 (.95) 2.86
-------- -------- -------- -------- --------
LESS: DIVIDENDS
Dividends from net investment income (.30) (.14) (.32) (.50) (.84)
-------- -------- -------- -------- --------
Net asset value, end of period $ 16.15 $ 13.16 $ 13.41 $ 13.41 $ 14.86
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(c) 25.09%* (.80)%+* 2.40% (6.46)% 22.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $432,885 $460,086 $550,746 $615,682 $743,517
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.10% 1.11% 1.10% 1.10% 1.07%
Expenses, before waivers/reimbursements 1.11% 1.11% 1.10% 1.10% 1.07%
Net investment income 1.83%(b) 2.04%(b)+ 1.85% 3.06% 2.20%
Portfolio turnover rate 45% 64% 74% 64% 59%
--------------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.002 .01% .01%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2016 by
0.01% and 0.07%, respectively.
80
AB VPS SMALL/MID CAP VALUE PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.12 $ 17.15 $ 21.79 $ 22.74 $ 17.58
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .05(b) .05(b)+ .06 .11 .11
Net realized and unrealized gain (loss) on investment transactions 2.39 4.06 (1.09) 1.81 6.36
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations 2.44 4.11 (1.03) 1.92 6.47
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.05) (.06) (.12) (.11) (.09)
Distributions from net realized gain on investment transactions (1.03) (1.08) (3.49) (2.76) (1.22)
-------- -------- -------- -------- --------
Total dividends and distributions (1.08) (1.14) (3.61) (2.87) (1.31)
-------- -------- -------- -------- --------
Net asset value, end of period $ 21.48 $ 20.12 $ 17.15 $ 21.79 $ 22.74
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(c) 12.85%* 24.79%+ (5.69)% 8.95% 37.63%*
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $469,501 $455,422 $386,875 $447,378 $472,677
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(d) 1.06% 1.07% 1.07% 1.07% 1.06%
Expenses, before waivers/reimbursements(d) 1.07% 1.08% 1.07% 1.07% 1.06%
Net investment income .22%(b) .28%(b)+ .31% .49% .51%
Portfolio turnover rate 33% 57% 42% 45% 56%
---------------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bear proportionate
shares of the acquired fund fees and expenses (i.e., operating,
administrative and investment advisory fees) of the affiliated underlying
portfolios. The Adviser has contractually agreed to waive its fees from the
Portfolio in an amount equal to the Portfolio's pro rata share of certain
acquired fund fees and expenses, and for the year ended December 31, 2017
and year ended December 31, 2016, such waiver amounted to less than .005%
for the Portfolio.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.001 .003% .003%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017 and December 31, 2013 by
0.11% and 0.01%, respectively.
81
AB VPS VALUE PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.36 $ 14.00 $ 15.37 $ 14.10 $ 10.54
------- ------- ------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .13(b) .15(b)+ .17 .22 .16
Net realized and unrealized gain (loss) on investment and foreign
currency transactions 1.89 1.42 (1.25) 1.29 3.66
Contributions from Affiliates .00(c) -0- -0- -0- -0-
------- ------- ------- -------- --------
Net increase (decrease) in net asset value from operations 2.02 1.57 (1.08) 1.51 3.82
------- ------- ------- -------- --------
LESS: DIVIDENDS
Dividends from net investment income (.18) (.21) (.29) (.24) (.26)
------- ------- ------- -------- --------
Net asset value, end of period $ 17.20 $ 15.36 $ 14.00 $ 15.37 $ 14.10
======= ======= ======= ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* 13.29% 11.29%+ (7.17)% 10.77% 36.49%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $71,949 $79,746 $85,064 $112,143 $132,271
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) 1.12% 1.13% 1.06% 1.04% .98%
Expenses, before waivers/reimbursements(e) 1.12% 1.14% 1.06% 1.04% .98%
Net investment income .83%(b) 1.06%(b)+ 1.14% 1.51% 1.28%
Portfolio turnover rate 36% 68% 83% 42% 44%
-----------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.0005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bear proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the year ended December 31, 2016, such waiver amounted
to less than .005% for the Portfolio.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.003 .02% .02%
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2016,
December 31, 2015, December 31, 2014 and December 31, 2013 by 0.13%, 0.02%,
0.17%, 0.04% and 0.07%, respectively.
82
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
--------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.42 $ 10.87 $ 12.05 $ 13.65 $ 12.01
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .14(b) .16(b)+ .17 .22 .19
Net realized and unrealized gain on investment
and foreign currency transactions 1.47 .33 .01++ .71 1.74
Contributions from Affiliates .00(c) .00(c) -0- .00(c) -0-
-------- -------- -------- -------- --------
Net increase in net asset value from operations 1.61 .49 .18 .93 1.93
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.21) (.20) (.24) (.34) (.29)
Distributions from net realized gain on
investment and foreign currency transactions (.09) (.74) (1.12) (2.19) -0-
-------- -------- -------- -------- --------
Total dividends and distributions (.30) (.94) (1.36) (2.53) (.29)
-------- -------- -------- -------- --------
Net asset value, end of period $ 11.73 $ 10.42 $ 10.87 $ 12.05 $ 13.65
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset
value(d) 15.62%* 4.44%+ 1.29%* 7.11%* 16.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $274,070 $272,733 $298,233 $328,363 $351,355
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .98% .98% .95% .96% .90%
Expenses, before waivers/reimbursements .98% .98% .95% .96% .90%
Net investment income 1.26%(b) 1.49%(b)+ 1.46% 1.71% 1.49%
Portfolio turnover rate** 108% 106% 132% 114% 117%
--------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of expenses waived and reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
+ For the year ended December 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.001 .01% .01%
++ Due to timing of sales and repurchase of capital shares, the net realized
and unrealized gain (loss) per share is not in accord with the Portfolio's
change in net realized and unrealized gain (loss) on investment
transactions for the period.
* Includes the impact of proceeds received and credited to the Portfolio
resulting from class action settlements, which enhanced the Portfolio's
performance for the years ended December 31, 2017, December 31, 2015 and
December 31, 2014 by 0.02%, 0.03% and 0.01%, respectively.
** The Portfolio accounts for dollar roll transactions as purchases and sales.
83
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED DECEMBER 31,
2017 2016 2015 2014 2013
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.56 $ 11.26 $ 11.68 $ 11.68 $ 10.49
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .14(b) .10(b)+ .05 .05(b) .01(b)
Net realized and unrealized gain (loss) on
investment and foreign currency transactions 1.50 .27 (.19) .45 1.25
Contributions from Affiliates .00(c) -0- -0- -0- -0-
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from
operations 1.64 .37 (.14) .50 1.26
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.22) (.07) (.08) (.05) (.03)
Distributions from net realized gain on
investment transactions -0- (.00)(c) (.20) (.45) (.04)
-------- -------- -------- -------- --------
Total dividends and distributions (.22) (.07) (.28) (.50) (.07)
-------- -------- -------- -------- --------
Net asset value, end of period $ 12.98 $ 11.56 $ 11.26 $ 11.68 $ 11.68
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset
value(d) 14.32% 3.37%+ (1.30)% 4.21% 12.04%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $604,703 $558,725 $511,164 $481,600 $387,519
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) 1.03% 1.05% 1.08% 1.10% 1.10%
Expenses, before waivers/reimbursements(e) 1.04% 1.07% 1.08% 1.10% 1.14%
Net investment income 1.15%(b) .89%(b)+ .43% .44%(b) .05%(b)
Portfolio turnover rate 20% 64% 93% 53% 52%
------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of fees waived and expenses reimbursed by the Adviser.
(c)Amount is less than $.005.
(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
(i) insurance company's separate account related expense charges and
(ii) the deductions 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)In connection with the Portfolio's investments in affiliated underlying
portfolios, the Portfolio incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Portfolio in an
amount equal to the Portfolio's pro rata share of certain acquired fund fees
and expenses, and for the years ended December 31, 2017 and December 31,
2016, such waiver amounted to 0.01% and 0.02% (annualized), respectively.
+ For the year ended December 31, 2016 the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT INCOME PER SHARE NET INVESTMENT INCOME RATIO TOTAL RETURN
------------------------------- --------------------------- ------------
$.00005 .0004% .0004%
84
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
-----------------------------------------------------------------------------------------------------------
CLASS B
APRIL 28,
2015(a) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
2017 2016 2015
-----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.75 $ 9.39 $ 10.00
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .03 .02 .01
Net realized and unrealized gain (loss) on investment transactions
and foreign currency transactions 1.09 .37 (.62)
Contributions from Affiliates .00(d) -0- -0-
------- ------- -------
Net increase (decrease) in net asset value from operations 1.12 .39 (.61)
------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.04) (.03) -0-
Distributions from net realized gain on investment transactions (.05) -0- -0-
------- ------- -------
Total dividends and distributions (.09) (.03) -0-
------- ------- -------
Net asset value, end of period $ 10.78 $ 9.75 $ 9.39
======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(e) 11.50% 4.24% (6.20)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $98,502 $79,298 $51,115
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) .89% .88% .94%^
Expenses, before waivers/reimbursements(f) 1.17% 1.33% 1.62%^
Net investment income(c) .31% .24% .19%^
Portfolio turnover rate 59% 79% 111%
-----------------------------------------------------------------------------------------------------------
(a)Commencement of operations.
(b)Based on average shares outstanding.
(c)Net of fees waived and expenses reimbursed by the Adviser.
(d)Amount is less than $.005.
(e)Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Total return does not reflect
(i) insurance company's separate account related expense charges and
(ii) the deductions 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.
(f)In connection with the Portfolio's investments in affiliated/unaffiliated
underlying portfolios, the Portfolio incurs no direct expenses, but bears
proportionate shares of the fees and expenses (i.e., operating,
administrative and investment advisory fees) of the affiliated/unaffiliated
underlying portfolios. The Adviser has contractually agreed to waive its
fees from the Portfolio in an amount equal to the Portfolio's pro rata share
of affiliated/unaffiliated acquired fund fees and expenses, and for the
years ended December 31, 2017, December 31, 2016 and December 31, 2015 such
waiver amounted to 0.11%, 0.12% and 0.06% (annualized), respectively.
^ Annualized.
85
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--Where no rating has been assigned or where a rating has been
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension may occur if new and material circumstances arise, the effects of
which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
S&P GLOBAL RATINGS ("S&P")
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing
A-1
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to an inadequate capacity to pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
FITCH RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
Defaulted obligations are typically rated in the 'B' to 'C' rating categories,
depending upon their recovery prospects and other relevant considerations. This
approach better aligns obligations that have comparable overall expected loss
but varying vulnerability to default and loss.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category or in categories below B.
A-2
APPENDIX B
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
--------------------------------------------------------------------------------
The following supplemental hypothetical investment information provides
additional information calculated and presented in a manner different from
expense information found under "Fees and Expenses of the Portfolios" in this
Prospectus about the effect of a Portfolio's expenses, including investment
advisory fees and other Portfolio costs, on the Portfolio's returns over a
10-year period. The chart shows the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class B shares of the Portfolio
assuming a 5% return each year. Except as otherwise indicated, the chart also
assumes that the current annual expense ratio stays the same throughout the
10-year period. The current annual expense ratio for each Portfolio is the same
as stated under "Fees and Expenses of the Portfolios". There are additional
fees and expenses associated with variable products. These fees can include
mortality and expense risk charges, administrative charges, and other charges
that can significantly affect expenses. These fees and expenses are not
reflected in the following expense information. Your actual expenses may be
higher or lower.
AB VPS INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 138.60 $10,361.40
2 10,361.40 518.07 10,879.47 143.61 10,735.86
3 10,735.86 536.79 11,272.65 148.80 11,123.85
4 11,123.85 556.19 11,680.04 154.18 11,525.86
5 11,525.86 576.29 12,102.15 159.75 11,942.40
6 11,942.40 597.12 12,539.52 165.52 12,374.00
7 12,374.00 618.70 12,992.70 171.50 12,821.20
8 12,821.20 641.06 13,462.26 177.70 13,284.56
9 13,284.56 664.23 13,948.79 184.12 13,764.67
10 13,764.67 688.23 14,452.90 190.78 14,262.12
--------------------------------------------------------------------------
Cumulative $5,896.68 $1,634.56
AB VPS LARGE CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 99.75 $10,400.25
2 10,400.25 520.01 10,920.26 103.74 10,816.52
3 10,816.52 540.83 11,357.35 107.89 11,249.46
4 11,249.46 562.47 11,811.93 112.21 11,699.72
5 11,699.72 584.99 12,284.71 116.70 12,168.01
6 12,168.01 608.40 12,776.41 121.38 12,655.03
7 12,655.03 632.75 13,287.78 126.23 13,161.55
8 13,161.55 658.08 13,819.63 131.29 13,688.34
9 13,688.34 684.42 14,372.76 136.54 14,236.22
10 14,236.22 711.81 14,948.03 142.01 14,806.02
--------------------------------------------------------------------------
Cumulative $6,003.76 $1,197.74
AB VPS GROWTH AND INCOME PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 89.25 $10,410.75
2 10,410.75 520.54 10,931.29 92.92 10,838.37
3 10,838.37 541.92 11,380.29 96.73 11,283.56
4 11,283.56 564.18 11,847.74 100.71 11,747.03
5 11,747.03 587.35 12,334.38 104.84 12,229.54
6 12,229.54 611.48 12,841.02 109.15 12,731.87
7 12,731.87 636.59 13,368.46 113.63 13,254.83
8 13,254.83 662.74 13,917.57 118.30 13,799.27
9 13,799.27 689.96 14,489.23 123.16 14,366.07
10 14,366.07 718.30 15,084.37 128.22 14,956.15
--------------------------------------------------------------------------
Cumulative $6,033.06 $1,076.91
B-1
AB VPS GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 143.85 $10,356.15
2 10,356.15 517.81 10,873.96 148.97 10,724.99
3 10,724.99 536.25 11,261.24 154.28 11,106.96
4 11,106.96 555.35 11,662.31 159.77 11,502.54
5 11,502.54 575.13 12,077.67 165.46 11,912.21
6 11,912.21 595.61 12,507.82 171.36 12,336.46
7 12,336.46 616.82 12,953.28 177.46 12,775.82
8 12,775.82 638.79 13,414.61 183.78 13,230.83
9 13,230.83 661.54 13,892.37 190.33 13,702.04
10 13,702.04 685.10 14,387.14 197.10 14,190.04
--------------------------------------------------------------------------
Cumulative $5,882.40 $1,692.36
AB VPS INTERNATIONAL GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 159.60 $10,340.40
2 10,340.40 517.02 10,857.42 165.03 10,692.39
3 10,692.39 534.62 11,227.01 170.65 11,056.36
4 11,056.36 552.82 11,609.18 176.46 11,432.72
5 11,432.72 571.64 12,004.36 182.47 11,821.89
6 11,821.89 591.09 12,412.98 188.68 12,224.30
7 12,224.30 611.22 12,835.52 195.10 12,640.42
8 12,640.42 632.02 13,272.44 201.74 13,070.70
9 13,070.70 653.54 13,724.24 208.61 13,515.63
10 13,515.63 675.78 14,191.41 215.71 13,975.70
--------------------------------------------------------------------------
Cumulative $5,839.75 $1,864.05
AB VPS GLOBAL THEMATIC GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 137.55 $10,362.45
2 10,362.45 518.12 10,880.57 142.54 10,738.03
3 10,738.03 536.90 11,274.93 147.70 11,127.23
4 11,127.23 556.36 11,683.59 153.06 11,530.53
5 11,530.53 576.53 12,107.06 158.60 11,948.46
6 11,948.46 597.42 12,545.88 164.35 12,381.53
7 12,381.53 619.08 13,000.61 170.31 12,830.30
8 12,830.30 641.52 13,471.82 176.48 13,295.34
9 13,295.34 664.77 13,960.11 182.88 13,777.23
10 13,777.23 688.86 14,466.09 189.51 14,276.58
--------------------------------------------------------------------------
Cumulative $5,899.56 $1,622.98
AB VPS SMALL CAP GROWTH PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 182.70 $10,317.30
2 10,317.30 515.87 10,833.17 188.50 10,644.67
3 10,644.67 532.23 11,176.90 194.48 10,982.42
4 10,982.42 549.12 11,531.54 200.65 11,330.89
5 11,330.89 566.54 11,897.43 207.02 11,690.41
6 11,690.41 584.52 12,274.93 213.58 12,061.35
7 12,061.35 603.07 12,664.42 220.36 12,444.06
8 12,444.06 622.20 13,066.26 227.35 12,838.91
9 12,838.91 641.95 13,480.86 234.57 13,246.29
10 13,246.29 662.31 13,908.60 242.01 13,666.59
--------------------------------------------------------------------------
Cumulative $5,777.81 $2,111.22
B-2
AB VPS REAL ESTATE INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 136.50 $10,363.50
2 10,363.50 518.18 10,881.68 141.46 10,740.22
3 10,740.22 537.01 11,277.23 146.60 11,130.63
4 11,130.63 556.53 11,687.16 151.93 11,535.23
5 11,535.23 576.76 12,111.99 157.46 11,954.53
6 11,954.53 597.73 12,552.26 163.18 12,389.08
7 12,389.08 619.45 13,008.53 169.11 12,839.42
8 12,839.42 641.97 13,481.39 175.26 13,306.13
9 13,306.13 665.31 13,971.44 181.63 13,789.81
10 13,789.81 689.49 14,479.30 188.23 14,291.07
--------------------------------------------------------------------------
Cumulative $5,902.43 $1,611.36
AB VPS INTERNATIONAL VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 116.55 $10,383.45
2 10,383.45 519.17 10,902.62 121.02 10,781.60
3 10,781.60 539.08 11,320.68 125.66 11,195.02
4 11,195.02 559.75 11,754.77 130.48 11,624.29
5 11,624.29 581.21 12,205.50 135.48 12,070.02
6 12,070.02 603.50 12,673.52 140.68 12,532.84
7 12,532.84 626.64 13,159.48 146.07 13,013.41
8 13,013.41 650.67 13,664.08 151.67 13,512.41
9 13,512.41 675.62 14,188.03 157.49 14,030.54
10 14,030.54 701.53 14,732.07 163.53 14,568.54
--------------------------------------------------------------------------
Cumulative $5,957.17 $1,388.63
AB VPS SMALL/MID CAP VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 112.35 $10,387.65
2 10,387.65 519.38 10,907.03 116.71 10,790.32
3 10,790.32 539.52 11,329.84 121.23 11,208.61
4 11,208.61 560.43 11,769.04 125.93 11,643.11
5 11,643.11 582.16 12,225.27 130.81 12,094.46
6 12,094.46 604.72 12,699.18 135.88 12,563.30
7 12,563.30 628.17 13,191.47 141.15 13,050.32
8 13,050.32 652.52 13,702.84 146.62 13,556.22
9 13,556.22 677.81 14,234.03 152.30 14,081.73
10 14,081.73 704.09 14,785.82 158.21 14,627.61
--------------------------------------------------------------------------
Cumulative $5,968.80 $1,341.19
AB VPS VALUE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 117.60 $10,382.40
2 10,382.40 519.12 10,901.52 122.10 10,779.42
3 10,779.42 538.97 11,318.39 126.77 11,191.62
4 11,191.62 559.58 11,751.20 131.61 11,619.59
5 11,619.59 580.98 12,200.57 136.65 12,063.92
6 12,063.92 603.20 12,667.12 141.87 12,525.25
7 12,525.25 626.26 13,151.51 147.30 13,004.21
8 13,004.21 650.21 13,654.42 152.93 13,501.49
9 13,501.49 675.07 14,176.56 158.78 14,017.78
10 14,017.78 700.89 14,718.67 164.85 14,553.82
--------------------------------------------------------------------------
Cumulative $5,954.28 $1,400.46
B-3
AB VPS BALANCED WEALTH STRATEGY PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 103.95 $10,396.05
2 10,396.05 519.80 10,915.85 133.17 10,782.68
3 10,782.68 539.13 11,321.81 138.13 11,183.68
4 11,183.68 559.18 11,742.86 143.26 11,599.60
5 11,599.60 579.98 12,179.58 148.59 12,030.99
6 12,030.99 601.55 12,632.54 154.12 12,478.42
7 12,478.42 623.92 13,102.34 159.85 12,942.49
8 12,942.49 647.12 13,589.61 165.79 13,423.82
9 13,423.82 671.19 14,095.01 171.96 13,923.05
10 13,923.05 696.15 14,619.20 178.35 14,440.85
--------------------------------------------------------------------------
Cumulative $5,938.02 $1,497.17
AB VPS DYNAMIC ASSET ALLOCATION PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 112.35 $10,387.65
2 10,387.65 519.38 10,907.03 117.80 10,789.23
3 10,789.23 539.46 11,328.69 122.35 11,206.34
4 11,206.34 560.32 11,766.66 127.08 11,639.58
5 11,639.58 581.98 12,221.56 131.99 12,089.57
6 12,089.57 604.48 12,694.05 137.10 12,556.95
7 12,556.95 627.85 13,184.80 142.40 13,042.40
8 13,042.40 652.12 13,694.52 147.90 13,546.62
9 13,546.62 677.33 14,223.95 153.62 14,070.33
10 14,070.33 703.52 14,773.85 159.56 14,614.29
--------------------------------------------------------------------------
Cumulative $5,966.44 $1,352.15
AB VPS GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 500.00 $10,500.00 $ 105.00 $10,395.00
2 10,395.00 519.75 10,914.75 157.17 10,757.58
3 10,757.58 537.88 11,295.46 162.65 11,132.81
4 11,132.81 556.64 11,689.45 168.33 11,521.12
5 11,521.12 576.06 12,097.18 174.20 11,922.98
6 11,922.98 596.15 12,519.13 180.28 12,338.85
7 12,338.85 616.94 12,955.79 186.56 12,769.23
8 12,769.23 638.46 13,407.69 193.07 13,214.62
9 13,214.62 660.73 13,875.35 199.81 13,675.54
10 13,675.54 683.78 14,359.32 206.77 14,152.55
--------------------------------------------------------------------------
Cumulative $5,886.39 $1,733.84
--------
* Expenses are net of any applicable fee waivers and expense reimbursements by
the Adviser in the first year. Thereafter, the expense ratio reflects the
Portfolio's operating expenses as reflected under "Fee and Expenses of the
Portfolio" before the waiver and expense reimbursement in the Summary
information at the beginning of this Prospectus.
B-4
For more information about the Portfolios, the following documents are
available upon request:
.. ANNUAL/SEMI-ANNUAL REPORTS TO CONTRACTHOLDERS
The Portfolios' annual and semi-annual reports to Contractholders contain
additional information on the Portfolios' investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected a Portfolio's performance during its last fiscal
year.
.. STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Portfolios have an SAI, which contains more detailed information about the
Portfolios, including their operations and investment policies. The Portfolios'
SAI and the independent registered public accounting firm's report and
financial statements in each Portfolio's most recent annual report to
Contractholders are incorporated by reference into (and are legally part of)
this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make inquiries concerning the Portfolios, by contacting your broker or
other financial intermediary, or by contacting the Adviser:
BY MAIL: AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Securities and Exchange
Commission:
.. Call the Commission at 1-202-551-8090 for information on the operation of
the Public Reference Room.
.. Reports and other information about the Fund are available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov.
.. Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at publicinfo@sec.gov, or by writing to the
Commission's Public Reference Section, Washington, DC 20549-1520.
You also may find these documents and more information about the Adviser and
the Portfolios on the Internet at: www.abfunds.com.
The [A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein(R)
is a registered trademark used by permission of the owner, AllianceBernstein
L.P.
SEC File No. 811-05398
[GRAPHIC]
[A/B](R)
[LOGO]
AB VARIABLE PRODUCTS SERIES FUND, INC.
INTERMEDIATE BOND PORTFOLIO
LARGE CAP GROWTH PORTFOLIO
GROWTH AND INCOME PORTFOLIO
GROWTH PORTFOLIO
INTERNATIONAL GROWTH PORTFOLIO
GLOBAL THEMATIC GROWTH PORTFOLIO
SMALL CAP GROWTH PORTFOLIO
REAL ESTATE INVESTMENT PORTFOLIO
INTERNATIONAL VALUE PORTFOLIO
SMALL/MID CAP VALUE PORTFOLIO
VALUE PORTFOLIO
BALANCED WEALTH STRATEGY PORTFOLIO
DYNAMIC ASSET ALLOCATION PORTFOLIO
GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
(each a "Portfolio" and collectively, the "Portfolios")
--------------------------------------------------------------------------------
c/o AllianceBernstein Investor Services, Inc.
P. O. Box 786003, San Antonio, Texas 78278-6003
For Literature: Toll Free (800) 221-5672
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2018
--------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") is not a prospectus
but supplements and should be read in conjunction with the prospectuses dated
May 1, 2018 for AB Variable Products Series (VPS) Fund, Inc. (the "Fund") that
offer Class A shares and Class B shares of the Fund's Portfolios (each a
"Prospectus", and together, the "Prospectuses"). Financial statements for each
Portfolio of the Fund for the year ended December 31, 2017 are incorporated into
this SAI by reference. Copies of the Prospectuses and annual reports may be
obtained by contacting AllianceBernstein Investor Services, Inc. ("ABIS") at the
address or the "For Literature" telephone number shown above or on the Internet
at www.abfunds.com.
TABLE OF CONTENTS
PAGE
INFORMATION ABOUT THE PORTFOLIOS AND THEIR INVESTMENTS.........................3
INVESTMENT RESTRICTIONS.......................................................49
MANAGEMENT OF THE PORTFOLIOS..................................................51
EXPENSES OF THE PORTFOLIOS....................................................97
PURCHASE AND REDEMPTION OF SHARES............................................105
NET ASSET VALUE..............................................................107
PORTFOLIO TRANSACTIONS.......................................................111
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................120
GENERAL INFORMATION..........................................................121
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM...............................................144
APPENDIX A: PROXY VOTING AND GOVERNANCE POLICY STATEMENT.....................A-1
--------
The [A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein(R)
is a registered trademark used by permission of the owner, AllianceBernstein
L.P.
--------------------------------------------------------------------------------
INFORMATION ABOUT THE PORTFOLIOS AND THEIR INVESTMENTS
--------------------------------------------------------------------------------
Introduction to the Portfolios
------------------------------
The Fund is an open-end series investment company designed to fund
variable annuity contracts and variable life insurance policies offered by the
separate accounts of certain life insurance companies (the "Insurers"). The Fund
currently offers an opportunity to choose among the separately managed pools of
assets (the "Portfolios") described in the Portfolios' Prospectuses, each of
which has differing investment objectives and policies. The Fund currently has
fourteen Portfolios, all of which are described in this SAI.
Except as noted, the investment objectives and policies described
below are not "fundamental policies" within the meaning of the Investment
Company Act of 1940 (the "1940 Act"), and may, therefore, be changed by the
Board of Directors of the Fund (the "Board" or the "Directors") without
shareholder approval. However, no Portfolio will change its investment objective
without at least 60 days' prior written notice to shareholders. There is no
guarantee that a Portfolio will achieve its investment objective. Whenever any
investment policy or restriction states a minimum or maximum percentage of a
Portfolio's assets that may be invested in any security or other asset, it is
intended that such minimum or maximum percentage limitation be determined
immediately after and as a result of such Portfolio's acquisition of such
security or other asset. Accordingly, except with respect to borrowing, any
later increase or decrease in percentage beyond the specified limitations
resulting from a change in value or net assets will not be considered a
violation of this percentage limitation.
Additional Investment Policies and Practices
--------------------------------------------
The following information about the Portfolios' investment policies
and practices supplements the information set forth in the Prospectuses.
The Global Risk Allocation--Moderate Portfolio invests in shares of
one or more underlying funds that, in turn, invest directly in portfolio
securities ("Underlying Funds"). Investing in shares of the Underlying Funds
involves substantially the same risks as investing directly in the underlying
instruments, but may involve additional expenses similar to those borne directly
by the Portfolio, including other operating expenses. Certain investments,
techniques and risks will only apply to the Global Risk Allocation--Moderate
Portfolio to the extent the Portfolio is invested in an Underlying Fund that
invests in or engages in those investments, techniques, or strategies or
directly invests in or engages in such investments, techniques, or strategies.
For the purposes of this discussion, references to the Fund or a Portfolio
include an Underlying Fund unless the context otherwise requires.
Convertible Securities
----------------------
Convertible securities include bonds, debentures, corporate notes
and preferred stocks that are convertible at a stated exchange rate into shares
of the underlying common stock. Prior to their conversion, convertible
securities have the same general characteristics as non-convertible debt
securities, which provide a stable stream of income with generally higher yields
than those of equity securities of the same or similar issuers. As with debt
securities, the market value of convertible securities tends to decline as
interest rates increase and, conversely, to increase as interest rates decline.
While convertible securities generally offer lower interest or dividend yields
than non-convertible debt securities of similar quality, they do enable the
investor to benefit from increases in the market price of the underlying common
stock.
When the market price of the common stock underlying a convertible
security increases, the price of the convertible security increasingly reflects
the value of the underlying common stock and may rise accordingly. As the market
price of the underlying common stock declines, the convertible security tends to
trade increasingly on a yield basis, and thus may not depreciate to the same
extent as the underlying common stock. Convertible securities rank senior to
common stocks in an issuer's capital structure. They are consequently of higher
quality and entail less risk than the issuer's common stock, although the extent
to which such risk is reduced depends in large measure upon the degree to which
the convertible security sells above its value as a fixed-income security.
Depositary Receipts
-------------------
A Portfolio may invest in depositary receipts. American Depositary
Receipts ("ADRs") are depositary receipts typically issued by a U.S. bank or
trust company that evidence ownership of underlying securities issued by a
foreign corporation. European Depositary Receipts ("EDRs"), Global Depositary
Receipts ("GDRs") or other types of depositary receipts are typically issued by
non-U.S. banks or trust companies and evidence ownership of underlying
securities issued by either a U.S. or non-U.S. company. Transactions in these
securities may not necessarily be settled in the same currency as transactions
in the securities into which they represent. In addition, the issuers of the
securities of unsponsored depositary receipts are not obligated to disclose
material information in the United States. Generally, ADRs, in registered form,
are designed for use in the U.S. securities markets; EDRs, in bearer form, are
designed for use in European securities markets; and GDRs, in bearer form, are
designed for use in two or more securities markets, such as those of Europe and
Asia.
Derivatives
-----------
A Portfolio may, but is not required to, use derivatives for hedging
or other risk management purposes or as part of its investment strategies.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices.
There are four principal types of derivatives: options, futures
contracts, forwards and swaps. These principal types of derivative instruments,
as well as the methods in which they may be used by a Portfolio, are described
below. Derivatives include listed and cleared transactions where the Portfolio's
derivative trade counterparty is an exchange or clearinghouse, and non-cleared
bilateral "over-the-counter" ("OTC") transactions where the Portfolio's
derivative trade counterparty is a financial institution. Exchange-traded or
cleared derivatives transactions tend to be more liquid and subject to less
counterparty credit risk than those that are privately negotiated. The
Portfolios may use derivatives to earn income and enhance returns, to hedge or
adjust the risk profile of a portfolio and either to replace more traditional
direct investments or to obtain exposure to otherwise inaccessible markets.
Forward Contracts. A forward contract, which may be standardized and
exchange-traded or customized and privately negotiated, is an agreement for one
party to buy, and the other party to sell, a specific quantity of an underlying
security, commodity or other asset for an agreed-upon price at a future date. A
forward contract generally is settled by physical delivery of the security,
commodity or other tangible asset underlying the forward contract to an
agreed-upon location at a future date (rather than settled by cash) or will be
rolled forward into a new forward contract. Non-deliverable forwards ("NDFs")
specify a cash payment upon maturity.
Futures Contracts and Options on Futures Contracts. A futures
contract is an agreement that obligates the buyer to buy and the seller to sell
a specified quantity of an underlying asset (or settle for cash the value of a
contract based on an underlying asset, rate or index) at a specific price on the
contract maturity date. Options on futures contracts are options that call for
the delivery of futures contracts upon exercise. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or canceled through the acquisition of equal but
opposite positions, which is the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not require physical delivery
of the underlying asset but instead is settled for cash equal to the difference
between the values of the contract on the date it is entered into and its
maturity date.
Options. An option, which may be standardized and exchange-traded,
or customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy (a "call") or sell (a "put") the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Likewise, when an option is exercised the writer of the option is obligated to
sell (in the case of a call option) or to purchase (in the case of a put option)
the underlying asset (or settle for cash an amount based on an underlying asset,
rate or index).
Swaps. A swap is an agreement that obligates two parties to exchange
a series of cash flows at specified intervals (payment dates) based upon or
calculated by reference to changes in specified prices or rates (e.g., interest
rates in the case of interest rate swaps, currency exchange rates in the case of
currency swaps) for a specified amount of an underlying asset (the "notional"
principal amount). Most swaps are entered into on a net basis (i.e., the two
payment streams are netted out, with a Portfolio receiving or paying, as the
case may be, only the net amount of the two payments). Generally, the notional
principal amount is used solely to calculate the payment streams but is not
exchanged. Certain standardized swaps, including certain interest rate swaps and
credit default swaps, are subject to mandatory central clearing. Cleared swaps
are transacted through futures commission merchants ("FCMs") that are members of
central clearinghouses with the clearinghouse serving as central counterparty,
similar to transactions in futures contracts. Funds post initial and variation
margin to support their obligations under cleared swaps by making payments to
their clearing member FCMs. Central clearing is expected to reduce counterparty
credit risks and increase liquidity, but central clearing does not make swap
transactions risk free. Centralized clearing will be required for additional
categories of swaps on a phased-in basis based on Commodity Futures Trading
Commission ("CFTC") or Securities and Exchange Commission ("SEC") approval of
contracts for central clearing. Bilateral swap agreements are two-party
contracts entered into primarily by institutional investors and are not cleared
through a third party.
Risks of Derivatives and other Regulatory Issues. Investment
techniques employing such derivatives involve risks different from, and, in
certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives.
-- Market Risk. This is the general risk attendant to all
investments that the value of a particular investment will change in
a way detrimental to a Portfolio's interest.
-- Management Risk. Derivative products are highly specialized
instruments that require investment techniques and risk analyses
different from those associated with stocks and bonds. The use of a
derivative requires an understanding not only of the underlying
instrument but also of the derivative itself, without the benefit of
observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to monitor
the transactions entered into, the ability to assess the risk that a
derivative adds to a Portfolio's investment portfolio, and the
ability to forecast price, interest rate or currency exchange rate
movements correctly.
-- Credit Risk. This is the risk that a loss may be sustained by a
Portfolio as a result of the failure of another party to a
derivative (usually referred to as a "counterparty") to comply with
the terms of the derivative contract. The credit risk for
derivatives traded on an exchange or through a clearinghouse is
generally less than for uncleared OTC derivatives, since the
exchange or clearinghouse, which is the issuer or counterparty to
each derivative, provides a guarantee of performance. This guarantee
is supported by a daily payment system (i.e., margin requirements)
operated by the clearinghouse in order to reduce overall credit
risk. For uncleared OTC derivatives, there is no similar clearing
agency guarantee. Therefore, a Portfolio considers the
creditworthiness of each counterparty to an uncleared OTC derivative
in evaluating potential credit risk.
-- Counterparty Risk. The value of an OTC derivative will depend on
the ability and willingness of a Portfolio's counterparty to perform
its obligations under the transaction. If the counterparty defaults,
a Portfolio will have contractual remedies but may choose not to
enforce them to avoid the cost and unpredictability of legal
proceedings. In addition, if a counterparty fails to meet its
contractual obligations, a Portfolio could miss investment
opportunities or otherwise be required to retain investments it
would prefer to sell, resulting in losses for the Portfolio.
Participants in OTC derivatives markets generally are not subject to
the same level of credit evaluation and regulatory oversight as are
exchanges or clearinghouses. As a result, OTC derivatives generally
expose a Portfolio to greater counterparty risk than derivatives
traded on an exchange or through a clearinghouse.
New regulations affecting derivatives transactions require certain
standardized derivatives, including many types of swaps, to be
subject to mandatory central clearing. Under these new requirements,
a central clearing organization is substituted as the counterparty
to each side of the derivatives transaction. Each party to
derivatives transactions is required to maintain its positions with
a clearing organization through one or more clearing brokers.
Central clearing is intended to reduce, but not eliminate,
counterparty risk. A Portfolio is subject to the risk that its
clearing member or clearing organization will itself be unable to
perform its obligations.
-- Liquidity Risk. Liquidity risk exists when a particular
instrument is difficult to purchase or sell. If a derivative
transaction is particularly large or if the relevant market is
illiquid (as is the case with many privately-negotiated
derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
-- Leverage Risk. Since many derivatives have a leverage component,
adverse changes in the value or level of the underlying asset, rate
or index can result in a loss substantially greater than the amount
invested in the derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal amount, even if
the parties have not made any initial investment. Certain
derivatives have the potential for unlimited loss, regardless of the
size of the initial investment.
-- Regulatory Risk. Various U.S. Government entities, including the
CFTC and the SEC, are in the process of adopting and implementing
additional regulations governing derivatives markets required by,
among other things, the Dodd-Frank Act, including clearing as
discussed above, margin, reporting and registration requirements. In
December 2015, the SEC proposed a new rule regarding derivatives
imposing, among other things, limits on the amount of leverage a
fund could be exposed to through derivatives and other senior
securities transactions. While the full extent and cost of these
regulations is unclear, and proposed regulations may be revised
before adoption or may never be adopted, these regulations could,
among other things, restrict a Portfolio's ability to engage in
derivatives transactions and/or increase the cost of such
derivatives transactions, which could adversely affect investors. In
addition, Congress, various exchanges and regulatory and
self-regulatory authorities have undertaken reviews of futures,
options and swaps markets in light of market volatility. Among the
actions that have been taken or proposed to be taken are new limits
and reporting requirements for speculative positions, new or more
stringent daily price fluctuation limits, and increased margin
requirements for various types of futures and swaps transactions.
These regulations and actions may adversely affect the instruments
in which a Portfolio invests and its ability to execute its
investment strategy.
-- Other Risks. Other risks in using derivatives include the risk of
mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately-negotiated
derivatives, are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements to
counterparties or a loss of value to a Portfolio. Derivatives do not
always perfectly or even highly correlate with or track the value of
the assets, rates or indices they are designed to closely track.
Consequently, a Portfolio's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive to,
furthering the Portfolio's investment objective.
Other. A Portfolio may purchase and sell derivative instruments only
to the extent that such activities are consistent with the requirements of the
Commodity Exchange Act ("CEA") and the rules adopted by the CFTC thereunder.
Under CFTC rules, a registered investment company that conducts more than a
certain amount of trading in futures contracts, commodity options, certain swaps
and other commodity interests is a commodity pool and its adviser must register
as a commodity pool operator, or CPO. Under such rules, registered investment
companies that are commodity pools are subject to additional registration,
recordkeeping, reporting and disclosure requirements. AllianceBernstein L.P.,
the Portfolios' adviser (the "Adviser"), and the Portfolios, except for the
Dynamic Asset Allocation Portfolio and Global Risk Allocation--Moderate
Portfolio, have claimed an exclusion from the definition of CPO under CFTC Rule
4.5 under the CEA with respect to the Portfolios and are not currently subject
to these recordkeeping, reporting and disclosure requirements. The trading
exemption in Rule 4.5 is not available to the Dynamic Asset Allocation Portfolio
or Global Risk Allocation--Moderate Portfolio, and the Adviser has registered as
a CPO with respect to these Portfolios. This registration subjects the Dynamic
Asset Allocation Portfolio and Global Risk Allocation--Moderate Portfolio to
certain recordkeeping, reporting and disclosure requirements but, under rules
adopted by the CFTC, compliance with SEC disclosure and filing requirements, for
the most part, constitutes compliance with comparable CFTC requirements.
Use of Options, Futures Contracts, Forwards and Swaps by the Portfolios
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- Forward Currency Exchange Contracts. A forward currency exchange
contract is an obligation by one party to buy, and the other party to sell, a
specific amount of a currency for an agreed-upon price at a future date. A
forward currency exchange contract may result in the delivery of the underlying
asset upon maturity of the contract in return for the agreed-upon payment. NDFs
specify a cash payment upon maturity. NDFs are normally used when the market for
physical settlement of the currency is underdeveloped, heavily regulated or
highly taxed.
A Portfolio may, for example, enter into forward currency exchange
contracts to attempt to minimize the risk to the Portfolio from adverse changes
in the relationship between the U.S. Dollar and other currencies. A Portfolio
may purchase or sell forward currency exchange contracts for hedging purposes
similar to those described below in connection with its transactions in foreign
currency futures contracts. A Portfolio may also purchase or sell forward
currency exchange contracts for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Currency
Transactions".
If a hedging transaction in forward currency exchange contracts is
successful, the decline in the value of portfolio securities or the increase in
the cost of securities to be acquired may be offset, at least in part, by
profits on the forward currency exchange contract. Nevertheless, by entering
into such forward currency exchange contracts, a Portfolio may be required to
forgo all or a portion of the benefits which otherwise could have been obtained
from favorable movements in exchange rates.
A Portfolio may also use forward currency exchange contracts to seek
to increase total return when the Adviser anticipates that a foreign currency
will appreciate or depreciate in value but securities denominated in that
currency are not held by the Portfolio and do not present attractive investment
opportunities. For example, a Portfolio may enter into a foreign currency
exchange contract to purchase a currency if the Adviser expects the currency to
increase in value. The Portfolio would recognize a gain if the market value of
the currency is more than the contract value of the currency at the time of
settlement of the contract. Similarly, a Portfolio may enter into a foreign
currency exchange contract to sell a currency if the Adviser expects the
currency to decrease in value. The Portfolio would recognize a gain if the
market value of the currency is less than the contract value of the currency at
the time of settlement of the contract.
The cost of engaging in forward currency exchange contracts varies
with such factors as the currencies involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currencies are usually conducted on a principal basis, no fees or commissions
are involved.
- Options on Securities. A Portfolio may write and purchase call and
put options on securities. In purchasing an option on securities, the Portfolio
would be in a position to realize a gain if, during the option period, the price
of the underlying securities increased (in the case of a call) or decreased (in
the case of a put) by an amount in excess of the premium paid; otherwise the
Portfolio would experience a loss not greater than the premium paid for the
option. Thus, a Portfolio would realize a loss if the price of the underlying
security declined or remained the same (in the case of a call) or increased or
remained the same (in the case of a put) or otherwise did not increase (in the
case of a put) or decrease (in the case of a call) by more than the amount of
the premium. If a put or call option purchased by a Portfolio were permitted to
expire without being sold or exercised, its premium would represent a loss to
the Portfolio.
A Portfolio may write a put or call option in return for a premium,
which is retained by the Portfolio whether or not the option is exercised. A
Portfolio may write covered options or uncovered options. A call option written
by a Portfolio is "covered" if the Portfolio owns the underlying security, has
an absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than the exercise price of the
call option it has written. A put option written by a Portfolio is covered if
the Portfolio holds a put option on the underlying securities with an exercise
price equal to or greater than the exercise price of the put option it has
written. Uncovered options or "naked options" are riskier than covered options.
For example, if a Portfolio wrote a naked call option and the price of the
underlying security increased, the Portfolio would have to purchase the
underlying security for delivery to the call buyer and sustain a loss, which
could be substantial, equal to the difference between the option price and the
market price of the security.
A Portfolio may also purchase call options to hedge against an
increase in the price of securities that the Portfolio anticipates purchasing in
the future. If such increase occurs, the call option will permit the Portfolio
to purchase the securities at the exercise price, or to close out the option at
a profit. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Portfolio upon exercise of the
option, and, unless the price of the underlying security rises sufficiently, the
option may expire worthless to the Portfolio and the Portfolio will suffer a
loss on the transaction to the extent of the premium paid.
A Portfolio may purchase put options to hedge against a decline in
the value of portfolio securities. If such decline occurs, the put options will
permit the Portfolio to sell the securities at the exercise price or to close
out the options at a profit. By using put options in this way, a Portfolio will
reduce any profit it might otherwise have realized on the underlying security by
the amount of the premium paid for the put option and by transaction costs.
A Portfolio also may, as an example, write combinations of put and
call options on the same security, known as "straddles", with the same exercise
and expiration date. By writing a straddle, a Portfolio undertakes a
simultaneous obligation to sell and purchase the same security in the event that
one of the options is exercised. If the price of the security subsequently rises
above the exercise price, the call will likely be exercised and a Portfolio will
be required to sell the underlying security at or below market price. This loss
may be offset, however, in whole or in part, by the premiums received on the
writing of the two options. Conversely, if the price of the security declines by
a sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of the security
remains stable and neither the call nor the put is exercised. In those instances
where one of the options is exercised, the loss on the purchase or sale of the
underlying security may exceed the amount of the premiums received.
A Portfolio may purchase or write options on securities of the types
in which it is permitted to invest in privately-negotiated (i.e., OTC)
transactions. By writing a call option, a Portfolio limits its opportunity to
profit from any increase in the market value of the underlying security above
the exercise price of the option. By writing a put option, a Portfolio assumes
the risk that it may be required to purchase the underlying security for an
exercise price above its then current market value, resulting in a capital loss
unless the security subsequently appreciates in value. Where options are written
for hedging purposes, such transactions constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium.
A Portfolio will effect such transactions only with investment
dealers and other financial institutions (such as commercial banks or savings
and loan institutions) deemed creditworthy by the Adviser, and the Adviser has
adopted procedures for monitoring the creditworthiness of such entities. Options
purchased or written in negotiated transactions may be illiquid and it may not
be possible for the Portfolios to effect a closing transaction at a time when
the Adviser believes it would be advantageous to do so.
- Options on Securities Indices. An option on a securities index is
similar to an option on a security except that, rather than taking or making
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case of a
call) or less than (in the case of a put) the exercise price of the option.
A Portfolio may write (sell) call and put options and purchase call
and put options on securities indices. If a Portfolio purchases put options on
securities indices to hedge its investments against a decline in the value of
portfolio securities it will seek to offset a decline in the value of securities
it owns through appreciation of the put option. If the value of a Portfolio's
investments does not decline as anticipated, or if the value of the option does
not increase, the Portfolio's loss will be limited to the premium paid for the
option. The success of this strategy will largely depend on the accuracy of the
correlation between the changes in value of the index and the changes in value
of a Portfolio's security holdings.
A Portfolio may also write put or call options on securities indices
to, among other things, earn income. If the value of the chosen index declines
below the exercise price of the put option, the Portfolio has the risk of loss
of the amount of the difference between the exercise price and the closing level
of the chosen index, which it would be required to pay to the buyer of the put
option and which may not be offset by the premium it received upon sale of the
put option. Similarly, if the value of the index is higher than the exercise
price of the call option, the Portfolio has the risk of loss of the amount of
the difference between the exercise price and the closing level of the chosen
index, which may not be offset by the premium it received upon sale of the call
option. If the decline or increase in the value of the index is significantly
below or above the exercise price of the written option, the Portfolio could
experience a substantial loss.
The purchase of call options on securities indices may be used by a
Portfolio to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Portfolio holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, a Portfolio will also bear the risk of
losing all or a portion of the premium paid if the value of the index does not
rise. The purchase of call options on stock indices when a Portfolio is
substantially fully invested is a form of leverage, up to the amount of the
premium and related transaction costs, and involves risks of loss and of
increased volatility similar to those involved in purchasing call options on
securities the Portfolio owns.
- Other Option Strategies. In an effort to earn extra income, to
adjust exposure to individual securities or markets, or to protect all or a
portion of its portfolio from a decline in value, sometimes within certain
ranges, a Portfolio that invests in equity securities may use option strategies
such as the concurrent purchase of a call or put option, including on individual
securities and stock indices, futures contracts (including on individual
securities and stock indices) or shares of exchange-traded funds ("ETFs") at one
strike price and the writing of a call or put option on the same individual
security, stock index, futures contract or ETF at a higher strike price in the
case of a call option or at a lower strike price in the case of a put option.
The maximum profit from this strategy would result for the call options from an
increase in the value of the individual security, stock index, futures contract
or ETF above the higher strike price or for the put options the decline in the
value of the individual security, stock index, futures contract or ETF below the
lower strike price. If the price of the individual security, stock index,
futures contract or ETF declines in the case of the call option or increases in
the case of the put option, the Portfolio has the risk of losing the entire
amount paid for the call or put options.
- Options on Foreign Currencies. A Portfolio may purchase and write
options on foreign currencies for hedging and non-hedging purposes. For example,
a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, a Portfolio may
purchase put options on the foreign currency. If the value of the currency does
decline, the Portfolio will have the right to sell such currency for a fixed
amount in dollars and could thereby offset, in whole or in part, the adverse
effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may purchase call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to a Portfolio from purchases of foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the direction or to the
extent anticipated, a Portfolio could sustain losses on transactions in foreign
currency options which would require it to forgo a portion or all of the
benefits of advantageous changes in such rates.
A Portfolio may write options on foreign currencies for hedging
purposes or to increase return. For example, where a Portfolio anticipates a
decline in the dollar value of non-U.S. Dollar-denominated securities due to
adverse fluctuations in exchange rates it could, instead of purchasing a put
option, write a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the diminution in
value of portfolio securities could be offset by the amount of the premium
received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a
Portfolio could write a put option on the relevant currency, which, if rates
move in the manner projected, will expire unexercised and allow the Portfolio to
hedge such increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency option will
constitute only a partial hedge up to the amount of the premium, and only if
rates move in the expected direction. If this does not occur, the option may be
exercised and a Portfolio will be required to purchase or sell the underlying
currency at a loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, a Portfolio also may be required
to forgo all or a portion of the benefits which might otherwise have been
obtained from favorable movements in exchange rates.
In addition to using options for the hedging purposes described
above, a Portfolio may also invest in options on foreign currencies for
non-hedging purposes as a means of making direct investments in foreign
currencies. A Portfolio may use options on currency to seek to increase total
return when the Adviser anticipates that a foreign currency will appreciate or
depreciate in value but securities denominated in that currency are not held by
the Portfolio and do not present attractive investment opportunities. For
example, a Portfolio may purchase call options in anticipation of an increase in
the market value of a currency. The Portfolio would ordinarily realize a gain
if, during the option period, the value of such currency exceeded the sum of the
exercise price, the premium paid and transaction costs. Otherwise, the Portfolio
would realize no gain or a loss on the purchase of the call option. Put options
may be purchased by a Portfolio for the purpose of benefiting from a decline in
the value of a currency that the Portfolio does not own. The Portfolio would
normally realize a gain if, during the option period, the value of the
underlying currency decreased below the exercise price sufficiently to more than
cover the premium and transaction costs. Otherwise, the Portfolio would realize
no gain or loss on the purchase of the put option. For additional information on
the use of options on foreign currencies for non-hedging purposes, see "Currency
Transactions" below.
Special Risks Associated with Options on Currencies. An
exchange-traded options position may be closed out only on an options exchange
that provides a secondary market for an option of the same series. Although a
Portfolio will generally purchase or sell options for which there appears to be
an active secondary market, there is no assurance that a liquid secondary market
on an exchange will exist for any particular option, or at any particular time.
For some options, no secondary market on an exchange may exist. In such event,
it might not be possible to effect closing transactions in particular options,
with the result that a Portfolio would have to exercise its options in order to
realize any profit and would incur transaction costs on the purchase or sale of
the underlying currency.
- Futures Contracts and Options on Futures Contracts. Futures
contracts that a Portfolio may buy and sell may include futures contracts on
fixed-income or other securities, and contracts based on interest rates, foreign
currencies or financial indices, including any index of U.S. Government
securities. A Portfolio may, for example, purchase or sell futures contracts and
options thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Portfolio's current or intended investments in fixed-income securities. For
example, if a Portfolio owned long-term bonds and interest rates were expected
to increase, that Portfolio might sell interest rate futures contracts. Such a
sale would have much the same effect as selling some of the long-term bonds in
that Portfolio's portfolio. However, since the futures market is more liquid
than the cash market, the use of interest rate futures contracts as a hedging
technique allows a Portfolio to hedge its interest rate risk without having to
sell its portfolio securities. If interest rates were to increase, the value of
the debt securities in the portfolio would decline, but the value of that
Portfolio's interest rate futures contracts would be expected to increase at
approximately the same rate, thereby keeping the net asset value ("NAV") of that
Portfolio from declining as much as it otherwise would have. On the other hand,
if interest rates were expected to decline, interest rate futures contracts
could be purchased to hedge in anticipation of subsequent purchases of long-term
bonds at higher prices. Because the fluctuations in the value of the interest
rate futures contracts should be similar to those of long-term bonds, a
Portfolio could protect itself against the effects of the anticipated rise in
the value of long-term bonds without actually buying them until the necessary
cash becomes available or the market has stabilized. At that time, the interest
rate futures contracts could be liquidated and that Portfolio's cash reserves
could then be used to buy long-term bonds on the cash market.
A Portfolio may purchase and sell foreign currency futures contracts
for hedging or risk management purposes in order to protect against fluctuations
in currency exchange rates. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or increase the cost of
non-U.S. Dollar-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant. A
Portfolio may sell futures contracts on a foreign currency, for example, when it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. If such a decline were to
occur, the resulting adverse effect on the value of non-U.S. Dollar-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, a Portfolio's loss on the foreign currency futures contract may or
may not be offset by an increase in the value of the securities because a
decline in the price of the security stated in terms of the foreign currency may
be greater than the increase in value as a result of the change in exchange
rates.
Conversely, a Portfolio could protect against a rise in the dollar
cost of non-U.S. Dollar-denominated securities to be acquired by purchasing
futures contracts on the relevant currency, which could offset, in whole or in
part, the increased cost of such securities resulting from a rise in the dollar
value of the underlying currencies. When a Portfolio purchases futures contracts
under such circumstances, however, and the price in dollars of securities to be
acquired instead declines as a result of appreciation of the dollar, the
Portfolio will sustain losses on its futures position which could reduce or
eliminate the benefits of the reduced cost of portfolio securities to be
acquired.
A Portfolio may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that a Portfolio may achieve protection against fluctuations in
currency exchange rates similar to that described above at a reduced cost
through the use of a futures contract relating to a currency other than the U.S.
Dollar or the currency in which the foreign security is denominated. Such "cross
hedging" is subject to the same risks as those described above with respect to
an unanticipated increase or decline in the value of the subject currency
relative to the U.S. Dollar.
A Portfolio may also use foreign currency futures contracts and
options on such contracts for non-hedging purposes. Similar to options on
currencies described above, a Portfolio may use foreign currency futures
contracts and options on such contracts to seek to increase total return when
the Adviser anticipates that a foreign currency will appreciate or depreciate in
value but securities denominated in that currency are not held by the Underlying
Portfolio and do not present attractive investment opportunities. The risks
associated with foreign currency futures contracts and options on futures
contracts are similar to those associated with options on foreign currencies, as
described above. For additional information on the use of options on foreign
currencies for non-hedging purposes, see "Currency Transactions" below.
Purchases or sales of stock or bond index futures contracts are used
for hedging or risk management purposes to attempt to protect a Portfolio's
current or intended investments from broad fluctuations in stock or bond prices.
For example, a Portfolio may sell stock or bond index futures contracts in
anticipation of or during a market decline to attempt to offset the decrease in
market value of the Portfolio's portfolio securities that might otherwise
result. If such decline occurs, the loss in value of portfolio securities may be
offset, in whole or in part, by gains on the futures position. When a Portfolio
is not fully invested in the securities market and anticipates a significant
market advance, it may purchase stock or bond index futures contracts in order
to gain rapid market exposure that may, in whole or in part, offset increases in
the cost of securities that the Portfolio intends to purchase. As such purchases
are made, the corresponding positions in stock or bond index futures contracts
will be closed out.
Options on futures contracts are options that call for the delivery
of futures contracts upon exercise. Options on futures contracts written or
purchased by a Portfolio will be traded on U.S. exchanges.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Portfolio's
portfolio. If the futures price at expiration of the option is below the
exercise price, a Portfolio will retain the full amount of the option premium,
which provides a partial hedge against any decline that may have occurred in the
Portfolio's portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of the securities
or other instruments required to be delivered under the terms of the futures
contract. If the futures price at expiration of the put option is higher than
the exercise price, a Portfolio will retain the full amount of the option
premium, which provides a partial hedge against any increase in the price of
securities which the Portfolio intends to purchase. If a put or call option a
Portfolio has written is exercised, the Portfolio will incur a loss which will
be reduced by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and changes
in the value of its options on futures positions, a Portfolio's losses from
exercised options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
A Portfolio may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, a Portfolio could, in lieu of selling futures contracts, purchase put
options thereon. In the event that such decrease was to occur, it may be offset,
in whole or in part, by a profit on the option. If the anticipated market
decline were not to occur, the Portfolio would suffer a loss equal to the price
of the put. Where it is projected that the value of securities to be acquired by
a Portfolio will increase prior to acquisition due to a market advance or
changes in interest or exchange rates, a Portfolio could purchase call options
on futures contracts, rather than purchasing the underlying futures contracts.
If the market advances, the increased cost of securities to be purchased may be
offset by a profit on the call. However, if the market declines, the Portfolio
will suffer a loss equal to the price of the call, but the securities that the
Portfolio intends to purchase may be less expensive.
- Credit Default Swap Agreements. The "buyer" in a credit default
swap contract is obligated to pay the "seller" a periodic stream of payments
over the term of the contract in return for a contingent payment upon the
occurrence of a credit event with respect to an underlying reference obligation.
Generally, a credit event means bankruptcy, failure to pay, obligation
acceleration or restructuring. A Portfolio may be either the buyer or seller in
the transaction. As a seller, a Portfolio receives a fixed rate of income
throughout the term of the contract, which typically is between one month and
ten years, provided that no credit event occurs. If a credit event occurs, a
Portfolio typically must pay the contingent payment to the buyer. The contingent
payment will be either (i) the "par value" (face amount) of the reference
obligation in which case the Portfolio will receive the reference obligation in
return, or (ii) an amount equal to the difference between the par value and the
current market value of the obligation. The value of the reference obligation
received by a Portfolio as a seller if a credit event occurs, coupled with the
periodic payments previously received, may be less than the full notional value
it pays to the buyer, resulting in a loss of value to the Fund. If a Portfolio
is a buyer and no credit event occurs, the Portfolio will lose its periodic
stream of payments over the term of the contract. However, if a credit event
occurs, the buyer typically receives full notional value for a reference
obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Portfolio
had invested in the reference obligation directly. Credit default swaps are
subject to general market risk, liquidity risk and credit risk.
- Currency Swaps. A Portfolio may enter into currency swaps for
hedging purposes in an attempt to protect against adverse changes in exchange
rates between the U.S. Dollar and other currencies or for non-hedging purposes
as a means of making direct investments in foreign currencies, as described
below under "Currency Transactions". Currency swaps involve the exchange by a
Portfolio with another party of a series of payments in specified currencies.
Currency swaps may involve the exchange of actual principal amounts of
currencies by the counterparties at the initiation, and again upon termination
of the transaction. Currency swaps may be bilateral and privately negotiated,
with the Portfolio expecting to achieve an acceptable degree of correlation
between its portfolio investments and its currency swaps positions. A Portfolio
will not enter into any currency swap unless the credit quality of the unsecured
senior debt or the claims-paying ability of the counterparty thereto is rated in
the highest short-term rating category of at least one nationally recognized
statistical rating organization ("NRSRO") at the time of entering into the
transaction. - Swaps: Interest Rate Transactions. A Portfolio may enter into
interest rate swap, swaption and cap or floor transactions, which may include
preserving a return or spread on a particular investment or portion of its
portfolio or protecting against an increase in the price of securities the
Portfolio anticipates purchasing at a later date. Unless there is a counterparty
default, the risk of loss to a Portfolio from interest rate transactions is
limited to the net amount of interest payments that the Portfolio is
contractually obligated to make. If the counterparty to an interest rate
transaction defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio is contractually entitled to receive.
Interest rate swaps involve the exchange by a Portfolio with another
party of payments calculated by reference to specified interest rates (e.g., an
exchange of floating-rate payments for fixed-rate payments) computed based on a
contractually-based principal (or "notional") amount.
An option on a swap agreement, also called a "swaption", is an
option that gives the buyer the right, but not the obligation, to enter into a
swap on a future date in exchange for paying a market-based "premium". A
receiver swaption gives the owner the right to receive the total return of a
specified asset, reference rate, or index. A payer swaption gives the owner the
right to pay the total return of a specified asset, reference rate, or index.
Swaptions also include options that allow an existing swap to be terminated or
extended by one of the counterparties.
Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor.
Caps and floors are less liquid than swaps. These transactions do
not involve the delivery of securities or other underlying assets or principal.
A Portfolio will enter into bilateral swap agreements, including interest rate
swap, swaptions, cap or floor transactions only with counterparties who have
credit ratings of at least A- (or the equivalent) from any one NRSRO or
counterparties with guarantors with debt securities having such a rating. For
cleared interest rate swaps, the Adviser will monitor the creditworthiness of
each of the central clearing counterparty, clearing broker and executing broker
but there will be no prescribed NRSRO rating requirements for these entities.
--Total Return Swaps. A Portfolio may enter into total return swaps
in order to take a "long" or "short" position with respect to an underlying
referenced asset. The Portfolio is subject to market price volatility of the
referenced asset. A total return swap involves commitments to pay interest in
exchange for a market-linked return based on a notional amount. To the extent
that the total return of the security, group of securities or index underlying
the transaction exceeds or falls short of the offsetting interest obligation,
the Portfolio will receive a payment or make a payment to the counterparty.
--Special Risks Associated with Swaps. Risks may arise as a result
of the failure of the counterparty to a bilateral swap contract to comply with
the terms of the swap contract. The loss incurred by the failure of a
counterparty is generally limited to the net interim payment to be received by a
Portfolio, and/or the termination value at the end of the contract. Therefore,
the Portfolio considers the creditworthiness of the counterparty to a bilateral
swap contract. The risk is mitigated by having a netting arrangement between the
Portfolio and the counterparty and by the posting of collateral by the
counterparty to the Portfolio to cover the Portfolio's exposure to the
counterparty. Certain standardized swaps, including certain interest rate swaps
and credit default swaps, are subject to mandatory central clearing. Central
clearing is expected, among other things, to reduce counterparty credit risk,
but does not eliminate it completely.
Additionally, risks may arise from unanticipated movements in
interest rates or in the value of the underlying securities. The Portfolio
accrues for the changes in value on swap contracts on a daily basis, with the
net amount recorded within unrealized appreciation/depreciation of swap
contracts on the statement of assets and liabilities. Once the interim payments
are settled in cash, the net amount is recorded as realized gain/(loss) on swaps
on the statement of operations, in addition to any realized gain/(loss) recorded
upon the termination of swap contracts. Fluctuations in the value of swap
contracts are recorded as a component of net change in unrealized
appreciation/depreciation of swap contracts on the statement of operations.
- Synthetic Foreign Equity Securities. A Portfolio may invest in
different types of derivatives generally referred to as synthetic foreign equity
securities. These securities may include international warrants or local access
products. International warrants are financial instruments issued by banks or
other financial institutions, which may or may not be traded on a foreign
exchange. International warrants are a form of derivative security that may give
holders the right to buy or sell an underlying security or a basket of
securities representing an index from or to the issuer of the warrant for a
particular price or may entitle holders to receive a cash payment relating to
the value of the underlying security or index, in each case upon exercise by the
Portfolio. Local access products are similar to options in that they are
exercisable by the holder for an underlying security or a cash payment based
upon the value of that security, but are generally exercisable over a longer
term than typical options. These types of instruments may be American style,
which means that they can be exercised at any time on or before the expiration
date of the international warrant, or European style, which means that they may
be exercised only on the expiration date.
Other types of synthetic foreign equity securities in which a
Portfolio may invest include covered warrants and low exercise price warrants.
Covered warrants entitle the holder to purchase from the issuer, typically a
financial institution, upon exercise, common stock of an international company
or receive a cash payment (generally in U.S. Dollars). The issuer of the covered
warrant usually owns the underlying security or has a mechanism, such as owning
equity warrants on the underlying securities, through which they can obtain the
securities. The cash payment is calculated according to a predetermined formula,
which is generally based on the difference between the value of the underlying
security on the date of exercise and the strike price. Low exercise price
warrants are warrants with an exercise price that is very low relative to the
market price of the underlying instrument at the time of issue (e.g., one cent
or less). The buyer of a low exercise price warrant effectively pays the full
value of the underlying common stock at the outset. In the case of any exercise
of warrants, there may be a time delay between the time a holder of warrants
gives instructions to exercise and the time the price of the common stock
relating to exercise or the settlement date is determined, during which time the
price of the underlying security could change significantly. In addition, the
exercise or settlement date of the warrants may be affected by certain market
disruption events, such as difficulties relating to the exchange of a local
currency into U.S. Dollars, the imposition of capital controls by a local
jurisdiction or changes in the laws relating to foreign investments. These
events could lead to a change in the exercise date or settlement currency of the
warrants, or postponement of the settlement date. In some cases, if the market
disruption events continue for a certain period of time, the warrants may become
worthless resulting in a total loss of the purchase price of the warrants.
A Portfolio's investments in synthetic foreign equity securities
will be those issued by entities deemed to be creditworthy by the Adviser, which
will monitor the creditworthiness of the issuers on an ongoing basis.
Investments in these instruments involve the risk that the issuer of the
instrument may default on its obligation to deliver the underlying security or
cash in lieu thereof. These instruments may also be subject to liquidity risk
because there may be a limited secondary market for trading the warrants. They
are also subject, like other investments in foreign securities, to foreign risk
and currency risk.
International warrants also include equity warrants, index warrants,
and interest rate warrants. Equity warrants are generally issued in conjunction
with an issue of bonds or shares, although they also may be issued as part of a
rights issue or scrip issue. When issued with bonds or shares, they usually
trade separately from the bonds or shares after issuance. Most warrants trade in
the same currency as the underlying stock (domestic warrants), but also may be
traded in different currency (euro-warrants). Equity warrants are traded on a
number of foreign exchanges and in OTC markets. Index warrants and interest rate
warrants are rights created by an issuer, typically a financial institution,
entitling the holder to purchase, in the case of a call, or sell, in the case of
a put, respectively, an equity index or a specific bond issue or interest rate
index at a certain level over a fixed period of time. Index warrants
transactions settle in cash, while interest rate warrants can typically be
exercised in the underlying instrument or settle in cash.
A Portfolio also may invest in long-term options of, or relating to,
international issuers. Long-term options operate much like covered warrants.
Like covered warrants, long-term options are call options created by an issuer,
typically a financial institution, entitling the holder to purchase from the
issuer outstanding securities of another issuer. Long-term options have an
initial period of one year or more, but generally have terms between three and
five years. Unlike U.S. options, long-term European options do not settle
through a clearing corporation that guarantees the performance of the
counterparty. Instead, they are traded on an exchange and subject to the
exchange's trading regulations.
- Eurodollar Instruments. Eurodollar instruments are essentially
U.S. Dollar-denominated futures contracts or options thereon that are linked to
the London Interbank Offered Rate and are subject to the same limitations and
risks as other futures contracts and options.
- Currency Transactions. A Portfolio may invest in non-U.S.
Dollar-denominated securities on a currency hedged or un-hedged basis. The
Adviser may actively manage a Portfolio's currency exposures and may seek
investment opportunities by taking long or short positions in currencies through
the use of currency-related derivatives, including forward currency exchange
contracts, futures contracts and options on futures contracts, swaps and
options. The Adviser may enter into transactions for investment opportunities
when it anticipates that a foreign currency will appreciate or depreciate in
value but securities denominated in that currency are not held by a Portfolio
and do not present attractive investment opportunities. Such transactions may
also be used when the Adviser believes that it may be more efficient than a
direct investment in a foreign currency-denominated security. The Portfolios may
also conduct currency exchange contracts on a spot basis (i.e., for cash at the
spot rate prevailing in the currency exchange market for buying or selling
currencies).
Event-linked Securities
-----------------------
Event-linked securities are variable rate or fixed rate fixed-income
securities or types of equity securities for which the return of principal and
payment of interest are contingent on the non-occurrence of various catastrophe
exposures, which may be specific trigger events or a diversified group of
events, such as hurricanes, typhoons, wind events or earthquakes. The most
common type of fixed-income securities are known as "catastrophe" or "CAT"
bonds. In some cases, the trigger event(s) will not be deemed to have occurred
unless the event(s) happened in a particular geographic area and was of a
certain magnitude (based on independent scientific readings) or caused a certain
amount of actual or modeled loss. If the trigger event(s) occurs prior to the
securities' maturity, a Portfolio may lose all or a portion of its principal and
forgo additional interest.
These securities may have a special condition that states that if
the issuer (i.e., an insurance or reinsurance company) suffers a loss from a
particular pre-defined catastrophe, then the issuer's obligation to pay interest
and/or repay the principal is either deferred or completely forgiven. For
example, if a Portfolio holds a fixed-income security that covers an insurer's
losses due to a hurricane with a "trigger" at $1 billion and a hurricane hits
causing $1 billion or more in losses to such insurer, then the Portfolio will
lose all or a portion of its principal invested in the security and forgo any
future interest payments. If the trigger event(s) does not occur, the Portfolio
will recover its principal plus interest. Interest typically accrues and is paid
on a quarterly basis. Although principal typically is repaid only on the
maturity date, it may be repaid in installments, depending on the terms of the
securities.
Event-linked securities may be issued by government agencies,
insurance companies, reinsurers, special purpose companies or other on-shore or
off-shore entities. Event-linked securities are a relatively new type of
financial instrument. As a result, there is no significant trading history of
these securities and these securities may be illiquid or the markets for these
instruments may not be liquid at all times. These securities may be rated,
generally below investment grade or the unrated equivalent, and have the same or
equivalent risks as higher yield debt securities ("junk bonds"). The rating
primarily reflects the rating agency's calculated probability that a pre-defined
trigger event will occur as well as the overall expected loss to the principal
of the security.
Forward Commitments and When-Issued and Delayed Delivery Securities
-------------------------------------------------------------------
Forward commitments for the purchase or sale of securities may
include purchases on a "when-issued" basis or purchases or sales on a "delayed
delivery" basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as and if issued"
trade). When forward commitment transactions are negotiated, the price is fixed
at the time the commitment is made. A Portfolio assumes the rights and risks of
ownership of the security, but does not pay for the securities until they are
received. If a Portfolio is fully or almost fully invested when forward
commitment purchases are outstanding, such purchases may result in a form of
leverage. Leveraging the portfolio in this manner may increase the Portfolio's
volatility of returns.
The use of forward commitments enables a Portfolio to protect
against anticipated changes in exchange rates, interest rates and/or prices. For
instance, a Portfolio may enter into a forward contract when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). In addition, when a Portfolio believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of that Portfolio's securities
denominated in such foreign currency, or when a Portfolio believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may enter
into a forward purchase contract to buy that foreign currency for a fixed dollar
amount ("position hedge"). If the Adviser were to forecast incorrectly the
direction of exchange rate movements, a Portfolio might be required to complete
such when-issued or forward transactions at prices inferior to the then current
market values.
When-issued securities and forward commitments may be sold prior to
the settlement date, but a Portfolio generally enters into when-issued and
forward commitments only with the intention of actually receiving securities or
delivering them, as the case may be. If a Portfolio chooses to dispose of the
right to acquire a when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward commitment, it may incur a
gain or loss. Any significant commitment of a Portfolio's assets to the purchase
of securities on a "when, as and if issued" basis may increase the volatility of
the Portfolio's NAV.
At the time a Portfolio intends to enter into a forward commitment,
it will record the transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in determining its NAV.
Any unrealized appreciation or depreciation reflected in such valuation of a
"when, as and if issued" security would be canceled in the event that the
required conditions did not occur and the trade was canceled.
Purchases of securities on a forward commitment or when-issued basis
may involve more risk than other types of purchases. For example, by committing
to purchase securities in the future, a Portfolio subjects itself to a risk of
loss on such commitments as well as on its portfolio securities. Also, a
Portfolio may have to sell assets which have been set aside in order to meet
redemptions. In addition, if a Portfolio determines it is advisable as a matter
of investment strategy to sell the forward commitment or "when-issued" or
"delayed delivery" securities before delivery, that Portfolio may incur a gain
or loss because of market fluctuations since the time the commitment to purchase
such securities was made. Any such gain or loss would be treated as a capital
gain or loss for tax purposes. When the time comes to pay for the securities to
be purchased under a forward commitment or on a "when-issued" or "delayed
delivery" basis, a Portfolio will meet its obligations from the then available
cash flow or the sale of securities, or, although it would not normally expect
to do so, from the sale of the forward commitment or "when-issued" or "delayed
delivery" securities themselves (which may have a value greater or less than the
Portfolio's payment obligation). No interest or dividends accrue to the
purchaser prior to the settlement date for securities purchased or sold under a
forward commitment. In addition, in the event the other party to the transaction
files for bankruptcy, becomes insolvent, or defaults on its obligation, a
Portfolio may be adversely affected.
Illiquid Securities
-------------------
A Portfolio will not invest in illiquid securities if immediately
after such investment, more than 15% of the Portfolio's net assets would be
invested in such securities. For this purpose, illiquid securities include,
among others, (a) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is no readily
available market (e.g., trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will not entertain bids or
offers), (b) options purchased by a Portfolio OTC and the cover for options
written by the Portfolio OTC, and (c) repurchase agreements not terminable
within seven days. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation.
Mutual funds do not typically hold a significant amount of
restricted securities (securities that are subject to restrictions on resale to
the general public) or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund may also have to take certain steps
or wait a certain amount of time in order to remove the transfer restrictions
for such restricted securities in order to dispose of them, resulting in
additional expense and delay.
Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers ("Rule
144A Securities"). To the extent permitted by applicable law, Rule 144A
Securities will not be treated as illiquid for purposes of the foregoing
restriction so long as such securities meet the liquidity guidelines established
by the Board. Pursuant to these guidelines, the Adviser will monitor the
liquidity of a Portfolio's investment in Rule 144A Securities. An insufficient
number of qualified institutional buyers interested in purchasing certain
restricted securities held by a Portfolio, however, could affect adversely the
marketability of such portfolio securities and the Portfolio might be unable to
dispose of such securities promptly or at reasonable prices.
The Adviser, acting under the oversight of the Board, will monitor
the liquidity of restricted securities in the Portfolio that are eligible for
resale pursuant to Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential purchasers of
the security; (4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer); and (6) any applicable interpretation or position of the SEC with
respect to such type of securities.
Investments in Pre-IPO Securities
---------------------------------
The Portfolios may invest in pre-IPO (initial public offering)
securities. Pre-IPO securities, or venture capital investments, are investments
in new and early stage companies, often funded by venture capital and referred
to as "venture capital companies", whose securities have not been offered to the
public and that are not publicly traded. These investments may present
significant opportunities for capital appreciation but involve a high degree of
risk that may result in significant decreases in the value of these investments.
Venture capital companies may not have established products, experienced
management or earnings history. The Portfolios may not be able to sell such
investments when the portfolio managers and/or investment personnel deem it
appropriate to do so because they are not publicly traded. As such, these
investments are generally considered to be illiquid until a company's public
offering (which may never occur) and are often subject to additional contractual
restrictions on resale following any public offering that may prevent the
Portfolios from selling their shares of these companies for a period of time.
Market conditions, developments within a company, investor perception or
regulatory decisions may adversely affect a venture capital company and delay or
prevent a venture capital company from ultimately offering its securities to the
public.
Investment in Exchange-Traded Funds and Other Investment Companies
------------------------------------------------------------------
The Portfolios may invest in shares of ETFs, subject to the
restrictions and limitations of the 1940 Act or any applicable rules, exemptive
orders or regulatory guidance. ETFs are pooled investment vehicles, which may be
managed or unmanaged, that generally seek to track the performance of a specific
index. ETFs will not track their underlying indices precisely since the ETFs
have expenses and may need to hold a portion of their assets in cash, unlike the
underlying indices, and the ETFs may not invest in all of the securities in the
underlying indices in the same proportion as the underlying indices for various
reasons. The Portfolios will incur transaction costs when buying and selling ETF
shares, and indirectly bear the expenses of the ETFs. In addition, the market
value of an ETF's shares, which is based on supply and demand in the market for
the ETF's shares, may differ from its NAV. Accordingly, there may be times when
an ETF's shares trade at a discount to its NAV.
The Portfolios may also invest in investment companies other than
ETFs as permitted by the 1940 Act or the rules and regulations or exemptive
orders thereunder. As with ETF investments, if the Portfolios acquire shares in
other investment companies, shareholders would bear, indirectly, the expenses of
such investment companies (which may include management and advisory fees),
which if not waived or reimbursed in whole or in part, would be in addition to
the Portfolios' expenses. The Portfolios intend to invest uninvested cash
balances in an affiliated money market fund as permitted by Rule 12d1-1 under
the 1940 Act. A Portfolio's investment in other investment companies, including
ETFs, subjects the Portfolio indirectly to the underlying risks of those
investment companies.
Loans of Portfolio Securities
-----------------------------
A Portfolio may seek to increase income by lending portfolio
securities to brokers, dealers, and financial institutions ("borrowers") to the
extent permitted under the 1940 Act or the rules or regulations thereunder (as
such statute, rules, or regulations may be amended from time to time) or by
guidance regarding, interpretations of, or exemptive orders under, the 1940 Act.
Under the securities lending program, all securities loans will be secured
continually by cash collateral. A principal risk in lending portfolio securities
is that the borrower will fail to return the loaned securities upon termination
of the loan, and that the collateral will not be sufficient to replace the
loaned securities upon the borrower's default.
In determining whether to lend securities to a particular borrower,
the Adviser (subject to oversight by the Board) will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. The loans
would be made only to firms deemed by the Adviser to be creditworthy and when,
in the judgment of the Adviser, the consideration that can be earned currently
from securities loans of this type justifies the attendant risk. A Portfolio
will be compensated for the loan from a portion of the net return from the
interest earned on the cash collateral after a rebate paid to the borrower
(which may be a negative amount - i.e., the borrower may pay a fee to the
Portfolio in connection with the loan) and payments for fees paid to the
securities lending agent and for certain other administrative expenses.
A Portfolio will have the right to call a loan and obtain the
securities loaned on notice to the borrower within the normal and customary
settlement time for the securities. While securities are on loan, the borrower
is obligated to pay the Portfolio amounts equal to any income or other
distribution from the securities.
A Portfolio will invest any cash collateral from its securities
lending activities in shares of an affiliated money market fund managed by the
Adviser and approved by the Board. Any such investment of cash collateral will
be subject to the money market fund's investment risk. The Portfolio may pay
reasonable finders', administrative, and custodial fees in connection with a
loan.
A Portfolio will not have the right to vote any securities having
voting rights during the existence of the loan. The Portfolio will have the
right to regain record ownership of loaned securities or equivalent securities
in order to exercise voting or ownership rights. When the Portfolio lends its
securities, its investment performance will continue to reflect the value of
securities on loan.
Mortgage-Related Securities, Other Asset-Backed Securities and
Structured Securities
--------------------------------------------------------------------------------
The mortgage-related securities in which a Portfolio may invest
typically are securities representing interests in pools of mortgage loans made
by lenders such as savings and loan associations, mortgage bankers and
commercial banks and are assembled for sale to investors (such as a Portfolio)
by governmental, government-related or private organizations. Private
organizations include commercial banks, savings associations, mortgage
companies, investment banking firms, finance companies, special purpose finance
entities (called special purpose vehicles or SPVs) and other entities that
acquire and package loans for resales as mortgage-related securities.
Specifically, these securities may include pass-through mortgage-related
securities, collateralized mortgage obligations ("CMOs"), CMO residuals,
adjustable-rate mortgage securities ("ARMS"), stripped mortgage-backed
securities ("SMBSs"), commercial mortgage-backed securities, TBA mortgage-backed
securities, mortgage dollar rolls, collateralized obligations, Canadian
Government Guaranteed Mortgage Related Securities and other securities that
directly or indirectly represent a participation in or are secured by and
payable from mortgage loans on real property and other assets.
Pass-Through Mortgage-Related Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly payments
made by the individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Some mortgage-related securities, such as securities issued by
Government National Mortgage Association ("GNMA"), are described as "modified
pass-through". These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, regardless of
whether or not the mortgagor actually makes the payment.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions. The assumed average life of pools of mortgages having terms of less
than 30 years, is less than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
interest rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of a Portfolio. The compounding
effect from reinvestment of monthly payments received by a Portfolio will
increase the yield to shareholders compared with bonds that pay interest
semi-annually.
The principal governmental (i.e., backed by the full faith and
credit of the U.S. Government) guarantor of mortgage-related securities is GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration-insured or U.S. Department of Veterans
Affairs-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of
the U.S. Government) guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC").
FNMA and FHLMC are a government-sponsored corporation and corporate
instrumentality of the U.S. Government, respectively, (government-sponsored
entities or "GSEs"), which were owned entirely by private stockholders until
2008 when they were placed in conservatorship by the U.S. Government. After
being placed in conservatorship, the GSEs issued senior preferred stock and
common stock to the U.S. Department of the Treasury ("U.S. Treasury") in an
amount equal to 79.9% of each GSE in return for certain funding and liquidity
arrangements. The GSEs continue to operate as going concerns while in
conservatorship and each remains liable for all of its obligations associated
with its mortgage-backed securities. The U.S. Treasury provided additional
funding to the GSEs, but the GSEs have paid dividends to the U.S. Treasury in a
cumulative amount that exceeds the payments made to the GSEs by the U.S.
Treasury since 2008. The future of the GSEs is unclear as Congress is
considering whether to adopt legislation that would severely restrict or even
terminate their operations. FNMA purchases residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA. Participation certificates
issued by FHLMC, which represent interests in mortgages from FHLMC's national
portfolio, are guaranteed by FHLMC as to the timely payment of interest and
ultimate collection of principal.
Commercial banks, savings and loan associations, private mortgage
insurance companies, mortgage bankers and other secondary market issuers create
pass-through pools of conventional residential mortgage loans. Securities
representing interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded.
The structuring of the pass-through pool may also provide credit
enhancement. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to payment of
principal and interest, with the result that defaults on the underlying mortgage
loans are borne first by the holders of the subordinated class); creation of
"reserve funds" (in which case cash or investments sometimes funded from a
portion of the payments on the underlying mortgage loans, are held in reserve
against future losses); and "overcollateralization" (in which case the scheduled
payments on, or the principal amount of, the underlying mortgage loans exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee the credit enhancements, if any, will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.
In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or GSE guaranteed. As a result, the mortgage loans underlying private
mortgage-related securities may, and frequently do, have less favorable
collateral, credit risk or other underwriting characteristics than government or
government-sponsored mortgage-related securities and have wider variances in a
number of terms, including interest rate, term, size, purposes and borrower
characteristics. Privately-issued pools more frequently include second
mortgages, high loan-to-value mortgages and manufactured housing loans. The
coupon rates and maturities of the underlying mortgage loans in a private-label
mortgage-related pool may vary to a greater extent than those included in a
government guaranteed pool, and the pool may include subprime mortgage loans.
Subprime loans refer to loans made to borrowers with weakened credit histories
or with a lower capacity to make timely payments on their loans. For these
reasons, the loans underlying these securities have had in many cases higher
default rates than those loans that meet government underwriting requirements.
Collateralized Mortgage Obligations. Another form of
mortgage-related security is a "pay-through" security, which is a debt
obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche", is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Adjustable-Rate Mortgage Securities. ARMS bear interest at a rate
determined by reference to a predetermined interest rate or index. ARMS may be
secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS secured by
fixed-rate mortgages generally have lifetime caps on the coupon rates of the
securities. To the extent that general interest rates increase faster than the
interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
Stripped Mortgage-Related Securities. Stripped mortgage-related
securities ("SMRS") are mortgage-related securities that are usually structured
with separate classes of securities collateralized by a pool of mortgages or a
pool of mortgage-backed bonds or pass-through securities, with each class
receiving different proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of interest-only
securities (IOs) receiving all of the interest payments from the underlying
assets and one class of principal-only securities (POs) receiving all of the
principal payments from the underlying assets. IOs and POs are extremely
sensitive to interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value as interest
rates decrease and are extremely sensitive to the rate of principal payments
(including prepayments) on the related underlying mortgage assets, and a rapid
rate of principal prepayments may have a material adverse effect on the yield to
maturity of the IO class. POs generally increase in value as interest rates
decrease. If prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool will decrease due
to the decreasing principal balance of the assets. Due to their structure and
underlying cash flows, SMRS may be more volatile than mortgage-related
securities that are not stripped. Changes in the values of IOs and POs can be
substantial and occur quickly, such as occurred in the first half of 1994 when
the value of many POs dropped precipitously due to increases in interest rates.
A Portfolio will only invest in SMRS that are issued by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the U.S. Although SMRS are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
the complexity of these instruments and the smaller number of investors in the
sector can lend to illiquid markets in the sector.
Commercial Mortgage-Backed Securities. Commercial mortgage-backed
securities are securities that represent an interest in, or are secured by,
mortgage loans secured by multifamily or commercial properties, such as
industrial and warehouse properties, office buildings, retail space and shopping
malls, and cooperative apartments, hotels and motels, nursing homes, hospitals
and senior living centers. Commercial mortgage-backed securities have been
issued in public and private transactions by a variety of public and private
issuers using a variety of structures, some of which were developed in the
residential mortgage context, including multi-class structures featuring senior
and subordinated classes. Commercial mortgage-backed securities may pay fixed or
floating rates of interest. The commercial mortgage loans that underlie
commercial mortgage-related securities have certain distinct risk
characteristics. Commercial mortgage loans generally lack standardized terms,
which may complicate their structure, tend to have shorter maturities than
residential mortgage loans and may not be fully amortizing. Commercial
properties themselves tend to be unique and are more difficult to value than
single-family residential properties. In addition, commercial properties,
particularly industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental laws and
regulations.
Certain Risks. The value of mortgage-related securities is affected
by a number of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier than expected as
a result of prepayments of underlying mortgages. Such prepayments generally
occur during periods of falling mortgage interest rates. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will result
in the early payment of the applicable mortgage-related securities. In that
event, a Portfolio may be unable to invest the proceeds from the early payment
of the mortgage-related securities in investments that provide as high a yield
as the mortgage-related securities. Early payments associated with
mortgage-related securities cause these securities to experience significantly
greater price and yield volatility than is experienced by traditional
fixed-income securities. The level of general interest rates, general economic
conditions and other social and demographic factors affect the occurrence of
mortgage prepayments. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, the Portfolio may not be
able to realize the rate of return it expected.
As with other fixed-income securities, there is also the risk of
nonpayment of mortgage-related securities, particularly for those securities
that are backed by mortgage pools that contain subprime loans. Market factors
adversely affecting mortgage loan repayments include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or higher mortgage payments required
to be made by holders of adjustable rate mortgages due to scheduled increases or
increases due to higher interest rates.
Subordinated mortgage-related securities may have additional risks.
The subordinated mortgage-related security may serve as credit support for the
senior securities purchased by other investors. In addition, the payments of
principal and interest on these subordinated securities generally will be made
only after payments are made to the holders of securities senior to the
subordinated securities. Therefore, if there are defaults on the underlying
mortgage loans, the holders of subordinated mortgage-related securities will be
less likely to receive payments of principal and interest and will be more
likely to suffer a loss.
Commercial mortgage-related securities, like all fixed-income
securities, generally decline in value as interest rates rise. Moreover,
although generally the value of fixed-income securities increases during periods
of falling interest rates, this inverse relationship is not as marked in the
case of single-family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling interest rates,
and may not be as marked in the case of commercial mortgage-related securities.
The process used to rate commercial mortgage-related securities may focus on,
among other factors, the structure of the security, the quality and adequacy of
collateral and insurance, and the creditworthiness of the originators, servicing
companies and providers of credit support.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private organizations may not be
readily marketable. There may be a limited market for these securities,
especially when there is a perceived weakness in the mortgage and real estate
market sectors. In particular, the secondary markets for CMOs, IOs and POs may
be more volatile and less liquid than those for other mortgage-related
securities, thereby potentially limiting a Portfolio's ability to buy or sell
those securities at any particular time. Without an active trading market,
mortgage-related securities held in the Portfolio's portfolio may be
particularly difficult to value because of the complexities involved in the
value of the underlying mortgages. In addition, the rating agencies may have
difficulties in rating commercial mortgage-related securities through different
economic cycles and in monitoring such ratings on a longer-term basis.
As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such securities. Such
an adverse effect is especially possible with fixed-rate mortgage securities. If
the yield available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline.
GSE Risk-Sharing Bonds. Another type of mortgage-related security,
known as GSE Risk-Sharing Bonds or Credit Risk Transfer securities ("CRTs"),
transfers a portion of the risk of borrower defaults from the issuing GSE to
investors through the issuance of a bond whose return of principal is linked to
the performance of a selected pool of mortgages. CRTs are issued by GSEs (and
sometimes banks or mortgage insurers) and structured without any government or
GSE guarantee in respect of borrower defaults or underlying collateral.
Typically, CRTs are issued at par and have stated final maturities. CRTs are
structured so that: (i) interest is paid directly by the issuing GSE and (ii)
principal is paid by the issuing GSE in accordance with the principal payments
and default performance of a certain pool of residential mortgage loans acquired
by the GSE.
The risks associated with an investment in CRTs differ from the
risks associated with an investment in mortgage-backed securities issued by GSEs
because, in CRTs, some or all of the credit risk associated with the underlying
mortgage loans is transferred to the end-investor. As a result, in the event
that a GSE fails to pay principal or interest on a CRT or goes through
bankruptcy, insolvency or similar proceeding, holders of such CRT have no direct
recourse to the underlying mortgage loans.
Other Asset-Backed Securities. A Portfolio may invest in other
asset-backed securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. For
example, a Portfolio may invest in collateralized debt obligations ("CDOs"),
which include collateralized bond obligations ("CBOs"), collateralized loan
obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs
are types of asset-backed securities. A CBO is a trust, which is backed by a
diversified pool of high-risk, below investment grade fixed-income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. These asset-backed securities are
subject to risks associated with changes in interest rates, prepayment of
underlying obligations and defaults similar to the risks of investment in
mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks
depending on the type of assets involved and the legal structure used. For
example, credit card receivables are generally unsecured obligations of the
credit card holder and the debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There have also been proposals to cap the interest rate that a
credit card issuer may charge. In some transactions, the value of the
asset-backed security is dependent on the performance of a third party acting as
credit enhancer or servicer. Furthermore, in some transactions (such as those
involving the securitization of vehicle loans or leases) it may be
administratively burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may become damaged or
stolen.
Structured Securities. A Portfolio may invest in securities issued
in structured financing transactions, which generally involve aggregating types
of debt assets in a pool or special purpose entity and then issuing new
securities. Types of structured financings include, for example,
mortgage-related and other asset-backed securities. A Portfolio's investments
include investments in structured securities that represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of debt obligations. This type of restructuring
involves the deposit with or purchase by an entity, such as a corporation or
trust, of specified instruments (such as commercial bank loans) and the issuance
by that entity of one or more classes of securities ("Structured Securities")
backed by, or representing interests in, the underlying instruments. The cash
flow on the underlying instruments may be apportioned among the newly issued
Structured Securities to create securities with different investment
characteristics such as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to Structured
Securities is dependent on the extent of the cash flow on the underlying
instruments. Because Structured Securities of the type in which a Portfolio
anticipates it will invest typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments.
A Portfolio is permitted to invest in a class of Structured
Securities that is either subordinated or unsubordinated to the right of payment
of another class. Subordinated Structured Securities typically have higher
yields and present greater risks than unsubordinated Structured Securities.
Under the terms of subordinated securities, payments that would be
made to their holders may be required to be made to the holders of more senior
securities and/or the subordinated or junior securities may have junior liens,
if they have any rights at all, in any collateral (meaning proceeds of the
collateral are required to be paid first to holders of more senior securities).
As a result, subordinated or junior securities will be disproportionately
affected by a default or even a perceived decline in the creditworthiness of the
issuer.
Preferred Stock
---------------
A Portfolio may invest in preferred stock. Preferred stock is an
equity security that has features of debt because it generally entitles the
holder to periodic payments at a fixed rate of return. Preferred stock is
subordinated to any debt the issuer has outstanding but has liquidation
preference over common stock. Accordingly, preferred stock dividends are not
paid until all debt obligations are first met. Preferred stock may be subject to
more fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer.
Real Estate Investment Trusts
-----------------------------
Real Estate Investment Trusts ("REITs") are pooled investment
vehicles that invest primarily in income-producing real estate or real estate
related loans or interests. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs. Equity REITs
invest the majority of their assets directly in real property and derive income
primarily from the collection of rents. Equity REITs can also realize capital
gains by selling properties that have appreciated in value. Mortgage REITs
invest the majority of their assets in real estate mortgages and derive income
from the collection of principal and interest and payments. Similar to
investment companies, such as the Portfolios, REITs are not taxed on income
distributed to shareholders provided they comply with several requirements of
the United States Internal Revenue Code of 1986, as amended (the "Code"). A
Portfolio will indirectly bear its proportionate share of expenses incurred by
REITs in which the Portfolio invests in addition to the expenses incurred
directly by the Portfolio.
Investing in REITs involves certain unique risks in addition to
those risks associated with investing in the real estate industry in general.
Equity REITs may be affected by changes in the value of the underlying property
owned by the REITs, while mortgage REITs may be affected by the quality of any
credit extended. REITs are dependent upon management skills, are not
diversified, and are subject to heavy cash flow dependency, default by borrowers
and self-liquidation.
Investing in REITs involves risks similar to those associated with
investing in small-capitalization companies. REITs may have limited financial
resources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities.
Historically, small-capitalization stocks, such as REITs, have had more price
volatility than larger capitalization stocks.
REITs are subject to the possibilities of failing to qualify for
tax-free pass-through of income under the Code and failing to maintain their
exemptions from registration under the 1940 Act. REITs (especially mortgage
REITs) also are subject to interest rate risks. When interest rates decline, the
value of a REIT's investment in fixed-rate obligations can be expected to rise.
Conversely, when interest rates rise, the value of a REIT's investment in
fixed-rate obligations can be expected to decline. In contrast, as interest
rates on adjustable-rate mortgage loans are reset periodically, yields on a
REIT's investments in such loans will gradually align themselves to reflect
changes in market interest rates, causing the value of such investments to
fluctuate less dramatically in response to interest rate fluctuations than would
investments in fixed-rate obligations.
Repurchase Agreements and Buy/Sell Back Transactions
----------------------------------------------------
A repurchase agreement is an agreement by which a Portfolio
purchases a security and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed-upon price and date, normally one day or a
week later. The purchase and repurchase obligations are transacted under one
document. The resale price is greater than the purchase price, reflecting an
agreed-upon "interest rate" that is effective for the period of time the buyer's
money is invested in the security, and which is related to the current market
rate of the purchased security rather than its coupon rate. During the term of a
repurchase agreement, a Portfolio monitors on a daily basis the market value of
the securities subject to the agreement and, if the market value of the
securities falls below the resale amount provided under the repurchase
agreement, the seller under the repurchase agreement is required to provide
additional securities or cash equal to the amount by which the market value of
the securities falls below the resale amount. Because a repurchase agreement
permits a Portfolio to invest temporarily available cash on a
fully-collateralized basis, repurchase agreements permit the Portfolio to earn a
return on temporarily available cash while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. Repurchase agreements may
exhibit the characteristics of loans by a Portfolio.
The obligation of the seller under the repurchase agreement is not
guaranteed, and there is a risk that the seller may fail to repurchase the
underlying security, whether because of the seller's bankruptcy or otherwise. In
such event, a Portfolio would attempt to exercise its rights with respect to the
underlying security, including possible sale of the securities. A Portfolio may
incur various expenses in connection with the exercise of its rights and may be
subject to various delays and risks of loss, including (a) possible declines in
the value of the underlying securities, (b) possible reduction in levels of
income and (c) lack of access to the securities (if they are held through a
third-party custodian) and possible inability to enforce the Portfolio's rights.
The Board has established procedures, which are periodically reviewed by the
Board, pursuant to which the Adviser monitors the creditworthiness of the
dealers with which the Portfolio enters into repurchase agreement transactions.
A Portfolio may enter into buy/sell back transactions, which are
similar to repurchase agreements. In this type of transaction, a Portfolio
enters a trade to buy securities at one price and simultaneously enters a trade
to sell the same securities at another price on a specified date. Similar to a
repurchase agreement, the repurchase price is higher than the sale price and
reflects current interest rates. Unlike a repurchase agreement, however, the
buy/sell back transaction, though done simultaneously, constitutes two separate
legal agreements. A buy/sell back transaction also differs from a repurchase
agreement in that the seller is not required to provide margin payments if the
value of the securities falls below the repurchase price because the transaction
constitutes two separate transactions. A Portfolio has the risk of changes in
the value of the purchased security during the term of the buy/sell back
agreement although these agreements typically provide for the repricing of the
original transaction at a new market price if the value of the security changes
by a specific amount.
Reverse Repurchase Agreements
-----------------------------
Reverse repurchase agreements are identical to repurchase agreements
except that rather than buying securities for cash subject to their repurchase
by the seller, a Portfolio sells portfolio assets concurrently with an agreement
by the Portfolio to repurchase the same assets at a later date at a fixed price
slightly higher than the sale price. During the reverse repurchase agreement
period, the Portfolio continues to receive principal and interest payments on
these securities. Generally, the effect of a reverse repurchase agreement is
that the Portfolio can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
it will be able to keep the interest income associated with those portfolio
securities. Such transactions are advantageous only if the "interest cost" to
the Portfolio of the reverse repurchase transaction, i.e., the difference
between the sale and repurchase price for the securities, is less than the cost
of otherwise obtaining the cash.
Reverse repurchase agreements involve the risk that the market value
of the securities the Portfolio is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement files for bankruptcy or becomes insolvent,
the Portfolio's use of the proceeds of the agreement may be restricted pending a
determination by the other party, or its trustee or receiver, whether to enforce
the Portfolio's obligation to repurchase the securities. In addition, the use of
these investments results in leveraging the Portfolio's common stocks because
the Portfolio uses the proceeds to make investments in other securities. See
"Borrowing and Use of Leverage" below.
Rights and Warrants
-------------------
A Portfolio may invest in rights and warrants, which entitle the
holder to buy equity securities at a specific price for a specific period of
time but will do so only if the equity securities themselves are deemed
appropriate by the Adviser for inclusion in the Portfolio's portfolio. Rights
and warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the underlying securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also, the value of a
right or warrant does not necessarily change with the value of the underlying
securities and a right or warrant ceases to have value if it is not exercised
prior to the expiration date.
Securities Acquired in Restructurings and Workouts
--------------------------------------------------
A Portfolio's investments may include fixed-income securities
(particularly lower-rated fixed-income securities) or loan participations that
default or are in risk of default ("Distressed Securities"). A Portfolio's
investments may also include senior obligations of a borrower issued in
connection with a restructuring pursuant to Chapter 11 of the U.S. Bankruptcy
Code (commonly known as "debtor-in-possession" or "DIP" financings). Distressed
Securities may be the subject of restructurings outside of bankruptcy court in a
negotiated workout or in the context of bankruptcy proceedings. In connection
with these investments or an exchange or workout of such securities, a Portfolio
may determine or be required to accept various instruments. These instruments
may include, but are not limited to, equity securities, warrants, rights,
participation interests in sales of assets and contingent-interest obligations.
Depending upon, among other things, the Adviser's evaluation of the potential
value of such securities in relation to the price that could be obtained at any
given time if they were sold, a Portfolio may determine to hold the securities
in its portfolio.
Securities Ratings
------------------
The ratings of fixed-income securities by Moody's Investors Service,
Inc. ("Moody's"), S&P Global Ratings ("S&P") Fitch Ratings ("Fitch") and A.M.
Best Company are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
Securities rated Baa, BBB+, BBB, or BBB- by S&P or Baa1, Baa2 or
Baa3 by Moody's are considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising interest rates
are more likely to lead to a weakening in the issuer's capacity to pay interest
and repay principal than in the case of higher-rated securities.
Non-rated securities will also be considered for investment by a
Portfolio when the Adviser believes that the financial condition of the issuers
of such securities, or the protection afforded by the terms of the securities
themselves, limits the risk to a Portfolio to a degree comparable to that of
rated securities which are consistent with a Portfolio's objectives and
policies.
The Adviser generally uses ratings issued by S&P, Moody's and Fitch.
Some securities are rated by more than one of these ratings agencies, and the
ratings assigned to the security by the rating agencies may differ. In such an
event and for purposes of determining compliance with restrictions on
investments for the Portfolios, if a security is rated by two or more rating
agencies, the Adviser will deem the security to be rated at the highest rating.
For example, if a security is rated by Moody's and S&P only, with Moody's rating
the security as Ba and S&P as BBB, the Adviser will deem the security to be
rated as the equivalent of BBB (i.e., Baa by Moody's and BBB by S&P). Or, if a
security is rated by Moody's, S&P and Fitch, with Moody's rating the security as
Ba, S&P as BBB and Fitch as BB, the Adviser will deem the security to be rated
as the equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P and BBB by Fitch).
The Adviser will try to reduce the risk inherent in a Portfolio's
investment in fixed-income securities through credit analysis, diversification
and attention to current developments and trends in interest rates and economic
conditions. However, there can be no assurance that losses will not occur. In
considering high-yielding investments for a Portfolio, the Adviser will attempt
to identify those fixed-income securities whose financial condition is adequate
to meet future obligations, has improved or is expected to improve in the
future. The Adviser's analysis focuses on relative values based on such factors
as interest or dividend coverage, asset coverage earnings prospects and the
experience and managerial strength of the issuer.
Unless otherwise indicated, references to securities ratings by one
rating agency in this SAI shall include the equivalent rating by another rating
agency.
Short Sales
-----------
A Portfolio may make short sales of securities or maintain a short
position. A short sale is effected by selling a security that a Portfolio does
not own, or if the Portfolio does own such security, it is not to be delivered
upon consummation of sale. A short sale is against the box to the extent that a
Portfolio contemporaneously owns or has the right to obtain securities identical
to those sold. A short sale of a security involves the risk that, instead of
declining, the price of the security sold short will rise. If the price of the
securities sold short increases between the time of a short sale and the time a
Portfolio replaces the borrowed security, the Portfolio will incur a loss;
conversely, if the price declines, the Portfolio will realize a gain. The
potential for the price of a fixed-income security sold short to rise is a
function of both the remaining maturity of the obligation, its creditworthiness
and its yield. Unlike short sales of equities or other instruments, potential
for the price of a fixed-income security to rise may be limited due to the fact
that the security will be no more than par at maturity. However, the short sale
of other instruments or securities generally, including fixed-income securities
convertible into equities or other instruments, a fixed-income security trading
at a deep discount from par or which pays a coupon that is high in relative or
absolute terms, or which is denominated in a currency other than the U.S.
Dollar, involves the possibility of a theoretically unlimited loss since there
is a theoretically unlimited potential for the market price of the security sold
short to increase.
Special Situations
------------------
A special situation arises when, in the opinion of the Adviser, the
securities of a particular company will, within a reasonably estimable period of
time, be accorded market recognition at an appreciated value solely by reason of
a development particularly or uniquely applicable to that company, and
regardless of general business conditions or movements of the market as a whole.
Developments creating special situations might include, among others,
liquidations, reorganizations, recapitalizations or mergers, material
litigation, technological breakthroughs and new management or management
policies. Although large and well-known companies may be involved, special
situations often involve much greater risk than is inherent in ordinary
investment securities.
Standby Commitment Agreements
-----------------------------
A Portfolio may, from time to time, enter into standby commitment
agreements. Such agreements commit a Portfolio, for a stated period of time, to
purchase a stated amount of a security that may be issued and sold to the
Portfolio at the option of the issuer. The price and coupon of the security are
fixed at the time of the commitment. At the time of entering into the agreement
a Portfolio is paid a commitment fee, regardless of whether or not the security
is ultimately issued. A Portfolio will enter into such agreements only for the
purpose of investing in the security underlying the commitment at a yield and
price which are considered advantageous to the Portfolio and which are
unavailable on a firm commitment basis.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, a
Portfolio will bear the risk of capital loss in the event the value of the
security declines and may not benefit from an appreciation in the value of the
security during the commitment period if the issuer decides not to issue and
sell the security to the Portfolio.
The purchase of a security subject to a standby commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued, and the value of the security
will thereafter be reflected in the calculation of a Portfolio's NAV. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Structured Products
-------------------
A Portfolio may invest in structured products. Structured products,
including indexed or structured securities, combine the elements of futures
contracts or options with those of debt, preferred equity or a depositary
instrument. Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a structured product is tied (either positively
or negatively) to prices, changes in prices, or differences between prices, of
underlying assets, such as securities, currencies, intangibles, goods, articles
or commodities or by reference to an unrelated benchmark related to an objective
index, economic factor or other measure, such as interest rates, currency
exchange rates, commodity indices, and securities indices. The interest rate or
(unlike most fixed-income securities) the principal amount payable at maturity
of a structured product may be increased or decreased depending on changes in
the value of the underlying asset or benchmark.
Structured products may take a variety of forms. Most commonly, they
are in the form of debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, but may also be issued as
preferred stock with dividend rates determined by reference to the value of a
currency or convertible securities with the conversion terms related to a
particular commodity.
Investing in structured products may be more efficient and less
expensive for a Portfolio than investing in the underlying assets or benchmarks
and the related derivative. These investments can be used as a means of pursuing
a variety of investment goals, including currency hedging, duration management
and increased total return. In addition, structured products may be a
tax-advantaged investment in that they generate income that may be distributed
to shareholders as income rather than short-term capital gains that may
otherwise result from a derivatives transaction.
Structured products, however, have more risk than traditional types
of debt or other securities. These products may not bear interest or pay
dividends. The value of a structured product or its interest rate may be a
multiple of a benchmark and, as a result, may be leveraged and move (up or down)
more steeply and rapidly than the benchmark. Under certain conditions, the
redemption value of a structured product could be zero. Structured products are
potentially more volatile and carry greater market risks than traditional debt
instruments. The prices of the structured instrument and the benchmark or
underlying asset may not move in the same direction or at the same time.
Structured products may be less liquid and more difficult to price than less
complex securities or instruments or more traditional debt securities. The risk
of these investments can be substantial with the possibility that the entire
principal amount is at risk. The purchase of structured products also exposes a
Portfolio to the credit risk of the issuer of the structured product.
Structured Notes and Indexed Securities: A Portfolio may invest in a
particular type of structured instrument sometimes referred to as a "structured
note". The terms of these notes may be structured by the issuer and the
purchaser of the note. Structured notes are derivative debt instruments, the
interest rate or principal of which is determined by an unrelated indicator (for
example, a currency, security, commodity or index thereof). Indexed securities
may include structured notes as well as securities other than debt securities,
the interest rate or principal of which is determined by an unrelated indicator.
The terms of structured notes and indexed securities may provide that in certain
circumstances no principal is due at maturity, which may result in a total loss
of invested capital. Structured notes and indexed securities may be positively
or negatively indexed, so that appreciation of the unrelated indicator may
produce an increase or a decrease in the interest rate or the value of the
structured note or indexed security at maturity may be calculated as a specified
multiple of the change in the value of the unrelated indicator. Therefore, the
value of such notes and securities may be very volatile. Structured notes and
indexed securities may entail a greater degree of market risk than other types
of debt securities because the investor bears the risk of the unrelated
indicator. Structured notes or indexed securities also may be more volatile,
less liquid, and more difficult to accurately price than less complex securities
and instruments or more traditional debt securities.
Commodity Index-Linked Notes and Commodity-Linked Notes: Structured
products may provide exposure to the commodities markets. These structured notes
may include leveraged or unleveraged commodity index-linked notes, which are
derivative debt instruments with principal and/or coupon payments linked to the
performance of commodity indices. They also include commodity-linked notes with
principal and/or coupon payments linked to the value of particular commodities
or commodities futures contracts, or a subset of commodities and commodities
future contracts. The value of these notes will rise or fall in response to
changes in the underlying commodity, commodity futures contract, subset of
commodities or commodities futures contracts or commodity index. These notes
expose a Portfolio economically to movements in commodity prices. These notes
also are subject to risks, such as credit, market and interest rate risks, that
in general affect the values of debt securities. In addition, these notes are
often leveraged, increasing the volatility of each note's market value relative
to changes in the underlying commodity, commodity futures contract or commodity
index. Therefore, a Portfolio might receive interest or principal payments on
the note that are determined based upon a specified multiple of the change in
value of the underlying commodity, commodity futures contract or index.
Credit-Linked Securities: Credit-linked securities are issued by a
limited purpose trust or other vehicle that, in turn, invests in a basket of
derivative instruments, such as credit default swaps, interest rate swaps and
other securities, in order to provide exposure to certain high-yield or other
fixed-income markets. For example, a Portfolio may invest in credit-linked
securities as a cash management tool in order to gain exposure to certain
high-yield markets and/or to remain fully invested when more traditional
income-producing securities are not available. Like an investment in a bond,
investments in credit-linked securities represent the right to receive periodic
income payments (in the form of distributions) and payment of principal at the
end of the term of the security. However, these payments are conditioned on the
trust's receipt of payments from, and the trust's potential obligations to, the
counterparties to the derivative instruments and other securities in which the
trust invests. For instance, the trust may sell one or more credit default
swaps, under which the trust would receive a stream of payments over the term of
the swap agreements provided that no event of default has occurred with respect
to the referenced debt obligation upon which the swap is based. If a default
occurs, the stream of payments may stop and the trust would be obligated to pay
the counterparty the par value (or other agreed-upon value) of the referenced
debt obligation. This, in turn, would reduce the amount of income and principal
that a Portfolio would receive as an investor in the trust. A Portfolio's
investments in these instruments are indirectly subject to the risks associated
with derivative instruments, including, among others, credit risk, default or
similar event risk, counterparty risk, interest rate risk, and leverage risk and
management risk. These securities are generally structured as Rule 144A
Securities so that they may be freely traded among institutional buyers.
However, changes in the market for credit-linked securities or the availability
of willing buyers may result in the securities becoming illiquid.
Trust Preferred Securities
--------------------------
Trust preferred securities are preferred securities typically issued
by a special purpose trust subsidiary and backed by subordinated debt of that
subsidiary's parent corporation. Unlike typical asset-backed securities, which
have many underlying payors and usually are overcollateralized, trust preferred
securities have only one underlying payor and are not overcollateralized. Trust
preferred securities may have varying maturity dates, at times in excess of 30
years, or may have no specified maturity date with an onerous interest rate
adjustment if not called on the first call date. Dividend payments of the trust
preferred securities generally coincide with interest payments on the underlying
subordinated debt. Issuers of trust preferred securities and their parents
currently enjoy favorable tax treatment. If the tax characterization of trust
preferred securities were to change, they could be redeemed by the issuers,
resulting in a loss to a Portfolio. Trust preferred securities are subject to
special risks. Dividend payments only will be paid if interest payments on the
underlying obligations are made. These interest payments are dependent on the
financial condition of the parent corporation and may be deferred for up to 20
consecutive quarters. There is also the risk that the underlying obligations,
and thus the trust preferred securities, may be prepaid after a stated call date
or as a result of certain tax or regulatory events, resulting in a lower yield
to maturity.
U.S. Government Securities
--------------------------
U.S. Government securities may be backed by the full faith and
credit of the United States, supported only by the right of the issuer to borrow
from the U.S. Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S. Treasury securities,
which are backed by the full faith and credit of the United States and differ
only in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less with no interest paid and hence issued at
a discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and U.S.
Treasury bonds (generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that are supported by the full faith
and credit of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Small
Business Administration, including obligations that are issued by private
issuers that are guaranteed as to principal or interest by the U.S. Government,
its agencies or instrumentalities; and (iii) obligations issued or guaranteed by
U.S. Government agencies and instrumentalities that are not supported by the
full faith and credit of the U.S. Government or a right to borrow from the U.S.
Treasury, such as securities issued by the FNMA and FHLMC, and governmental
CMOs. The maturities of the U.S. Government securities listed in paragraphs (i)
and (ii) above usually range from three months to 30 years. Such securities,
except GNMA certificates, normally provide for periodic payments of interest in
fixed amount with principal payments at maturity or specified call dates.
U.S. Government securities also include zero-coupon securities and
principal-only securities and certain SMRS. Zero-coupon securities are described
in more detail in "Zero-Coupon Treasury Securities" below, and SMRS and
principal-only securities are described in more detail in "Mortgage-Related
Securities and Other Asset-Backed Securities-Stripped Mortgage-Related
Securities" above. In addition, other U.S. Government agencies and
instrumentalities have issued stripped securities that are similar to SMRS.
Inflation-protected securities, or IPS, such as Treasury
Inflation-Protected Securities, or TIPS, are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If
the index measuring inflation falls, the principal value of these securities
will be adjusted downward, and consequently the interest payable on these
securities (calculated with respect to a smaller principal amount) will be
reduced. Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation-protected
securities. For bonds that do not provide a similar guarantee, the adjusted
principal value of the bond repaid at maturity may be less than the original
principal.
IPS tend to react to changes in real interest rates. In general, the
price of these securities can fall when real interest rates rise, and can rise
when real interest rates fall. In addition, the value of these securities may be
vulnerable to changes in expectations of inflation. Interest payments on these
securities can be unpredictable and will vary as the principal and/or interest
is adjusted for inflation.
TIPS, which are issued by the U.S Treasury, use the Consumer Price
Index for Urban Consumers, or the CPI, as the inflation measure. The principal
of TIPS increases with inflation and decreases with deflation, as measured by
the CPI. When TIPS mature, the holder is paid the adjusted principal or original
principal, whichever is greater. TIPS pay interest twice a year, at a fixed
rate, which is determined by auction at the time the TIPS are issued. The rate
is applied to the adjusted principal; so, like the principal, interest payments
rise with inflation and fall with deflation. TIPS are issued in terms of 5, 10,
and 30 years.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of the Portfolio that holds the securities.
U.S. Government securities are considered among the safest of
fixed-income investments. As a result, however, their yields are generally lower
than the yields available from other fixed-income securities.
Zero-Coupon Treasury Securities. Zero-coupon Treasury securities are
U.S. Treasury bills, notes and bonds which have been stripped of their unmatured
interest coupons and receipts or certificates representing interests in such
stripped debt obligations and coupons. A zero-coupon security is a debt
obligation that does not entitle the holder to any periodic payments prior to
maturity but, instead, is issued and traded at a discount from its face amount.
The discount varies depending on the time remaining until maturity, prevailing
interest rates, liquidity of the security and perceived credit quality of the
issuer. The market prices of zero-coupon securities are generally more volatile
than those of interest-bearing securities, and are likely to respond to changes
in interest rates to a greater degree than otherwise comparable securities that
do pay periodic interest. Current federal tax law requires that a holder (such
as a Portfolio) of a zero-coupon security accrue a portion of the discount at
which the security was purchased as income each year, even though the holder
receives no interest payment on the security during the year. As a result, in
order to make the distributions necessary for a Portfolio not to be subject to
federal income or excise taxes, the Portfolio might be required to pay out as an
income distribution each year an amount, obtained by liquidation of portfolio
securities if necessary, greater than the total amount of cash that the
Portfolio has actually received as interest during the year. The Adviser
believes, however, that it is highly unlikely that it would be necessary to
liquidate any portfolio securities for this purpose.
Currently the only U.S. Treasury security issued without coupons is
the Treasury bill. Although the U.S. Treasury does not itself issue treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS program interest
and principal on certain long term treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately traded
and owned. However, in the last few years a number of banks and brokerage firms
have separated ("stripped") the principal portions ("corpus") from the coupon
portions of the U.S. Treasury bonds and notes and sold them separately in the
form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account).
Variable, Floating and Inverse Floating-Rate Securities
-------------------------------------------------------
These securities have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Although the rate adjustment feature may act as a buffer to reduce sharp
changes in the value of these securities, they are still subject to changes in
value based on changes in market interest rates or changes in the issuer's
creditworthiness. Because the interest rate is reset only periodically, changes
in the interest rate on these securities may lag behind changes in prevailing
market interest rates. Also, some of these securities (or the underlying
mortgages) are subject to caps or floors that limit the maximum change in the
interest rate during a specified period or over the life of the security.
Variable Notes
--------------
Variable amount master demand notes and variable amount
floating-rate notes are obligations that permit the investment of fluctuating
amounts by a Portfolio at varying rates of interest pursuant to direct
arrangements between the Portfolio, as lender, and the borrower. Master demand
notes permit daily fluctuations in the interest rate while the interest rate
under variable amount floating rate notes fluctuate on a weekly basis. These
notes permit daily changes in the amounts borrowed. A Portfolio has the right to
increase the amount under these notes at any time up to the full amount provided
by the note agreement, or to decrease the amount, and the borrower may repay up
to the full amount of the notes without penalty. Because these types of notes
are direct lending arrangements between the lender and the borrower, it is not
generally contemplated that such instruments will be traded and there is no
secondary market for these notes. Master demand notes are redeemable (and, thus,
immediately repayable by the borrower) at face value plus accrued interest at
any time. Variable amount floating-rate notes are subject to next-day redemption
for 14 days after the initial investment therein. With both types of notes,
therefore, a Portfolio's right to redeem depends on the ability of the borrower
to pay principal and interest on demand. In connection with both types of note
arrangements, the Portfolio considers earning power, cash flow and other
liquidity ratios of the issuer. These notes, as such, are not typically rated by
credit rating agencies. Unless they are so rated, a Portfolio may invest in them
only if, at the time of an investment, the issuer has an outstanding issue of
unsecured debt rated Aa3 or better by Moody's or AA- or better by S&P or Fitch.
General
-------
The Fund has voluntarily agreed that each Portfolio with the ability
to invest in foreign issuers will adhere to the foreign security diversification
guidelines promulgated by certain State Insurance Departments. Pursuant to these
guidelines, each such Portfolio will invest in issuers from a minimum of five
different foreign countries. This minimum will be reduced to four different
foreign countries when securities of foreign issuers comprise less than 80% of
the Portfolio's NAV, three different foreign countries when securities of
foreign issuers comprise less than 60% of the Portfolio's NAV, two different
foreign countries when securities of foreign issuers comprise less than 40% of
the Portfolio's NAV and one foreign country when securities of foreign issuers
comprise less than 20% of the Portfolio's NAV. The Fund has also voluntarily
agreed that each Portfolio that may invest in securities of foreign issuers will
limit its investment in the securities of issuers located in any one country to
20% of the Portfolio's NAV, except that the Portfolio may have an additional 15%
of its NAV invested in securities of issuers located in Australia, Canada,
France, Japan, the United Kingdom ("UK") or Germany.
In addition, the Fund has adopted an investment policy, which is not
designated a "fundamental policy" within the meaning of the 1940 Act, of
intending to have each Portfolio comply at all times with the diversification
requirements prescribed in Section 817(h) of the Code or any successor thereto
and the applicable Treasury Regulations thereunder. This policy may be changed
upon notice to shareholders of the Fund, but without their approval. For more
information, see "Dividends, Distributions and Taxes" below.
Certain Risk and Other Considerations
-------------------------------------
Borrowing and Use of Leverage. A Portfolio may use borrowings for
investment purposes, subject to the restrictions of the 1940 Act. Borrowings by
a Portfolio result in leveraging of the Portfolio's shares of common stock. The
proceeds of such borrowings will be invested in accordance with the Portfolio's
investment objective and policies. A Portfolio may also create leverage through
the use of derivatives or use leverage for investment purposes by entering into
transactions such as reverse repurchase agreements and forward contracts. This
means that the Portfolio uses the cash proceeds made available during the term
of these transactions to make investments in other securities.
Utilization of leverage, which is usually considered speculative,
however, involves certain risks to a Portfolio's shareholders. These include a
higher volatility of the NAV of a Portfolio's shares of common stock and the
relatively greater effect of changes in the value of the Portfolio's portfolio
on the NAV of the shares caused by favorable or adverse changes in market
conditions or interest rates. So long as a Portfolio is able to realize a net
return on the leveraged portion of its investment portfolio that is higher than
the interest expense paid on borrowings or the carrying costs of leveraged
transactions, the effect of leverage will be to cause a Portfolio's shareholders
to realize a higher net return than if the Portfolio were not leveraged.
However, to the extent that the interest expense on borrowings or the carrying
costs of leverage approaches the net return on the leveraged portion of a
Portfolio's investment portfolio, the benefit of leverage to a Portfolio's
shareholders will be reduced, and if the interest expense on borrowings or
carrying costs of leverage were to exceed the net return to shareholders, a
Portfolio's use of leverage would result in a lower rate of return than if the
Portfolio were not leveraged. Similarly, the effect of leverage in a declining
market could be a greater decrease in NAV per share than if a Portfolio were not
leveraged. In an extreme case, if a Portfolio's current investment income were
not sufficient to meet the interest expense on borrowings or the carrying costs
of leveraged transactions, it could be necessary for the Portfolio to liquidate
certain of its investments in adverse circumstances, potentially significantly
reducing its NAV.
Certain transactions, such as derivatives transactions, forward
commitments, reverse repurchase agreements and short sales involve leverage and
may expose a Portfolio to potential losses that, in some cases, may exceed the
amount originally invested by the Portfolio. When a Portfolio engages in such
transactions, it will, in accordance with guidance provided by the SEC or its
staff in, among other things, regulations, interpretative releases and no-action
letters, deposit in a segregated account certain liquid assets with a value at
least equal to the Portfolio's exposure, on a marked-to-market or on another
relevant basis, to the transaction. Transactions for which assets have been
segregated will not be considered "senior securities" for purposes of the
Portfolio's investment restriction concerning senior securities. The segregation
of assets is intended to enable the Portfolio to have assets available to
satisfy its obligations with respect to these transactions, but will not limit
the Portfolio's exposure to loss. As noted above under "Risks of Derivatives and
Other Regulatory Issues - Regulatory Risk", the SEC has recently proposed a rule
regarding derivatives and similar transactions. The proposed rule would replace
the SEC's guidance on asset segregation with new standardized requirements that
may, if adopted, limit the Portfolio's flexibility to enter into these
transactions by increasing asset segregation amounts.
Cyber Security Risk. As the use of the Internet and other
technologies has become more prevalent in the course of business, the Portfolios
and their service providers, including the Adviser, have become more susceptible
to operational and financial risks associated with cyber security. Cyber
security incidents can result from deliberate attacks such as gaining
unauthorized access to digital systems (e.g., through "hacking" or malicious
software coding) for purposes of misappropriating assets or sensitive
information, corrupting data, or causing operational disruption, or from
unintentional events, such as the inadvertent release of confidential
information. Cyber security failures or breaches of the Portfolios or their
service providers or the issuers of securities in which the Portfolios invest
have the ability to cause disruptions and affect business operations,
potentially resulting in financial losses, the inability of Portfolio
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, reputational damage, reimbursement or other compensation
costs, and/or additional compliance costs. While measures have been developed
that are designed to reduce the risks associated with cyber security, there is
no guarantee that those measures will be effective, particularly since the
Portfolios do not control the cyber security defenses or plans of their service
providers, financial intermediaries and companies in which they invest or with
which they do business.
Real Estate Investments
-----------------------
If a Portfolio, including, in particular, the Real Estate Investment
Portfolio, receives rental income or income from the disposition of real
property acquired as a result of a default on securities the Portfolio owns, the
receipt of such income may adversely affect the Portfolio's ability to retain
its tax status as a regulated investment company. Investments by the Real Estate
Investment Portfolio in securities of companies providing mortgage servicing
will be subject to the risks associated with refinancings and their impact on
servicing rights.
Risks of Investments in Foreign Securities
------------------------------------------
Investors should understand and consider carefully the substantial
risks involved in securities of foreign companies and governments of foreign
nations, some of which are referred to below, and which are in addition to the
usual risks inherent in domestic investments. Investing in securities of
non-U.S. companies, which are generally denominated in foreign currencies, and
utilization of derivative investment products denominated in, or the value of
which is dependent upon movements in the relative value of, a foreign currency,
involve certain considerations comprising both risk and opportunity not
typically associated with investing in U.S. companies. These considerations
include changes in exchange rates and exchange control regulations, political
and social instability, expropriation, imposition of foreign taxes, less liquid
markets and less available information than are generally the case in the United
States, higher transaction costs, less government supervision of exchanges,
brokers and issuers, difficulty in enforcing contractual obligations, lack of
uniform accounting and auditing standards and greater price volatility.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign issuers are subject to accounting and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits appearing on
the financial statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statement been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules in some of the countries in which
a Portfolio may invest require, for both tax and accounting purposes, that
certain assets and liabilities be restated on the issuer's balance sheet in
order to express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits. Consequently,
financial data may be materially affected by restatements for inflation and may
not accurately reflect the real condition of those issuers and securities
markets. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
It is contemplated that foreign securities will be purchased in OTC
markets or on stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign securities markets are generally not as
developed or efficient as those in the United States. While growing in volume,
they usually have substantially less volume than the New York Stock Exchange
(the "Exchange"), and securities of some foreign companies are less liquid and
more volatile than securities of comparable U.S. companies. Similarly, volume
and liquidity in most foreign bond markets is less than in the United States
and, at times, volatility of price can be greater than in the United States.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, although a Portfolio will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed companies than in the United States.
Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments, such as military
coups, have occurred in the past in countries in which a Portfolio may invest
and could adversely affect a Portfolio's assets should these conditions or
events recur.
In June 2016, the UK voted in a referendum to leave the European
Union ("EU"). On March 29, 2017, the UK notified the European Council of its
intention to withdraw from the EU. It is expected that the UK's withdrawal will
be completed within two years of such notification. There is considerable
uncertainty relating to the potential consequences of the withdrawal. During
this period and beyond, the impact on the UK and European economies and the
broader global economy could be significant, resulting in increased volatility
and illiquidity, currency fluctuations, impacts on arrangements for trading and
on other existing cross-border cooperation arrangements (whether economic, tax,
fiscal, legal, regulatory or otherwise), and in potentially lower growth for
companies in the UK, Europe and globally, which could have an adverse effect on
the value of a Portfolio's investments.
Foreign investment in certain foreign securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain foreign securities and increase the
costs and expenses of a Portfolio. Certain countries in which a Portfolio may
invest require governmental approval prior to investments by foreign persons,
limit the amount of investment by foreign persons in a particular issuer, limit
the investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
Income from certain investments held by a Portfolio could be reduced
by foreign income taxes, including withholding taxes. It is impossible to
determine the effective rate of foreign tax in advance. A Portfolio's NAV may
also be affected by changes in the rates or methods of taxation applicable to
that Portfolio or to entities in which that Portfolio has invested. The Adviser
generally will consider the cost of any taxes in determining whether to acquire
any particular investments, but can provide no assurance that the tax treatment
of investments held by the Portfolio will not be subject to change. A
shareholder otherwise subject to U.S. federal income taxes may, subject to
certain limitations, be entitled to claim a credit or deduction for U.S. federal
income tax purposes for his or her proportionate share of such foreign taxes
paid by the Portfolio. See "Dividends, Distributions and Taxes".
Investors should understand that the expense ratio of a fund
investing in securities of foreign issuers may be higher than investment
companies investing only in domestic securities since, among other things, the
cost of maintaining the custody of securities of foreign issuers is higher and
the purchase and sale of portfolio securities may be subject to higher
transaction charges, such as stamp duties and turnover taxes.
For many foreign securities, there are U.S. Dollar-denominated ADRs
that are traded in the United States on exchanges or OTC. ADRs do not lessen the
foreign exchange risk inherent in investing in the securities of foreign
issuers. However, by investing in ADRs rather than directly in stock of foreign
issuers, a Portfolio can avoid currency risks which might occur during the
settlement period for either purchases or sales.
Foreign Currency Transactions. A Portfolio may invest in securities
denominated in foreign currencies and a corresponding portion of the Portfolio's
revenues will be received in such currencies. In addition, a Portfolio may
conduct foreign currency transactions for hedging and non-hedging purposes on a
spot (i.e., cash) basis or through the use of derivatives transactions, such as
forward currency exchange contracts, currency futures and options thereon, and
options on currencies as described above. The dollar equivalent of a Portfolio's
net assets and distributions will be adversely affected by reductions in the
value of certain foreign currencies relative to the U.S. Dollar. Such changes
will also affect a Portfolio's income. A Portfolio will, however, have the
ability to attempt to protect itself against adverse changes in the values of
foreign currencies by engaging in certain of the investment practices listed
above. While a Portfolio has this ability, there is no certainty as to whether
and to what extent the Portfolio will engage in these practices.
Currency exchange rates may fluctuate significantly over short
periods of time causing, along with other factors, a Portfolio's NAV to
fluctuate. Currency exchange rates generally are determined by the forces of
supply and demand in the foreign exchange markets and the relative merits of
investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by the intervention
of U.S. or foreign governments or central banks, or the failure to intervene, or
by currency controls or political developments in the United States or abroad.
To the extent a Portfolio's total assets adjusted to reflect the Portfolio's net
position after giving effect to currency transactions is denominated or quoted
in the currencies of foreign countries, the Portfolio will be more susceptible
to the risk of adverse economic and political developments within those
countries.
A Portfolio will incur costs in connection with conversions between
various currencies. A Portfolio may hold foreign currency received in connection
with investments when, in the judgment of the Adviser, it would be beneficial to
convert such currency into U.S. Dollars at a later date, based on anticipated
changes in the relevant exchange rate.
If the value of the foreign currencies in which a Portfolio receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Portfolio distributions, a Portfolio may be required to liquidate
securities in order to make distributions if a Portfolio has insufficient cash
in U.S. Dollars to meet the distribution requirements that the Portfolio must
satisfy to qualify as a regulated investment company for federal income tax
purposes. Similarly, if the value of a particular foreign currency declines
between the time a Portfolio incurs expenses in U.S. Dollars and the time cash
expenses are paid, the amount of the currency required to be converted into U.S.
Dollars in order to pay expenses in U.S. Dollars could be greater than the
equivalent amount of such expenses in the currency at the time they were
incurred. In light of these risks, a Portfolio may engage in certain currency
hedging transactions, which themselves, involve certain special risks.
Risks of Forward Currency Exchange Contracts, Foreign Currency
Futures Contracts and Options thereon, Options on Foreign Currencies,
Over-the-Counter Options on Securities. Transactions in forward currency
exchange contracts, as well as futures and options on foreign currencies, are
subject to all of the correlation, liquidity and other risks outlined above. In
addition, however, such transactions are subject to the risk of governmental
actions affecting trading in or the prices of currencies underlying such
contracts, which could restrict or eliminate trading and could have a
substantial adverse effect on the value of positions held by a Portfolio. In
addition, the value of such positions could be adversely affected by a number of
other complex political and economic factors applicable to the countries issuing
the underlying currencies.
Further, unlike trading in most other types of instruments, there is
no systematic reporting of last sale information with respect to the foreign
currencies underlying contracts thereon. As a result, the available information
on which trading decisions will be based may not be as complete as the
comparable data on which a Portfolio makes investment and trading decisions in
connection with other transactions. Moreover, because the foreign currency
market is a global, twenty-four hour market, events could occur in that market
but will not be reflected in the forward, futures or options markets until the
following day, thereby preventing the Portfolio from responding to such events
in a timely manner.
Settlements of exercises of OTC forward currency exchange contracts
or foreign currency options generally must occur within the country issuing the
underlying currency, which in turn requires traders to accept or make delivery
of such currencies in conformity with any U.S. or foreign restrictions and
regulations regarding the maintenance of foreign banking relationships and fees,
taxes or other charges.
Unlike transactions entered into by a Portfolio in futures contracts
and exchange-traded options, options on foreign currencies, forward currency
exchange contracts and OTC options on securities and securities indices may not
be traded on contract markets regulated by the CFTC or (with the exception of
certain foreign currency options) the SEC. Such instruments are instead traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Nasdaq PHLX and the Chicago Board Options Exchange, that are subject to
SEC regulation. In an OTC trading environment, many of the protections afforded
to exchange participants will not be available. For example, there are no daily
price fluctuation limits, and adverse market movements could therefore continue
to an unlimited extent over a period of time. Although the purchaser of an
option cannot lose more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option writer could lose
amounts substantially in excess of the initial investment due to the margin and
collateral requirements associated with such positions.
In addition, OTC transactions can be entered into only with a
financial institution willing to take the opposite side, as principal, of a
Portfolio's position unless the institution acts as broker and is able to find
another counterparty willing to enter into the transaction with the Portfolio.
Where no such counterparty is available, it will not be possible to enter into a
desired transaction. There also may be no liquid secondary market in the trading
of OTC contracts, and the Portfolio could be required to retain options
purchased or written, or forward currency exchange contracts, until exercise,
expiration or maturity. This in turn could limit the Portfolio's ability to
profit from open positions or to reduce losses experienced, and could result in
greater losses.
Further, OTC transactions are not subject to the guarantee of an
exchange clearinghouse, and a Portfolio will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. The Portfolio will enter into an OTC transaction only with parties
whose creditworthiness has been reviewed and found to be satisfactory by the
Adviser.
Transactions in OTC options on foreign currencies are subject to a
number of conditions regarding the commercial purpose of the purchaser of such
option. A Portfolio is not able to determine at this time whether or to what
extent additional restrictions on the trading of OTC options on foreign
currencies may be imposed at some point in the future, or the effect that any
such restrictions may have on the hedging strategies to be implemented by the
Portfolio.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the OTC market, potentially permitting a
Portfolio to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
the margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the OTC market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, if the OCC determines that foreign governmental
restrictions or taxes would prevent the orderly settlement of foreign currency
option exercises, or would result in undue burdens on the OCC or its clearing
member, the OCC may impose special procedures on exercise and settlement, such
as technical changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
Fundamental Investment Policies. The following investment
restrictions may not be changed without approval by the vote of (1) 67% or more
of the shares of that Portfolio represented at a meeting at which more than 50%
of the outstanding shares are present in person or by proxy or (2) more than 50%
of the outstanding shares of that Portfolio, whichever is less.
As a fundamental policy, a Portfolio:
(a) may not concentrate investments in an industry as concentration
may be defined under the 1940 Act or the rules and regulations thereunder (as
such statute, rules or regulations may be amended from time to time) or by
guidance regarding, interpretations of, or exemptive orders under, the 1940 Act
or the rules or regulations thereunder published by appropriate regulatory
authorities;(1)
--------
(1) The Real Estate Investment Portfolio has not adopted a policy to
concentrate investments in any one industry. Although it invests generally
in the real estate industry sector, the primary economic characteristics
of companies in this sector are materially different. For example, the
Real Estate Investment Portfolio invests in equity and mortgage REITs,
each of which seeks different types of investments. Equity REITs invest
directly in real estate properties, and mortgage REITs make loans to real
estate owners and purchase mortgages on real estate. In addition, there
are many different types of REITs in which the Real Estate Investment
Portfolio may invest, including, for example, those that invest in
shopping malls, industrial and office buildings, apartments, warehouses,
lodging and hotels, and health care facilities. REITs may also invest in
specific regions, states, or countries. Foreign REITs or other non-U.S.
real estate investments may have significantly different characteristics
than those in the United States.
(b) may not issue any senior security (as that term is defined in
the 1940 Act) or borrow money, except to the extent permitted by the 1940 Act or
the rules and regulations thereunder (as such statute, rules or regulations may
be amended from time to time) or by guidance regarding, or interpretations of,
or exemptive orders under, the 1940 Act or the rules or regulations thereunder
published by appropriate regulatory authorities. For purposes of this
restriction, margin and collateral arrangements, including, for example, with
respect to permitted borrowings, options, futures contracts, options on futures
contracts and other derivatives such as swaps are not deemed to involve the
issuance of a senior security;
(c) may not make loans except through (i) the purchase of debt
obligations in accordance with its investment objective and policies; (ii) the
lending of portfolio securities; (iii) the use of repurchase agreements; or (iv)
the making of loans to affiliated funds as permitted under the 1940 Act, the
rules and regulations thereunder (as such statutes, rules or regulations may be
amended from time to time), or by guidance regarding, and interpretations of, or
exemptive orders under, the 1940 Act;
(d) may not purchase or sell real estate except that it may dispose
of real estate acquired as a result of the ownership of securities or other
instruments. This restriction does not prohibit a Portfolio from investing in
securities or other instruments backed by real estate or in securities of
companies engaged in the real estate business;
(e) may purchase or sell commodities or options thereon to the
extent permitted by applicable law; and
(f) may not act as an underwriter of securities, except that a
Portfolio may acquire restricted securities under circumstances in which, if
such securities were sold, the Portfolio might be deemed to be an underwriter
for purposes of the Securities Act.
As a fundamental policy, each Portfolio, other than Global Risk
Allocation--Moderate Portfolio, is diversified (as that term is defined in the
1940 Act). This means that at least 75% of the Portfolio's assets consist of:
o Cash or cash items;
o Government securities;
o Securities of other investment companies; and
o Securities of any one issuer that represent not more than 10%
of the outstanding voting securities of the issuer of the
securities and not more than 5% of the total assets of the
Portfolio.
Non-Fundamental Investment Policies
-----------------------------------
As a matter of non-fundamental policy, Global Risk
Allocation--Moderate Portfolio is a "non-diversified" investment company, which
means the Portfolio is not limited in the proportion of its assets that may be
invested in the securities of a single issuer. This policy may be changed
without a shareholder vote. Because Global Risk Allocation--Moderate Portfolio
is a non-diversified investment company, it may invest in a smaller number of
individual issuers than a diversified investment company, and an investment in
the Portfolio may, under certain circumstances, present greater risk to an
investor than an investment in a diversified investment company.
As a matter of non-fundamental policy, each Portfolio has adopted a
policy that provides that the Portfolio may not purchase securities on margin,
except (i) as otherwise provided under rules adopted by the SEC under the 1940
Act or by guidance regarding the 1940 Act, or interpretations thereof, and (ii)
that the Portfolio may obtain such short-term credits as are necessary for the
clearance of portfolio transactions, and the Portfolio may make margin payments
in connection with futures contracts, options, forward contracts, swaps, caps,
floors, collars and other financial instruments.
--------------------------------------------------------------------------------
MANAGEMENT OF THE PORTFOLIOS
--------------------------------------------------------------------------------
The Adviser
-----------
The Adviser, a Delaware limited partnership with principal offices
at 1345 Avenue of the Americas, New York, New York 10105, has been retained
under investment advisory agreements (the "Advisory Agreements") to provide
investment advice and, in general, to conduct the management and investment
program of each Portfolio under the supervision of the Board. The Adviser is an
investment adviser registered under the Investment Advisers Act of 1940, as
amended.
The Adviser is a leading global investment management firm
supervising client accounts with assets as of December 31, 2017, totaling
approximately $555 billion. The Adviser provides management services for many of
the largest U.S. public and private employee benefit plans, endowments,
foundations, public employee retirement funds, banks, insurance companies and
high net worth individuals worldwide.
As of December 31, 2017, the ownership structure of the Adviser,
expressed as a percentage of general and limited partnership interests, was as
follows:
AXA and its subsidiaries 63.3%
AllianceBernstein Holding L.P. 35.5
Unaffiliated holders 1.2
---------------------
100.0%
=====================
As of December 31, 2017, AXA S.A. ("AXA") is a societe anonyme
organized under the laws of France and the holding company for an international
group of insurance and related financial services companies, through certain of
its subsidiaries ("AXA and its subsidiaries"), owned approximately 3.9% of the
issued and outstanding assignments of beneficial ownership of limited
partnership interests ("Holding Units") in AllianceBernstein Holding L.P., a
Delaware limited partnership ("Holding"). Holding Units trade publicly on the
Exchange under the ticker symbol "AB".
AllianceBernstein Corporation (an indirect wholly-owned subsidiary
of AXA) is the general partner of both Holding and the Adviser.
AllianceBernstein Corporation owns 100,000 general partnership units in Holding
and a 1% general partnership interest in the Adviser. Including both the general
partnership and limited partnership interests in Holding and the Adviser, AXA
and its subsidiaries had an approximate 64.7% economic interest in the Adviser
as of December 31, 2017.
On May 10, 2017, AXA announced its intention to sell and list for
trading a minority stake of its U.S. operations (expected to consist of AXA's
U.S. Life & Savings business and its interests in the Adviser and
AllianceBernstein Corporation) during the first half of 2018, subject to market
conditions and the SEC review process. AXA and its subsidiaries will maintain a
controlling interest in the Adviser.
Advisory Agreements and Expenses
--------------------------------
The Adviser serves as investment manager and adviser of each of the
Portfolios, continuously furnishes an investment program for each Portfolio, and
manages, supervises and conducts the affairs of each Portfolio, subject to the
oversight of the Board.
Under the Advisory Agreements, the Adviser furnishes advice and
recommendations with respect to the Portfolios' portfolios of securities and
investments, and provides persons satisfactory to the Board to act as officers
of the Fund. Such officers or employees may be employees of the Adviser or of
its affiliates.
The Adviser is, under each Portfolio's Advisory Agreement,
responsible for certain expenses incurred by the Portfolios, including, for
example, office facilities, and any expenses incurred in promoting the sale of
shares of the Portfolios (other than the portion of the promotional expenses
borne by the Portfolios in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing prospectuses of the Fund and
other reports to shareholders and fees related to registration with the SEC and
with state regulatory authorities).
The Fund has under the Advisory Agreements assumed the obligation
for payment of all other expenses. As to the obtaining of services other than
those specifically provided to the Fund by the Adviser, the Fund may employ its
own personnel. The Advisory Agreements provide for reimbursement to the Adviser
of the costs of certain non-advisory services provided to the Fund. Costs
currently reimbursed include the costs of the Adviser's personnel performing
certain administrative services for the Fund, including clerical, accounting,
legal and other services ("administrative services"), and associated overhead
costs, such as office space, supplies and information technology. The
administrative services are provided to the Fund on a fully-costed basis (i.e.,
includes each person's total compensation and a factor reflecting the Adviser's
total cost relating to that person, including all related overhead expenses).
The reimbursement of these costs to the Adviser will be specifically approved by
the Board. The following table shows, for the Portfolios listed, the amounts the
Adviser received for such services during the fiscal year ended December 31,
2017.
PORTFOLIO AMOUNT RECEIVED
--------- ---------------
Intermediate Bond Portfolio $53,914
Large Cap Growth Portfolio $53,914
Growth and Income Portfolio $52,835
Growth Portfolio $52,814
International Growth Portfolio $53,558
Global Thematic Growth Portfolio $53,585
Small Cap Growth Portfolio $52,817
Real Estate Investment Portfolio $53,585
International Value Portfolio $53,558
Small/Mid Cap Value Portfolio $53,585
Value Portfolio $52,817
Balanced Wealth Strategy Portfolio $53,887
Dynamic Asset Allocation Portfolio $54,520
Global Risk Allocation--Moderate Portfolio $54,688
The Advisory Agreement continues in effect with respect to each
Portfolio, provided that such continuance is specifically approved at least
annually by a vote of a majority of each Portfolio's outstanding voting
securities or by the Board, including in either case approval by a majority of
the Directors who are not parties to the Advisory Agreement or "interested
persons" of such parties, as defined by the 1940 Act. Most recently, continuance
of the Advisory Agreement was approved for an additional annual term by the
Board, including a majority of the Directors who are not parties to the Advisory
Agreement or interested persons of any such party, at meetings held on May 2-4,
2017, August 1-2, 2017 and October 31-November 2, 2017.
Any material amendment to the Advisory Agreements must be approved
by the vote of a majority of the outstanding securities of the relevant
Portfolio and by the vote of a majority of the Directors who are not interested
persons of the Fund or the Adviser. The Advisory Agreements are terminable
without penalty on 60 days' written notice by a vote of a majority of the
outstanding voting securities of each Portfolio, by a vote of a majority of the
Directors, or by the Adviser on 60 days' written notice, and will automatically
terminate in the event of their assignment. The Advisory Agreements provide that
in the absence of willful misfeasance, bad faith or gross negligence on the part
of the Adviser, or of reckless disregard of its obligations thereunder, the
Adviser shall not be liable for any action or failure to act in accordance with
its duties thereunder.
Certain other clients of the Adviser may have investment objectives
and policies similar to those of the Portfolios. The Adviser may, from time to
time, make recommendations that result in the purchase or sale of the particular
security by its other clients simultaneously with the purchase or sale thereof
by one or more Portfolios. If transactions on behalf of more than one client
during the same period increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price. It is
the policy of the Adviser to allocate advisory recommendations and the placing
of orders in a manner that is deemed equitable by the Adviser to the accounts
involved, including the Portfolios. When two or more of the clients of the
Adviser (including the Portfolios) are purchasing or selling the same security
on a given day from the same broker or dealer, such transactions may be averaged
as to price.
For services rendered by the Adviser under the Advisory Agreement,
the Portfolios listed below pay the Adviser the annual percentage rates of the
aggregate daily NAV as listed below.
CONTRACTUAL FEE, AS A PERCENTAGE OF THE
PORTFOLIO PORTFOLIO'S AGGREGATE NET ASSETS
--------- ----------------------------------------
Intermediate Bond Portfolio* .45 of 1% of the first $2.5 billion,
.40 of 1% of the excess over $2.5
billion up to $5 billion, .35 of 1% of
the excess over $5 billion up to $8
billion and .30% of 1% in excess of $8
billion
Large Cap Growth Portfolio** .60 of 1% of the first $2.5 billion,
.50 of 1% of the excess over $2.5
billion up to $5 billion and .45 of 1%
of the excess over $5 billion
Growth and Income Portfolio .55 of 1% of the first $2.5 billion,
.45 of 1% of the excess over $2.5
billion up to $5 billion and .40 of 1%
of the excess over $5 billion
International Growth Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
Growth Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
Global Thematic Growth Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
Small Cap Growth Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
* Effective January 30, 2018. Prior to January 30, 2018, the Adviser was
compensated at an annual rate of .45 of 1% of the first $2.5 billion, .40
of 1% of the excess over $2.5 billion up to $5 billion and .35 of 1% of
the excess over $5 billion.
** Effective February 3, 2017. Prior to February 3, 2017, the Adviser was
compensated at an annual rate of .75 of 1% of the first $2.5 billion, .65
of 1% of the excess over $2.5 billion up to $5 billion and .60 of 1% of
the excess over $5 billion.
For services rendered by the Adviser under the Advisory Agreement,
the Portfolios listed below pay the Adviser the annual percentage rates of the
average daily NAV as listed below.
CONTRACTUAL FEE, AS A PERCENTAGE OF THE
PORTFOLIO PORTFOLIO'S AVERAGE NET ASSETS
--------- ----------------------------------------
Real Estate Investment Portfolio .55 of 1% of the first $2.5 billion,
.45 of 1% of the excess over $2.5
billion up to $5 billion and .40 of 1%
of the excess over $5 billion
International Value Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
Small/Mid Cap Value Portfolio .75 of 1% of the first $2.5 billion,
.65 of 1% of the excess over $2.5
billion up to $5 billion and .60 of 1%
of the excess over $5 billion
Value Portfolio .55 of 1% of the first $2.5 billion,
.45 of 1% of the excess over $2.5
billion up to $5 billion and .40 of 1%
of the excess over $5 billion
Balanced Wealth Strategy Portfolio .55 of 1% of the first $2.5 billion,
.45 of 1% of the excess over $2.5
billion up to $5 billion and .40 of 1%
of the excess over $5 billion
Dynamic Asset Allocation Portfolio .70 of 1%
Global Risk Allocation--Moderate .60 of 1%
Portfolio
These fees are accrued daily and paid monthly. The Adviser has
contractually agreed for the period from the effective date of the Portfolios'
Prospectuses to the effective date of the subsequent Prospectuses incorporating
the Portfolios' annual financial statements (the "Period") to waive its fee and
bear certain expenses so that total expenses do not exceed, on an annual basis,
the percentages of average daily net assets for the share classes of the
Portfolios listed below. This fee waiver and/or expense reimbursement agreement
automatically extends each year unless the Adviser provides notice to the
Portfolios at least 60 days prior to the end of the Period.
Portfolio Expense Caps
--------- ------------
International Value Portfolio Class A 1.20%
Class B 1.45%
Small/Mid Cap Value Portfolio Class A 1.20%
Class B 1.45%
Value Portfolio Class A 1.20%
Class B 1.45%
Balanced Wealth Strategy Portfolio Class A .75%
Class B 1.00%
Dynamic Asset Allocation Portfolio Class A .85%
Class B 1.10%
In addition, effective May 1, 2018, the Adviser has contractually
agreed to waive fees and/or reimburse the expenses payable to the Adviser by the
Portfolio in an amount equal to the Balanced Wealth Strategy Portfolio's share
of the advisory fees of any mutual funds advised by the Adviser in which the
Portfolio invests, as included in "Acquired Fund Fees and Expenses" in the
Portfolio's Prospectus and paid by the Portfolio. This fee waiver and/or expense
reimbursement will remain in effect until May 1, 2019.
The following table shows, for the Portfolios listed, the amounts
the Adviser received for such services for the last three fiscal years.
FISCAL YEAR END
PORTFOLIO DECEMBER 31 AMOUNT RECEIVED
--------- ----------- ---------------
Intermediate Bond Portfolio 2015 $ 322,798
2016 $ 282,594
2017 $ 250,190
Large Cap Growth Portfolio 2015 $ 3,357,846
2016 $ 3,094,014
2017 $ 2,646,057
Growth and Income Portfolio 2015 $ 4,609,822
2016 $ 5,073,025
2017 $ 5,804,123
Growth Portfolio 2015 $ 549,437
2016 $ 493,849
2017 $ 505,249
International Growth Portfolio 2015 $ 624,965
2016 $ 494,360
2017 $ 501,404
Global Thematic Growth 2015 $ 981,829
Portfolio
2016 $ 839,934
2017 $ 974,543
Small Cap Growth Portfolio 2015 $ 480,909
2016 $ 286,841
2017 $ 309,993
Real Estate Investment 2015 $ 280,612
Portfolio
2016 $ 290,021
2017 $ 285,906
Small/Mid Cap Value Portfolio 2015 $ 4,753,253
2016 $ 4,460,430
2017 $ 5,108,548
Value Portfolio 2015 $ 555,496
2016 $ 442,445
2017 $ 416,715
International Value Portfolio 2015 $ 4,986,705
2016 $ 3,997,252
2017 $ 3,734,261
Balanced Wealth Strategy 2015 $ 1,956,957
Portfolio
2016 $ 1,751,783
2017 $ 1,672,136
Dynamic Asset Allocation 2015 $ 3,609,273
Portfolio
2016 $ 3,589,364
2017 $ 4,086,774
The amounts received in the table above are net of the amounts the
Adviser waived under a contractual fee waiver or otherwise. Amounts waived were:
AMOUNT WAIVED UNDER CONTRACTUAL FEE
WAIVER OR OTHERWISE
-------------------
Intermediate Bond Portfolio 2015 $ 0
2016 $ 0
2017 $ 0
Large Cap Growth Portfolio 2015 $ 0
2016 $ 1,101
2017 $ 129
Growth and Income Portfolio 2015 $ 0
2016 $ 3,677
2017 $ 23,504
Growth Portfolio 2015 $ 0
2016 $ 294
2017 $ 623
International Growth Portfolio 2015 $ 0
2016 $ 1,236
2017 $ 663
Global Thematic Growth Portfolio 2015 $ 0
2016 $ 3,957
2017 $ 2,998
Small Cap Growth Portfolio 2015 $ 0
2016 $ 3,038
2017 $ 3,843
Real Estate Investment Portfolio 2015 $ 0
2016 $ 207
2017 $ 197
Small/Mid Cap Value Portfolio 2015 $ 0
2016 $ 19,117
2017 $ 24,210
Value Portfolio 2015 $ 0
2016 $ 904
2017 $ 1,720
International Value Portfolio 2015 $ 0
2016 $ 8,645
2017 $ 18,066
Balanced Wealth Strategy Portfolio 2015 $ 0
2016 $ 1,194
2017 $ 1,130
Dynamic Asset Allocation Portfolio 2015 $ 0
2016 $102,772
2017 $ 55,353
GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
Effective as of April 28, 2015, the Portfolio has contractually
agreed to pay a monthly fee to the Adviser at an annualized rate of .60% of the
Portfolio's average daily net assets. The Adviser has contractually agreed to
waive its fee and bear certain expenses so that total expenses (excluding
interest expense, expenses associated with securities sold short, brokerage
commissions and other transaction costs, taxes and extraordinary expenses) do
not exceed on an annual basis .75% and 1.00% of average daily net assets,
respectively, for Class A and Class B shares. This fee waiver and/or expense
reimbursement agreement may not be terminated before May 1, 2019. Fees waived
and expenses borne by the Adviser through April 27, 2016 are subject to
reimbursement until the end of the third fiscal year after the fiscal period in
which the fee was waived or the expense was borne. No reimbursement payment will
be made that would cause the Portfolio's total annualized operating expenses to
exceed the amounts listed above. During the fiscal year or period ended December
31, 2017, December 31, 2016 and December 31, 2015, the Adviser received
$282,797, $97,468 and $0, respectively, in management fees from the Portfolio
(net of $254,701, $287,955 and $105,505, respectively, which was waived by the
Adviser due to the expense limitation agreement).
To the extent that a Portfolio invests in AB Government Money Market
Portfolio (except for the investment of any cash collateral from securities
lending), the Adviser has contractually agreed to waive its management fee from
the Portfolio in an amount equal to the Portfolio's pro rata share of the AB
Government Money Market Portfolio's effective management fee. This agreement
will remain in effect until May 1, 2019 and will continue thereafter from year
to year unless the Adviser provides notice of termination to the Portfolio at
least 60 days prior to the end of the period. To the extent that a Portfolio
invests securities lending cash collateral in the AB Government Money Market
Portfolio, the Adviser has also agreed to waive a portion of the Portfolio's
share of the advisory fees of AB Government Money Market Portfolio. In
connection with the investment by the Portfolios in the AB Government Money
Market Portfolio, the Adviser waived its investment management fee from
Intermediate Bond Portfolio, Large Cap Growth Portfolio, Growth and Income
Portfolio, Growth Portfolio, International Growth Portfolio, Global Thematic
Growth Portfolio, Small Cap Growth Portfolio, Real Estate Investment Portfolio,
Small/Mid Cap Value Portfolio, Value Portfolio, International Value Portfolio,
Balanced Wealth Strategy Portfolio, Dynamic Asset Allocation Portfolio and
Global Risk Allocation-Moderate Portfolio, in the amounts of $0, $129, $23,504,
$623, $663, $2,998, $3,843, $197, $24,210, $1,720, $18,066, $1,130, $55,353 and
$55,365, respectively, for the fiscal year ended December 31, 2017.
The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to AB Bond Fund, Inc., AB Cap Fund, Inc., AB Core Opportunities Fund, Inc., AB
Corporate Shares, AB Discovery Growth Fund, Inc., AB Equity Income Fund, Inc.,
AB Fixed-Income Shares, Inc., AB Global Bond Fund, Inc., AB Global Real Estate
Investment Fund, Inc., AB Global Risk Allocation Fund, Inc., AB High Income
Fund, Inc., AB Institutional Funds, Inc., AB Large Cap Growth Fund, Inc., AB
Municipal Income Fund, Inc., AB Municipal Income Fund II, AB Relative Value
Fund, Inc., AB Sustainable Global Thematic Fund, Inc., AB Sustainable
International Thematic Fund, Inc., AB Trust, AB Unconstrained Bond Fund, Inc.,
Sanford C. Bernstein Fund, Inc., Bernstein Fund, Inc., Sanford C. Bernstein Fund
II, Inc. and The AB Portfolios, all registered open-end investment companies;
and to AB Multi-Manager Alternative Fund, AllianceBernstein Global High Income
Fund, Inc., AllianceBernstein National Municipal Income Fund, Inc. and Alliance
California Municipal Income Fund, Inc., all registered closed-end investment
companies. The registered investment companies for which the Adviser serves as
investment adviser are referred to collectively below as the "AB Fund Complex",
while all of these investment companies, except the Bernstein Fund, Inc.,
Sanford C. Bernstein Fund, Inc. and the AB Multi-Manager Alternative Fund, are
referred to collectively below as the "AB Funds".
Board of Directors Information
------------------------------
Certain information concerning the Directors is set forth below.
PORTFOLIOS
PRINCIPAL IN OTHER PUBLIC
OCCUPATION(S) AB FUND COMPANY
DURING PAST FIVE COMPLEX DIRECTORSHIPS
NAME, ADDRESS*, AGE AND YEARS AND OTHER OVERSEEN CURRENTLY HELD
(YEAR FIRST ELECTED**) INFORMATION BY DIRECTOR BY DIRECTOR
----------------------- ------------ ----------- --------------
INDEPENDENT DIRECTORS
Marshall C. Turner, Jr.,# Private Investor since prior to 93 Xilinx, Inc.
Chairman of the Board 2013. Former Chairman and CEO of (programmable logic
76 Dupont Photomasks, Inc. semi-conductors) since
(2005) (components of semi-conductor 2007
manufacturing). He has extensive
operating leadership and venture
capital investing experience,
including five interim or
full-time CEO roles, and prior
service as general partner of
institutional venture capital
partnerships. He also has
extensive non-profit board
leadership experience, and
currently serves on the boards of
two education and science-related
non-profit organizations. He has
served as a director of one AB
Fund since 1992, and director or
trustee of multiple AB Funds
since 2005. He has been Chairman
of the AB Funds since January
2014, and the Chairman of the
Independent Directors Committees
of such AB Funds since February
2014.
Michael J. Downey,# Private Investor since prior to 93 The Asia Pacific Fund,
74 2013. Formerly, managing partner Inc. (registered
(2005) of Lexington Capital, LLC investment company)
(investment advisory firm) from since prior to 2013
December 1997 until December
2003. He served as a Director of
Prospect Acquisition Corp.
(financial services) from 2007
until 2009. From 1987 until
1993, Chairman and CEO of
Prudential Mutual Fund
Management, director of the
Prudential mutual funds and
member of the Executive Committee
of Prudential Securities Inc. He
has served as a director or
trustee of the AB Funds since
2005 and is a director and
chairman of one other registered
investment company.
William H. Foulk, Jr.,# Investment Adviser and an 93 None
85 Independent Consultant since
(1990) prior to 2013. Previously, he
was Senior Manager of Barrett
Associates, Inc., a registered
investment adviser. He was
formerly Deputy Comptroller and
Chief Investment Officer of the
State of New York and, prior
thereto, Chief Investment Officer
of the New York Bank for Savings.
He has served as a director or
trustee of various AB Funds since
1983, and was Chairman of the
Independent Directors Committees
of the AB Funds from 2003 until
early February 2014. He served
as Chairman of such AB Funds from
2003 through December 2013. He
is also active in a number of
mutual fund related organizations
and committees.
Nancy P. Jacklin,# Private Investor since prior to 93 None
69 2013. Professorial Lecturer at
(2006) the Johns Hopkins School of
Advanced International Studies
(2008-2015). U.S. Executive
Director of the International
Monetary Fund (which is
responsible for ensuring the
stability of the international
monetary system) (December
2002-May 2006); Partner, Clifford
Chance (1992-2002); Sector
Counsel, International Banking
and Finance, and Associate
General Counsel, Citicorp
(1985-1992); Assistant General
Counsel (International), Federal
Reserve Board of Governors
(1982-1985); and Attorney
Advisor, U.S. Department of the
Treasury (1973-1982). Member of
the Bar of the District of
Columbia and of New York; and
member of the Council on Foreign
Relations. She has served as a
director or trustee of the AB
Funds since 2006 and has been
Chairman of the Governance and
Nominating Committees of the AB
Funds since August 2014.
Carol C. McMullen,# Managing Director of Slalom 93 None
62 Consulting (consulting) since
(2016) 2014, private investor and member
of the Partners Healthcare
Investment Committee. Formerly,
Director of Norfolk & Dedham
Group (mutual property and
casualty insurance) from 2011
until November 2016; Director of
Partners Community Physicians
Organization (healthcare) from
2014 until December 2016; and
Managing Director of The
Crossland Group (consulting) from
2012 until 2013. She has held a
number of senior positions in the
asset and wealth management
industries, including at Eastern
Bank (where her roles included
President of Eastern Wealth
Management), Thomson Financial
(Global Head of Sales for
Investment Management), and
Putnam Investments (where her
roles included Head of Global
Investment Research). She has
served on a number of private
company and non-profit boards,
and as a director or trustee of
the AB Funds since June 2016.
Garry L. Moody,# Independent Consultant. Formerly, 93 None
66 Partner, Deloitte & Touche LLP
(2008) (1995-2008) where he held a
number of senior positions,
including Vice Chairman, and U.S.
and Global Investment Management
Practice Managing Partner;
President, Fidelity Accounting
and Custody Services Company
(1993-1995), where he was
responsible for accounting,
pricing, custody and reporting
for the Fidelity mutual funds;
and Partner, Ernst & Young LLP
(1975-1993), where he served as
the National Director of Mutual
Fund Tax Services and Managing
Partner of its Chicago Office Tax
department. He is a member of
the Trustee Advisory Board of
BoardIQ, a biweekly publication
focused on issues and news
affecting directors of mutual
funds. He has served as a
director or trustee, and as
Chairman of the Audit Committees,
of the AB Funds since 2008.
Earl D. Weiner,# Of Counsel, and Partner prior to 93 None
78 January 2007, of the law firm
(2007) Sullivan & Cromwell LLP, and is a
former member of the ABA Federal
Regulation of Securities
Committee Task Force to draft
editions of the Fund Director's
Guidebook. He also serves as a
director or trustee of various
non-profit organizations and has
served as Chairman or Vice
Chairman of a number of them. He
has served as a director or
trustee of the AB Funds since
2007 and served as Chairman of
the Governance and Nominating
Committees of the AB Funds from
2007 until August 2014.
INTERESTED DIRECTOR
Robert M. Keith,+ Senior Vice President of the 93 None
57 Adviser++ and the head of
(2010) AllianceBernstein Investments,
Inc. ("ABI")++ since July 2008;
Director of ABI and President of
the AB Mutual Funds. Previously,
he served as Executive Managing
Director of ABI from December
2006 to June 2008. Prior to
joining ABI in 2006, Executive
Managing Director of Bernstein
Global Wealth Management, and
prior thereto, Senior Managing
Director and Global Head of
Client Service and Sales of the
Adviser's institutional
investment management business
since 2004. Prior thereto, he
was Managing Director and Head of
North American Client Service and
Sales in the Adviser's
institutional investment
management business, with which
he had been associated since
prior to 2004.
--------
* The address for each of the Fund's Directors is c/o AllianceBernstein
L.P., Attention: Legal & Compliance Department - Mutual Fund Legal, 1345
Avenue of the Americas, New York, NY 10105.
** There is no stated term of office for the Fund's Directors.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Mr. Keith is an "interested person", as defined in Section 2(a)(19) of the
1940 Act, of the Fund because of his affiliation with the Adviser.
++ The Adviser and ABI are affiliates of the Fund.
In addition to the public company directorships currently held by
the Directors set forth in the table above, Mr. Turner was a director of
SunEdison, Inc. (solar materials and power plants) since prior to 2013 until
July 2014, Mr. Downey was a director of The Merger Fund (a registered investment
company) from 1995 until 2013 and Mr. Moody was a director of Greenbacker
Renewable Energy Company LLC (renewable energy and energy efficiency projects)
from August 2013 until January 2014.
The management of the business and affairs of the Fund are overseen
by the direction of the Board. Directors who are not "interested persons" of the
Fund as defined in the 1940 Act, are referred to as "Independent Directors", and
Directors who are "interested persons" of the Fund are referred to as
"Interested Directors". Certain information concerning the Fund's governance
structure and each Director is set forth below.
Experience, Skills, Attributes, and Qualifications of the Fund's
Directors. The Governance and Nominating Committee of the Board, which is
composed of Independent Directors, reviews the experience, qualifications,
attributes and skills of potential candidates for nomination or election by the
Board, and conducts a similar review in connection with the proposed nomination
of current Directors for re-election by shareholders at any annual or special
meeting of shareholders. In evaluating a candidate for nomination or election as
a Director the Governance and Nominating Committee takes into account the
contribution that the candidate would be expected to make to the diverse mix of
experience, qualifications, attributes and skills that the Governance and
Nominating Committee believes contributes to good governance for the Fund.
Additional information concerning the Governance and Nominating Committee's
consideration of nominees appears in the description of the Committee below.
The Board believes that, collectively, the Directors have balanced
and diverse experience, qualifications, attributes, and skills, which allow the
Board to operate effectively in governing the Fund and protecting the interests
of shareholders. The Board has concluded that, based on each Director's
experience, qualifications, attributes or skills on an individual basis and in
combination with those of the other Directors, each Director is qualified and
should continue to serve as such.
In determining that a particular Director was and continues to be
qualified to serve as a Director, the Board has considered a variety of
criteria, none of which, in isolation, was controlling. In addition, the Board
has taken into account the actual service and commitment of each Director during
his or her tenure (including the Director's commitment and participation in
Board and committee meetings, as well as his or her current and prior leadership
of standing and ad hoc committees) in concluding that each should continue to
serve. Additional information about the specific experience, skills, attributes
and qualifications of each Director, which in each case led to the Board's
conclusion that the Director should serve (or continue to serve) as a trustee or
director of the Fund, is provided in the table above and in the next paragraph.
Among other attributes and qualifications common to all Directors
are their ability to review critically, evaluate, question and discuss
information provided to them (including information requested by the Directors),
to interact effectively with the Adviser, other service providers, counsel and
the Fund's independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. In
addition to his or her service as a Director of the Fund and other AB Funds as
noted in the table above: Mr. Downey has experience in the investment advisory
business including as Chairman and Chief Executive Officer of a large fund
complex and as director of a number of non-AB funds and as Chairman of a non-AB
closed-end fund; Mr. Foulk has experience in the investment advisory and
securities businesses, including as Deputy Comptroller and Chief Investment
Officer of the State of New York (where his responsibilities included bond
issuances, cash management and oversight of the New York Common Retirement
Fund), served as Chairman of the Independent Directors Committees from 2003
until early February 2014, served as Chairman of the AB Funds from 2003 through
December 2013, and is active in a number of mutual fund related organizations
and committees; Ms. Jacklin has experience as a financial services regulator, as
U.S. Executive Director of the International Monetary Fund (which is responsible
for ensuring the stability of the international monetary system), and as a
financial services lawyer in private practice, and has served as Chair of the
Governance and Nominating Committees of the AB Funds since August 2014; Mr.
Keith has experience as an executive of the Adviser with responsibility for,
among other things, the AB Funds; Ms. McMullen has experience as a management
consultant and as a director of various private companies and non-profit
organizations, as well as extensive asset management experience at a number of
companies, including as an executive in the areas of portfolio management,
research, and sales and marketing; Mr. Moody has experience as a certified
public accountant including experience as Vice Chairman and U.S. and Global
Investment Management Practice Partner for a major accounting firm, is a member
of both the governing council of an organization of independent directors of
mutual funds, and the Trustee Advisory Board of BoardIQ, a biweekly publication
focused on issues and news affecting directors of mutual funds, and has served
as a director or trustee and Chairman of the Audit Committees of the AB Funds
since 2008; Mr. Turner has experience as a director (including Chairman and
Chief Executive Officer of a number of companies) and as a venture capital
investor including prior service as general partner of three institutional
venture capital partnerships, and has served as Chairman of the AB Funds since
January 2014 and Chairman of the Independent Directors Committees of such AB
Funds since February 2014; and Mr. Weiner has experience as a securities lawyer
whose practice includes registered investment companies and as director or
trustee of various non-profit organizations and Chairman or Vice Chairman of a
number of them, and served as Chairman of the Governance and Nominating
Committees of the AB Funds from 2007 until August 2014. The disclosure herein of
a director's experience, qualifications, attributes and skills does not impose
on such director any duties, obligations, or liability that are greater than the
duties, obligations and liability imposed on such director as a member of the
Board and any committee thereof in the absence of such experience,
qualifications, attributes and skills.
Board Structure and Oversight Function. The Board is responsible for
oversight of the Fund. The Fund has engaged the Adviser to manage the Fund's
Portfolios on a day-to-day basis. The Board is responsible for overseeing the
Adviser and the Fund's other service providers in the operations of the Fund in
accordance with each Portfolio's investment objective and policies and otherwise
in accordance with its prospectus, the requirements of the 1940 Act and other
applicable Federal, state and other securities and other laws, and the Fund's
charter and bylaws. The Board typically meets in-person at regularly scheduled
meetings four times throughout the year. In addition, the Directors may meet
in-person or by telephone at special meetings or on an informal basis at other
times. The Independent Directors also regularly meet without the presence of any
representatives of management. As described below, the Board has established
three standing committees - the Audit, Governance and Nominating and Independent
Directors Committees - and may establish ad hoc committees or working groups
from time to time, to assist the Board in fulfilling its oversight
responsibilities. Each committee is composed exclusively of Independent
Directors. The responsibilities of each committee, including its oversight
responsibilities, are described further below. The Independent Directors have
also engaged independent legal counsel, and may, from time to time, engage
consultants and other advisors, to assist them in performing their oversight
responsibilities.
An Independent Director serves as Chairman of the Board. The
Chairman's duties include setting the agenda for each Board meeting in
consultation with management, presiding at each Board meeting, meeting with
management between Board meetings, and facilitating communication and
coordination between the Independent Directors and management. The Directors
have determined that the Board's leadership by an Independent Director and its
committees composed exclusively of Independent Directors is appropriate because
they believe it sets the proper tone to the relationships between the Fund, on
the one hand, and the Adviser and other service providers, on the other, and
facilitates the exercise of the Board's independent judgment in evaluating and
managing the relationships. In addition, the Fund is required to have an
Independent Director as Chairman pursuant to certain 2003 regulatory settlements
involving the Adviser.
Risk Oversight. The Fund and its Portfolios are subject to a number
of risks, including investment, compliance and operational risks, including
cyber risks. Day-to-day risk management with respect to the Fund and its
Portfolios resides with the Adviser or other service providers (depending on the
nature of the risk), subject to supervision by the Adviser. The Board has
charged the Adviser and its affiliates with (i) identifying events or
circumstances the occurrence of which could have demonstrable and material
adverse effects on the Fund or its Portfolios; (ii) to the extent appropriate,
reasonable or practicable, implementing processes and controls reasonably
designed to lessen the possibility that such events or circumstances occur or to
mitigate the effects of such events or circumstances if they do occur; and (iii)
creating and maintaining a system designed to evaluate continuously, and to
revise as appropriate, the processes and controls described in (i) and (ii)
above.
Risk oversight forms part of the Board's general oversight of the
Portfolios' investment programs and operations and is addressed as part of
various regular Board and committee activities. The Fund's investment management
and business affairs are carried out by or through the Adviser and other service
providers. Each of these persons has an independent interest in risk management
but the policies and the methods by which one or more risk management functions
are carried out may differ from the Fund's and each other's in the setting of
priorities, the resources available or the effectiveness of relevant controls.
Oversight of risk management is provided by the Board and the Audit Committee.
The Directors regularly receive reports from, among others, management
(including the Chief Risk Officer of the Adviser), the Fund's Chief Compliance
Officer, the Fund's independent registered public accounting firm, the Adviser's
internal legal counsel, the Adviser's Chief Compliance Officer and internal
auditors for the Adviser, as appropriate, regarding risks faced by the Fund and
its Portfolios and the Adviser's risk management programs. In addition, the
Directors receive regular updates on cyber security matters from the Adviser.
Not all risks that may affect the Fund and its Portfolios can be
identified, nor can controls be developed to eliminate or mitigate their
occurrence or effects. It may not be practical or cost-effective to eliminate or
mitigate certain risks, the processes and controls employed to address certain
risks may be limited in their effectiveness, and some risks are simply beyond
the reasonable control of the Fund or the Adviser, its affiliates or other
service providers. Moreover, it is necessary to bear certain risks (such as
investment-related risks) to achieve the Portfolios' goals. As a result of the
foregoing and other factors the Fund's and its Portfolios' ability to manage
risk is subject to substantial limitations.
Board Committees. The Board has three standing committees - an Audit
Committee, a Governance and Nominating Committee and an Independent Directors
Committee. The members of the Audit, Governance and Nominating and Independent
Directors Committees are identified above.
The function of the Audit Committee is to assist the Board in its
oversight of the Portfolios' accounting and financial reporting policies and
practices. The Audit Committee met three times during each Portfolio's most
recently completed fiscal year.
The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Board. The Governance and Nominating Committee met three times during each
Portfolios' most recently completed fiscal year.
The Board has adopted a charter for its Governance and Nominating
Committee. Pursuant to the charter, the Committee assists the Board in carrying
out its responsibilities with respect to governance of the Fund and identifies,
evaluates, selects and nominates candidates for the Board. The Committee may
also set standards or qualifications for Directors and reviews at least annually
the performance of each Director, taking into account factors such as attendance
at meetings, adherence to Board policies, preparation for and participation at
meetings, commitment and contribution to the overall work of the Board and its
committees, and whether there are health or other reasons that might affect the
Director's ability to perform his or her duties. The Committee may consider
candidates for nomination as Directors submitted by the Fund's current Board
members, officers, the Adviser, shareholders and other appropriate sources.
Pursuant to the charter, the Governance and Nominating Committee
will consider candidates for nomination as a Director submitted by a shareholder
or group of shareholders who have beneficially owned at least 5% of a
Portfolio's common stock or shares of beneficial interest for at least two years
prior to the time of submission and who timely provide specified information
about the candidates and the nominating shareholder or group. To be timely for
consideration by the Governance and Nominating Committee, the submission,
including all required information, must be submitted in writing to the
attention of the Secretary at the principal executive offices of the Fund not
less than 120 days before the date of the proxy statement for the previous
year's annual meeting of shareholders. If the Fund did not hold an annual
meeting of shareholders in the previous year, the submission must be delivered
or mailed and received within a reasonable amount of time before the Fund begins
to print and mail its proxy materials. Public notice of such upcoming annual
meeting of shareholders may be given in a shareholder report or other mailing to
shareholders or by other means deemed by the Governance and Nominating Committee
or the Board to be reasonably calculated to inform shareholders.
Shareholders submitting a candidate for consideration by the
Governance and Nominating Committee must provide the following information to
the Governance and Nominating Committee: (i) a statement in writing setting
forth (A) the name, date of birth, business address and residence address of the
candidate; (B) any position or business relationship of the candidate, currently
or within the preceding five years, with the shareholder or an associated person
of the shareholder as defined below; (C) the class or series and number of all
shares of a Portfolio owned of record or beneficially by the candidate; (D) any
other information regarding the candidate that is required to be disclosed about
a nominee in a proxy statement or other filing required to be made in connection
with the solicitation of proxies for election of Directors pursuant to Section
20 of the 1940 Act and the rules and regulations promulgated thereunder; (E)
whether the shareholder believes that the candidate is or will be an "interested
person" of the Fund (as defined in the 1940 Act) and, if believed not to be an
"interested person", information regarding the candidate that will be sufficient
for the Fund to make such determination; and (F) information as to the
candidate's knowledge of the investment company industry, experience as a
director or senior officer of public companies, directorships on the boards of
other registered investment companies and educational background; (ii) the
written and signed consent of the candidate to be named as a nominee and to
serve as a Director if elected; (iii) the written and signed agreement of the
candidate to complete a directors' and officers' questionnaire if elected; (iv)
the shareholder's consent to be named as such by the Fund; (v) the class or
series and number of all shares of each Portfolio of the Fund owned beneficially
and of record by the shareholder and any associated person of the shareholder
and the dates on which such shares were acquired, specifying the number of
shares owned beneficially but not of record by each, and stating the names of
each as they appear on the Fund's record books and the names of any nominee
holders for each; and (vi) a description of all arrangements or understandings
between the shareholder, the candidate and/or any other person or persons
(including their names) pursuant to which the recommendation is being made by
the shareholder. "Associated person of the shareholder" means any person who is
required to be identified under clause (vi) of this paragraph and any other
person controlling, controlled by or under common control with, directly or
indirectly, (a) the shareholder or (b) the associated person of the shareholder.
The Governance and Nominating Committee may require the shareholder
to furnish such other information as it may reasonably require or deem necessary
to verify any information furnished pursuant to the nominating procedures
described above or to determine the qualifications and eligibility of the
candidate proposed by the shareholder to serve on the Board. If the shareholder
fails to provide such other information in writing within seven days of receipt
of written request from the Governance and Nominating Committee, the
recommendation of such candidate as a nominee will be deemed not properly
submitted for consideration, and will not be considered, by the Committee.
The Governance and Nominating Committee will consider only one
candidate submitted by such a shareholder or group for nomination for election
at an annual meeting of shareholders. The Governance and Nominating Committee
will not consider self-nominated candidates. The Governance and Nominating
Committee will consider and evaluate candidates submitted by shareholders on the
basis of the same criteria as those used to consider and evaluate candidates
submitted from other sources. These criteria include the candidate's relevant
knowledge, experience, and expertise, the candidate's ability to carry out his
or her duties in the best interests of the Fund, and the candidate's ability to
qualify as an Independent Director. When assessing a candidate for nomination,
the Committee considers whether the individual's background, skills, and
experience will complement the background, skills, and experience of other
nominees and will contribute to the diversity of the Board.
The function of the Independent Directors Committee is to consider
and take action on matters that the Board or Committee believes should be
addressed in executive session of the Independent Directors, such as review and
approval of the Advisory and Distribution Services Agreements. The Independent
Directors Committee met seven times during the Portfolios' most recently
completed fiscal year.
The dollar range of the Fund's securities owned by each Director and
the aggregate dollar range of securities of funds in the AB Fund Complex owned
by each Director are set forth below.
DOLLAR RANGE OF AGGREGATE DOLLAR
EQUITY SECURITIES RANGE OF EQUITY
IN THE PORTFOLIOS SECURITIES IN THE AB FUND
AS OF COMPLEX AS OF
DECEMBER 31, 2017* DECEMBER 31, 2017
------------------ -----------------
John H. Dobkin** None Over $100,000
Michael J. Downey None Over $100,000
William H. Foulk, Jr. None Over $100,000
D. James Guzy** None Over $100,000
Nancy P. Jacklin None Over $100,000
Robert M. Keith None None
Carol C. McMullen None Over $100,000
Garry L. Moody None Over $100,000
Marshall C. Turner, Jr. None Over $100,000
Earl D. Weiner None Over $100,000
--------
* The Directors cannot directly invest in the Fund's Portfolios, because
direct investments in the Portfolios may be made only by variable annuity
and variable life insurance separate accounts.
** Messrs. Dobkin and Guzy retired as Directors effective December 31, 2017.
Officer Information
-------------------
Certain information concerning the Fund's officers is set forth
below.
NAME, ADDRESS* AND POSITION(S) PRINCIPAL OCCUPATION
AGE HELD WITH FUND DURING PAST FIVE YEARS
------------------ -------------- ----------------------
Robert M. Keith, President and Chief Executive Officer See biography above.
57
Tawhid Ali, Vice President Senior Vice President of the
47 Adviser**, with which he has been
associated since prior to 2013.
Bruce K. Aronow, Vice President Senior Vice President of the
51 Adviser**, with which he has been
associated since prior to 2013.
Takeo Aso, Vice President Senior Vice President of the
53 Adviser**, with which he has been
associated since prior to 2013.
Brian T. Brugman, Vice President Senior Vice President of the
37 Adviser**, with which he has been
associated since prior to 2013.
Michael Canter, Vice President Senior Vice President of the
48 Adviser**, with which he has been
associated since prior to 2013.
Frank V. Caruso, Vice President Senior Vice President and Chief
61 Investment Officer of U.S. Growth
Equities of the Adviser**, with
which he has been associated since
prior to 2013.
Paul J. DeNoon, Vice President Senior Vice President of the
56 Adviser**, with which he has been
associated since prior to 2013.
Scott A. DiMaggio, Vice President Senior Vice President of the
46 Adviser**, with which he has been
associated since prior to 2013.
John H. Fogarty, Vice President Senior Vice President of the
48 Adviser**, with which he has been
associated since prior to 2013.
Eric J. Franco, Vice President Senior Vice President of the
58 Adviser**, with which he has been
associated since prior to 2013.
Jess Gaspar, Vice President Senior Vice President of the
49 Adviser**, with which he has been
associated since 2016. Prior
thereto, he was Managing Director
and head of allocation and research
at Commonfund from prior to 2013
until 2016.
Cem Inal, Vice President Senior Vice President of the
49 Adviser**, with which he has been
associated since prior to 2013.
Shawn E. Keegan, Vice President Senior Vice President of the
46 Adviser**, with which he has been
associated since prior to 2013.
Ajit D. Ketkar, Vice President Senior Vice President of the
46 Adviser**, with which he has been
associated since prior to 2013.
N. Kumar Kirpalani, Vice President Senior Vice President of the
64 Adviser**, with which he has been
associated since prior to 2013.
Samantha S. Lau, Vice President Senior Vice President of the
45 Adviser**, with which she has been
associated since prior to 2013.
Avi Lavi, Vice President Senior Vice President of the
51 Adviser**, with which he has been
associated since prior to 2013.
Daniel J. Loewy, Vice President Senior Vice President of the
43 Adviser**, with which he has been
associated since prior to 2013.
James W. MacGregor, Vice President Senior Vice President of the
50 Adviser**, with which he has been
associated since prior to 2013.
Joseph G. Paul, Vice President Senior Vice President of the
58 Adviser**, with which he has been
associated since prior to 2013.
Douglas J. Peebles, Vice President Senior Vice President of the
52 Adviser**, with which he has been
associated since prior to 2013.
Daniel C. Roarty, Vice President Senior Vice President of the
46 Adviser**, with which he has been
associated since prior to 2013.
Matthew S. Sheridan, Vice President Senior Vice President of the
43 Adviser**, with which he has been
associated since prior to 2013.
Shri Singhvi, Vice President Senior Vice President of the
44 Adviser**, with which he has been
associated since prior to 2013.
Vinay Thapar, Vice President Senior Vice President of the
39 Adviser**, with which he has been
associated since prior to 2013.
Wen-Tse Tseng, Vice President Senior Vice President of the
52 Adviser**, with which he has been
associated since prior to 2013.
Greg J. Wilensky, Vice President Senior Vice President of the
51 Adviser**, with which he has been
associated since prior to 2013.
Leon Zhu, Vice President Senior Vice President of the
50 Adviser**, with which he has been
associated since prior to 2013.
Joseph J. Mantineo, Treasurer and Senior Vice President of ABIS**,
59 Chief Financial with which he has been associated
Officer since prior to 2013.
Vincent S. Noto, Chief Compliance Officer Senior Vice President since 2015 and
53 Mutual Fund Chief Compliance Officer
of the Adviser** since 2014. Prior
thereto, he was Vice President and
Director of Mutual Fund Compliance
of the Adviser** since prior to
2013.
Emilie D. Wrapp, Secretary Senior Vice President, Assistant
62 General Counsel and Assistant
Secretary of ABI**, with which she
has been associated since prior to
2013.
Phyllis J. Clarke, Controller and Chief Accounting Vice President of ABIS**, with which
57 Officer she has been associated since prior
to 2013.
--------
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, ABI and ABIS are affiliates of the Fund.
The Fund's Portfolios do not pay any fees to, or reimburse expenses
of, its Directors who are considered "interested persons" (as defined in Section
2(a)(19) of the 1940 Act) of the Fund. The aggregate compensation paid by the
Fund's Portfolios to each of the Directors during each Portfolio's fiscal year
ended December 31, 2017, the aggregate compensation paid to each of the
Directors during calendar year 2017 by the AB Fund Complex, and the total number
of registered investment companies (and separate investment portfolios within
those companies) in the AB Fund Complex with respect to which each of the
Directors serves as a director or trustee, are set forth below. Neither the Fund
or its Portfolios nor any other registered investment company in the AB Fund
Complex provides compensation in the form of pension or retirement benefits to
any of its directors or trustees. Each of the Directors is a director or trustee
of one or more registered investment companies in the AB Fund Complex.
Aggregate Aggregate Aggregate Aggregate
Compensation Compensation Compensation Compensation
From International From Large Cap From Growth and From
Name of Director Bond Portfolio Growth Portfolio Income Portfolio Growth Portfolio
---------------- -------------- ---------------- ---------------- ----------------
John H. Dobkin* $ 2,899 $ 2,900 $ 2,900 $ 2,900
Michael J. Downey $ 2,877 $ 2,876 $ 2,876 $ 2,876
William H. Foulk, Jr. $ 2,877 $ 2,876 $ 2,876 $ 2,876
D. James Guzy* $ 2,947 $ 2,947 $ 2,947 $ 2,947
Nancy P. Jacklin $ 3,079 $ 3,078 $ 3,078 $ 3,078
Robert M. Keith $ 0 $ 0 $ 0 $ 0
Carol C. McMullen $ 2,877 $ 2,876 $ 2,876 $ 2,876
Garry L. Moody $ 3,281 $ 3,280 $ 3,280 $ 3,280
Marshall C. Turner, Jr. $ 4,844 $ 4,844 $ 4,844 $ 4,844
Earl D. Weiner $ 2,877 $ 2,876 $ 2,876 $ 2,876
Aggregate
Aggregate Compensation Aggregate Aggregate
Compensation From Global Compensation Compensation
From International Thematic From Small Cap From Real Estate
Name of Director Growth Portfolio Growth Portfolio Growth Portfolio Investment Portfolio
---------------- ---------------- ---------------- ---------------- --------------------
John H. Dobkin* $ 2,899 $ 2,899 $ 2,900 $ 2,899
Michael J. Downey $ 2,877 $ 2,877 $ 2,876 $ 2,877
William H. Foulk, Jr. $ 2,877 $ 2,877 $ 2,876 $ 2,877
D. James Guzy* $ 2,947 $ 2,947 $ 2,947 $ 2,947
Nancy P. Jacklin $ 3,079 $ 3,079 $ 3,078 $ 3,079
Robert M. Keith $ 0 $ 0 $ 0 $ 0
Carol C. McMullen $ 2,877 $ 2,877 $ 2,876 $ 2,877
Garry L. Moody $ 3,281 $ 3,281 $ 3,280 $ 3,281
Marshall C. Turner, Jr. $ 4,844 $ 4,844 $ 4,844 $ 4,844
Earl D. Weiner $ 2,877 $ 2,877 $ 2,876 $ 2,877
Aggregate
Aggregate Aggregate Aggregate Compensation
Compensation Compensation Compensation From Balanced
From International From Small/Mid From Wealth Strategy
Name of Director Value Portfolio Cap Value Portfolio Value Portfolio Portfolio
---------------- --------------- ------------------- --------------- ---------------
John H. Dobkin* $ 2,900 $ 2,900 $ 2,899 $ 2,900
Michael J. Downey $ 2,877 $ 2,877 $ 2,877 $ 2,877
William H. Foulk, Jr. $ 2,877 $ 2,877 $ 2,877 $ 2,877
D. James Guzy* $ 2,947 $ 2,947 $ 2,947 $ 2,947
Nancy P. Jacklin $ 3,078 $ 3,078 $ 3,079 $ 3,078
Robert M. Keith $ 0 $ 0 $ 0 $ 0
Carol C. McMullen $ 2,877 $ 2,877 $ 2,877 $ 2,877
Garry L. Moody $ 3,281 $ 3,281 $ 3,281 $ 3,281
Marshall C. Turner, Jr. $ 4,844 $ 4,844 $ 4,844 $ 4,844
Earl D. Weiner $ 2,877 $ 2,877 $ 2,877 $ 2,877
Aggregate Aggregate
Compensation Compensation
From Dynamic Asset From Global Risk
Name of Director Allocation Portfolio Allocation--Moderate Portfolio
---------------- -------------------- ------------------------------
John H. Dobkin* $ 2,899 $ 2,899
Michael J. Downey $ 2,877 $ 2,877
William H. Foulk, Jr. $ 2,877 $ 2,877
D. James Guzy* $ 2,947 $ 2,947
Nancy P. Jacklin $ 3,078 $ 3,078
Robert M. Keith $ 0 $ 0
Carol C. McMullen $ 2,877 $ 2,877
Garry L. Moody $ 3,281 $ 3,281
Marshall C. Turner, Jr. $ 4,844 $ 4,844
Earl D. Weiner $ 2,877 $ 2,877
--------
* Messrs. Dobkin and Guzy retired as Directors effective December 31, 2017.
Total Number of Total Number of
Registered Investment Investment Portfolios
Companies in the AB Fund in the AB Fund
Total Compensation Complex, Including the Complex, Including the
From the Fund, as to Fund, as to
AB Fund Complex, which the Director is which the Director is
Name of Director Including the Fund a Director or Trustee a Director or Trustee
---------------- ------------------ --------------------- ---------------------
John H. Dobkin* $ 285,000 26 93
Michael J. Downey $ 285,000 26 93
William H. Foulk, Jr. $ 285,000 26 93
D. James Guzy* $ 285,000 26 93
Nancy P. Jacklin $ 305,000 26 93
Robert M. Keith $ 0 26 93
Carol C. McMullen $ 285,000 26 93
Garry L. Moody $ 325,000 26 93
Marshall C. Turner, Jr. $ 480,000 26 93
Earl D. Weiner $ 285,000 26 93
--------
* Messrs. Dobkin and Guzy retired as Directors effective December 31, 2017.
As of April 4, 2018, the Directors and officers of the Fund as a
group owned less than 1% of the shares of the Fund.
Additional Information About The Portfolios' Portfolio Managers
---------------------------------------------------------------
Additional information regarding the investment professional(s)(2)
primarily responsible for the day-to-day management of each Portfolio's
portfolio may be found below. For additional information about the portfolio
management of each Portfolio, see "Management of the Portfolios - Portfolio
Managers" in the Portfolio's Prospectuses.
--------
(2) Investment professionals at the Adviser include portfolio managers and
research analysts. Investment professionals are part of investment groups
(or teams) that service individual fund portfolios. The number of
investment professionals assigned to a particular Portfolio will vary from
Portfolio to Portfolio.
None of the investment professionals identified below owned any
equity securities of the Portfolio directly or indirectly because shares of the
Portfolio are held through the separate accounts of the Insurers.
INTERMEDIATE BOND PORTFOLIO
The day-to-day management of, and investment decisions for, the
Portfolio are made by the Adviser's U.S. Core Fixed Income Investment Team. Mr.
Michael Canter, Mr. Shawn E. Keegan, Mr. Douglas J. Peebles and Mr. Greg J.
Wilensky are the investment professionals with the most significant
responsibility for the day-to-day management of the Portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of December
31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Michael Canter 32 $ 9,347,000,000 None None
Shawn E. Keegan 2 $ 332,000,000 None None
Douglas J. Peebles 31 $16,063,000,000 None None
Greg J. Wilensky 32 $ 9,347,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Michael Canter 30 $ 3,588,000,000 None None
Shawn E. Keegan 32 $43,153,000,000 None None
Douglas J. Peebles 72 $ 7,466,000,000 None None
Greg J. Wilensky 30 $ 3,588,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Michael Canter 82 $ 6,619,000,000 3 $ 731,000,000
Shawn E. Keegan 107 $51,221,000,000 1 $5,224,000,000
Douglas J. Peebles 75 $28,063,000,000 3 $2,449,000,000
Greg J. Wilensky 82 $ 6,619,000,000 3 $ 731,000,000
LARGE CAP GROWTH PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Adviser's U.S. Large Cap Growth Investment Team. Mr.
Frank V. Caruso, Mr. John H. Fogarty and Mr. Vinay Thapar are the investment
professionals with the most significant responsibility for the day-to-day
management of the Portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of December
31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Frank V. Caruso 28 $18,563,000,000 None None
John H. Fogarty 22 $10,964,000,000 None None
Vinay Thapar 4 $ 6,944,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Frank V. Caruso 14 $3,834,000,000 None None
John H. Fogarty 14 $4,129,000,000 None None
Vinay Thapar 13 $3,647,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Frank V. Caruso 28,905 $17,539,000,000 None None
John H. Fogarty 2,923 $ 2,645,000,000 None None
Vinay Thapar 2,915 $ 1,638,000,000 None None
GROWTH AND INCOME PORTFOLIO
The day-to-day management of, and investment decisions for, the
Portfolio's portfolio are made by the Adviser's Relative Value Investment Team.
Mr. Frank V. Caruso, Mr. John H. Fogarty and Mr. Vinay Thapar are the investment
professionals primarily responsible for the day-to-day management of the
Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Frank V. Caruso 28 $17,548,000,000 None None
John H. Fogarty 22 $ 9,949,000,000 None None
Vinay Thapar 4 $ 6,944,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Frank V. Caruso 14 $3,834,000,000 None None
John H. Fogarty 14 $4,129,000,000 None None
Vinay Thapar 13 $3,647,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Frank V. Caruso 28,905 $17,539,000,000 None None
John H. Fogarty 2,923 $ 2,645,000,000 None None
Vinay Thapar 2,915 $ 1,638,000,000 None None
GROWTH PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Adviser's Growth Investment Team. Mr. Bruce K. Aronow,
Mr. Frank V. Caruso and Mr. John H. Fogarty are the investment professionals
with the most significant responsibility for the day-to-day management of the
Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Bruce K. Aronow 23 $ 6,280,000,000 None None
Frank V. Caruso 28 $18,544,000,000 None None
John H. Fogarty 22 $10,945,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Bruce K. Aronow 19 $ 288,000,000 None None
Frank V. Caruso 14 $3,834,000,000 None None
John H. Fogarty 14 $4,129,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Bruce K. Aronow 22 $ 3,121,000,000 2 $544,000,000
Frank V. Caruso 28,905 $17,539,000,000 None None
John H. Fogarty 2,923 $ 2,645,000,000 None None
GLOBAL THEMATIC GROWTH PORTFOLIO
The day-to-day management of, and investment decisions for, the
Portfolio's portfolio are made by the Adviser's Thematic and Sustainable
Equities Team. Mr. Daniel C. Roarty is the investment professional with the most
significant responsibility for the day-to-day management of the Portfolio's
portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio manager also has day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel C. Roarty 35 $6,677,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel C. Roarty 44 $28,554,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Daniel C. Roarty 238 $19,226,000,000 None None
INTERNATIONAL GROWTH PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Adviser's Thematic and Sustainable Equities Team. Mr.
Daniel C. Roarty is the investment professional with the most significant
responsibility for the day-to-day management of the Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio manager also has day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel C. Roarty 35 $6,753,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel C. Roarty 44 $28,554,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Daniel C. Roarty 238 $19,226,000,000 None None
SMALL CAP GROWTH PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Small Cap Growth Investment Team. Mr. Bruce K. Aronow,
Mr. N. Kumar Kirpalani, Ms. Samantha Lau and Mr. Wen-Tse Tseng are the
investment professionals with the most significant responsibility for the
day-to-day management of the Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Bruce K. Aronow 23 $6,301,000,000 None None
N. Kumar Kirpalani 21 $5,396,000,000 None None
Samantha Lau 21 $5,396,000,000 None None
Wen-Tse Tseng 21 $5,396,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Bruce K. Aronow 19 $288,000,000 None None
N. Kumar Kirpalani 19 $288,000,000 None None
Samantha Lau 19 $288,000,000 None None
Wen-Tse Tseng 19 $288,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Bruce K. Aronow 22 $3,121,000,000 2 $544,000,000
N. Kumar Kirpalani 19 $2,712,000,000 2 $544,000,000
Samantha Lau 19 $2,712,000,000 2 $544,000,000
Wen-Tse Tseng 19 $2,712,000,000 2 $544,000,000
REAL ESTATE INVESTMENT PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the REIT Senior Investment Management Team. Mr. Eric J.
Franco and Mr. Ajit D. Ketkar are the investment professionals with the most
significant responsibility for the day-to-day management of the Portfolio's
portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Eric J. Franco 21 $913,000,000 None None
Ajit D. Ketkar 21 $913,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Eric J. Franco 46 $1,173,000,000 None None
Ajit D. Ketkar 46 $1,173,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Eric J. Franco 5 $213,000,000 None None
Ajit D. Ketkar 5 $213,000,000 None None
INTERNATIONAL VALUE PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the International Value Senior Investment Management Team.
Mr. Takeo Aso, Mr. Avi Lavi and Mr. Tawhid Ali are the investment professionals
with the most significant responsibility for the day-to-day management of the
Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities(3). The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------
(3) Each investment vehicle or account represented in the chart, for which the
investment professionals have portfolio management responsibility, is
based upon one of eleven model portfolios. Each vehicle or account differs
from its respective model portfolio only to a limited extent based on
specific client requirements relating to tax considerations, cash flows
due to the frequency and amount of investments, the client's country of
residence and currency strategies related thereto, and/or client-imposed
investment restrictions regarding particular types of companies or
industries.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Tawhid Ali 23 $3,335,000,000 None None
Takeo Aso 23 $3,335,000,000 None None
Avi Lavi 46 $9,748,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Tawhid Ali 31 $ 4,054,000,000 None None
Takeo Aso 25 $ 1,278,000,000 None None
Avi Lavi 60 $25,225,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Tawhid Ali 40 $ 9,042,000,000 1 $309,000,000
Takeo Aso 32 $ 7,833,000,000 1 $309,000,000
Avi Lavi 40 $26,149,000,000 1 $309,000,000
SMALL/MID CAP VALUE PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Small/Mid Cap Value Senior Investment Management Team.
Mr. James W. MacGregor and Mr. Shri Singhvi are the investment professionals
with the most significant responsibility for the day-to-day management of the
Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
James W. MacGregor 27 $6,937,000,000 None None
Shri Singhvi 26 $6,233,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
James W. MacGregor 37 $ 980,000,000 None None
Shri Singhvi 35 $ 783,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
James W. MacGregor 47 $2,438,000,000 None None
Shri Singhvi 47 $2,438,000,000 None None
VALUE PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the U.S. Value Senior Investment Management Team. Mr. Cem
Inal and Mr. Joseph G. Paul are the investment professionals with the most
significant responsibility for the day-to-day management of the Portfolio's
portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities.(4) The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of the
Portfolio's fiscal year ended December 31, 2017.
--------
(4) Each investment vehicle or account represented in the chart, for which the
investment professionals have portfolio management responsibility, is
based upon one of three model portfolios. Each vehicle or account differs
from its respective model portfolio only to a limited extent based on
specific client requirements relating to tax considerations, cash flows
due to the frequency and amount of investments, the client's country of
residence and currency strategies related thereto, and/or client-imposed
investment restrictions regarding particular types of companies or
industries.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Cem Inal 7 $2,259,000,000 None None
Joseph G. Paul 13 $9,858,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Cem Inal 10 $ 256,000,000 None None
Joseph G. Paul 15 $ 444,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Cem Inal 3,572 $2,745,000,000 None None
Joseph G. Paul 29,555 $ 17,663,000 None None
BALANCED WEALTH STRATEGY PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Multi-Asset Solutions Team. Mr. Jess Gaspar and Mr.
Daniel J. Loewy are the investment professionals with the most significant
responsibility for the day-to-day management of the Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
responsibilities for coordinating investments. The tables provide the numbers of
such accounts, the total assets in such accounts and the number of accounts and
total assets whose fees are based on performance. The information is provided as
of the Portfolio's fiscal year ended December 31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Jess Gaspar 47 $11,897,000,000 None None
Daniel J. Loewy 63 $13,178,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Jess Gaspar None None None None
Daniel J. Loewy 166 $23,216,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Jess Gaspar 33 $ 8,847,000,000 None None
Daniel J. Loewy 54 $27,074,000,000 None None
DYNAMIC ASSET ALLOCATION PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Adviser's Dynamic Asset Allocation Team. Mr. Brian T.
Brugman and Mr. Daniel J. Loewy are the investment professionals primarily
responsible for the day-to-day management of the Portfolio's portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of December
31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Brian T. Brugman 46 $11,295,000,000 None None
Daniel J. Loewy 62 $12,577,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Brian T. Brugman None None None None
Daniel J. Loewy 166 $23,216,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Brian T. Brugman 33 $ 8,847,000,000 None None
Daniel J. Loewy 54 $27,074,000,000 None None
GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
The management of, and investment decisions for, the Portfolio's
portfolio are made by the Adviser's Quantitative Investment Strategies Team. Mr.
Daniel J. Loewy and Mr. Leon Zhu are the investment professionals with the most
significant responsibility for the day-to-day management of the Portfolio.
The following tables provide information regarding registered
investment companies other than the Portfolio, other pooled investment vehicles
and other accounts over which the portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of December
31, 2017.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Portfolio)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel J. Loewy 62 $13,163,000,000 None None
Leon Zhu 1 $ 42,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets Investment Investment
of Other Pooled of Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Daniel J. Loewy 166 $23,216,000,000 None None
Leon Zhu None None None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Daniel J. Loewy 54 $27,074,000,000 None None
Leon Zhu None None None None
Investment Professional Conflict of Interest Disclosure
-------------------------------------------------------
As an investment adviser and fiduciary, the Adviser owes its clients
and shareholders an undivided duty of loyalty. The Adviser recognizes that
conflicts of interest are inherent in its business and accordingly has developed
policies and procedures (including oversight monitoring) reasonably designed to
detect, manage and mitigate the effects of actual or potential conflicts of
interest in the area of employee personal trading, managing multiple accounts
for multiple clients, including AB Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. The Adviser places
the interests of its clients first and expects all of its employees to meet
their fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of
Business Conduct and Ethics that is designed to detect and prevent conflicts of
interest when investment professionals and other personnel of the Adviser own,
buy or sell securities which may be owned by, or bought or sold for, clients.
Personal securities transactions by an employee may raise a potential conflict
of interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in certain funds managed by the Adviser. The Adviser's Code
of Business Conduct and Ethics requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by the
Adviser. The Code of Business Conduct and Ethics also requires preclearance of
all securities transactions (except transactions in U.S. Treasuries and open-end
mutual funds) and imposes a 60-day holding period for securities purchased by
employees to discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has
compliance policies and oversight monitoring in place to address conflicts of
interest relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. The investment professional or investment professional teams for each
client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such as
hedge funds, pension plans, separate accounts, collective trusts and charitable
foundations. Among other things, the Adviser's policies and procedures provide
for the prompt dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals are
better able to develop investment strategies for all accounts they manage. In
addition, investment decisions by investment professionals are reviewed for the
purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
clients of the Adviser and is generally not tied specifically to the performance
of any particular client's account, nor is it generally tied directly to the
level or change in level of assets under management.
Allocating Investment Opportunities. The investment professionals at
the Adviser routinely are required to select and allocate investment
opportunities among accounts. The Adviser has adopted policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are allocated
equitably among different clients. The policies and procedures require, among
other things, objective allocation for limited investment opportunities (e.g.,
on a rotational basis), and documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account. Portfolio holdings, position sizes,
and industry and sector exposures tend to be similar across similar accounts,
which minimizes the potential for conflicts of interest relating to the
allocation of investment opportunities. Nevertheless, access to portfolio funds
or other investment opportunities may be allocated differently among accounts
due to the particular characteristics of an account, such as size of the
account, cash position, tax status, risk tolerance and investment restrictions
or for other reasons.
The Adviser's procedures are also designed to address potential
conflicts of interest that may arise when the Adviser has a particular financial
incentive, such as a performance-based management fee, relating to an account.
An investment professional may perceive that he or she has an incentive to
devote more time to developing and analyzing investment strategies and
opportunities or allocating securities preferentially to accounts for which the
Adviser could share in investment gains.
Portfolio Manager Compensation
------------------------------
The Adviser's compensation program for portfolio managers is
designed to align with clients' interests, emphasizing each portfolio manager's
ability to generate long-term investment success for the Adviser's clients,
including the Portfolios. The Adviser also strives to ensure that compensation
is competitive and effective in attracting and retaining the highest caliber
employees.
Portfolio managers receive a base salary, incentive compensation and
contributions to AllianceBernstein's 401(k) plan. Part of the annual incentive
compensation is generally paid in the form of a cash bonus, and part through an
award under the firm's Incentive Compensation Award Plan (ICAP). The ICAP awards
vest over a four-year period. Deferred awards are paid in the form of restricted
grants of the firm's Master Limited Partnership Units, and award recipients have
the ability to receive a portion of their awards in deferred cash. The amount of
contributions to the 401(k) plan is determined at the sole discretion of the
Adviser. On an annual basis, the Adviser endeavors to combine all of the
foregoing elements into a total compensation package that considers industry
compensation trends and is designed to retain its best talent.
The incentive portion of total compensation is determined by
quantitative and qualitative factors. Quantitative factors, which are weighted
more heavily, are driven by investment performance. Qualitative factors are
driven by contributions to the investment process and client success.
The quantitative component includes measures of absolute, relative
and risk-adjusted investment performance. Relative and risk-adjusted returns are
determined based on the benchmark in the Portfolios' Prospectuses and versus
peers over one-, three- and five-year calendar periods, with more weight given
to longer-time periods. Peer groups are chosen by Chief Investment Officers, who
consult with the product management team to identify products most similar to
our investment style and most relevant within the asset class. Portfolio
managers of the Portfolios do not receive any direct compensation based upon the
investment returns of any individual client account, and compensation is not
tied directly to the level or change in level of assets under management.
Among the qualitative components considered, the most important
include thought leadership, collaboration with other investment colleagues,
contributions to risk-adjusted returns of other portfolios in the firm, efforts
in mentoring and building a strong talent pool and being a good corporate
citizen. Other factors can play a role in determining portfolio managers'
compensation, such as the complexity of investment strategies managed, volume of
assets managed and experience.
The Adviser emphasizes four behavioral competencies--relentlessness,
ingenuity, team orientation and accountability--that support its mission to be
the most trusted advisor to its clients. Assessments of investment professionals
are formalized in a year-end review process that includes 360-degree feedback
from other professionals from across the investment teams and the Adviser.
--------------------------------------------------------------------------------
EXPENSES OF THE PORTFOLIOS
--------------------------------------------------------------------------------
Distribution Services Agreement
-------------------------------
The Fund has entered into a Distribution Services Agreement (the
"Agreement") with ABI, the Fund's principal underwriter, to permit ABI to
distribute the Portfolios' shares and to permit each Portfolio of the Fund to
pay distribution services fees to defray expenses associated with distribution
of its Class B shares in accordance with a plan of distribution that is included
in the Agreement and that has been duly adopted and approved in accordance with
Rule 12b-1 adopted by the SEC under the 1940 Act (the "Plan").
In approving the Plan, the Directors determined that there was a
reasonable likelihood that the Plan would benefit each Portfolio and its Class B
shareholders. The Adviser may, from time to time, and from its own funds or such
other resources as may be permitted by rules of the SEC, make payments for
distribution services to ABI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved at least annually
by a majority of the Independent Directors of the Fund who have no direct or
indirect financial interest in the operation of the Plan or in any agreement
relating to the Plan ("Qualified Directors") and by a vote of a majority of the
entire Board at a meeting called for that purpose. Most recently, continuance of
the Agreement was approved for an additional annual term by the Board, including
a majority of the Directors who are not parties to the Agreement or interested
persons of such party, at a meeting held on May 2-4, 2017.
All material amendments to the Plan will become effective only on
approval as specified in the preceding paragraph and the Plan may not be amended
in order to materially increase the costs that the Portfolios may bear pursuant
to the Plan without the approval of a majority of the holders of the outstanding
voting shares of the Class B shares of the Portfolios.
The Agreement may be terminated with respect to a Portfolio (i) by
ABI or (ii) by a Portfolio without payment of any penalty upon the vote of a
majority of the outstanding voting securities of the Portfolio, voting
separately by class, or by vote of a majority of the Qualified Directors. To
terminate an Agreement, any party must give the other 60 days' written notice;
to terminate a Plan only, a Portfolio is not required to give prior notice to
ABI. The Agreement will terminate automatically in the event of an assignment.
The Plan is of a type known as a "compensation plan", which means that it
compensates the distributor for services rendered even if the amount paid
exceeds the distributor's expenses.
In the event that the Agreement is terminated by either party or not
continued with respect to the Class B shares of a Portfolio, (i) no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to ABI with respect to Class B shares of such Portfolio and
(ii) the Fund would not be obligated to pay ABI for any amounts expended under
the Agreement not previously recovered by ABI from distribution services fees in
respect of shares of such class.
During the fiscal year ended December 31, 2017, the Portfolios paid
distribution services fees for expenditures under the Agreement, with respect to
Class B shares, in aggregate amounts as described in the table below.
Percentage per
annum of the
Distribution the aggregate
services average daily
fees for net assets
expenditures attributable to
Fund payable to ABI Class B shares
---- -------------- ---------------
Intermediate Bond Portfolio $ 39,026 .25%
Large Cap Growth Portfolio $ 575,226 .25%
Growth and Income Portfolio $ 2,253,731 .25%
Growth Portfolio $ 100,162 .25%
International Growth Portfolio $ 95,168 .25%
Global Thematic Growth Portfolio $ 240,025 .25%
Small Cap Growth Portfolio $ 43,483 .25%
Real Estate Investment Portfolio $ 45,908 .25%
International Value Portfolio $ 1,118,458 .25%
Small/Mid Cap Value Portfolio $ 1,143,259 .25%
Value Portfolio $ 186,256 .25%
Balanced Wealth Strategy Portfolio $ 683,763 .25%
Dynamic Asset Allocation Portfolio $ 1,458,757 .25%
Global Risk Allocation--Moderate Portfolio $ 223,929 .25%
For the fiscal year ended December 31, 2017, expenses incurred by
each Portfolio and costs allocated to each Portfolio in connection with
activities primarily intended to result in the sale of Class B shares were as
follows:
Intermediate Bond Large Cap Growth and
Category of Expense Portfolio Growth Portfolio Income Portfolio
------------------- --------- ---------------- ----------------
Advertising/Marketing $ 6 $ 92 $ 361
Printing and Mailing 12 183 708
of Prospectuses and Semi-Annual and Annual
Reports to Other Than Current Shareholders
Compensation to Underwriters 38,869 576,603 2,255,929
Compensation to Dealers 32,153 435,243 1,758,553
Compensation to Sales Personnel 229 2,915 13,168
Interest, Carrying or Other Financing 0 0 0
Charges
Other (includes personnel costs of those 479 6,788 27,628
home office employees involved in the
distribution effort and the travel-related
expenses incurred by the marketing
personnel conducting seminars)
Totals $71,748 $1,021,824 $4,056,347
Growth International Global Thematic Small Cap
Category of Expense Portfolio Growth Portfolio Growth Portfolio Growth Portfolio
------------------- --------- ---------------- ---------------- -----------------
Advertising/ $ 16 $ 15 $ 38 $ 6
Marketing
Printing and Mailing of 32 30 76 14
Prospectuses and Semi-Annual and
Annual Reports to Other than
Current Shareholders
Compensation to Underwriters 100,123 95,163 240,249 43,569
Compensation to Dealers 77,929 70,881 173,647 30,825
Compensation to Sales Personnel 545 470 1,058 232
Interest, Carrying or Other 0 0 0 0
Financing Charges
Other (includes personnel costs 1,197 1,119 2,767 528
of those home office employees
involved in the distribution
effort and the travel-related
expenses incurred by the
marketing personnel conducting
seminars)
Totals $179,842 $167,678 $417,835 $ 75,174
Real Estate International Small/Mid Cap Value
Category of Expense Investment Portfolio Value Portfolio Value Portfolio Portfolio
------------------- -------------------- --------------- --------------- ----------
Advertising/ $ 8 $ 182 $ 183 $ 30
Marketing
Printing and Mailing of 14 348 359 58
Prospectuses and Semi-Annual and
Annual Reports to Other than
Current Shareholders
Compensation to Underwriters 45,907 1,115,391 1,143,921 186,097
Compensation to Dealers 35,477 914,597 883,106 152,010
Compensation to Sales Personnel 229 7,422 6,838 1,211
Interest, Carrying or Other 0 0 0 0
Financing Charges
Other (includes personnel costs 551 14,337 14,176 2,337
of those home office employees
involved in the distribution
effort and the travel-related
expenses incurred by the
marketing personnel conducting
seminars)
Totals $ 82,186 $2,052,277 $2,048,583 $341,743
Balanced Wealth Dynamic Asset Global Risk Allocation--
Category of Expense Strategy Portfolio Allocation Portfolio Moderate Portfolio
------------------- ------------------ -------------------- -----------------------
Advertising/ $ 110 $ 236 $ 36
Marketing
Printing and Mailing of 215 458 71
Prospectuses and Semi-Annual and
Annual Reports to Other than
Current Shareholders
Compensation to Underwriters 682,995 1,459,841 224,098
Compensation to Dealers 549,492 1,122,946 (22,262)
Compensation to Sales Personnel 4,052 8,079 1,026
Interest, Carrying or Other 0 0 0
Financing Charges
Other (includes personnel costs 8,380 17,668 2,610
of those home office employees
involved in the distribution
effort and the travel-related
expenses incurred by the
marketing personnel conducting
seminars)
Totals $1,245,244 $2,609,228 $205,579
Securities Lending Agreement
----------------------------
State Street Bank and Trust Company ("State Street") serves as the
securities lending agent to the Portfolios and is responsible for the
implementation and administration of a securities lending program pursuant to a
Securities Lending Authorization Agreement ("Securities Lending Agreement").
Pursuant to the Securities Lending Agreement, State Street provides the
following services: effecting loans of Portfolio securities to any person on a
list of approved borrowers; determining whether a loan shall be made and
negotiating and establishing the terms and conditions of the loan with the
borrowing; ensuring that payments relating to distributions on loaned securities
are timely and properly credited to a Portfolio's account; collateral management
(including valuation and daily mark-to-market obligations); cash collateral
reinvestment in accordance with the Securities Lending Agreement; and
maintaining records and preparing reports regarding loans that are made and the
income derived therefrom.
The Portfolios earned income and paid fees and compensation related
to their securities lending activities during the most recent fiscal year as
follows:
Fees and/or compensation for securities lending activities and related services:
Intermediate Large International
Bond Cap Growth Growth and Growth Growth
Portfolio Portfolio Income Portfolio Portfolio Portfolio
------------ ------------ ---------------- ----------- -------------
Gross income $ 0 $ 614 $ 197,377 $ 5,287 $ 12,992
from securities
lending
activities
Fees paid to $ 0 $ (22) $ (10,224) $ (344) $ (1,053)
securities
lending agent
from revenue
split
Fees paid for $ 0 $ 0 $ 0 $ 0 $ 0
any cash
collateral
management
services
(including fees
deducted from a
pooled cash
collateral
reinvestment
vehicle) that are
not included in
the revenue split
Administrative $ 0 $ 0 $ 0 $ 0 $ 0
fees not
included in the
revenue split
Indemnification fees $ 0 $ 0 $ 0 $ 0 $ 0
not included in the
revenue split
Rebate $ 0 $ (393) $ (95,149) $ (1,853) $ (2,462)
(paid to borrow)
Other fees not $ 0 $ 0 $ 0 $ 0 $ 0
included in
revenue split
Aggregate fees $ 0 $ (415) $ (105,373) $ (2,197) $ (3,515)
and/or
compensation
for securities
lending
activities
Net income $ 0 $ 199 $ 92,004 $ 3,090 $ 9,477
from securities
lending
activities
Fees and/or compensation for securities lending activities and related services:
Global
Thematic Small Cap Real Estate International Small/Mid Cap
Growth Growth Investment Value Value
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- ------------ -------------- --------------
Gross income $ 43,511 $ 29,310 $1,349 $ 300,858 $ 274,670
from securities
lending
activities
Fees paid to $ (3,994) $ (2,658) $ (46) $ (23,434) $ (22,616)
securities
lending agent
from revenue
split
Fees paid for $ 0 $ 0 $ 0 $ 0 $ 0
any cash
collateral
management
services
(including fees
deducted from a
pooled cash
collateral
reinvestment
vehicle) that are
not included in
the revenue split
Administrative $ 0 $ 0 $ 0 $ 0 $ 0
fees not
included in the
revenue split
Indemnification fees $ 0 $ 0 $ 0 $ 0 $ 0
not included in the
revenue split
Rebate $ (3,585) $ (2,733) $ (886) $ (66,524) $ (48,533)
(paid to borrow)
Other fees not $ 0 $ 0 $ 0 $ 0 $ 0
included in
revenue split
Aggregate fees $ (7,579) $ (5,391) $ (932) $ (89,958) $ (71,149)
and/or
compensation
for securities
lending
activities
Net income $ 35,932 $ 23,919 $ 417 $ 210,900 $ 203,521
from securities
lending
activities
Fees and/or compensation for securities lending activities and related services:
Balanced Wealth Dynamic Asset Global Risk
Value Strategy Allocation Allocation--
Portfolio Portfolio Portfolio Moderate Portfolio
----------- --------------- -------------- ------------------
Gross income $29,310 $ 12,059 $ 60,761 $ 5,755
from securities
lending
activities
Fees paid to $(2,658) $ (904) $ (3,188) $ (316)
securities
lending agent
from revenue
split
Fees paid for $ 0 $ 0 $ 0 $ 0
any cash
collateral
management
services
(including fees
deducted from a
pooled cash
collateral
reinvestment
vehicle) that are
not included in
the revenue split
Administrative $ 0 $ 0 $ 0 $ 0
fees not
included in the
revenue split
Indemnification fees $ 0 $ 0 $ 0 $ 0
not included in the
revenue split
Rebate $(2,733) $ (3,030) $ (28,907) $ (2,598)
(paid to borrow)
Other fees not $ 0 $ 0 $ 0 $ 0
included in
revenue split
Aggregate fees $(5,391) $ (3,934) $ (32,095) $ (2,914)
and/or
compensation
for securities
lending
activities
Net income $23,919 $ 8,125 $ 28,666 $ 2,841
from securities
lending
activities
--------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES
--------------------------------------------------------------------------------
The following information supplements that set forth in the
Portfolios' Prospectuses under the heading "Investing in the Portfolios".
Shares of each Portfolio are offered at NAV on a continuous basis to
the separate accounts of the Insurers without any sales or other charge. The
separate accounts of insurance companies place orders to purchase shares based
on, among other things, the amount of premium payments to be invested and
surrendered and transfer requests to be effected pursuant to variable contracts
funded by shares of the Portfolio. The Fund reserves the right to suspend the
sale of its shares in response to conditions in the securities markets or for
other reasons. See the prospectus of the separate account of the participating
insurance company for more information on the purchase of shares.
The Insurers maintain omnibus account arrangements with the Fund in
respect of one or more Portfolios and place aggregate purchase, redemption and
exchange orders for shares of a Portfolio corresponding to orders placed by the
Insurers' customers ("Contractholders") who have purchased contracts from the
Insurers, in each case, in accordance with the terms and conditions of the
relevant contract. Omnibus account arrangements maintained by the Insurers are
discussed below.
Redemption of Shares
--------------------
An insurance company separate account may redeem all or any portion
of the shares in its account at any time at the NAV next determined after a
redemption request in the proper form is furnished to the Fund. Any certificates
representing shares being redeemed must be submitted with the redemption
request. Shares do not earn dividends on the day they are redeemed, regardless
of whether the redemption request is received before or after the time of
computation of NAV that day. There is no redemption charge. The Portfolios
expect that it will typically take up to three business days following the
receipt of a redemption request in proper form to pay out redemption proceeds.
However, while not expected, payment of redemption proceeds may take up to seven
days after the day a request is received in proper form by a Portfolio by the
close of regular trading on any day the New York Stock Exchange (the "Exchange")
is open (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier, as in the
case of scheduled half-day trading or unscheduled suspensions of trading).
The right of redemption may be suspended or the date of payment may
be postponed for any period during which the Exchange is closed (other than
customary weekend and holiday closings) or during which the SEC determines that
trading thereon is restricted, or for any period during which an emergency (as
determined by the SEC) exists as a result of which disposal by the Fund of
securities owned by a Portfolio is not reasonably practicable or as a result of
which it is not reasonably practicable for the Fund fairly to determine the
value of a Portfolio's net assets, or for such other periods as the SEC may by
order permit for the protection of security holders of the Portfolios. For
information regarding how to redeem shares in the Portfolios, please see your
insurance company's separate account prospectus.
Payment of the redemption price normally will be made in cash but
may be made, at the option of a Portfolio, in kind. The value of a shareholder's
shares on redemption or repurchase may be more or less than the cost of such
shares to the shareholder, depending upon the market value of the Portfolio's
securities at the time of such redemption or repurchase. Payment either in cash
or in portfolio securities received by a shareholder upon redemption or
repurchase of his shares, assuming the shares constitute capital assets in his
hands, will result in long-term or short-term capital gains (or losses)
depending upon the shareholder's holding period and basis in respect of the
shares redeemed.
Payments to Financial Intermediaries
------------------------------------
Financial intermediaries, such as the Insurers, market and sell
shares of the Portfolios and typically receive compensation for selling shares
of the Portfolios. This compensation is paid from various sources, including any
Rule 12b-1 fee that you or the Portfolios may pay.
In the case of Class B shares, up to 100% of the Rule 12b-1 fee
applicable to Class B shares each year may be paid to the financial intermediary
that sells Class B shares.
Insurers or your financial intermediary receive compensation from
the Portfolios, ABI and/or the Adviser in several ways from various sources,
which include some or all of the following:
o Rule 12b-1 fees;
o defrayal of costs for educational seminars and training;
o additional distribution support; and
o payments related to providing recordkeeping and/or transfer
agency services.
Please read your Portfolio's Prospectus carefully for information on
this compensation.
ABI and/or the Adviser may pay Insurers or other financial
intermediaries to perform recordkeeping and administrative services in
connection with the Portfolios. Such payments will generally not exceed 0.35% of
the average daily net assets of each Portfolio attributable to the Insurer.
Other Payments for Educational Support and Distribution Assistance.
In addition to the fees described above, ABI, at its expense, currently provides
additional payments to the Insurers. These sums include payments to reimburse
directly or indirectly the costs incurred by the Insurers and their employees in
connection with educational seminars and training efforts about the Portfolios
for the Insurers' employees and/or their clients and potential clients and may
include payments for distribution analytical data regarding Portfolio sales by
the Insurer. The costs and expenses associated with these efforts may include
travel, lodging, entertainment and meals.
For 2018, ABI's additional payments to these firms for distribution
services and educational support are expected to be approximately $325,000. In
2017, ABI paid additional payments of approximately $325,000 for the Portfolios.
If one mutual fund sponsor that offers shares to separate accounts
of an Insurer makes greater distribution assistance payments than another, the
Insurer may have an incentive to recommend or offer the shares of funds of one
fund sponsor over another.
Please speak with your financial intermediary to learn more about
the total amounts paid to your financial intermediary by the Funds, the Adviser,
ABI and by other mutual fund sponsors that offer shares to Insurers that may be
recommended to you. You should also consult disclosures made by your financial
intermediary at the time of purchase.
ABI anticipates that the Insurers or their affiliates that will
receive additional payments for educational support include:
AIG
AXA Advisors
Jackson National Life
Lincoln Financial Distributors
MetLife Inc.
Ohio National
Pacific Life Insurance Co.
Principal Financial Group
Prudential Financial
Riversource Distributors
Transamerica Capital
Variable Annuity Life Insurance/VALIC
Although the Portfolios may use brokers and dealers who sell shares
of the Portfolios to effect portfolio transactions, the Portfolios do not
consider the sale of AB Mutual Fund Shares as a factor when selecting brokers or
dealers to effect portfolio transactions.
--------------------------------------------------------------------------------
NET ASSET VALUE
--------------------------------------------------------------------------------
For all of the Portfolios the NAV of each Portfolio is calculated at
the close of regular trading on any day the Exchange is open (ordinarily 4:00
p.m., Eastern Time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading) following receipt of a purchase
or redemption order by a Portfolio on each Portfolio business day on which such
an order is received and on such other days as the Board deems appropriate or
necessary in order to comply with Rule 22c-1 under the 1940 Act. Each
Portfolio's per share NAV is calculated by dividing the value of a Portfolio's
total assets, less its liabilities, by the total number of its shares then
outstanding. A Portfolio business day is any weekday on which the Exchange is
open for trading.
Portfolio securities are valued at current market value or, if
market quotations are not readily available or are unreliable, at fair value as
determined in accordance with applicable rules under the 1940 Act and the
Portfolio's pricing policies and procedures (the "Pricing Policies") established
by and under the general supervision of the Board. The Board has delegated to
the Adviser, subject to the Board's continuing oversight, certain of the Board's
duties with respect to the Pricing Policies. The Adviser has established a
Valuation Committee, which operates under policies and procedures approved by
the Board, to value a Portfolio's assets on behalf of the Portfolio.
Whenever possible, securities are valued based on market information
on the business day as of which the value is being determined, as follows:
(a) an equity security listed on the Exchange, or on another
national or foreign exchange (other than securities listed on the Nasdaq Stock
Exchange ("NASDAQ")) is valued at the last sale price reflected on the
consolidated tape at the close of the exchange. If there has been no sale on the
relevant business day, the security is then valued at the last traded price;
(b) an equity security traded on NASDAQ is valued at the NASDAQ
Official Closing Price;
(c) an OTC equity security is valued at the mid level between the
current bid and ask prices. If the mid price is not available, the security will
be valued at the bid price. An equity security traded on more than one exchange
is valued in accordance with paragraph (a) above by reference to the principal
exchange (as determined by the Adviser) on which the security is traded;
(d) a listed or OTC put or call option is valued at the mid level
between the current bid and ask prices (for options or futures contracts, see
item (e)). If neither a current bid nor a current ask price is available, the
Adviser will have discretion to determine the best valuation (e.g., last trade
price) and then bring the issue to the Board's Valuation Committee the next day;
(e) an open futures contract and any option thereon are valued at
the closing settlement price or, in the absence of such a price, the most recent
quoted bid price. If there are no quotations available for the relevant business
day, the security is valued at the last available closing settlement price;
(f) a listed right is valued at the last traded price provided by
approved vendors. If there has been no sale on the relevant business day, the
right is valued at the last traded price from the previous day. On the following
day, the security is valued in good faith at fair value. For an unlisted right,
the calculation used in determining a value is the price of the reference
security minus the subscription price multiplied by the terms of the right.
There may be some instances when the subscription price is greater than the
referenced security right. In such instances, the right would be valued as
worthless;
(g) a listed warrant is valued at the last traded price provided by
approved vendors. If there is no sale on the relevant business day, the warrant
is valued at the last traded price from the previous day. On the following day,
the security is valued in good faith at fair value. All unlisted warrants are
valued in good faith at fair value. Once a warrant has expired, it will no
longer be valued;
(h) preferred securities are valued based on prices received from
approved vendors that use last trade data for listed preferreds and evaluated
bid prices for non-listed preferreds, as well as for listed preferreds when
there is no trade activity;
(i) U.S. Government securities and any other debt instrument having
60 days or less remaining until maturity generally are valued at market by an
independent pricing service, if a market price is available. If a market price
is not available, the securities are valued at amortized cost. This methodology
pertains to short-term securities that have an original maturity of 60 days or
less, as well as short term securities that had an original term to maturity
that exceeded 60 days. In instances in which amortized cost is utilized, the
Valuation Committee must reasonably conclude that the utilization of amortized
cost is approximately the same as the fair value of the security. The factors
the Valuation Committee will consider include, but are not limited to, an
impairment of the creditworthiness of the issuer or material changes in interest
rates. The Adviser is responsible for monitoring any instances when a market
price is not applied to a short term security and will report any instances to
the Valuation Committee for review;
(j) a fixed-income security is typically valued on the basis of bid
prices provided by an approved pricing vendor when the Adviser reasonably
believes that such prices reflect the fair market value of the security. In
certain markets, the market convention may be to use the mid price between bid
and offer. Fixed-income securities may be valued on the basis of mid prices when
such prices reflect the conventions of the particular markets. The prices
provided by an approved pricing vendor may take into account many factors,
including institutional size, trading in similar groups of securities and any
developments related to specific securities. If the Adviser determines that an
appropriate pricing vendor does not exist for a security in a market that
typically values such security on the basis of a bid price, the security is
valued on the basis of a quoted bid price or spread over the applicable yield
curve (a bid spread) by a broker/dealer in such security. If the Adviser
receives multiple broker quotes that are deemed to be reliable, then the Adviser
will utilize the second highest broker quote. If an appropriate pricing vendor
does not exist for a security in a market where convention is to use the mid
price, the security is valued on the basis of a quoted mid price by a
broker-dealer in such security;
(k) bank loans are valued on the basis of bid prices provided by a
pricing vendor;
(l) bridge loans are valued at fair value, which equates to the
outstanding loan amount, unless it is determined by the Adviser that any
particular bridge loan should be valued at something other than the outstanding
loan amount. This may occur due to, for example, a significant change in the
high yield market and/or a significant change in the status of any particular
issuer or issuers of bridge loans;
(m) whole loans: residential and commercial mortgage whole loans and
whole loan pools are market priced by an approved vendor or broker-dealer;
(n) forward and spot currency pricing is provided by an independent
pricing vendor. The rate provided by the approved vendor is a mid price for
forward and spot rates. In most instances whenever both an "onshore" rate and an
"offshore" (i.e., NDF) rate is available, the Adviser will use the offshore
(NDF) rate. NDF contracts are used for currencies where it is difficult (and
sometimes impossible) to take actual delivery of the currency;
(o) OTC derivatives pricing: various independent pricing vendors are
used to obtain derivatives values or obtain information used to derive a price
for each investment. This information is placed into various pricing models that
can be sourced by the Adviser or from approved vendors (depending on the type of
derivative) to derive a price for each investment. These pricing models are
monitored/reviewed on an ongoing basis by the Adviser;
(p) mutual funds and other pooled vehicles: the Adviser receives
pricing information for mutual funds and other pooled vehicles from various
sources (including AB Global Fund Administrator and the external custodian
banks). Open-end mutual funds are valued at the closing NAV per share and
closed-end funds and ETFs are valued at the closing market price per share;
(q) repurchase agreements and reverse repurchase agreements:
repurchase agreements and reverse repurchase agreements will be valued based on
their original cost plus accrued interest;
(r) hedge funds: hedge funds will be priced at the most recent
available closing NAV per share;
(s) equity-linked notes: prices are sourced at the end of the
pricing day from approved vendors. The vendor methodology is to source the
relevant underlying non-U.S. dollar exchange closing prices and convert them to
U.S. dollars; and
(t) credit-linked notes: prices are sourced on the reference bond
consistent with fixed-income security methodology as noted above, which are
passed through as the price on the credit-linked note. Alternatively, broker
marks are obtained.
If the Adviser becomes aware of any news/market events that would
cause the Valuation Committee to believe the last traded or market-based price,
as applicable, does not reflect fair value, the security is then valued in good
faith at fair value by, or in accordance with, procedures approved by the Board.
When a Portfolio uses fair value pricing, it may take into account
any factors it deems appropriate. A Portfolio may determine fair value based
upon developments related to a specific security, current valuations of foreign
stock indices (as reflected in U.S. futures markets) and/or U.S. sector or
broader stock market indices. The prices of securities used by a Portfolio to
calculate its NAV may differ from quoted or published prices for the same
securities. Fair value pricing involves subjective judgments and it is possible
that the fair value determined for a security is materially different than the
value that could be realized upon the sale of that security.
Each Portfolio expects to use fair value pricing for securities
primarily traded on U.S. exchanges only under very limited circumstances, such
as the early closing of the exchange on which a security is traded or suspension
of trading in the security. A Portfolio may use fair value pricing more
frequently for securities primarily traded in non-U.S. markets because, among
other things, most foreign markets close well before each Portfolio ordinarily
values its securities at 4:00 p.m., Eastern Time. The earlier close of these
foreign markets gives rise to the possibility that significant events, including
broad market moves, may have occurred in the interim. For example, a Portfolio
believes that foreign security values may be affected by events that occur after
the close of foreign securities markets. To account for this, the Portfolio may
frequently value many of its foreign equity securities using fair value prices
based on third party vendor modeling tools to the extent available.
Each Portfolio's Board may suspend the determination of its NAV (and
the offering and sale of shares), subject to the rules of the SEC and other
governmental rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings, (2) an emergency exists as a
result of which it is not reasonably practicable for a Portfolio to dispose of
securities owned by it or to determine fairly the value of its net assets, or
(3) for the protection of shareholders, the SEC by order permits a suspension of
the right of redemption or a postponement of the date of payment on redemption.
For purposes of determining each Portfolio's NAV per share, all
assets and liabilities initially expressed in a foreign currency will be
converted into U.S. Dollars at the mean of the current bid and ask prices of
such currency against the U.S. Dollar last quoted by a major bank that is a
regular participant in the relevant foreign exchange market or on the basis of a
pricing service that takes into account the quotes provided by a number of such
major banks. If such quotations are not available as of the close of the
Exchange, the rate of exchange will be determined in good faith by, or under the
direction of, the Board.
The assets attributable to the Class A shares and Class B shares are
invested together in a single portfolio for each Portfolio. The NAV of each
class will be determined separately by subtracting the liabilities allocated to
that class from the assets belonging to that class in conformance with the
provisions of a plan adopted by each Portfolio in accordance with Rule 18f-3
under the 1940 Act.
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
Subject to the general oversight of the Board, the Adviser is
responsible for the investment decisions and the placing of orders for portfolio
transactions of the Portfolios. The Adviser determines the broker or dealer to
be used in each specific transaction with the objective of negotiating a
combination of the most favorable commission (for transactions on which a
commission is payable) and the best price obtainable on each transaction
(generally defined as "best execution"). In connection with seeking best price
and execution, the Portfolios do not consider sales of shares of the Portfolios
or other investment companies managed by the Adviser as a factor in the
selection of brokers and dealers to effect portfolio transactions and has
adopted a policy and procedures reasonably designed to preclude such
considerations.
When consistent with the objective of obtaining best execution,
brokerage may be directed to persons or firms supplying investment information
to the Adviser. There may be occasions where the transaction cost charged by a
broker may be greater than that which another broker may charge if a Portfolio
determines in good faith that the amount of such transaction cost is reasonable
in relation to the value of the brokerage, research and statistical services
provided by the executing broker.
Neither the Portfolios nor the Adviser has entered into agreements
or understandings with any brokers or dealers regarding the placement of
securities transactions because of research or statistical services they
provide. A broker-dealer may provide the Adviser with research or related
services with an expectation, but not necessarily an explicit agreement or
contract, that the Adviser will use the broker-dealer to execute client
transactions in the future. To the extent that such persons or firms supply
investment information to the Adviser for use in rendering investment advice to
a Portfolio, such information may be supplied at no cost to the Adviser and,
therefore, may have the effect of reducing the expenses of the Adviser in
rendering advice to the Portfolio. While it is impracticable to place an actual
dollar value on such investment information, the Adviser believes that its
receipt probably does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of the type
described in Section 28(e)(3) of the Securities Exchange Act of 1934, as
amended, and is designed to augment the Adviser's own internal research and
investment strategy capabilities. Research and statistical services furnished by
brokers through which the Fund effects securities transactions are used by the
Adviser in carrying out its investment management responsibilities with respect
to all its client accounts but not all such services may be utilized by the
Adviser in connection with the Portfolios.
The extent to which commissions that will be charged by
broker-dealers selected by a Portfolio may reflect an element of value for
research cannot presently be determined. To the extent that research services of
value are provided by broker-dealers with or through whom the Portfolio places
portfolio transactions, the Adviser may be relieved of expenses which it might
otherwise bear. Research services furnished by broker-dealers as a result of the
placement of portfolio transactions could be useful and of value to the Adviser
in servicing its other clients as well as the Portfolio; on the other hand,
certain research services obtained by the Adviser as a result of the placement
of portfolio brokerage of other clients could be useful and of value to it in
servicing the Portfolio.
A Portfolio may deal in some instances in equity securities which
are not listed on a national securities exchange but are traded in the OTC
market. In addition, most transactions for the Intermediate Bond Portfolio are
executed in the OTC market. Where transactions are executed in the OTC market, a
Portfolio will seek to deal with the primary market makers, but when necessary
in order to obtain the best price and execution, it will utilize the services of
others. In all cases, the Portfolio will attempt to negotiate best execution.
The Portfolios' portfolio transactions in equity securities may
occur on foreign stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. On many foreign stock exchanges these
commissions are fixed. Securities traded in foreign OTC markets (including most
fixed-income securities) are purchased from and sold to dealers acting as
principal. OTC transactions generally do not involve the payment of a stated
commission, but the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include a stated
underwriter's discount. The Adviser expects to effect the bulk of its
transactions in securities of companies based in foreign countries through
brokers, dealers or underwriters located in such countries. U.S. Government or
other U.S. securities constituting permissible investments will be purchased and
sold through U.S. brokers, dealers or underwriters.
Investment decisions for a Portfolio are made independently from
those for other investment companies and other advisory accounts managed by the
Adviser. It may happen, on occasion, that the same security is held in the
portfolio of a Portfolio and one or more of such other companies or accounts.
Simultaneous transactions are likely when several funds or accounts are managed
in accordance with a similar strategy by the Adviser, particularly when a
security is suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts managed by the
Adviser are simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated to the respective companies or accounts both as
to amount and price, in accordance with a method deemed equitable to each
company or account. In some cases this system may adversely affect the price
paid or received by a Portfolio or the size of the position obtainable for the
Portfolio.
Allocations are made by the officers of a Portfolio or of the
Adviser. Purchases and sales of portfolio securities are determined by the
Adviser and are placed with broker-dealers by the order department of the
Adviser.
The aggregate brokerage commissions paid by the Portfolios during
the three most recent fiscal years or since inception are set forth below:
Fiscal Year Aggregate
or Period Amount
Ended of Brokerage
Portfolio December 31 Commissions
--------- ----------- -----------
Growth Portfolio 2015 $ 29,080
2016 27,891
2017 11,336
Intermediate Bond Portfolio 2015 $ 1,473
2016 3,042
2017 2,254
Growth and Income Portfolio 2015 $683,647
2016 809,051
2017 564,734
Large Cap Growth Portfolio 2015 $211,315
2016 174,521
2017 85,229
Small Cap Growth Portfolio 2015 $ 88,397
2016 40,716
2017 24,783
Real Estate Investment Portfolio 2015 $ 76,908
2016 55,038
2017 31,699
Global Thematic Growth Portfolio 2015 $103,898
2016 80,659
2017 57,715
International Growth Portfolio 2015 $ 40,968
2016 68,035
2017 56,705
Small/Mid Cap Value Portfolio 2015 $656,741
2016 669,757
2017 305,042
Value Portfolio 2015 $ 78,465
2016 79,651
2017 24,954
International Value Portfolio 2015 $945,298
2016 659,888
2017 432,456
Balanced Wealth Strategy Portfolio 2015 $214,022
2016 183,001
2017 97,716
Dynamic Asset Allocation Portfolio 2015 $133,039
2016 182,291
2017 62,174
Global Risk Allocation--Moderate Portfolio 2015 $ 5,487
2016 71,978
2017 71,510
The Fund may, from time to time, place orders for the purchase or
sale of securities (including listed call options) with Sanford C. Bernstein &
Co. and Sanford C. Bernstein Limited, affiliates of the Adviser (the "Affiliated
Brokers"). In such instances, the placement of orders with such brokers would be
consistent with each Portfolio's objective of obtaining best execution and would
not be dependent upon the fact that the Affiliated Brokers are affiliates of the
Adviser. With respect to orders placed with the Affiliated Brokers for execution
on a securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit an
affiliated person of a registered investment company (such as the Fund), or any
affiliated person of such person, to receive a brokerage commission from such
registered investment company provided that such commission is reasonable and
fair compared to the commissions received by other brokers in connection with
comparable transactions involving similar securities during a comparable period
of time.
The aggregate amount of brokerage commissions paid to Affiliated
Brokers during each Portfolio's three most recent fiscal years or since
inception, and, during the most recent fiscal year, the Affiliated Brokers'
percentage of the aggregate brokerage commissions and the aggregate dollar
amount of brokerage transactions, respectively, are set forth below:
% of Portfolio's Aggregate
Dollar Amount of Brokerage
Aggregate Amount of % of Portfolio's Transactions Involving the
Fiscal Year or Brokerage Commissions Aggregate Brokerage Payment of Commissions
Period Ended Paid to Commissions Paid to Through
Portfolio December 31 Affiliated Brokers Affiliated Brokers Affiliated Brokers
----------- -------------- ---------------------- ------------------- --------------------------
Growth and 2017 $ 0
Income 2016 0
Portfolio 2015 1 0% 0%
Growth 2017 $ 13
Portfolio 2016 150
2015 70 0.11% 0.27%
International 2017 $ 0
Growth 2016 0
Portfolio 2015 0 0% 0%
2017 $ 0
Global Thematic 2016 0
Growth Portfolio 2015 0 0% 0%
Small Cap 2017 $ 12
Growth 2016 42
Portfolio 2015 11 0.05% 0.02%
Real Estate 2017 $ 0
Investment 2016 0
Portfolio 2015 0 0% 0%
International 2017 $ 0
Value 2016 0
Portfolio 2015 0 0% 0%
Balanced Wealth 2017 $ 0
Strategy Portfolio 2016 5
2015 0 0% 0%
Global Risk 2017 $ 0
Allocation--Moderate 2016 0
Portfolio 2015 0 0% 0%
As of the end of the most recent fiscal year, each Portfolio listed
below owned securities of its regular brokers or dealers (as defined in Rule
10b-1 under the 1940 Act) or their parents as follows:
Aggregate Value
Portfolio Broker/Dealer of Securities Held
--------- ------------- ------------------
International Value Barclays PLC $ 5,988,982
Credit Suisse Group AG $ 10,675,154
Growth and Income JP Morgan Chase & Co. $ 44,982,173
Citigroup, Inc. $ 33,842,412
Goldman Sachs Group, Inc. $ 16,042,237
Intermediate Bond Goldman Sachs Group, Inc. $ 672,414
JP Morgan Chase & Co. $ 399,795
Morgan Stanley $ 387,872
UBS AG $ 502,754
Credit Suisse Group Funding Guernsey Ltd. $ 273,133
Barclays Bank PLC $ 34,945
Citigroup, Inc. $ 293,799
Value Goldman Sachs Group, Inc. $ 1,340,802
Balanced Wealth Citigroup, Inc. $ 1,660,829
Strategy Credit Suisse Group AG $ 808,607
Morgan Stanley $ 1,258,015
Goldman, Sachs Group, Inc. $ 2,078,988
Barclays PLC $ 522,574
JP Morgan Chase & Co. $ 2,761,458
UBS AG $ 320,101
Dynamic Asset Goldman Sachs Group, Inc. $ 672,057
Allocation JP Morgan Chase & Co. $ 2,696,492
Morgan Stanley $ 538,867
Deutsche Bank AG $ 372,473
UBS Group AG $ 716,225
Credit Suisse Group AG $ 445,893
Barclays PLC $ 493,299
Citigroup, Inc. $ 1,508,960
Mizuho Financial Group, Inc. $ 458,350
Bank of New York Mellon Corp. $ 399,372
Nomura Holdings, Inc. $ 227,758
Global Bond JP Morgan Chase & Co. $ 16,563
Goldman Sachs Group, Inc. $ 19,072
Disclosure of Portfolio Holdings
--------------------------------
The Fund believes that the ideas of the Adviser's investment staff
should benefit the Portfolios and their shareholders, and does not want to
afford speculators an opportunity to profit by anticipating Portfolio trading
strategies or using Portfolio information for stock picking. However, the Fund
also believes that knowledge of each Portfolio's portfolio holdings can assist
shareholders in monitoring their investment, making asset allocation decisions,
and evaluating portfolio management techniques.
The Adviser has adopted, on behalf of the Portfolios, policies and
procedures relating to disclosure of the Portfolios' portfolio securities. The
policies and procedures relating to disclosure of the Portfolios' portfolio
securities are designed to allow disclosure of portfolio holdings information
where necessary to the operation of the Portfolios or useful to the Portfolios'
shareholders without compromising the integrity or performance of the
Portfolios. Except when there are legitimate business purposes for selective
disclosure and other conditions (designed to protect the Portfolios and their
shareholders) are met, the Portfolios do not provide or permit others to provide
information about a Portfolio's portfolio holdings on a selective basis.
The Portfolios include portfolio holdings information as required in
regulatory filings and shareholder reports, disclose portfolio holdings
information as required by federal or state securities laws and may disclose
portfolio holdings information in response to requests by governmental
authorities. In addition, the Adviser may post portfolio holdings information on
the Adviser's website (www.abfunds.com). For each portfolio security, the posted
information includes its name, the number of shares held by a Portfolio, the
market value of the Portfolio's holdings, and the percentage of the Portfolio's
assets represented by the Portfolio's holdings. The day after portfolio holdings
information is publicly available on the website, it may be mailed, e-mailed or
otherwise transmitted to any person.
The Adviser may distribute or authorize the distribution of
information about a Portfolio's portfolio holdings that is not publicly
available, on the website or otherwise, to the Adviser's employees and
affiliates that provide services to the Fund. In addition, the Adviser may
distribute or authorize distribution of information about a Portfolio's
portfolio holdings that is not publicly available, on the website or otherwise,
to the Fund's service providers who require access to the information in order
to fulfill their contractual duties relating to the Portfolios, to facilitate
the review of the Portfolios by rating agencies, for the purpose of due
diligence regarding a merger or acquisition, or for the purpose of effecting
in-kind redemption of securities to facilitate orderly redemption of portfolio
assets and minimal impact on remaining Portfolio shareholders. The Adviser does
not expect to disclose information about a Portfolio's portfolio holdings that
is not publicly available to the Portfolio's individual or institutional
investors or to intermediaries that distribute the Portfolio's shares.
Information may be disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about a Portfolio's
portfolio holdings is permitted, however, the Adviser's Chief Compliance Officer
(or his designee) must determine that the Portfolio has a legitimate business
purpose for providing the portfolio holdings information, that the disclosure is
in the best interests of the Portfolio's shareholders, and that the recipient
agrees or has a duty to keep the information confidential and agrees not to
trade directly or indirectly based on the information or to use the information
to form a specific recommendation about whether to invest in the Portfolio or
any other security. Under no circumstances may the Adviser or its affiliates
receive any consideration or compensation for disclosing the information.
The Adviser has established procedures to ensure that a Portfolio's
portfolio holdings information is only disclosed in accordance with these
policies. Only the Adviser's Chief Compliance Officer (or his designee) may
approve the disclosure, and then only if he or she and a designated senior
officer in the Adviser's product management group determine that the disclosure
serves a legitimate business purpose of a Portfolio and is in the best interest
of the Portfolio's shareholders. The Adviser's Chief Compliance Officer (or his
designee) approves disclosure only after considering the anticipated benefits
and costs to the Portfolio and its shareholders, the purpose of the disclosure,
any conflicts of interest between the interests of the Portfolio and its
shareholders and the interests of the Adviser or any of its affiliates, and
whether the disclosure is consistent with the policies and procedures governing
disclosure. Only someone approved by the Adviser's Chief Compliance Officer (or
his designee) may make approved disclosures of portfolio holdings information to
authorized recipients. The Adviser reserves the right to request certifications
from senior officers of authorized recipients that the recipient is using the
portfolio holdings information only in a manner consistent with the Adviser's
policy and any applicable confidentiality agreement. The Adviser's Chief
Compliance Officer (or his designee) or another member of the compliance team
reports all arrangements to disclose portfolio holdings information to the
Fund's Board on a quarterly basis. If the Directors determine that disclosure
was inappropriate, the Adviser will promptly terminate the disclosure
arrangement.
In accordance with these procedures, each of the following third
parties has been approved to receive information concerning the Portfolios'
portfolio holdings: (i) the Fund's independent registered public accounting
firm, for use in providing audit opinions; (ii) Data Communique International,
RR Donnelley Financial and, from time to time, other financial printers, for the
purpose of preparing Portfolio regulatory filings; (iii) the Fund's custodian in
connection with its custody of the assets of the Portfolios; (iv) Institutional
Shareholder Services, Inc. for proxy voting services; and (v) data aggregators,
such as Vestek. Information may be provided to these parties at any time with no
time lag. Each of these parties is contractually and ethically prohibited from
sharing a Portfolio's portfolio holdings information unless specifically
authorized.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
Each Portfolio of the Fund qualified and intends to continue to
qualify to be taxed as a regulated investment company under the Code. If so
qualified, each Portfolio will not be subject to federal income and excise taxes
on its investment company taxable income and net capital gain to the extent such
investment company taxable income and net capital gain are distributed to the
separate accounts of insurance companies which hold its shares. Under current
tax law, capital gains or dividends from any Portfolio are not currently taxable
to the holder of a variable annuity or variable life insurance contract when
left to accumulate within such variable annuity or variable life insurance
contract. Distributions of net investment income and net short-term capital
gains will be treated as ordinary income and distributions of net long-term
capital gains will be treated as long-term capital gain in the hands of the
insurance companies.
Investment income received by a Portfolio from sources within
foreign countries may be subject to foreign income taxes withheld at the source.
If more than 50% of the value of a Portfolio's total assets at the close of its
taxable year consists of stocks or securities of foreign corporations (which for
this purpose should include obligations issued by foreign governments), such
Portfolio will be eligible to file an election with the Internal Revenue Service
to pass through to its shareholders the amount of foreign taxes paid by the
Portfolio. If eligible, each such Portfolio intends to file such an election,
although there can be no assurance that such Portfolio will be able to do so.
Section 817(h) of the Code requires that the investments of a
segregated asset account of an insurance company be adequately diversified, in
accordance with Treasury Regulations promulgated thereunder, in order for the
holders of the variable annuity contracts or variable life insurance policies
underlying the account to receive the tax-deferred or tax-free treatment
generally afforded holders of annuities or life insurance policies under the
Code. The Department of the Treasury has issued Regulations under section 817(h)
that, among other things, provide the manner in which a segregated asset account
will treat investments in a regulated investment company for purposes of the
applicable diversification requirements. Under the Regulations, an insurance
company segregated account is permitted to look-through a Portfolio to satisfy
asset diversification tests and treat its underlying securities, rather than the
Portfolio, as investments subject to certain diversification limits. A Portfolio
will be considered adequately diversified if no more than 55% of its assets are
represented by any one investment, no more than 70% of its assets are
represented by any two investments, no more than 80% of its assets are
represented by any three investments and no more than 90% of its assets are
represented by any four investments. For this purpose, all securities issued by
an issuer are treated as a single investment. Each Portfolio plans to satisfy
these conditions at all times so that the shares of such Portfolio owned by a
segregated asset account of a life insurance company will be subject to this
treatment under the Code.
For information concerning the federal income tax consequences for
the holders of variable annuity contracts and variable life insurance policies,
such holders should consult the prospectus used in connection with the issuance
of their particular contracts or policies.
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
Description of the Portfolios
-----------------------------
The Fund was organized as a Maryland corporation in 1987 under the
name "Alliance Variable Products Series Fund, Inc." The name of the Fund became
"AllianceBernstein Variable Products Series Fund, Inc." on May 1, 2003 and "AB
Variable Products Series Fund, Inc." on March 30, 2015.
All shares of the Fund when duly issued will be fully paid and
nonassessable. The Board is authorized to reclassify any unissued shares into
any number of additional series and classes without shareholder approval.
Accordingly, the Board in the future, for reasons such as the desire to
establish one or more additional Portfolio's with different investment
objectives, policies or restrictions or to establish additional channels of
distribution, may create additional series and classes of shares. Any issuance
of shares of such additional series and classes would be governed by the 1940
Act and the laws of the State of Maryland.
Generally, shares of each Portfolio would vote as a single series
for the election of directors and on any other matter that affected each
Portfolio in substantially the same manner. As to matters affecting each
Portfolio differently, such as approval of the Advisory Agreement and changes in
investment policy, shares of each Portfolio would vote as separate series.
Moreover, the Class B shares of each Portfolio will vote separately with respect
to matters relating to the 12b-1 Plan(s) adopted in accordance with Rule 12b-1
under the 1940 Act.
It is anticipated that annual meetings of shareholders will not be
held; shareholder meetings will only be held when required by federal or state
law or in accordance with an undertaking by the Adviser to the SEC. Shareholders
have available certain procedures for the election of Directors.
Pursuant to an order received from the SEC, the Fund maintains
participation agreements with insurance company separate accounts that obligate
the insurance companies to pass any proxy solicitations through to underlying
contractholders who in turn are asked to designate voting instructions. In the
event that an insurance company does not receive voting instructions from
contractholders, it is obligated to vote the shares that correspond to such
contractholders in the same proportion as instructions received from all other
applicable contractholders.
Principal and Controlling Holders
---------------------------------
AB INTERMEDIATE BOND PORTFOLIO
------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 2,791,070 79.77%
The United States Life Insurance
Company in the City of New York
Attn: Chris Beauman
2727A Allen Parkway, MS 4D-1
Houston, TX 77019-2116 293,620 8.39%
Class B
-------
Allmerica Financial Life
Insurance & Annuity Company
One Security Benefit Place
Topeka, KS 66636-1000 113,906 8.40%
Hartford Life Separate Account 1A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 153,837 11.34%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4-DI
Houston, TX 77019 939,853 69.29%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB LARGE CAP GROWTH PORTFOLIO
-----------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 549,967 15.49%
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 262,563 7.40%
Transamerica Advisors Life
Insurance Company
Merrill Lynch Life Variable
Annuity Separate Account A
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 1,536,760 43.29%
Transamerica Advisors Life
Insurance Company
Merrill Lynch Variable Life
Separate Account
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 256,419 7.22%
Transamerica Advisors Life
Insurance Company
Merrill Lynch Variable Life
Separate Account II
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 277,879 7.83%
Class B
-------
Allstate Life Insurance Company
3100 Sanders Road, #N4A
Northbrook, IL 60062-7156 269,378 6.64%
American General Life Insurance
Company of Delaware
Attn: Ed Bacon
2727A Allen Parkway, #4D1
Houston, TX 77019-2107 341,893 8.43%
GE Life and Annuity
Assurance Company
6610 W. Broad Street
Building 3, 5th Floor
Attn: Variable Accounting
Richmond, VA 23230-1702 429,560 10.59%
IDS Life Insurance Company
707 2nd Ave. SO
Route H19/5889
Minneapolis, MN 55402-2405 1,364,695 33.66%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 228,174 5.63%
Transamerica Life Insurance Company
Separate Account VA B
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 573,239 14.14%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB GROWTH AND INCOME PORTFOLIO
------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway MS Life 4-D1
Houston, TX 77019-2107 1,069,466 23.90%
Jefferson National Life
Insurance Company
Attn: Separate Accounts
10350 Ormsby Park Place, Suite 600
Louisville, KY 40223-6175 352,703 7.88%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 926,710 20.71%
Nationwide Life Insurance Company
NWVL14
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 667,567 14.92%
Transamerica Advisors Life
Insurance Company
Merrill Lynch Life Variable Annuity
Separate Account A
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 226,807 5.07%
Class B
-------
GE Life and Annuity
Assurance Company
6610 W. Broad Street
Building 3, 5th Floor
Attn: Variable Accounting
Richmond, VA 23230-1702 1,481,640 5.56%
Guardian Insurance &
Annuity Co., Inc.
Attn: James Nemeth
3900 Burgess Place
Retirement Solutions FM&C NRO
Bethlehem, PA 18017-9097 4,552,911 17.09%
Guardian Insurance &
Annuity Co., Inc.
Attn: James Nemeth
3900 Burgess Place
Retirement Solutions FM&C NRO
Bethlehem, PA 18017-9097 2,310,417 8.67%
IDS Life Insurance Corp.
707 2nd Ave. SO
Route H19/5889
Minneapolis, MN 55402-2405 4,454,850 16.72%
Transamerica Life Insurance Company
Separate Account VA B
4333 Edgewood Road, NE MS 4410
Cedar Rapids, IA 52499-0001 7,298,631 27.40%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB GROWTH PORTFOLIO
-------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 444,210 51.21%
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 54,312 6.26%
Great-West Life & Annuity
Insurance Company
FBO Schwab Annuities
8515 E. Orchard Road
Greenwood Village, CO 80111-5002 98,554 11.36%
Great-West Life & Annuity
FBO Schwab Annuities Advisor Choice
8515 E. Orchard Road 2T2
Greenwood Village, CO 80111-5002 58,181 6.71%
The United States Life Insurance
Company in the City of New York
Attn: Chris Beauman
2727A Allen Parkway, MS 4-D1
Houston, TX 77019-2116 78,383 9.04%
Class B
-------
Allstate Life Insurance Company
3100 Sanders Road, #N4A
Northbrook, IL 60062-7156 426,422 37.66%
American General Life
Insurance Company of Delaware
Attn: Ed Bacon
2727A Allen Parkway, #4D1
Houston, TX 77019-2107 311,818 27.54%
Lincoln Life and Annuity Company of
New York
Separate Acct L
1300 South Clinton Street
Fort Wayne, IN 46802-3518 59,983 5.30%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 189,118 16.70%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB INTERNATIONAL GROWTH PORTFOLIO
---------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 591,270 47.93%
Great-West Life & Annuity
FBO Variable Annuity 1 Oncesource
8515 E. Orchard Road, #2T2
Greenwood Village, CO 80111-5002 300,285 24.34%
Great-West Life & Annuity
FBO Variable Annuity 1 Select
8515 E. Orchard Road, #2T2
Greenwood Village, CO 80111-5002 96,503 7.82%
Class B
-------
AXA Equitable Life Separate Account-70
1290 Avenue of the Americas
11th Floor
New York, NY 10104-1472 430,892 25.99%
Delaware Life Insurance Company
Variable Account F
1601 Trapelo Road, Suite 30
Waltham, MA 02451-7360 333,914 20.14%
Hartford Life & Annuity
Separate Account
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 145,839 8.80%
Hartford Life and Annuity
Separate Account 1-A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 256,136 15.45%
Hartford Life Separate Account 1A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 107,558 6.49%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 181,280 10.94%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB GLOBAL THEMATIC GROWTH PORTFOLIO
-----------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 302,626 22.65%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 510,206 38.19%
Transamerica Advisors Life
Insurance Company
Merrill Lynch Life Variable Annuity
Separate Account A
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 245,650 18.39%
Transamerica Financial Life
Insurance Company
ML of New York Variable Annuity
Separate Account A
4333 Edgewood Road NE, MSC 4410
Cedar Rapids, IA 52499-3830 73,367 5.49%
Class B
-------
IDS Life Insurance Co.
707 2nd Avenue SO
Route H19/5889
Minneapolis, MN 55402-2405 274,799 7.80%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 2,016,072 57.20%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB SMALL CAP GROWTH PORTFOLIO
-----------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 719,533 52.04%
Principal Life Insurance Co. Cust. FBO
Principal Executive Variable Universal
Life II
Attn: Individual Life Accounting
711 High Street
Des Moines, IA 50392-0001 74,352 5.38%
Principal Life Insurance Co.
Cust. FBO Principal Investment Plus
Variable Annuity
Attn: Individual Life Accounting
711 High Street
Des Moines, IA 50392-0001 273,504 19.78%
Class B
-------
GE Life and Annuity
Assurance Company
6610 W. Broad Street
Building 3, 5th Floor
Attn: Variable Accounting
Richmond, VA 23230-1702 861,407 42.57%
Ohio National Life Insurance Co.
FBO Its Separate Accounts
One Financial Way
Attn: Cathy Gehr, Mail Code 56
Cincinnati, OH 45242-5800 667,261 32.97%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 286,939 14.18%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB REAL ESTATE INVESTMENT PORTFOLIO
-----------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 739,332 21.10%
Great West Life & Annuity
Insurance Company
FBO Schwab Annuities
Attn: Investment Div.
8515 E. Orchard Road, #2T2
Englewood, CO 80111-5002 1,794,553 51.21%
Nationwide Life Insurance Company
NWPP
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 439,344 12.54%
Class B
-------
AXA Equitable Life Separate Account-70
1290 Avenue of the Americas
11th Floor
New York, NY 10104-1472 615,490 30.17%
Guardian Insurance & Annuity Co. Inc.
3900 Burgess Place
Bethlehem, PA 18017-9097 123,902 6.07%
Guardian Insurance & Annuity Co. Inc.
3900 Burgess Place
Bethlehem, PA 18017-9097 342,689 16.80%
Hartford Life & Annuity
Separate Account
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 145,380 7.13%
Midland National Life Insurance Co.
Attn: Product Valuation SE2
5801 SW 6th Avenue
Topeka, KS 66636-1001 290,646 14.25%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 318,856 15.63%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB INTERNATIONAL VALUE PORTFOLIO
--------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 315,351 9.70%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 989,182 30.41%
Nationwide Life Insurance Company
NWPP
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 410,289 12.61%
Nationwide Life Insurance Company
NWVLI4
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 445,620 13.70%
Class B
-------
Delaware Life Insurance Company
Variable Account F
1601 Trapelo Road, Suite 30
Waltham, MA 02451-7360 2,091,663 8.11%
GE Life and Annuity
Assurance Company
6610 W. Broad Street
Building 3, 5th Floor
Attn: Variable Accounting
Richmond, VA 23230-1702 2,536,449 9.84%
Hartford Life and Annuity
Separate Account 1-A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 3,913,052 15.18%
Hartford Life Separate Account 1A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 2,070,819 8.03%
IDS Life Insurance Corp.
707 2nd Ave. SO
Route H19/5889
Minneapolis, MN 55402-2405 11,086,660 43.01%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB SMALL/MID CAP VALUE PORTFOLIO
--------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 663,613 6.33%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 5,747,030 54.81%
Nationwide Life Insurance Company
NWVLI4
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 958,967 9.15%
New York Life Insurance and Annuity
Corporation
30 Hudson Street
Jersey City, NJ 07302-4600 769,171 7.34%
Class B
-------
Hartford Life & Annuity
Separate Account
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 1,121,329 5.22%
Hartford Life and Annuity
Separate Account 1-A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 1,272,674 5.92%
Lincoln Life Variable Annuity
Account N - 6 HO2 Fund Accounting
1300 S. Clinton Street
Fort Wayne, IN 46802-3506 9,777,190 45.50%
Nationwide Life Insurance Company
NWVA2
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 5,235,382 24.37%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB VALUE PORTFOLIO
------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
Transamerica Advisors Life
Insurance Company
Merrill Lynch Life Variable Annuity
Separate Account A
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 61,574 91.14%
Class B
-------
American General Life
Insurance Company of Delaware
Attn: Ed Bacon
2727A Allen Parkway, #4D1
Houston, TX 77019-2107 629,197 15.86%
Hartford Life and Annuity
Separate Account 1-A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 1,575,031 39.69%
Hartford Life Separate Account 1A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 945,660 23.83%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 440,557 11.10%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB BALANCED WEALTH STRATEGY PORTFOLIO
-------------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
American General Life
Insurance Company of Delaware
Attn: Patrick Booker
2727A Allen Parkway, MS Life 4-D1
Houston, TX 77019-2107 2,150,039 89.72%
The United States Life Insurance
Company in the City of New York
Attn: Chris Beauman
2727A Allen Parkway, MS 4-D1
Houston, TX 77019-2116 138,606 5.78%
Class B
-------
Delaware Life Insurance Company
Variable Account F
1601 Trapelo Road, Suite 30
Waltham, MA 02451-7360 4,032,424 18.04%
GE Life and Annuity
Assurance Company
6610 W. Broad Street
Building 3, 5th Floor
Attn: Variable Accounting
Richmond, VA 23230-1702 1,358,010 6.07%
Hartford Life and Annuity
Separate Account 1-A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 2,935,933 13.13%
Hartford Life
Separate Account 1A
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999 1,354,967 6.06%
SunAmerica Annuity and Life
Assurance Company
Attn: Variable Annuity Accounting
2727A Allen Parkway, 4 DI
Houston, TX 77019 1,654,519 7.40%
Transamerica Life Insurance Co.
Separate Account VA B
4333 Edgewood Road NE, MS 4410
Cedar Rapids, IA 52499-0001 8,369,818 37.44%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB DYNAMIC ASSET ALLOCATION PORTFOLIO
-------------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
Nationwide Life Insurance Co.
NWVAII
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 4,112 16.26%
Nationwide Life Insurance Co.
NWVLI4
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 2,108 8.34%
Nationwide Life Insurance Co.
NWVLI7
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 7,566 29.91%
Nationwide Life & Annuity
Insurance Co.
NWVL-G
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029 11,496 45.45%
Class B
-------
Delaware Life Insurance Company
Variable Account F
1601 Trapelo Road, Suite 30
Waltham, MA 02451-7360 6,923,085 15.02%
Minnesota Mutual Life
Mail Station A6-4105
400 Robert Street N
Saint Paul, MN 55101-2099 12,845,903 27.86%
Ohio National Life Insurance Co.
FBO Its Separate Accounts
One Financial Way
Attn: Cathy Gehr, Mail Code 56
Cincinnati, OH 45242-5851 22,380,073 48.54%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
AB GLOBAL RISK ALLOCATION--MODERATE PORTFOLIO
----------------------------------------------
To the knowledge of the Portfolio, as of April 4, 2018, the
following persons owned of record or beneficially 5% or more of the noted class
of outstanding shares of the Portfolio:
Number of
Name and Address Shares of Class % of Class
---------------- --------------- ----------
Class A
-------
AllianceBernstein L.P.
Attn: Brett Mather-Seed Account
1 N. Lexington Avenue
White Plains, NY 10601-1712 1,100 100.00%
Class B
-------
Ohio National Life Insurance Co.
FBO Its Separate Accounts
One Financial Way
Attn: Cathy Gehr, Mail Code 56
Cincinnati, OH 45242-5800 8,910,853 98.24%
A shareholder who beneficially owns more than 25% of a Portfolio's
outstanding voting securities is presumed to "control" the Portfolio, as that
term is defined in the 1940 Act, and may have a significant impact on matters
submitted to a shareholder vote. To the knowledge of the Portfolio, no person
beneficially owned more than 25% of the Portfolio's outstanding voting
securities as of April 4, 2018.
Custodian and Accounting Agent
------------------------------
State Street, c/o State Street Corporation CCB/5, 1 Iron Street,
Boston, Massachusetts 02210, acts as the custodian and as accounting agent for
the Fund but plays no part in deciding the purchase or sale of portfolio
securities. Subject to the supervision of the Board, State Street may enter into
subcustodial agreements for the holding of the Fund's securities of foreign
issuers.
Principal Underwriter
---------------------
ABI, an indirect wholly-owned subsidiary of the Adviser, located at
1345 Avenue of the Americas, New York, NY 10105, is the Fund's Principal
Underwriter.
Transfer Agent
--------------
ABIS, an indirect wholly-owned subsidiary of the Adviser located
principally at 8000 IH 10 W, 4th Floor, San Antonio, Texas 78230, acts as the
transfer agent for the Fund. ABIS registers the transfer, issuance and
redemption of Fund shares and disburses dividends and other distributions to
Fund shareholders.
Counsel
-------
Legal matters in connection with the issuance of the shares of the
Fund offered hereby are passed upon by Seward & Kissel LLP, 901 K Street NW,
Suite 800, Washington, DC 20001.
Independent Registered Public Accounting Firm
---------------------------------------------
Ernst & Young LLP, 5 Times Square, New York, NY, 10036, has been
appointed as the independent registered public accounting firm for the Fund.
Code of Ethics And Proxy Voting Policies And Procedures
-------------------------------------------------------
The Fund, the Adviser and ABI have each adopted codes of ethics
pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by the Fund.
The Fund has adopted the Adviser's proxy voting policies and
procedures. A description of the Adviser's proxy voting policies and procedures
is attached as Appendix A.
Information regarding how the Portfolios voted proxies related to
portfolio securities during the most recent 12-month period ended June 30 is
available (1) without charge, upon request, by calling (800) 227-4618; or
through the Fund's website at www.abfunds.com; or both; and (2) on the SEC's
website at www.sec.gov.
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
The financial statements of the Portfolios of the Fund for the
fiscal year ended December 31, 2017 and the report of Ernst & Young LLP,
independent registered public accounting firm, are incorporated herein by
reference to the Portfolios' annual report. The annual report was filed on Form
N-CSR with the SEC on February 22, 2018. It is available without charge upon
request by calling ABIS at (800) 227-4618 or on the Internet at www.abfunds.com.
[A/B](R)
[LOGO]
Appendix A
Proxy Voting and Governance Policy Statement
Introduction
As an investment adviser, we are shareholder advocates and have a fiduciary duty
to make investment decisions that are in our clients' best interests by
maximizing the value of their shares. Proxy voting is an integral part of this
process, through which we support strong corporate governance structures,
shareholder rights and transparency.
We have an obligation to vote proxies in a timely manner and we apply the
principles in our Proxy Voting and Governance Policy ("Proxy Voting and
Governance Policy" or "Policy") and this policy statement to our proxy
decisions. We believe a company's environmental, social and governance ("ESG")
practices may have a significant effect on the value of the company, and we take
these factors into consideration when voting. For additional information
regarding our ESG policies and practices, please refer to our firm's Statement
of Policy Regarding Responsible Investment ("RI Policy").
Our Proxy Voting and Governance Policy, which outlines our policies for proxy
voting and includes a wide range of issues that often appear on proxies, applies
to all of AB's investment management subsidiaries and investment services groups
investing on behalf of clients globally. Both this Statement and the Policy are
intended for use by those involved in the proxy voting decision-making process
and those responsible for the administration of proxy voting ("Proxy Managers"),
in order to ensure that our proxy voting policies and procedures are implemented
consistently. Copies of the Policy, the RI Policy and our voting records, as
noted below in "Voting Transparency", can be found on our Internet site
(www.alliancebernstein.com).
We sometimes manage accounts where proxy voting is directed by clients or
newly-acquired subsidiary companies. In these cases, voting decisions may
deviate from the Policy.
Research Underpins Decision Making
As a research-driven firm, we approach our proxy voting responsibilities with
the same commitment to rigorous research and engagement that we apply to all our
investment activities. The different investment philosophies utilized by our
investment teams may occasionally result in different conclusions being drawn
regarding certain proposals and, in turn, may result in the Proxy Manager making
different voting decisions on the same proposal. Nevertheless, the Proxy Manager
votes proxies with the goal of maximizing the value of the securities in client
portfolios.
In addition to our firm-wide proxy voting policies, we have a Proxy Voting and
Governance Committee, which provides oversight and includes senior investment
professionals from Equities, Legal personnel and Operations personnel. It is the
responsibility of the Proxy Voting and Governance Committee to evaluate and
maintain proxy voting procedures and guidelines, to evaluate proposals and
issues not covered by these guidelines, to consider changes in policy, and to
review this Statement and the Policy no less frequently than annually. In
addition, the Proxy Voting and Governance Committee meets at least three times a
year and as necessary to address special situations.
Research Services
We subscribe to the corporate governance and proxy research services of
Institutional Shareholder Services ("ISS"). All our investment professionals can
access these materials via the Proxy Manager and/or Proxy Voting and Governance
Committee.
Engagement
In evaluating proxy issues and determining our votes, we welcome and seek out
the points of view of various parties. Internally, the Proxy Manager may consult
the Proxy Voting and Governance Committee, Chief Investment Officers, Directors
of Research, and/or Research Analysts across our equities platforms, and
Portfolio Managers in whose managed accounts a stock is held. Externally, we may
engage with companies in advance of their Annual General Meeting, and throughout
the year. We believe engagement provides the opportunity to share our
philosophy, our corporate governance values, and more importantly, affect
positive change. Also, these meetings often are joint efforts between the
investment professionals, who are best positioned to comment on company-specific
details, and the Proxy Manager(s), who offer a more holistic view of governance
practices and relevant trends. In addition, we engage with shareholder proposal
proponents and other stakeholders to understand different viewpoints and
objectives.
Proxy Voting Guidelines
Our proxy voting guidelines are both principles-based and rules-based. We adhere
to a core set of principles that are described in the Proxy Voting and
Governance Policy. We assess each proxy proposal in light of these principles.
Our proxy voting "litmus test" will always be what we view as most likely to
maximize long-term shareholder value. We believe that authority and
accountability for setting and executing corporate policies, goals and
compensation generally should rest with the board of directors and senior
management. In return, we support strong investor rights that allow shareholders
to hold directors and management accountable if they fail to act in the best
interests of shareholders.
Our proxy voting guidelines pertaining to specific issues are set forth in the
Policy and include guidelines relating to board and director proposals,
compensation proposals, capital changes and anti-takeover proposals, auditor
proposals, shareholder access and voting proposals, and environmental, social
and disclosure proposals. The following are examples of specific issues within
each of these broad categories:
Board and Director Proposals: Election of Directors
---------------------------------------------------
The election of directors is an important vote. We expect directors to represent
shareholder interests at the company and maximize shareholder value. We
generally vote in favor of the management-proposed slate of directors while
considering a number of factors, including local market best practice. We
believe companies should have a majority of independent directors and
independent key committees. However, we will incorporate local market regulation
and corporate governance codes into our decision making. We may support more
progressive requirements than those implemented in a local market if we believe
more progressive requirements may improve corporate governance practices. We
will generally regard a director as independent if the director satisfies the
criteria for independence (i) espoused by the primary exchange on which the
company's shares are traded, or (ii) set forth in the code we determine to be
best practice in the country where the subject company is domiciled and may take
into account affiliations, related-party transactions and prior service to the
company. We consider the election of directors who are "bundled" on a single
slate to be a poor governance practice and vote on a case-by-case basis
considering the amount of information available and an assessment of the group's
qualifications.
Capital Changes and Anti-Takeover Proposals: Authorize Share Repurchase
-----------------------------------------------------------------------
We generally support share repurchase proposals that are part of a
well-articulated and well-conceived capital strategy. We assess proposals to
give the board unlimited authorization to repurchase shares on a case-by-case
basis. Furthermore, we would generally support the use of derivative instruments
(e.g., put options and call options) as part of a share repurchase plan absent a
compelling reason to the contrary. Also, absent a specific concern at the
company, we will generally support a repurchase plan that could be continued
during a takeover period.
Auditor Proposals: Appointment of Auditors
------------------------------------------
We believe that the company is in the best position to choose its accounting
firm, and we generally support management's recommendation.
We recognize that there may be inherent conflicts when a company's independent
auditors perform substantial non-audit related services for the company.
Therefore, in reviewing a proposed auditor, we will consider the amount of fees
paid for non-audit related services performed compared to the total audit fees
paid by the company to the auditing firm, and whether there are any other
reasons for us to question the independence or performance of the firm's auditor
such as, for example, tenure. We generally will deem as excessive the non-audit
fees paid by a company to its auditor if those fees account for 50% or more of
total fees paid. In the UK market, which utilizes a different standard, we
adhere to a non-audit fee cap of 100% of audit fees. Under these circumstances,
we generally vote against the auditor and the directors, in particular the
members of the company's audit committee. In addition, we generally vote against
authorizing the audit committee to set the remuneration of such auditors. We
exclude from this analysis non-audit fees related to IPOs, bankruptcy emergence,
and spin-offs and other extraordinary events. We may vote against or abstain due
to a lack of disclosure of the name of the auditor while taking into account
local market practice.
Shareholder Access and Voting Proposals: Proxy Access for Annual Meetings
-------------------------------------------------------------------------
These proposals allow "qualified shareholders" to nominate directors. We
generally vote in favor of management and shareholder proposals for proxy access
that employ guidelines reflecting the SEC framework for proxy access (adopted by
the US Securities and Exchange Commission ("SEC") in 2010, but vacated by the DC
Circuit Court of Appeals in 2011), which would have allowed a single
shareholder, or group of shareholders, who hold at least 3% of the voting power
for at least three years continuously to nominate up to 25% of the current board
seats, or two directors, for inclusion in the subject company's annual proxy
statement alongside management nominees.
We may vote against proposals that use requirements that are stricter than the
SEC's framework including implementation restrictions and against individual
board members, or entire boards, who exclude from their ballot properly
submitted shareholder proxy access proposals or include their own competing,
more strict, proposals on the same ballot.
We will evaluate on a case-by-case basis proposals with less stringent
requirements than the vacated SEC framework.
From time to time we may receive requests to join with other shareholders to
support a shareholder action. We may, for example, receive requests to join a
voting block for purposes of influencing management. If the third parties
requesting our participation are not affiliated with us and have no business
relationships with us, we will consider the request on a case-by-case basis.
However, where the requesting party has a business relationship with us (e.g.,
the requesting party is a client or a significant service provider), agreeing to
such a request may pose a potential conflict of interest. As a fiduciary we have
an obligation to vote proxies in the best interest of our clients (without
regard to our own interests in generating and maintaining business with our
other clients) and given our desire to avoid even the appearance of a conflict,
we will generally decline such a request.
Environmental, Social and Disclosure Proposals: Lobbying and Political Spending
-------------------------------------------------------------------------------
We generally vote in favor of proposals requesting increased disclosure of
political contributions and lobbying expenses, including those paid to trade
organizations and political action committees, whether at the federal, state, or
local level. These proposals may increase transparency.
We generally vote proposals in accordance with these guidelines but, consistent
with our "principles-based" approach to proxy voting, we may deviate from the
guidelines if warranted by the specific facts and circumstances of the situation
(i.e., if, under the circumstances, we believe that deviating from our stated
policy is necessary to help maximize long-term shareholder value). In addition,
these guidelines are not intended to address all issues that may appear on all
proxy ballots. Proposals not specifically addressed by these guidelines, whether
submitted by management or shareholders, will be evaluated on a case-by-case
basis, always keeping in mind our fiduciary duty to make voting decisions that,
by maximizing long-term shareholder value, are in our clients' best interests.
Conflicts of Interest
As a fiduciary, we always must act in our clients' best interests. We strive to
avoid even the appearance of a conflict that may compromise the trust our
clients have placed in us, and we insist on strict adherence to fiduciary
standards and compliance with all applicable federal and state securities laws.
We have adopted a comprehensive Code of Business Conduct and Ethics ("Code") to
help us meet these obligations. As part of this responsibility and as expressed
throughout the Code, we place the interests of our clients first and attempt to
avoid any perceived or actual conflicts of interest.
We recognize that there may be a potential material conflict of interest when we
vote a proxy solicited by an issuer that sponsors a retirement plan we manage
(or administer), that distributes AB-sponsored mutual funds, or with which we or
one or more of our employees have another business or personal relationship that
may affect how we vote on the issuer's proxy. Similarly, we may have a potential
material conflict of interest when deciding how to vote on a proposal sponsored
or supported by a shareholder group that is a client. In order to avoid any
perceived or actual conflict of interest, we have established procedures for use
when we encounter a potential conflict to ensure that our voting decisions are
based on our clients' best interests and are not the product of a conflict.
These procedures include compiling a list of companies and organizations whose
proxies may pose potential conflicts of interest (e.g., if such company is our
client) and reviewing our proposed votes for these companies and organizations
in light of the Policy and ISS's recommendations. If our proposed vote is
contrary to, or not contemplated in, the Policy, is consistent with a client's
position and is contrary to ISS's recommendation, we refer to proposed vote to
our Conflicts Officer for his determination.
In addition, our Proxy Voting and Governance Committee takes reasonable steps to
verify that ISS continues to be independent, including an annual review of ISS's
conflict management procedures. When reviewing these conflict management
procedures, we consider, among other things, whether ISS (i) has the capacity
and competency to adequately analyze proxy issues; and (ii) can offer research
in an impartial manner and in the best interests of our clients.
Voting Transparency
We publish our voting records on our Internet site (www.alliancebernstein.com)
quarterly, 30 days after the end of the previous quarter. Many clients have
requested that we provide them with periodic reports on how we voted their
proxies. Clients may obtain information about how we voted proxies on their
behalf by contacting their Advisor. Alternatively, clients may make a written
request to the Chief Compliance Officer.
Recordkeeping
All of the records referenced in our Policy will be kept in an easily accessible
place for at least the length of time required by local regulation and custom,
and, if such local regulation requires that records are kept for less than five
years from the end of the fiscal year during which the last entry was made on
such record, we will follow the U.S. rule of five years. We maintain the vast
majority of these records electronically. We will keep paper records, if any, in
one of our offices for at least two years.
PART C
OTHER INFORMATION
ITEM 28. EXHIBITS:
(a) (1) Articles of Amendment and Restatement to Articles of
Incorporation of the Registrant dated February 1, 2006
and filed February 23, 2006 - Incorporated by reference
to Exhibit (a)(2) to Post-Effective Amendment No. 41 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on March 1, 2006.
(2) Articles of Amendment to Articles of Incorporation of
the Registrant, dated January 9, 2008 and filed January
15, 2008 - Incorporated by reference to Exhibit (a)(2)
to Post-Effective Amendment No. 44 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on March 3, 2008.
(3) Articles of Amendment to Articles of Incorporation of
the Registrant, dated April 28, 2008 and filed April 28,
2008 - Incorporated by reference to Exhibit (a)(3) to
Post-Effective Amendment No. 46 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2008.
(4) Articles of Amendment to Articles of Incorporation of
the Registrant, dated April 28, 2008 and filed April 28,
2008 - Incorporated by reference to Exhibit (a)(4) to
Post-Effective Amendment No. 46 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2008.
(5) Articles of Amendment to Articles of Incorporation of
the Registrant, dated September 26, 2008 and filed
September 26, 2008 - Incorporated by reference to
Exhibit (a)(5) to Post-Effective Amendment No. 48 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on February 26, 2009.
(6) Articles of Amendment to Articles of Incorporation of
the Registrant, dated March 9, 2009 and filed April 6,
2009 - Incorporated by reference to Exhibit (a)(6) to
Post-Effective Amendment No. 49 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2009.
(7) Articles of Amendment to Articles of Incorporation of
the Registrant, dated March 30, 2009 and filed March 31,
2009 - Incorporated by reference to Exhibit (a)(7) to
Post-Effective Amendment No. 49 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2009.
(8) Articles of Amendment to Articles of Incorporation of
the Registrant, dated March 30, 2009 and filed March 31,
2009 - Incorporated by reference to Exhibit (a)(8) to
Post-Effective Amendment No. 49 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2009.
(9) Articles of Amendment to Articles of Incorporation of
the Registrant, dated October 2, 2009 and filed October
5, 2009 - Incorporated by reference to Exhibit (a)(9) to
Post-Effective Amendment No. 50 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on February 25, 2010.
(10) Articles of Amendment to Articles of Incorporation of
the Registrant, dated October 2, 2009 and filed October
5, 2009 - Incorporated by reference to Exhibit (a)(10)
to Post-Effective Amendment No. 50 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on February 25, 2010.
(11) Articles of Amendment to Articles of Incorporation of
the Registrant, dated March 16, 2011 and filed March 16,
2011 - Incorporated by reference to Exhibit (a)(11) to
Post-Effective Amendment No. 53 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on March 31, 2011.
(12) Articles of Amendment to Articles of Incorporation of
the Registrant, dated and filed on June 6, 2012 -
Incorporated by reference to Exhibit (a)(12) to
Post-Effective Amendment No. 58 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 26, 2013.
(13) Articles Supplementary to Articles of Incorporation of
the Registrant, dated and filed on February 5, 2015 -
Incorporated by reference to Exhibit (a)(13) to
Post-Effective Amendment No. 62 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on February 11, 2015.
(14) Articles of Amendment to Articles of Incorporation of
the Registrant, effective and filed on March 30, 2015 -
Incorporated by reference to Exhibit (a)(13) to
Post-Effective Amendment No. 63 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 30, 2015.
(b) Amended and Restated By-Laws of the Registrant - Incorporated
by reference to Exhibit 99.77Q1 - Other Exhibits to Form
NSAR-A for the Registrant filed with the Securities and
Exchange Commission on August 29, 2006.
(c) Not applicable.
(d) (1) Investment Advisory Agreement between the Registrant and
AllianceBernstein L.P., dated July 22, 1992, as amended
as of May 1, 1997, May 1, 2001, May 1, 2003, May 1,
2004, September 7, 2004, May 1, 2005, August 3, 2006,
April 1, 2011, April 28, 2015, February 3, 2017 and
January 30, 2018 - Filed herewith.
(2) Investment Advisory Contract between the Registrant,
with respect to AB Multi-Manager Alternative
Strategies Portfolio, and AllianceBernstein L.P., dated
December 16, 2015 - Incorporated by reference to Exhibit
(d)(2) to Post-Effective Amendment No. 66 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on April 28, 2016.
(e) (1) Distribution Services Agreement between the Registrant
and AllianceBernstein Investments, Inc. - Incorporated
by reference to Exhibit (6) to Post-Effective Amendment
No. 22 of Registrant's Registration Statement on Form
N-1A (File Nos. 33-18647 and 811-05398), filed with the
Securities and Exchange Commission on April 29, 1998.
(2) Class B Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. -
Incorporated by reference to Exhibit (e)(2) to
Post-Effective Amendment No. 28 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on May 4, 1999.
(f) Not applicable.
(g) (1) Master Custodian Agreement dated August 3, 2009 between
the Registrant and State Street Bank and Trust Company -
Incorporated by reference to Exhibit (g) to
Post-Effective Amendment No. 51 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 29, 2010.
(2) Amendment to the Master Custodian Agreement, dated April
1, 2015, between the Registrant , with respect to AB
Global Risk Allocation - Moderate Portfolio, AB Global
Bond Portfolio and AB Multi-Manager Alternative
Strategies Portfolio, and State Street Bank and Trust
Company - Incorporated by reference to Exhibit (g)(2) to
Post-Effective Amendment No. 63 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 30, 2015.
(h) (1) Transfer Agency Agreement between the Registrant and
AllianceBernstein Investor Services, Inc. - Incorporated
by reference to Exhibit (9) to Post-Effective Amendment
No. 22 of Registrant's Registration Statement on Form
N-1A (File Nos. 33-18647 and 811-05398), filed with the
Securities and Exchange Commission on April 29, 1998.
(2) Expense Limitation Undertaking by AllianceBernstein L.P.
- Incorporated by reference to Exhibit (h)(2) to
Post-Effective Amendment No. 40 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 27, 2005.
(3) Form of Expense Limitation Undertaking by
AllianceBernstein L.P. - Incorporated by reference to
Exhibit (h) to Post-Effective Amendment No. 41 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on March 1, 2006.
(4) Expense Limitation Agreement between Registrant and
AllianceBernstein L.P. - Incorporated by reference to
Exhibit (h)(4) to Post-Effective Amendment No. 58 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on April 26, 2013.
(5) Expense Limitation Agreement, dated April 29, 2015,
between the Registrant, on behalf of AB Global Bond
Portfolio, and AllianceBernstein L.P. - Incorporated by
reference to Exhibit (h)(5) to Post-Effective Amendment
No. 63 of Registrant's Registration Statement on Form
N-1A (File Nos. 33-18647 and 811-05398), filed with the
Securities and Exchange Commission on April 30, 2015.
(6) Acquired Fund Fee and Expense Waiver Agreement, dated
April 29, 2015, between the Registrant, on behalf of
AB Global Bond Portfolio, and AllianceBernstein L.P. -
Incorporated by reference to Exhibit (h)(7) to
Post-Effective Amendment No. 63 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 30, 2015.
(7) Expense Limitation Agreement, dated December 16, 2015,
between the Registrant, on behalf of AB Multi-Manager
Alternative Strategies Portfolio, and AllianceBernstein
L.P. - Incorporated by reference to Exhibit (h)(8) to
Post-Effective Amendment No. 66 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange
Commission on April 28, 2016.
(8) Acquired Fund Fee and Expense Waiver Agreement, dated
December 16, 2015, between the Registrant, on behalf of
AB Multi-Manager Alternative Strategies Portfolio
and AllianceBernstein L.P. - Incorporated by reference
to Exhibit (h)(9) to Post-Effective Amendment No. 66 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on April 28, 2016.
(9) Management Fee Waiver Undertaking, dated June 1 2016, by
AllianceBernstein L.P. - Incorporated by reference to
Exhibit (h)(15) to Post-Effective Amendment No. 172 of
the Registration Statement on Form N-1A of AB Bond Fund,
Inc. (File Nos. 2-48227 and 811-02383), filed with the
Securities and Exchange Commission on February 23, 2018.
(10) Expense Limitation Agreement, dated April 28, 2016,
between the Registrant, on behalf of AB Global Risk
Allocation--Moderate Portfolio, and AllianceBernstein
L.P. - Filed herewith.
(11) Form of Acquired Fund Fee Waiver Undertaking, dated May
1, 2018, between the Registrant, on behalf of AB
Balanced Wealth Strategy Portfolio, and
AllianceBernstein L.P. - Filed herewith.
(i) Opinion and Consent of Seward & Kissel LLP - Filed herewith.
(j) Consent of Independent Registered Public Accounting Firm -
Filed herewith.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Class B Distribution Plan - Incorporated by
reference to Exhibit (m) to Post-Effective Amendment No. 28 of
Registrant's Registration Statement on Form N-1A (File Nos.
33-18647 and 811-05398), filed with the Securities and
Exchange Commission on May 4, 1999.
(n) Amended and Restated Rule 18f-3 Plan - Incorporated by
reference to Exhibit (n) to Post-Effective Amendment No. 36 of
the Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities and
Exchange Commission on February 11, 2004.
(o) Reserved.
(p) (1) Code of Ethics for the Fund - Incorporated by reference
to Exhibit (p)(1) to Post-Effective Amendment No. 31 of
Registrant's Registration Statement on Form N-1A (File
Nos. 33-18647 and 811-05398), filed with the Securities
and Exchange Commission on April 26, 2001.
(2) Code of Ethics for the AllianceBernstein L.P. and
AllianceBernstein Investments, Inc. - Incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment
No. 146 of the Registration Statement on Form N-1A of
AllianceBernstein Cap Fund, Inc. (File Nos. 2-29901 and
811-01716), filed with the Securities and Exchange
Commission on February 26, 2014.
Other Exhibits:
Powers of Attorney for: Michael J. Downey, William H. Foulk, Jr.,
Nancy P. Jacklin, Robert M. Keith, Carol C. McMullen, Garry L.
Moody, Marshall C. Turner, Jr. and Earl D. Weiner - Incorporated by
reference to Other Exhibits to Post-Effective Amendment No. 72 of
Registrant's Registration Statement on Form N-1A (File Nos. 33-18647
and 811-05398), filed with the Securities and Exchange Commission on
February 8, 2018.
ITEM 29. Persons Controlled by or under Common Control with Registrant.
None.
ITEM 30. Indemnification.
It is the Registrant's policy to indemnify its directors and
officers, employees and other agents to the maximum extent permitted
by Section 2-418 of the General Corporation Law of the State of
Maryland and as set forth in Article EIGHTH of Registrant's Amended
and Restated Articles of Incorporation, filed as Exhibit (a),
Article IX of the Registrant's Amended and Restated By-Laws filed as
Exhibit (b) and Section 9 of the Distribution Services Agreement
filed as Exhibit (e)(1) and Class B Distribution Services Agreement
filed as Exhibit (e)(2). The Adviser's liability for any loss
suffered by the Registrant or its shareholders is set forth in
Section 4 of the Advisory Agreement filed as Exhibit (d)(1) in
response to Item 28.
Article EIGHTH of the Registrant's Articles of Amendment and
Restatement of Articles of Incorporation reads as follows:
EIGHTH: (1) To the maximum extent that Maryland law in effect from
time to time permits limitation of the liability of directors and
officers of a corporation, no present or former director or officer
of the Corporation shall be liable to the Corporation or its
stockholders for money damages.
(2) The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate
itself to indemnify, and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to, (a) any individual
who is a present or former director or officer of the Corporation or
(b) any individual who, while a director or officer of the
Corporation and at the request of the Corporation, serves or has
served as a director, officer, partner or trustee of another
corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or any other enterprise from
and against any claim or liability to which such person may become
subject or which such person may incur by reason of his status as a
present or former director or officer of the Corporation. The
Corporation shall have the power, with the approval of the Board of
Directors, to provide such indemnification and advancement of
expenses to a person who served a predecessor of the Corporation in
any of the capacities described in (a) or (b) above and to any
employee or agent of the Corporation or a predecessor of the
Corporation.
(3) The provisions of this Article EIGHTH shall be subject to the
limitations of the Investment Company Act.
(4) Neither the amendment nor repeal of this Article EIGHTH, nor the
adoption or amendment of any other provision of the Charter or
Bylaws inconsistent with this Article EIGHTH, shall apply to or
affect in any respect the applicability of the preceding sections of
this Article EIGHTH with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption.
The Advisory Agreement between the Registrant and AllianceBernstein
L.P. provides that AllianceBernstein L.P. will not be liable under
such agreements for any mistake of judgment or in any event
whatsoever except for lack of good faith and that nothing therein
shall be deemed to protect, or purport to protect, AllianceBernstein
L.P. against any liability to Registrant or its security holders to
which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard of its
obligations or duties thereunder.
The Distribution Services Agreement between the Registrant and
AllianceBernstein Investments, Inc. ("ABI") provides that the
Registrant will indemnify, defend and hold ABI, and any person who
controls it within the meaning of Section 15 of the Securities Act
of 1933, as amended (the "Securities Act"), free and harmless from
and against any and all claims, demands, liabilities and expenses
which ABI or any controlling person may incur arising out of or
based upon any alleged untrue statement of a material fact contained
in Registrant's Registration Statement or Prospectus or Statement of
Additional Information or arising out of, or based upon any alleged
omission to state a material fact required to be stated in either
thereof or necessary to make the statements in any thereof not
misleading, provided that nothing therein shall be so construed as
to protect ABI against any liability to Registrant or its security
holders to which it would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or be reason of reckless disregard of its obligations or
duties thereunder. The foregoing summaries are qualified by the
entire text of Registrant's Articles of Incorporation, the Advisory
Agreement between the Registrant and AllianceBernstein L.P. and the
Distribution Services Agreement between the Registrant and ABI.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that, in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2, 1980), the
Registrant will indemnify its directors, officers, investment
manager and principal underwriters only if (1) a final decision on
the merits was issued by the court or other body before whom the
proceeding was brought that the person to be indemnified (the
indemnitee) was not liable by reason or willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office (disabling conduct) or (2) a reasonable
determination is made, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct, by (a) the
vote of a majority of a quorum of the directors who are neither
interested persons of the Registrant as defined in section 2(a)(19)
of the Investment Company Act of 1940 nor parties to the proceeding
(disinterested, non-party directors), or (b) an independent legal
counsel in a written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors, officers,
investment adviser or principal underwriters in defending a
proceeding, upon the undertaking by or on behalf of the indemnitee
to repay the advance unless it is ultimately determined that he is
entitled to indemnification and, as a condition to the advance, (1)
the indemnitee shall provide a security for his undertaking, (2) the
Registrant shall be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of disinterested,
non-party directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on a review of
readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will
be found entitled to indemnification.
ARTICLE IX of the Registrant's Amended and Restated By-laws reads as
follows:
ARTICLE IX. Indemnification.
To the maximum extent permitted by Maryland law in effect from
time to time, the Corporation shall indemnify and, without
requiring a preliminary determination of the ultimate
entitlement to indemnification, shall pay or reimburse
reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former
director or officer of the Corporation and who is made or
threatened to be made a party to the proceeding by reason of
his or her service in any such capacity or (b) any individual
who, while a director or officer of the Corporation and at the
request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation,
real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise and who is
made or threatened to be made a party to the proceeding by
reason of his or her service in any such capacity. The
Corporation may, with the approval of its Board of Directors
or any duly authorized committee thereof, provide such
indemnification and advance for expenses to a person who
served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee
or agent of the Corporation or a predecessor of the
Corporation. The termination of any claim, action, suit or
other proceeding involving any person, by judgment, settlement
(whether with or without court approval) or conviction or upon
a plea of guilty or nolo contendere, or its equivalent, shall
not create a presumption that such person did not meet the
standards of conduct required for indemnification or payment
of expenses to be required or permitted under Maryland law,
these Bylaws or the Charter. Any indemnification or advance of
expenses made pursuant to this Article shall be subject to
applicable requirements of the 1940 Act. The indemnification
and payment of expenses provided in these Bylaws shall not be
deemed exclusive of or limit in any way other rights to which
any person seeking indemnification or payment of expenses may
be or may become entitled under any bylaw, regulation,
insurance, agreement or otherwise.
Neither the amendment nor repeal of this Article, nor the
adoption or amendment of any other provision of the Bylaws or
Charter inconsistent with this Article, shall apply to or
affect in any respect the applicability of the preceding
paragraph with respect to any act or failure to act which
occurred prior to such amendment, repeal or adoption.
The Registrant participates in a joint directors' liability
insurance policy issued by the ICI Mutual Insurance Company.
Under this policy, outside trustees and directors are covered
up to the limits specified for any claim against them for acts
committed in their capacities as trustee or director. A pro
rata share of the premium for this coverage is charged to each
participating investment company. In addition, the Adviser's
liability insurance policy, which is issued by a number of
underwriters, including Greenwich Insurance Company as primary
underwriter, extends to officers of the Registrant and such
officers are covered up to the limits specified for any claim
against them for acts committed in their capacities as
officers of the investment companies sponsored by the Adviser.
ITEM 31. Business and Other Connections of Adviser.
The descriptions of AllianceBernstein L.P. under the caption
Management of the Fund in the Prospectuses and in the Statement of
Additional Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by reference herein.
The information as to the directors and executive officers of
AllianceBernstein L.P., set forth in its Form ADV filed with the
Securities and Exchange Commission on March 31, 2014 (File No.
801-56720) and amended through the date hereof, is incorporated by
reference herein.
ITEM 32. Principal Underwriters.
(a) ABI, is the Registrant's Principal Underwriter in connection
with the sale of shares of the Registrant. ABI is the
Principal Underwriter or Distributor for the following
investment companies:
AB Bond Fund, Inc.
AB Cap Fund, Inc.
AB Core Opportunities Fund, Inc.
AB Corporate Shares
AB Discovery Growth Fund, Inc.
AB Equity Income Fund, Inc.
AB Fixed-Income Shares, Inc.
AB Global Bond Fund, Inc.
AB Global Real Estate Investment Fund, Inc.
AB Global Risk Allocation Fund, Inc.
AB High Income Fund, Inc.
AB Institutional Funds, Inc.
AB Intermediate California Municipal Portfolio(1)
AB Intermediate Diversified Municipal Portfolio(1)
AB Intermediate New York Municipal Portfolio(1)
AB International Portfolio(2)
AB Large Cap Growth Fund, Inc.
AB Municipal Income Fund, Inc.
AB Municipal Income Fund II
AB Relative Value Fund, Inc.
AB Short Duration Portfolio(3)
AB Tax-Managed International Portfolio(4)
AB Sustainable Global Thematic Fund, Inc.
AB Sustainable International Thematic Fund, Inc.
AB Trust
AB Unconstrained Bond Fund, Inc.
Emerging Markets Portfolio(5)
Sanford C. Bernstein Fund II, Inc.
The AB Portfolios
--------
1 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
Classes A, B, C and Advisor Class Shares.
2 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Classes A, B, C, R and Z Shares.
3 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Classes A, B, C and R Shares.
4 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Classes A, B, C and Z Shares.
5 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Class Z Shares.
(b) The following are the Directors and Officers of ABI, the
principal place of business of which is 1345 Avenue of the Americas,
New York, New York 10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
Directors
---------
Robert M. Keith Director President and Chief Executive
Officer
Mark R. Manley Director, and Secretary
Christopher Bricker Director
Edward J. Farrell Director, Senior Vice President and
Controller and Chief Accounting Officer
Officers
--------
Christopher C. Thompson Senior Vice President and Chief
Executive Officer
Emilie D. Wrapp Senior Vice President, Assistant Secretary
General Counsel and Assistant Secretary
Laurence H. Bertan Senior Vice President and Assistant
Secretary
Peter G. Callahan Senior Vice President
Kevin T. Cannon Senior Vice President
Nelson Kin Hung Chow Senior Vice President
Flora Chi Ju Chuang Senior Vice President
Russell R. Corby Senior Vice President
Jose Cosio Senior Vice President
John W. Cronin Senior Vice President
Silvio Cruz Senior Vice President
Christine M. Dehil Senior Vice President
John C. Endahl Senior Vice President
John Edward English Senior Vice President
Daniel Ennis Senior Vice President
Robert K. Forrester Senior Vice President
Mark A. Gessner Senior Vice President
Kenneth L. Haman Senior Vice President
Michael S. Hart Senior Vice President
Ajai M. Kaul Senior Vice President
Scott M. Krauthamer Senior Vice President
Jonathan M. Liang Senior Vice President
Karen (Yeow Ping) Lim Senior Vice President
James M. Liptrot Senior Vice President and Assistant
Controller
William Marsalise Senior Vice President
Brendan Murray Senior Vice President
Joanna D. Murray Senior Vice President
John J. O'Connor Senior Vice President
Suchet Padhye (Pandurang) Senior Vice President
Guy Prochilo Senior Vice President
John D. Prosperi Senior Vice President
Kevin Rosenfeld Senior Vice President
Miguel A. Rozensztroch Senior Vice President
Elizabeth M. Smith Senior Vice President
Christian G. Wilson Senior Vice President
Derek Yung Senior Vice President
Eric Anderson Vice President
Constantin L. Andreae Vice President
DeAnna D. Beedy Vice President
Christopher M. Berenbroick Vice President
Chris Boeker Vice President
Brandon W. Born Vice President
James J. Bracken Vice President
Corey S. Beckerman Vice President
Robert A. Brazofsky Vice President
Friederike Grote Brink Vice President
Richard A. Brink Vice President
James Broderick Vice President
Steven B. Bruce Vice President
Michael A. Capella Vice President
Christopher J. Carrelha Vice President
Tso Hsiang Chang Vice President
Mikhail Cheskis Vice President
Peter T. Collins Vice President
Joseph (Don) Connell Vice President
Dwight P. Cornell Vice President
Nora E. (Murphy) Connerty Vice President
Massimo Dalla Vedova Vice President
Francesca Dattola Vice President
Kevin M. Dausch Vice President
Frank de Wit Vice President
Marc J. Della Pia Vice President
Patrick R. Denis Vice President
Ralph A. DiMeglio Vice President
Joseph T. Dominguez Vice President
Barbara Anne Donovan Vice President
Sarah Entzeroth Hartzke Vice President
Gregory M. Erwinski Vice President
Susan A. Flanagan Vice President
Carey Fortnam Vice Presdient
Eric C. Freed Vice President Assistant Secretary
Yuko Funato Vice President
Kimberly A. Collins Gorab Vice President
Joseph Haag Vice President
Brian P. Hanna Vice President
Kenneth Handler Vice President
Terry L. Harris Vice President
Nancy E. Hay Vice President Assistant Secretary
Philippe Hemery Vice President
Olivier Herson Vice President
Alexander Hoffmann Vice President
Brian Horvath Vice President
Eric S. Indovina Vice President
Tina Kao Vice President
Jeffrey Kelly Vice President
Gunnar Knierim Vice President
Anthony D. Knight Vice President
Tomas Kukla Vice President
Stephen J. Laffey Vice President and Counsel Assistant Secretary
Christopher J. Larkin Vice President
Chang Hyun Lee Vice President
Ginnie Li Vice President
Albert Yen Po Lien Vice President
Jim Lui (Chi-Hsiung) Vice President
Darren L. Luckfield Vice President
Matthew J. Malvey Vice President
Robert Mancini Vice President
Todd Mann Vice President
Osama Mari Vice President
Nicola Meotti Vice President
Yuji Mihashi Vice President
Aimee Minora Vice President
David Mitchell Vice President
Benjamin Moore Vice President
Paul S. Moyer Vice President
Jennifer A. Mulhall Vice President
Masaru Nakabachi Vice President
Robert D. Nelms Vice President
Jamie A. Nieradka Vice President
Masaki Nishino Vice President
Bryan R. Pacana Vice President
Alex E. Pady Vice President
David D. Paich Vice President
Kim Chu Perrington Vice President
Jared M. Piche Vice President
Jeffrey Pietragallo Vice President
Joseph J. Proscia Vice President
Damien Ramondo Vice President
Carol H. Rappa Vice President
Jessie A. Reich Vice President
Lauryn A. Rivello Vice President
Claudio Rondolini Vice President
David Saslowsky Vice President
Richard A. Schwam Vice President
Craig Schorr Vice President
Karen Sirett Vice President
John F. Skahan Vice President
Chang Min Song Vice President
Daniel L. Stack Vice President
Jason P. Stevens Vice President
Scott M. Tatum Vice President
Louis L. Tousignant Vice President
Christian B. Verlingo Vice President
Wendy Weng Vice President
Stephen M. Woetzel Vice President Assistant Controller
Isabelle (Hsin-I) Yen Vice President
Oscar Zarazua Vice President
Martin J. Zayac Vice President
Douglas E. Buckley Assistant Vice President
Daisy (Sze Kie) Chung Assistant Vice President
Isabelle Husson Assistant Vice President
Charissa A. Pal Assistant Vice President
Brian W. Paulson Assistant Vice President
Pablo Perez Assistant Vice President
Matthew L. Santora Assistant Vice President
Michiyo Tanaka Assistant Vice President
Miyako Taniguchi Assistant Vice President
Laurence Vandecasteele Assistant Vice President
William Wielgolewski Assistant Vice President
Henry M. Winchester Assistant Vice President
Matthew J. Wrzesniewsky Assistant Vice President
Colin T. Burke Assistant Secretary
(c) Not Applicable.
ITEM 33. Location of Accounts and Records.
The accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules
thereunder are maintained as follows: journals, ledgers, securities
records and other original records are maintained principally at the
offices of AllianceBernstein Investor Services, Inc., P.O. Box
786003, San Antonio, Texas 78278-6003, and at the offices of The
Bank of New York, the Registrant's custodian, One Wall Street, New
York, NY 10286. All other records so required to be maintained are
maintained at the offices of AllianceBernstein L.P., 1345 Avenue of
the Americas, New York, NY 10105.
ITEM 34. Management Services.
Not Applicable.
ITEM 35. Undertakings.
Not Applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended and
the Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, duly authorized, in the City of New York and
State of New York, on the 26th day of April, 2018.
AB VARIABLE PRODUCTS SERIES FUND, INC.
By: Robert M. Keith*
----------------
Robert M. Keith
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
SIGNATURE TITLE DATE
--------- ----- ----
1. Principal Executive Officer
---------------------------
Robert M. Keith* President and Chief April 26, 2018
---------------- Executive Officer
Robert M. Keith
2. Principal Financial and
Accounting Officer
------------------
/s/ Joseph J. Mantineo Treasurer and April 26, 2018
----------------------- Chief Financial
Joseph J. Mantineo Officer
3. All of the Directors:
--------------------
Michael Downey*
William H. Foulk, Jr.*
Nancy P. Jacklin*
Robert M. Keith*
Carol C. McMullen*
Garry L. Moody*
Marshall C. Turner, Jr.*
Earl D. Weiner*
*By: /s/ Stephen J. Laffey April 26, 2018
---------------------
Stephen J. Laffey
(Attorney-in-fact)
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
----------- -----------------------
(d)(1) Investment Advisory Agreement
(h)(10) Expense Limitation Undertaking
(h)(11) Form of Acquired Fund Fee Waiver Undertaking
(i) Opinion and Consent of Seward & Kissel LLP
(j) Consent of Independent Registered Accounting Firm
EX-99.D.1
2
d7853644_ex99d-1.txt
Exhibit (d)(1)
INVESTMENT ADVISORY AGREEMENT
AB VARIABLE PRODUCTS SERIES FUND, INC.
1345 Avenue of the Americas
New York, New York 10105
July 22, 1992, as amended as of
May 1, 1997, May 1, 2001, May 1,
2003, May 1, 2004, September 7,
2004, May 1, 2005, August 3,
2006, April 1, 2011, April 28,
2015, February 3, 2017 and
January 30, 2018
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, N.Y. 10105
Dear Sirs:
We herewith confirm our agreement with you as follows:
1. We are an open-end, diversified management investment company
registered under the Investment Company Act of 1940 (the "Act"). We are
currently authorized to issue separate classes of shares and our Directors are
authorized to reclassify and issue any unissued shares to any number of
additional classes or series (Portfolios) each having its own investment
objective, policies and restrictions, all as more fully described in the
Prospectus and the Statement of Additional Information constituting parts of the
Registration Statement filed on our behalf under the Securities Act of 1933 and
the Act. We are engaged in the business of investing and reinvesting our assets
in securities of the type and in accordance with the limitations specified in
our Articles of Incorporation, By-Laws, Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933 and the Act,
and any representations made in our Prospectus and Statement of Additional
Information, all in such manner and to such extent as may from time to time be
authorized by our Directors. We enclose copies of the documents listed above and
will from time to time furnish you with any amendments thereof.
2. (a) We hereby employ you to manage the investment and reinvestment of
the assets in each of our Portfolios as above specified, and, without limiting
the generality of the foregoing, to provide management and other services
specified below.
(b) You will make decisions with respect to all purchases and sales
of securities in each of our Portfolios. To carry out such decisions, you are
hereby authorized, as our agent and attorney-in-fact, for our account and at our
risk and in our name, to place orders for the investment and reinvestment of our
assets. In all purchases, sales and other transactions in securities in each of
our Portfolios you are authorized to exercise full discretion and act for us in
the same manner and with the same force and effect as we might or could do with
respect to such purchases, sales or other transactions, as well as with respect
to all other things necessary or incidental to the furtherance or conduct of
such purchases, sales or other transactions. You are permitted to utilize the
services of one or more Sub-Advisers in connection with the management of the
Global Bond Portfolio, subject to your obtaining our prior approval of any such
Sub-Advisory Agreement.
(c) You will report to our Directors at each meeting thereof all
changes in each Portfolio since the prior report, and will also keep us in touch
with important developments affecting any Portfolio and on your own initiative
will furnish us from time to time with such information as you may believe
appropriate for this purpose, whether concerning the individual companies whose
securities are included in our Portfolios, the industries in which they engage,
or the conditions prevailing in the economy generally. You will also furnish us
with such statistical and analytical information with respect to securities in
each of our Portfolios as you may believe appropriate or as we reasonably may
request. In making such purchases and sales of securities, you will bear in mind
the policies set from time to time by our Directors as well as the limitations
imposed by our Articles of Incorporation and our Registration Statement under
the Act and the Securities Act of 1933, the limitations in the Act and of the
Internal Revenue Code in respect of regulated investment companies and the
investment objective, policies and restrictions for each of our Portfolios.
(d) It is understood that you will from time to time employ or
associate with yourselves such persons as you believe to be particularly fitted
to assist you in the execution of your duties hereunder, the cost of performance
of such duties to be borne and paid by you. No obligation may be incurred on our
behalf in any such respect. During the continuance of this agreement at our
request you will provide to us persons satisfactory to our Directors to serve as
our officers. You or your affiliates will also provide persons, who may be our
officers, to render such clerical, accounting and other services to us as we may
from time to time request of you. Such personnel may be employees of you or your
affiliates. We will pay to you or your affiliates the cost of such personnel for
rendering such services to us at such rates as shall from time to time be agreed
upon between us, provided that all time devoted to the investment or
reinvestment of securities in each of our Portfolios shall be for your account.
Nothing contained herein shall be construed to restrict our right to hire our
own employees or to contract for services to be performed by third parties.
Furthermore, you or your affiliates (other than us) shall furnish us without
charge with such management supervision and assistance and such office
facilities as you may believe appropriate or as we may reasonably request
subject to the requirements of any regulatory authority to which you may be
subject. You or your affiliates (other than us) shall also be responsible for
the payment of any expenses incurred in promoting the sale of our shares (other
than the portion of promotional expenses to be borne by us in accordance with an
effective plan pursuant to Rule 12b-1 under the Act and costs of printing our
prospectuses and other reports to stockholders and fees related to registration
with the Securities and Exchange Commission and with state regulatory
authorities).
3. It is further agreed that you shall be responsible for the portion of
the net expenses of each of our Portfolios (except interest, taxes, brokerage,
fees paid in accordance with an effective plan pursuant to Rule 12b-1 under the
Act, expenditures which are capitalized in accordance with generally acceptable
accounting principles and extraordinary expenses, all to the extent permitted by
applicable state law and regulation) incurred by us during each of our fiscal
years or portion thereof that this agreement is in effect between us which, as
to a Portfolio, in any such year exceeds the limits applicable to such Portfolio
under the laws or regulations of any state in which our shares are qualified for
sale (reduced pro rata for any portion of less than a year). We hereby confirm
that, subject to the foregoing, we shall be responsible and hereby assume the
obligation for payment of all our other expenses, including: (a) payment of the
fee payable to you under paragraph 5 hereof; (b) custody, transfer and dividend
disbursing expenses; (c) fees of directors who are not your affiliated persons;
(d) legal and auditing expenses; (e) clerical, accounting and other office
costs; (f) the cost of personnel providing services to us, as provided in
subparagraph (d) of paragraph 2 above; (g) costs of printing our prospectuses
and stockholder reports; (h) cost of maintenance of corporate existence; (i)
interest charges, taxes, brokerage fees and commissions; (j) costs of stationery
and supplies; (k) expenses and fees related to registration and filing with the
Securities and Exchange Commission and with state regulatory authorities and (1)
such promotional expenses as may be contemplated by an effective plan pursuant
to Rule 12b-1 under the Act provided, however, that our payment of such
promotional expenses shall be in the amount, and in accordance with the
procedures, set forth in such plan.
4. We shall expect of you, and you will give us the benefit of, your best
judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you shall not be liable
hereunder for any mistake of judgment or in any event whatsoever, except for
lack of good faith, provided that nothing herein shall be deemed to protect, or
purport to protect, you against any liability to us or to our security holders
to which you would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of your duties hereunder, or by
reason of your reckless disregard of your obligations and duties hereunder.
5. In consideration of the foregoing, we will pay you a monthly fee at an
annual rate equal to the Applicable Percentage, as defined below, of the average
daily value of the net assets of each Portfolio managed by you. Such fee shall
be accrued by us daily and shall be payable in arrears on the last day of each
calendar month for services performed hereunder during such month. Your
reimbursement, if any, of our expenses as provided in paragraph 3 hereof, shall
be estimated and paid to us monthly in arrears, at the same time as our payment
to you for such month. Payment of the advisory fee will be reduced or postponed,
if necessary, with any adjustments made after the end of the year. The
Applicable Percentage shall be: (i) for our Large Cap Growth Portfolio, 0.60 of
1% of the first $2.5 billion, 0.50 of 1% of the excess over $2.5 billion up to
$5 billion and 0.45 of 1% of the excess over $5 billion of such Portfolio's
aggregate net assets; (ii) for our Growth and Income Portfolio, .55 of 1% of the
first $2.5 billion, .45 of 1% of the excess over $2.5 billion up to $5 billion
and .40 of 1% of the excess over $5 billion of such Portfolio's aggregate net
assets; (iii) for our Intermediate Bond Portfolio, .45 of 1% of the first $2.5
billion, .40 of 1% of the excess over $2.5 billion up to $5 billion and .35 of
1% of the excess over $5 billion up to $8 billion and .30 of 1% in excess of $8
billion of such Portfolio's aggregate net assets; (iv) for our International
Growth Portfolio, .75 of 1% of the first $2.5 billion, .65 of 1% of the excess
over $2.5 billion up to $5 billion and .60 of 1% of the excess over $5 billion
of such Portfolio's aggregate net assets; (v) for our Growth Portfolio, .75 of
1% of the first $2.5 billion, .65 of 1% of the excess over $2.5 billion up to $5
billion and .60 of 1% of the excess over $5 billion of such Portfolio's average
net assets; (vi) for our Global Thematic Growth Portfolio, .75 of 1% of the
first $2.5 billion, .65 of 1% of the excess over $2.5 billion up to $5 billion
and .60 of 1% of the excess over $5 billion of such Portfolio's aggregate net
assets; (vii) for our Small Cap Growth Portfolio, .75 of 1% of the first $2.5
billion, .65 of 1% of the excess over $2.5 billion up to $5 billion and .60 of
1% of the excess over $5 billion of such Portfolio's aggregate net assets;
(viii) for our Real Estate Investment Portfolio, .55 of 1% of the first $2.5
billion, .45 of 1% of the excess over $2.5 billion up to $5 billion and .40 of
1% of the excess over $5 billion of such Portfolio's average net assets; (ix)
for our AllianceBernstein International Value Portfolio, .75 of 1% of the first
$2.5 billion, .65 of 1% of the excess over $2.5 billion up to $5 billion and .60
of 1% of the excess over $5 billion of such Portfolio's average net assets; (x)
for our AllianceBernstein Small/Mid Cap Value Portfolio, .75 of 1% of the first
$2.5 billion, .65 of 1% of the excess over $2.5 billion up to $5 billion and .60
of 1% of the excess over $5 billion of such Portfolio's average net assets; (xi)
for our AllianceBernstein Value Portfolio, .55 of 1% of the first $2.5 billion,
..45 of 1% of the excess over $2.5 billion up to $5 billion and .40 of 1% of the
excess over $5 billion of such Portfolio's average net assets; (xii) for our
AllianceBernstein Balanced Wealth Strategy Portfolio, 0.55% of the first $2.5
billion in average daily net assets, 0.45% of the second $2.5 billion in average
daily net assets and 0.40% of the excess over $5 billion in average daily net
assets and (xiii) for our AllianceBernstein Dynamic Asset Allocation Portfolio,
..70 of 1% of such Portfolio's average net assets. (xiv) for our AB Global Bond
Portfolio, .50 of 1% of the first $2.5 billion of the Portfolio's average net
assets, .45 of 1% of the excess over $2.5 billion up to $5.0 billion, and .40 of
1% of the excess over $5 billion.
6. This agreement shall become effective on the date hereof and shall
remain in effect with respect to each Portfolio until December 31, 1997(1) and
shall continue in effect thereafter with respect to each such Portfolio so long
as its continuance is specifically approved at least annually by our Directors
or by majority vote of the holders of the outstanding voting securities (as
defined in the Act) of such Portfolio, and, in either case, by a majority of our
Directors who are not parties to this agreement or interested persons, as
defined in the Act, of any such party (other than as our directors) provided
further, however, that if the continuation of this agreement is not approved as
to a Portfolio, you may continue to render to such Portfolio the services
described herein in the manner and to the extent permitted by the Act and the
rules and regulations thereunder. Upon the effectiveness of this agreement, it
shall supersede all previous agreements between us covering the subject matter
hereof. This agreement may be terminated with respect to any Portfolio at any
time, without the payment of any penalty, by vote of a majority of the
outstanding voting securities (as so defined) of such Portfolio, or by a vote of
a majority of our Directors on sixty days' written notice to you, or by you with
respect to any Portfolio on sixty days' written notice to us.
_________________________
(1) December 31, 1998 with respect to AB Real Estate Investment Portfolio,
April 30, 2003 with respect to AB International Value Portfolio, AB
Small/Mid Cap Value Portfolio and AB Value Portfolio, April 30, 2006 with
respect to AB Balanced Wealth Strategy Portfolio, April 1, 2013 with
respect to AB Dynamic Asset Allocation Portfolio and April 28, 2017 with
respect to AB Global Risk Allocation - Moderate Portfolio and AB Global
Bond Portfolio.
7. This agreement may not be transferred, assigned, sold or in any manner
hypothecated or pledged by you and this agreement shall terminate automatically
in the event of such transfer, assignment, sale, hypothecation or pledge by you.
The terms "transfer", "assignment" and "sale" as used in this paragraph shall
have the meanings ascribed thereto by governing law and any interpretation
thereof contained in rules or regulations promulgated by the Securities and
Exchange Commission thereunder.
8. (a) Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your employees, or any of the Directors of AllianceBernstein
Corporation, your general partner, who may also be a Director of ours, or
persons otherwise affiliated with us (within the meaning of the Act), to engage
in any other business or to devote time and attention to the management or other
aspects of any other business, whether of a similar or dissimilar nature, or to
render services of any kind to any other corporation, trust, firm, individual or
association.
(b) You will notify us of any change in the general partners of your
partnership within a reasonable time after such change.
9. If you cease to act as our investment adviser, or in any event, if you
so request in writing, we agree to take all necessary action to change the name
of our corporation to a name not including the word "Alliance". You may from
time to time make available without charge to us for our use such marks or
symbols owned by you, including marks or symbols containing the name "Alliance"
or any variation thereof, as you may consider appropriate. Any such marks or
symbols so made available will remain your property and will have the right,
upon notice in writing, to require us to cease the use of such mark or symbol at
any time.
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
AB Variable Products Series Fund, Inc.
By: /s/ Stephen J. Laffey
------------------------
Name: Stephen J. Laffey
Title: Assistant Secretary
Accepted:
July 22, 1992, as
amended as of May 1, 1997,
May 1, 2001, May 1, 2003,
May 1, 2004, September 7, 2004,
May 1, 2005, August 3, 2006,
April 1, 2011, April 28, 2015
February 3, 2017 and
January 30, 2018
AllianceBernstein L.P.
By: /s/ Emilie D. Wrapp
--------------------------
Name: Emilie D. Wrapp
Title: Assistant Secretary
EX-99.H.10
3
d7853644_ex99h-10.txt
Exhibit (h)(10)
EXPENSE LIMITATION UNDERTAKING
ALLIANCEBERNSTEIN L.P.
1345 Avenue of the Americas
New York, New York 10105
April 28, 2016
AB Variable Products Series Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
AllianceBernstein L.P. herewith undertakes that for the Expense Limitation
Period, as defined below, we shall cause the aggregate operating expenses of
every character incurred by your AB Global Risk Allocation - Moderate Portfolio
(the "Portfolio") (but not including (i) interest expense, (ii) taxes, (iii)
extraordinary expenses, (iv) brokerage commissions and other transaction costs
and (v) expenses associated with securities sold short) to be limited to 0.75%
in the case of the Class A shares and 1.00% in the case of the Class B shares in
each case of your aggregate average daily net assets (the "Limitation"). To
determine the amount of the Portfolio's expenses in excess of the Limitation,
the amount of allowable fiscal-year-to-date expenses shall be computed daily by
prorating the Limitation based on the number of days elapsed within the fiscal
year of the Portfolio (the "Prorated Limitation"). The Prorated Limitation shall
be compared to the expenses of the Portfolio recorded through the current day in
order to produce the allowable expenses to be recorded and accrued for the
Portfolio's current day (the "Allowable Expenses"). If the expenses of the
Portfolio for the current day exceed the Allowable Expenses, we shall be
responsible for such excess and will for the current day (i) reduce our advisory
fees and/or (ii) reimburse the Portfolio accordingly.
For purposes of this Undertaking, the Expense Limitation Period shall mean
the period commencing on the date hereof and shall remain in effect until the
effective date of the next Post-Effective Amendment to the Portfolio's
Registration Statement on Form N-1A (the "Registration Statement") incorporating
the Portfolio's financial statements. The Expense Limitation Period and the
Undertaking given hereunder will automatically be extended for additional
one-year periods unless we provide you with at least 60 days' notice prior to
the end of any Expense Limitation Period of our determination to modify or to
terminate this Undertaking at the end of its then current period.
We understand and intend that you will rely on this Undertaking in
preparing and filing the Registration Statement with the Securities and Exchange
Commission, in accruing the Portfolio 's expenses for purposes of calculating
the Portfolio's net asset value per share and for other purposes and expressly
permit you to do so.
Very truly yours,
ALLIANCEBERNSTEIN L.P.
By: /s/ Stephen J. Laffey
---------------------
Stephen J. Laffey
Vice President
EX-99.H11
4
d7853644_ex99h-11.txt
Exhibit (h)(11)
FORM OF ACQUIRED FUND FEE WAIVER UNDERTAKING
ALLIANCEBERNSTEIN L.P.
1345 Avenue of the Americas
New York, New York 10105
May 1, 2018
AB Variable Products Series Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Dear Sirs:
AllianceBernstein L.P. herewith confirms our agreement with you as
follows:
1. You are an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"). You engage in the
business of investing and reinvesting your assets in accordance with applicable
limitations. Pursuant to an Investment Advisory Agreement dated as of July 22,
1992, as amended as of May 1, 1997, May 1, 2001, May 1, 2003, May 1, 2004,
September 7, 2004, May 1, 2005, August 3, 2006, April 1, 2011, April 28, 2015,
February 3, 2017 and January 30, 2018 (the "Advisory Agreement"), you have
employed us to manage the investment and reinvestment of such assets with
respect to the AB Balanced Wealth Strategy Portfolio (the "Portfolio").
2. We hereby agree that, notwithstanding any provision to the contrary
contained in the Advisory Agreement, we shall waive a portion of the fees
payable to us pursuant to the Advisory Agreement ("Advisory Fees") or reimburse
other expenses of the Portfolio as provided herein. We agree that, through April
30, 2019 (the "Limitation Expiration Date"), Advisory Fees shall be waived
and/or Portfolio expenses shall be reimbursed in an amount equal to the
investment advisory fees indirectly borne by the Portfolio of registered
investment companies or series thereof for which we serve as investment adviser
and in which the Portfolio invests.
3. Nothing in this Undertaking shall be construed as preventing us from
contractually or voluntarily limiting, waiving or reimbursing other of your
expenses outside the contours of this Undertaking during any time period before
or after the Limitation Expiration Date; nor shall anything herein be construed
as requiring that we limit, waive or reimburse any of your expenses incurred
after the Limitation Expiration Date or, except as expressly set forth herein,
prior to the Limitation Expiration Date.
4. This Undertaking shall become effective on the date hereof and remain
in effect until the Limitation Expiration Date.
5. This Undertaking shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed as
being inconsistent with the Act.
We understand and intend that you will rely on this Undertaking in
preparing and filing the Portfolio's Registration Statement with the Securities
and Exchange Commission and for other purposes and expressly permit you to do
so.
Very truly yours,
ALLIANCEBERNSTEIN L.P.
By:
-------------------------
Emilie D. Wrapp
Assistant Secretary
EX-99.I
5
d7875348_ex99-i.txt
Exhibit (i)
SEWARD & KISSEL LLP
901 K Street, NW
Suite 800
Washington, DC 20001
Telephone: (202) 737-8833
Facsimile: (202) 737-5184
www.sewkis.com
April 26, 2018
AB Variable Products Series Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Ladies and Gentlemen:
We have acted as counsel for AB Variable Products Series Fund, Inc. (the
"Company") in connection with the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of an indefinite number of shares, par value
$.001 per share, of Class A Common Stock and Class B Common Stock (each, a
"Class," and collectively, the "Shares") of the Company's AB Intermediate Bond
Portfolio, AB Large Cap Growth Portfolio, AB Growth and Income Portfolio, AB
Growth Portfolio, AB International Growth Portfolio, AB Global Thematic Growth
Portfolio, AB Small Cap Growth Portfolio, AB Real Estate Investment Portfolio,
AB International Value Portfolio, AB Small/Mid Cap Value Portfolio, AB Value
Portfolio, AB Balanced Wealth Strategy Portfolio, AB Dynamic Asset Allocation
Portfolio and AB Global Risk Allocation--Moderate Portfolio (the "Portfolios").
The Company is a Maryland corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
As counsel for the Company, we have participated in the preparation of
the Post-Effective Amendment to the Company's Registration Statement on Form
N-1A (File Nos. 33-18647 and 811-05398) to be filed with the Securities and
Exchange Commission (the "Commission") on April 26, 2018 and to become
effective on May 1, 2018, pursuant to paragraph (b) of Rule 485 under the
Securities Act (as so amended, the "Registration Statement") in which this
letter is included as Exhibit (i). We have examined the Charter and By-Laws of
the Company and applicable amendments and supplements thereto and have relied
upon such corporate records of the Company and such other documents and
certificates as to factual matters as we have deemed to be necessary to render
the opinion expressed herein.
Based on such examination, we are of the opinion that the Shares to be
offered for sale pursuant to the Registration Statement are, to the extent of
the number of Shares of the relevant Classes of the above-referenced Portfolios
authorized to be issued by the Company in its Charter, duly authorized, and,
when sold, issued and paid for as contemplated by the Registration Statement,
will have been validly issued and will be fully paid and nonassessable under the
laws of the State of Maryland.
We do not express an opinion with respect to any laws other than the
laws of Maryland applicable to the due authorization, valid issuance and
nonassessability of shares of common stock of corporations formed pursuant to
the provisions of the Maryland General Corporation Law. Accordingly, our opinion
does not extend to, among other laws, the federal securities laws or the
securities or "blue sky" laws of Maryland or any other jurisdiction. Members of
this firm are admitted to the bars of the State of New York and the District of
Columbia.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement and to the reference to our firm under
the caption "General Information - Counsel" in the Part B thereof.
Very truly yours,
/s/ Seward & Kissel LLP
EX-99.J OTHER OPININ
6
d7853644_ex99-j.txt
Exhibit (j)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the references to our firm under the captions "Financial
Highlights" within the Prospectuses and "General Information - Independent
Registered Public Accounting Firm" and "Financial Statements and Report of
Independent Registered Public Accounting Firm" within the Statement of
Additional Information and to the use of our reports dated February 14, 2018
relating to the financial statements of AB Balanced Wealth Strategy Portfolio,
AB Growth and Income Portfolio, AB Growth Portfolio, AB Intermediate Bond
Portfolio, AB International Growth Portfolio, AB International Value Portfolio,
AB Large Cap Growth Portfolio, AB Real Estate Investment Portfolio, AB Small Cap
Growth Portfolio, AB Small/Mid Cap Value Portfolio, AB Value Portfolio, AB
Global Thematic Growth Portfolio, AB Dynamic Asset Allocation Portfolio and AB
Global Risk Allocation--Moderate Portfolio for the fiscal year ended December
31, 2017, which are incorporated by reference in this Post-Effective Amendment
No. 74 to the Registration Statement (Form N-1A No. 33-18647) of AB Variable
Products Series Fund, Inc.
/s/ ERNST & YOUNG LLP
New York, New York
April 25, 2018